CPI final results depend on Quality Group mortgage

Exposure to an unregistered second mortgage over Paul Canty’s house could blow out CPI Group’s $739,00 loss into the millions.

Lodging the final six months’ results ahead of the proposed takeover by Maui Capital-backed PagePak (AU), the paper merchant announced a revenue slide of $51 million to $187.8 million and a debt reduced to $32.5 million from $39.3 million. It cited difficult and challenging conditions affecting the buoyancy of the market.

Paper volumes are still below the levels of two years ago with aggressive price competition killing margins. CPI claims other merchants are seeking to quit stock and maintain market share.

The Group continues to cut costs and rationalise its warehousing setup, aiming to get to the situation of having only one main facility in each state within 12 months. So far South Australia and Queensland have consolidated their warehouses into a single site in both states.

A worrying complication in the director’s report is the potential exposure to an uninsured debtor, Quality Group, of $3.1 million. The Richmond-based Quality Group failure was one of the more spectacular busts of a very troubled 2010. It caught out a number of suppliers but none quite as exposed as CPI.

In the director’s report it says; The Mortgagor has advised CPI that the amount owing on the first mortgage is approximately $2.4 million and the house was sold for $4.8 million. Provisions have been allocated for the amount of $1 million, based on the amount expected to be recoverable after allowing for funds expected to be available to the Group from its second mortgage. CPI continues to seek clarification of the first mortgage positions in order to determine the recovery that might be expected. If the amount of the first mortgage debt exceeds the amount advised by the Mortgagor or other unknown security exists which limit CPI’s ability to recover under its second mortgage, additional provisioning will be required to that extent.

The potential debt may have an impact on any proposed dividend paid as part of the New Zealand-based PagePak takeover. If all goes according to plan the dividend will be in the range of 17 to 19 cents per share. Company sources maintain the dividend is on track to be paid in full.