IWP said yesterday that it had reached an "interim agreement" with its lenders that would allow it to avoid incurring a penalty for breaching debt covenants.

The company acknowledged, however, that its plans for a restructuring of its debt and capital would be "likely to result in a significant dilution for existing shareholders".

The warning came as IWP issued results for the year ending March 31st, 2005. The company posted an operating profit, before exceptionals, of €4.6 million on turnover of €184.1 million.

A year earlier IWP had operating profits of €4 million on sales of €170.5 million.

Exceptionals last year amounted to €5.7 million, with the bulk of this relating to legal and advisory costs relating to the firm's planned refinancing.

IWP has agreed to appoint a "restructuring adviser", approved by its bankers, to advise it on its financial options.

The firm came under pressure in May when it admitted that it would be forced to breach its banking covenants. At that stage IWP said a breach would cost about €16 million.

It emerged yesterday that IWP has arranged for its borrowing facilities to be extended until the end of September next year.

Interest payments have been deferred until that stage, while existing covenant breaches have been waived through until the end of October, when the company and its lenders will consider progress made in delivering a capital restructuring.

Among other possibilities, this could see IWP's lenders taking an equity stake in the company, thus diluting the position of other shareholders.