Specialty branded product distributor HGL Limited (ASX:HNG) expects to report a swing to an up to $2.6 million net loss for the year ended in September, after taking $9.6 million in writedowns on one of its business units.
The company, which supplies products to niche markets, advised it estimates an underlying profit of between $7 million and $7.4 million for the period - up from $6.8 million a year earlier.
But the non-cash writedown on its Biante business unit, which distributes model cars, is expected to lead to an accounting loss of at least $2.2 million. This compares to a $13.4 million profit for its FY10.
Late last month, HGL advised that the market for model cards has contracted significantly since the financial crisis.
Biante's major supplier, which is in possession of the majority of the moulds used to make the models, has also recently declared bankruptcy without warning. HGL warned there was little chance that it will be able to recover the moulds.
But HGL added that it has taken steps to address the constraints facing Biante, including reducing the product range, making management changes and “significantly” reducing costs.
Because the writedown had no adverse cash effect, the company still expects to declare a higher FY11 dividend than the 5 cents per share from the prior year.
HNG shares stayed unchanged on Friday at $0.080.