Paperlinx is in crisis talks with one of its European financiers after discovering one of its subsidiaries has ‘likely’ breached the terms of a loan.
The embattled paper giant today suspended trading on the ASX until at least April 8 as it tries to resolve the situation. Last Thursday it declared a temporary halt when the matter first came to light, but was not able to fix it before that expired.
The share price remains frozen at 1.7c, 0.2c higher than the all-time low it reached after announcing a $90.8m loss in the first half of FY15 on a 12 per cent revenue dive.
The current situation makes ongoing attempts to sell off all or part of its struggling European business more complicated, and raises the possibility of a fire sale that will further hurt the bottom line.
[Related: The ups and downs of Paperlinx]
Cashflow problems in Europe are no surprise with sales plummeting 15 per cent to $884m in the half-year, while pre-tax losses shot up 94 per cent to $50.7m, and EBIT losses were 14 per cent worse at $21.35m.
Chairman Robert Kaye warned in the report that the fall in European sales had led to ‘pressure being placed on our European lending covenants’, but few would have predicted the situation would get so bad it would have trouble paying its debts.
According to ProPrint’s sister magazine in the UK, PrintWeek, cashflow has been further squeezed by the withdrawal of credit insurance by one of the industry’s major insurers, resulting in some mills demanding upfront payments.
This situation is just the latest in a string of bad news for Paperlinx, which first abruptly sacked chief executive Andrew Price on February 18, then announced its adverse half-year results a week later.
Major British paper manufacturer GF Smith then on Thursday pulled the plug, effective immediately, on its supply to Paperlinx over concerns the merchant’s instability could leave its customers hanging.
“We have made this tough decision to ensure that the end users and specifiers of our products are assured continuity of supply,” managing director John Haslam says.
If other manufacturers around the world follow GF Smith’s lead, Paperlinx sales could enter a spiral that could make getting a decent price for the European business difficult.
[Related: More credit and debt news]
The company said last month that it ‘is in discussions with several interested parties which may result in the sale or restructure of part or all of its European operations’.
Chairman Robert Kaye said ‘it is likely that Paperlinx will have a reduced portfolio of assets with greater prospects of financial security’ after the 90-day strategic review it began in December.
However, in addition to the sales freefall and problematic loan situation, a potential sale is also made difficult by significant liabilities including a big pension deficit for its UK business.
The former Robert Horne pension scheme has a deficit of £76.5m, and the deficit in the former Howard Smith scheme is £6.8m.
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