the age article - end may be near

CMA's scrap threatens more than just its future in Victoria
May 7, 2010

ANXIOUS investors in embattled recycler CMA Corporation might want to pencil the last week of this month into their diaries.

That is when the latest chapter in a long-running battle between the group and the Maroondah Council over the operation of its metal crushing and processing facilities in suburban Ringwood is likely to be heard in the Victorian Civil and Administrative Tribunal.

As you might imagine, when you run a business like CMA's, the occasional (no excuses for this) scrap with your neighbours is pretty much unavoidable because you are shredding cars and hammering things into small pieces - all of which tends to generate noise, dust and other environmental concerns.

Where the CMA versus Maroondah dispute gets its head above the parapet is the apparent line of argument CMA is running to defend itself - that unless Maroondah councillors ease back on the restrictive operating hours they want to put in place, CMA's Victorian operations might have to close.

For a company that today begins its 12th week of having its shares suspended from trading on the market - because it has been trying to get a workable refinancing package together with its lenders - the prospect of losing a significant chunk of its business must be dire.

CMA chief executive Doug Rowe, who has kept his head down for most of the past 11 weeks and opted to only issue written statements, was sweating it out on business in the Chilean capital, Santiago, yesterday and unavailable for comment.

The Ringwood site is no doubt close to Rowe's heart because it used to be his private business, Southern Rocycling, before he sold it into the listed group. Rowe is also CMA's landlord on that site, and quite a few more.

The last annual report said rental charges were ''at normal market rates'' - those rates added up to more than $3.8 million paid to Rowe's interests for rent, some of which he reinvested.

Via its lawyers, Minter Ellison, CMA is believed to have commissioned a report in late March from Geoff Sincock, a partner at accounting firm Deloitte, on the projected impact on CMA's business if the council's restrictive operating hours (7am to 6pm weekdays and 8am to 1pm on Saturdays) were not lifted. Deloitte was also appointed auditor to CMA at last year's annual meeting.

Documents seen by BusinessDay suggest, perhaps not too surprisingly in the circumstances, that the Deloitte conclusion was that those hours ''wound [sic] render the operation on the Ringwood site ? uncommercial''.

It went on to say that almost a third of all CMA's Australian metals business revenue came out of Victoria, which is equivalent to close to 20 per cent of the group's $400 million-plus (it depends on metals prices) of turnover a year.

Deloitte also pointed out that $77.8 million, or 46 per cent, of the written-down value of CMA's total assets are in its Victorian businesses (mostly Ringwood), and only an estimated $14 million of those could be easily relocated if the doors were closed.

CMA has, most recently a couple of weeks back, been making re-assuring noises about improving scrap metal prices and the work it is doing with its financial advisers to restructure the group's debt and equity (details of which investors are yet to get a whiff).

Yet, for a group that lost $7 million in the six months to December and saw its first-half revenue shrink to an annualised $350 million, CMA has been remarkably unforthcoming to investors about the Ringwood battle.

Taking the Deloitte report with a few grains of salt, given its chief sources of information are the professionals within CMA who have most to gain by putting the worst face on the council's hog-tieing of their facility, it is easy to argue that the VCAT hearing is, at the least, a material event that ought to have been disclosed to investors.

Should CMA lose the battle, at a time when it says its current debt structure ''restricts access to working capital'', shareholders might find that instead of getting their shares back on the trading boards they instead have some more tax losses to offset against income.

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Source: The Age