Shares in the UK’s largest insulation manufacturer fell by more than 40% yesterday after the Stirling-based firm warned it may not be able to pay its multi-million-pound debts.
Superglass also used an update to the Stock Exchange to reveal perilous trading conditions, and outline its fears over a “gap of activity” and surplus of manufacturers in the depressed insulation market.
The announcement comes as the company, one of the city’s major employers with around 170 staff at its base on the Thistle Industrial Estate, continues its efforts to meet a £5 million per year cost-cutting and turnaround plan entitled Project Phoenix.
Superglass yesterday warned investors it would likely need to strengthen the company’s balance sheet through a fresh share issue as it seeks to meet liabilities which fall due later this year, potentially significantly diluting existing shareholders’ equity.
It hailed a “transformational recapitalisation” including a reduction in borrowings through conversion of £12.15m of bank debt to shares, and £8m in new cash from investors as recently as November, having completed the bout of fundraising in December 2011.
But the firm said its bankers remained supportive and that it continued to operate within the terms of agreed facilities, with £2.9m of additional headroom generated by an agreement reached in November.
“However, debt amortisation payments are due to resume in November 2013 and Superglass is scheduled to repay £8.2m of debt in aggregate over the three years to November 2016,” the company said.
“The board’s view is that for so long as market conditions remain as they are now, these debt service obligations will be unsustainable.
“As a result, the board is considering all options to strengthen the company’s balance sheet, including the potential for a further equity issue. It is likely that any refinancing measure would result in significant dilution to existing shareholders’ equity.”
In January, Superglass chairman John Colley insisted savings from the modernisation programme had begun to “filter through”.
Share prices, which fell below 5p in December after tumbling from an all-time high of 4,620p during late 2007 and 2008, had climbed since the turn of the year but slumped 5p to 6.38 at yesterday’s close.
The company said trading conditions continued to be “extremely challenging”, blaming delays in the launch of the Green Deal energy efficiency scheme for a “major gap” in the market.
“Combined with abnormally low levels of housebuilding activity in the UK by historical standards, the net effect is a surplus of UK-based insulation manufacturing capacity and highly competitive market conditions, which in turn are detrimentally impacting the company’s operating profits and cashflow,” Superglass added.
The company’s pre-tax profits fell to £400,000 during the year to August 2012, down from £1.6m in 2011. Sales volumes rose 3% while total revenues remained flat at £32.4m, revealing price cuts in a subdued market.
But the firm said it would be strongly cash generative once savings from Project Phoenix were factored in, even with current depressed volumes and prices, and added that there were grounds for optimism in core markets beyond this financial year.
“The board expects that Government stimuli will generate a gradual increase in UK housebuilding activity from 2014 onwards; and the current gap in retrofit activity should correct itself within a timescale of six to 12 months as the flagship Green Deal and ECO initiatives become fully operational,” it added.
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