ADV held a closed-door profit briefing for analysts and the media in
Auckland, with a video linkup to Wellington. At the briefing it reported
two profit figures - one of $6.7 million, which did not include an
allowance for amortised goodwill of $3.7 million, and a bottom-line
figure of $3 million (the Business Herald reported both figures).
Advantage's profit last year was $3.4 million.
Advantage did not do what most companies typically do after such
briefings - release full results to the exchange, on the detailed form
required called Appendix I.
Instead, it issued a three-page release to the exchange and market in
which it mentioned only the higher figure, describing it as a
"normalised profit," with no reference to how it was derived.
Philippe Leloir of the market surveillance panel said the exchange was
investigating whether Advantage had complied with the listing rules and
would probably report its findings today.
He said the exchange's initial reaction was that the company's actions in
not releasing its full details were unsatisfactory.
Listing rules that might come under scrutiny include the requirement that
financial information be released to the market in prescribed formats,
contain a specified and wide range of information and meet defined
deadlines.
Canterbury University senior lecturer in accounting Alan Robb said
Advantage had misused the term "normalised" to describe an
expense that would appear every year.
He said it appeared the firm did not want shareholders to see how far its
profit had fallen, with bottom-line profit falling from $3.4 million to
$3 million on revenue that tripled from $21.2 million to $63.9 million.
The company had paid heavily for goodwill ($43.6 million), which had to
be recognised as an expense. "The company would presumably have
budgeted for that when it made its acquisitions," Mr Robb said.
"One doesn't spend $43 million on assets that you know are going to
be written off and then be taken by surprise afterwards."
Goodwill was normally shown above the line. "It's the same as
depreciation on any fixed assets. The fact it is intangible shouldn't
make any difference. To pretend you can ignore that and say how well
you've done is not a normal way of reporting," Mr Robb said.
Nowhere in the three-page release that went to the stock exchange -
headed "Advantage's e-commerce strategy delivers" - was it
mentioned that the profit takes into account amortisation.
"That is quite misleading and deceptive. Anyone reading that or
reporting it in good faith would not realise it excluded a normal part of
its expenses. What is this real value that the headline says is being
delivered? It's quite misleading."
Advantage chief executive Greg Cross said the company did not believe it
had broken listing rules, and did not intend to deceive anyone with the
way it released its results.
He said the company expected to complete the details for the full
disclosure "within the next day or so."
He rejected suggestions that the company was trying to fudge its profit
result.
"Normalising profit is a common practice, especially with companies
growing as rapidly as us."
Analysts' reports after the result were using the normalised figure to
calculate their earnings-per-share estimates, Mr Cross said.
"There was no attempt whatsoever to try to mislead anybody."
................................................................................................................................................
Friday afternoon ADV submitted details in the normal format to NZSE which
shows EPS at 11.1c compared with 7.9c last year an increase
of 40%. This is the real overall result
So was this all a ' pump-up job ' in order for someone to do some
big selling ??
See IRG research reports
