Publisher of My Business magazine breaches loan covenants, flags rights issue to stem cashflow slump
CommStrat, which publishes My Business magazine and recently emerged as a key supporter of a new small business industry association, will proceed with a rights issue to plug its "immediate and short-term cashflow issues" after weak performances pushed the company into breach of its interest cover and leverage ratios.
Flagging a dramatic fall in revenue and profit on the back of weak performances in media and conferences, Commstrat said it plans to pursue an underwritten and discounted pro rata rights issue to fund its short-term operating costs.
In October the company said it was aiming to deliver 10 to 15% organic revenue growth in the 2012 financial year.
"The current financial position of the company has put the company in breach of its interest cover and leverage ratios with National Australia Bank. CommStrat is seeking to work with National Australia Bank to ensure the bank is fully supportive of the board's proposed actions," CommStrat told the Australian Securities Exchange last week.
The Melbourne-based business added it had agreed terms of a bridging finance facility provided by PCI Equities Trust for about $438,000 to meet its immediate cashflow requirements – subject to NAB's approval.
CommStrat is backed by Blue Sky private equity and Mark Sowerby, managing director of the newly listed Blue Sky Alternative Investments, serves as an executive director.
The company is led by Matthew Johnson, formerly managing director of DMG World Wide Media. Its chairman is Paul Wilson, formerly executive director of Lachlan Murdoch's private business, and Nick Love, formerly the Australian head of Fox Interactive, is a board member.
The company raised eyebrows last year by signing a service agreement with the fledgling SME Association of Australia, which was founded by its chief executive Matthew Johnson.
Its shares trade for less than one cent each, having traded at 11 cents before the global financial crisis.
CommStat says the falls were driven by structural shifts cutting in to its print profits, a cyclical downturn in advertising, and a worse-than-expected performance from its conference and events arm.
"The directors' current expectations are that revenue for the period will be approximately $5.66 million, down approximately 1.5% relative to the previous corresponding period (the six months to December 31, 2010)," the company said.
"Gross profit will be approximately $3 million, down approximately 26% and EBITDA will be a loss in the region of $640,000, representing a fall of 197% compared to the previous corresponding period."
CommStrat was established in 1963 and has been listed on the Australian Securities Exchange since 1986.
According to the company's annual report, revenue in 2010-11 increased 23% to $11.3 million, while net profit more than trebled to $804,070. The company also reduced its debt load during the period by $550,000 to $3.5 million.
CommStrat was contacted for comment this morning.