China Stationery cash flow seen under pressure - chairman

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KUALA LUMPUR (Sept 5): China Stationery Ltd's cash flow will come under pressure in the foreseeable future as it plans its recovery process after its China plant caught fire earlier, according to Executive Chairman and CEO Chan Fung.

Chan said China Stationery's cash flow constraints would result from equipment and raw material expenses.

"Our cash flow will come under pressure, due to the need to replace equipment and purchase raw material," Chan Fung @ Kwan Wing Yin.

"But first, we want to investigate the area now that the police has allowed us entry before restarting any operations," Chan told reporters after China Stationery's annual general meeting here today.

The fire which broke out in April this year, grazed about 20% of the floor area of its Putian plant in Fujian province. It has interrupted up to 40% of China Stationery's production capacity.

Today, Chan said a further hindrance to its cash flow would be the lack of insurance claims.
According to Chan , China Stationery did not foresee the necessity to buy so much insurance prior to the incident.

"This company has existed for 20 years or so and there has never been an incident like this previously. Spending money on insurance would have been a waste.

"It will take up to one and a half months for us to clear the area and install new equipment, as well as get the raw materials in place. We have stocks owing to our customers, so we will have to replenish it quickly," he said.

China Stationery has not been operating for the past three months, according to Chan. But that has not dented long-time customers' confidence in the firm.

"We still retain the trust of our clients as they have been with us for a long time," he said.

Chan also said there might be plans for China Stationery to invest in a new plant in Indonesia to "diversify risks".

However, the company will have to assess the feasibility of the plan against the group's finances.

"This (plan) is to ensure that something like this does not happen again. However, we are not sure of these plans yet as our cash flow will be stretched to ensure operations return slowly to normal," Chan said.

China Stationery's financials have weakened. Net loss came to RM241.08 million in the second quarter ended June 30, 2014 versus a RM60.98 million net profit in the corresponding quarter last year.

First half net loss came to RM212.83 million compared to a net profit of RM119.87 million a year earlier.