Force bites Argentinean bullet

By Phil Boeyen, ShareChat Business News Editor

Tuesday 21st August 2001

Cinema operator Force (NZSE: FOR) has taken a $39 million writedown on its Argentinean investment and announced intentions to raise $30 million to strengthen its balance sheet.

In total for the year ended June the company has been hit with non-recurring writedowns of $43.9 million, forcing it to a deficit of $47.45 million for the year. Last year's deficit was $7 million.

The company reports total operating revenues were $53.4 million, approximately half of which related to the company's cinema operations.

Earnings before depreciation, interest, taxation and write downs was $1.5 million, with cinema earnings of $4.5 million offset by losses from other parts of the business, notably Auckland restaurant Planet Hollywood and reduced property earnings.

FOR says the cinema business in New Zealand was hurt by a lack of good films and this was also a problem in Argentina, where Ebitda fell 28.6% on last year at US$12.2 million.

Force says the political and economic environment in Argentina at balance date makes any reliable estimate of the value of the investments in that country difficult to validate, but using a risk adjusted discounted cash flow valuation the investment there has been written down by $39 million.

"The directors believe that the resulting carrying value of $7.9 million best reflects their estimate of the likely outcome. There can be no assurance that this carrying value will be achievable in a country where the current political and economic prospects are characterised by a high level of uncertainty.

The company says Argentina's uncertain economic and political environment has put pressure on earnings and has caused concern among the Argentinean lending syndicate and to remedy this it plans to renegotiate funding arrangements.

"One of the conditions of the renegotiated banking arrangements for New Zealand and Argentina is that Force raises additional equity of $30 million," the company says.

Majority stakeholder Sky City has confirmed it will take up its entitlement under the equity raising and will underwrite it on commercial terms subject to the satisfaction of certain conditions.

Elsewhere in the Force stable the Planet Hollywood restaurant continues to be a headache, losing $1.5 million last year.

"The restaurant is currently subject to a complete review, with Force calling on the expertise of Sky City's food and beverage personnel to develop a plan which will result in the restaurant contributing positively to the group in the future."

Force's directors say that the core New Zealand and Argentina cinema businesses are generating positive earnings flows, giving them confidence that with a properly structured balance sheet the business can move forward.

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