Forum Archive Index - September 2000

["Peter Maiden" <pmaiden@today.com.au>]

Advantage accused of breaking listing rules

11.08.2000 - By DANIEL RIORDAN 
The Stock Exchange's market surveillance panel is expected to report today on 
whether Advantage Group has broken listing rules. 

The panel's investigation came after the technology company failed to release 
its full result to the exchange on Wednesday. 

The company 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." 



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