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PaperlinX says it is solvent

17:10 AEST Wed May 18 2011 AAP

Paper merchant PaperlinX Ltd says it is solvent and able to meet its debt obligations. This follows its announcement last week that it expects to report an annual loss for 2011.

PaperlinX chief executive Toby Marchant on Wednesday briefed investors on the announcement on May 13 that the company would report an annual net loss of between $23 million and $30 million for fiscal 2011.

The company blamed weak economic conditions in its key markets.

The expected net loss is less than the reported annual loss of $225 million in 2010.

The news of the expected loss resulted in PaperlinX shares dropping 21.15 per cent on May 13.

"Solvency is not an issue," Mr Marchant said on Wednesday.

"Operating cash flow continues to be positive and we have no concerns with liquidity.

"We anticipate that all bank covenants will be met."

Mr Marchant said the issue of any impairment valuations at June 30, 2011 would be dealt with during the usual year-end accounting process.

Mr Marchant said that no decision had been taken yet with respect to a hybrid distribution that was scheduled for June 30.

"There's nothing to add to this at this stage," Mr Marchant said.

Mr Marchant said the third quarter for the 2011 financial year had been weak as a result of bad weather in Europe and a slower than normal recovery after the Christmas break.

He said the fourth quarter was usually strong and, coupled with April price increases, gave PaperlinX some confidence of an improvement.

"However, April volumes were way below expectations, in part explained by extended leave taken in connection with the rash of public holidays in April," Mr Marchant said.

"When we then stress-tested our forecasting process, it became apparent that the fourth quarter would not deliver the results that we expected.

"In very simple terms, this is a volumes story that is further complicated by volatility, month by month and region by region."

Mr Marchant said most of the discretionary consumption in PaperlinX's major markets was gone and the remainder was close to "core demand levels".

There was evidence that there might be some cyclical recovery but PaperlinX was continuing to restructure its operations on the basis that there would be no cyclical recovery.

"If it happens, we're treating it as upside," he said.

PaperlinX shares were 0.5 cents lower at 19 cents on Friday.

http://news.ninemsn.com.au/article.aspx?id=8250865