No reprieve from tough trading for CPI Group

The company said the climate had worsened since the August federal election. It follows a similar warning in July this year when CPI said trading conditions over the past year had been “difficult and very patchy”.

CPI said its year-to-date performance has been affected by “lacklustre demand”, in addition to a short-term price spike associated with the interruption of pulp supply caused by the Chilean earthquake. It said the spike was exacerbated by “the rapid decline and then recovery” of the Australian dollar from May this year.

“The combination of these two effects resulted in the cost of inventory that arrived in April to July being significantly higher than it had been previously,” the company said.

“As both effects were short-lived, and the replacement prices fell back to earlier levels after a few months, it proved impossible to recover these higher costs in the market. This has reduced margins considerably.”

The company said that although its fine paper volumes had grown by 5.5% in the four months to 31 October, gross profit had dropped 4.7%. The group has recorded an underlying EBITDA profit of $650,000 for the period, “well below the equivalent figure last year”, it said.

CPI said the results highlighted the need to proceed with its warehouse rationalisation strategy, which will see all warehousing operations in each state moved into a single site.

The company also updated the market on the dispute arising from its $3.5m exposure to the Quality Group liquidation.

“We reiterate our advice of July that should it be determined that the position of the first mortgagee is different from that advised by the mortgagor, significant additional provisioning could be required up to a possible maximum of $2m.”

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