objective rebuttal of hope for ppx

CmonCDR and marginplayer

You guys conveniently miss four points:

1. The definition of insolvency;
2. Reliance on historical figures;
3. The myths of diversification; and
4. Fiduciary obligations - morality

(1) The definition of insolvency

For the first, check out the law and some practical guidelines provided by ASIC and comments by no less an authority than Finkelstein J, both at http://www.findlaw.com.au/articles/1993/what-is-insolvency.aspx

Justice Finkelstein stated:

“The inquiry whether there are reasonable grounds to expect the company will not be able to pay its debts when due is a factual one to be decided in the light of all the circumstances of the case. It is to be decided as a matter of commercial reality and thus requires a consideration of the company’s financial condition in its ENTIRETY, including its activities, assets, liabilities, cash, money that it could procure by sale of assets or by way of loan and its ability to raise capital. Clearly, the definition in section 95A suggests that in most instances a cash flow test is intended rather than a simple balance of assets over liabilities.”

Indicators of Insolvency

According to ASIC, the following are key operational and financial practices, which, in combination with other practices, indicate that a company is at significant risk of insolvency:

1. poor cash flow, or no cash flow forecasts; YES to first

2. disorganised internal accounting procedures;

3. incomplete financial records;

4. absence of budgets and corporate plans;

5. continued loss making activity; YES

6. accumulating debt and excess liabilities over assets;

7. default on loan or interest payments; YES

8. increased monitoring and/or involvement of financier; YES

9. outstanding creditors of more than 90 days;

10. instalment arrangements entered into to repay trade creditors;

11. judgement debts;

12. significant unpaid tax and superannuation liabilities;

13. difficulties in obtaining finance; YES

14. difficulties in realising current assets (eg stock, debtors);

15. loss of key management personnel.

PaperlinX ticks 5 of 15 boxes from information on the public record. No one can be sure if it ticks more.

(2) Reliance on historical figures.

The latest available figures are 30 June, five months ago.

Four things have happened since then.

1. Europe has fallen in a deep hole and that’s where PaperlinX has 70% of its business. Remember that PaperlinX’s principal group funding is from a debtor’s facility in Europe secured by INSURED debtors. Can you imagine the constraints this places on doing business where 70% of revenue is based;

2. The Dec qtr is a peak trading period for PaperlinX (as mention in published Financial Accounts)

3. The printing industry has got financial problems everywhere – if you doubt this check out the insolvency issue with Manroland (http://www.proprint.com.au/News/281575,former-manroland-man-says-insolvency-sends-bad-signals.aspx AND http://www.pmflegal.com/blog/index.php/2011/11/28/manroland-files-for-biggest-insolvency-in-germany-in-2-years/) Manroland is not the first press maker to enter administration in 2011, after Japanese manufacturer Shinohara entered Chapter 11 bankruptcy protection at the beginning of the year.

4. PaperlinX admitted by late October (21 Oct) that it couldn’t pay the Dec 2011 distribution.

Interim figures would be interesting. See here what happened when Symex Holdings (SYM) released interim figures at its AGM. Go on, LOOK - http://hfgapps.hubb.com/asxtools/Charts.aspx?asxCode=SYM&compare=comp_index&indicies=0&pma1=0&pma2=0&volumeInd=9&vma=0&TimeFrame=D12

I suspect the same may happen at PaperlinX if we saw updated figures.

(3) The myths of diversification.

This is corporate spin.

1. The suggested diversifications are a related business to printing and would logically be suffering the same demand side issues.

2. If you cannot make money as the “world leader” in paper, how easy will it be to make money as a newbie in these new fields?

3. The concurrent costs of entering a new field AND retreating from paper are too great to consider.

4. PaperlinX’s major footprint is still Europe so the problems of Europe remain.

(4) Fiduciary obligations - morality

If this needs explanation …

I submit that the foregoing is all fact and easily substantiated if you care to do the research.

HERE IS AN OPINION – there is nothing in Marchant’s background to suggest he is capable of managing this crisis. He is undoubtedly a good salesman, both of paper and himself; but his is a skinny CV. Please point me to he successes in business, other than selling paper.