UPDATE Southern Cross Forest attracts foreign, local interest, receiver says
(Adds additional comment from receiver)
By Paul McBeth
April 24 (BusinessDesk) - Financially stricken wood processor Southern Cross Forest Products has attracted both local and international interest from potential buyers, and its receiver hopes to progress the sale next month.
KordaMentha’s Brendon Gibson today announced plans to shut the Dunedin-based company’s Rosebank sawmill after a fire at its Mosgiel remanufacturing site cut its drying capacity, reducing the volume of timber it can process, and decided to wind down its unprofitable Australian distribution business.
An information memorandum in the market for potential buyers has attracted a “mixture of both” local and foreign parties, though the strong New Zealand dollar and high log prices are a challenge for the export-focused business, Gibson told BusinessDesk.
“We’re hoping people still see an opportunity,” he said.
More than 40 sawmills have shut in the past decade, and local wood processors have had to compete for supply with global demand pushing up raw log prices, while at the same time low-cost Chinese rivals squeeze export-focused New Zealand mills.
“It is no secret that the company has long struggled to secure sufficient log supplies to feed its South Island mills,” Gibson said in a statement. “That issue has continued to compromise trading in the receivership, but performance has now been further affected with fire damage at the Mosgiel mill.”
Southern Cross Forest Products had three mills in the South Island and one in Thames, and today’s restructuring will result in 79 jobs being lost.
The company had borrowings of $17.7 million as at Dec. 31, 2012 with ANZ Bank, UDC Finance, 321 Ltd, Hunter Finance and Heartland, according to its latest financial statements lodged with the Companies Office.
Its loans with ANZ and 321 were in breach of certain covenants at the time, and the 2012 accounts were tagged by auditor Deloitte over the company’s ability to trade as a going concern.
After the balance date, Southern Cross Forest Products negotiated a new funding facility with ANZ which it said would be reviewed in March 2014.
The company narrowed its annual loss to $1.58 million in calendar 2012 from $2.92 million a year earlier, as it booked a $2.34 million gain on the value of a 2009 acquisition. Revenue climbed 16 percent to $95 million in 2012, though the gross margin was squeezed to 4.6 percent from 8.6 percent in 2011, as the cost of sales rose at a faster pace.