News UK (formerly News International/NI) is the biggest-single customer at Prinovis’ Liverpool site. The £115m facility was set up eight years ago on the back of winning the contract for the newspaper group’s supplements.

However, PrintWeek understands that the two parties are currently involved in an arbitration process over the future of the contract.

The closure of the News of the World, along with declining newspaper circulations overall, has reduced the expected volumes. The Sun on Sunday’s circulation is around 1.9m, compared with the News of the World’s 2.6m.

In addition, under the terms of the contract PrintWeek has learned that News UK is also able to take back work that it can print on its own presses, which it has done with Sun on Saturday title Buzz.

"That meant a loss of revenue and a spook to the system at Prinovis when they realised that NI could start repatriating titles," said a source close to the situation.

Despite this, a wholesale repatriation of supplements is deemed unlikely: "At at the end of the day glossy advertisers like nice print, they want shine and finish and newsprint can’t give you that," noted the source.

In its accounts for the year to 31 December 2012 Prinovis made a £41.5m impairment charge against the value of its assets.

Sales fell 12.9% to £73.7m, and the tonnage produced by the plant fell by 13.7% to 155,000 tonnes. The write-off resulted in a loss before interest and taxes of £30.3m (2011 profit: £8.2m). The bottom-line loss was £34.2m.

A restructuring programme has seen the number of employees reduced from 437 to 381.

The directors’ report stated: "The company is reducing the reliance on its major customer, News International."

Neither News UK nor Prinovis would comment specifically on the contract issues, described as "very confidential and highly-sensitive" by a source. The arbitration is expected to be resolved within the next few weeks.

News UK paid Johnston Press a total of £40m in compensation after cancelling its contract printing arrangement with the local newspaper group.

Prinovis would not comment about the potential issue of compensation.

However, Prinovis head of corporate communications Alexander Adler told PrintWeek the firm was confident about being able to "refill capacities", and said the firm’s 2013 results would be "better".

"Due to the young age of our plant our fixed asset values were still quite high, which – triggered by the market development – had to be reduced to be aligned with future earnings expectations," he explained.

"It’s important to know that in the UK we have generated more than £23m in cash for our shareholders in 2012. Due to our strong cashflows and the fact that we don’t make use of any external financing we see ourselves in a much better position than our major competitors in the UK market," Adler added.

Prinovis UK is also likely to benefit from next year’s planned closure of the group’s Itzehoe plant in Germany, which prints for a number of UK customers. Adler said this would probably result in the repatriation of some volume into Liverpool.

Last year Prinovis put in a speculative bid for the BGP web offset business, and it has not ruled out the possibility of future web offset investment.

Prinovis is currently running a direct marketing campaign aimed at raising awareness of the effectiveness of print and its complementary role with digital channels.