Penrice outlook weighed down by debt
Soda ash importer and distributor Penrice Soda has reported another big loss while promising “better times” ahead.
The Osborne-based former manufacturer of soda ash said in its full year results report late Tuesday that a restructure of the business would clear the decks to allow future profits.
Still sitting on the deck, however, is a massive debt that will get bigger as the company is forced to capitalise interest payments on loans until 2017.
“Net debt was up to $112.1 million from $96.5 million, including capitalised interest on the interest deferred, five year term debt facility and the $8 million loan to the company from its JV partner which funded the business restructure in the second half,” the company reported.
Penrice reported an underlying net loss after tax for the year ended 30 June 2013 of $21.4 million, well up on lat year’s $6.7 million.
Statutory net loss after tax was $50.1 million, down on last year’s $63.6 million and includes impairment and restructuring charges of $30.0 million.
Penrice has claimed for several years that its financial difficulties stem from lower prices, the high Australian dollar and the carbon tax.
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In this year’s report it was much the same.
“The increase in underlying net loss was primarily in the soda ash business unit of the chemicals business and was due to the impact of lower prices, sales and production volumes, partly offset by an increased contribution from its sodium bicarbonate business unit,” the company said.
“With the imminent closure of the soda ash plant at the end of the year and softening demand for soda ash, inventories were sold at reduced prices, further reducing profits.”
“Operating cash flow increased, despite margin erosion, due to a sustained focus on cash generation, including working capital reduction of $8.6 million and an interest deferral of $6.3 million on the interest deferred, five year term debt facility.
“Significant items included chemicals business restructuring costs in the second half of $8.8 million and first half impairment of the chemicals business of $21.2 million, all related to closure of soda ash plant and chemicals business restructure.”
Despite the losses and mounting debt, Penrice Managing Director and CEO Guy Roberts took the view that there were better times ahead.
“The year was a very significant one in Penrice’s growth as a chemicals company,” he said.
“The closure of our Australian soda ash manufacturing and switch to an import/distribution joint venture in Pro Asia Pacific will put the chemicals business and the entire company on a more sustainable and profitable footing.
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“As previously advised, the company’s view is that its net debt needs to be reduced, particularly given recent impairments, which have resulted in negative shareholder funds.
“The priority has been to first create a sustainable earnings model, without which a restructure of the balance sheet would not be possible.
“Having completed its business restructure, which should increase the company’s earnings sustainably, the company will actively seek ways to reduce its net debt during FY2014.”
Penrice closed soda ash manufacturing in Adelaide in June 2013, laying off 60 workers, and restructured its soda ash business around an import and distribution model.
It formed a joint venture company, Pro Asia Pacific Pty Ltd (Pro Asia Pacific), with the world’s largest independent soda ash distributor, Soda Ash Holding BV, sourcing soda ash from American Natural Soda Ash Corporation (ANSAC), the world’s largest soda ash exporter. Pro Asia Pacific commenced operations in May 2013.
Roberts repeated the company’s view that this was a more reliable business model.
“Soda ash manufacturing has been the company’s Achilles’ heel, making substantial losses.
“Against the backdrop of a volatile Australian dollar, by moving from local manufacturing with high and increasing fixed costs to an import and distribution model, Penrice will benefit from better aligning supply with domestic demand and a new flexible and competitive cost structure that can be maintained throughout demand shifts.
“We now have a much more robust business model which is less risky and more capable of generating improved earnings.”
Debt, however, is the real Achilles’ heel.
Penrice said it complied with its banking agreements and retained the support of its banks, which in FY2012 agreed to a restructure of the company’s $97.8 million senior debt facility, including the extension of a $67.8 million facility to August 2017, with interest on that facility to be capitalised and not paid, to assist the company’s cash flow.
The debt will get bigger before it gets any smaller.
Shares closed yesterday at 9.2 cents.
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