Update (original note below this text):

Trading update for 2017 should come out in next week or so.

No sign of a rights issue so my hypothesis is incorrect so far. Based on H1 2017 results and H2 trading update the company appears to have diminished earnings power at least near term, so likely reduced cash generation therefore unlikely to have been able to pay down debt. Of course, late part of 2017 and Christmas trading may contain positive surprise. When things go their way the company can have excellent cash production potential.

There have been 2 interesting purchasers of stock: 1) Chuk Kin Lau who now owns 20% (from zero at beginning of H1 2017) and 2) Dr Laurence Orbach has boosted holding to near 18% from 15%. Orbach is founder of Quarto who was kicked out in shareholder revolt back in 2012.  Chuk Kin Lau is CEO of Lion Rock Group (previously 1010 Prining Group)...I haven't checked out but I think he has had business dealings with Quarto (bought their HK business?).

I note that this stock stressed its banking covenants at the end of 2016. It complied with them H1 17 but I don't think that there has been any information on repositioning those covenants to be more favourable to business seasonality.  A lack of that in FY 17 results would suggest nervy banks.

So, the path from here seems to be either a surprising strong and cash productive end of 2017 meaning no crisis....and then this could lead to fight for control from two big shareholders (willing to take on high debt as they believe they see the cash flow potential) and/or an orderly rights issue. Alternatively, earnings and more importantly cash flows disappoint and this triggers a crisis in the stock which at this late stage in terms of managing debt overhang quite probably leads to a private take-out (by one or both of the big stock holders)...if they are going to take on the company in those circumstances they will want to pay nothing for equity and get themselves  some elbow leverage on debt discussions with banks.

Conclusion is that an exciting few months looks to be in the offing. Place your bets. (FYI: I don't hold, did in the past).

Original early 2017 text below:

Based on a thorough review of my position and look through current and past annual reports…

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