Company sources say that LIG is struggling to secure the early sale of its loss-making photo-processing subsidiary, ColourCare International. Lack of progress on the sale is causing grave concern to the group's lending banks.
LIG announced last December that it would be trying to sell ColourCare as part of a big restructuring plan, following an unexpected loss for the first six months of the financial year and a surprise decision not to pay an interim dividend.
Bankers to the group were hoping that the sale of the division might raise a much-needed pounds 20m to reduce group debts, but the sale may now have to be abandoned, at least for the foreseeable future.
The division, which has more than 30 per cent of the UK photoprocessing market, is valued in the books at around pounds 30m.
Potential buyers include Kodak, Nashua and Fox Stanley, all from the US.
One source close to LIG said a number of competitors had shown interest, but that it was hard for them to justify buying the business when much of the division was likely to close anyway, leaving it possible for them to pick up some of the pieces more cheaply.
'If the photo side as a whole does not get sold soon, then the company will have to dismantle it, sell the European businesses, and shut most of the UK production down,' one source said.
Such a move could lead to significant rationalisation costs. At the half-year stage, analysts said they could not predict full- year figures for the group because of the exceptional charges involved in the planned rationalisation moves, which could total tens of millions of pounds.
LIG's bankers, led by Midland, are said to be growing increasingly nervous about the situation.
The problem of trying to sell ColourCare International was one of the main subjects on the agenda at last week's management brain-storming sessions at LIG.
Most of the management team spent much of the week away from the office considering a final business plan, which will be put to the banks in the next two weeks.
One source close to the company said: 'Things have been going slower than the management expected. And now they will have to decide exactly which businesses will be invested in, which will be divested and how the company intends to respond to last week's decision by the Government to lift price controls on the condoms produced by LIG for the UK market.'
A new management team at LIG, headed by the chief executive, Nick Hodges, carried out a strategic review of the group's businesses before Christmas. It decided to sell the photo-processing division and some of its health and beauty brands to concentrate on 'thin film technology' products, notably condoms and specialist gloves.
The projected sale of the health and beauty brands has taken longer than expected, although attempts are being made to put together a management buyout of some of the group's products in Italy, which include baby products sold under the Mister Baby brand.
A spokeswoman for the company said this weekend that LIG still believed that it could sell ColourCare, but that the process was a long one. She said the company would make an announcement as soon as it could, possibly before it entered into its closed period at the end of the month.
LIG will announce full-year results in June. The half-year figures showed a pre-tax loss of pounds 5.1m compared with a profit the previous year of pounds 15.5m. Net debt rose from pounds 127.7m to pounds 153.9m between March and September last year, and has almost certainly risen further since then.
Analysts are expecting a loss of pounds 16.6m for the year to March, compared with a pounds 27.8m profit in 1992/93.Reuse content