Zintel impresses in reporting round

By Peter O'Brien

Friday 11th June 2004

The recent reporting round for companies with a February-March final or half-year balance date was generally good, reflecting buoyant economic conditions, despite problems with an appreciating currency.

Some results were extraordinary, particularly when related to investment. There were the usual losses, some spectacular, piled on previous years' losses. Several related to companies with a relatively short history, particularly in biotechnology and other "cutting-edge" operations where substantial deficits could be expected on the way to the big payoff.

The 55 companies that issued reports for February-March balance dates included 16 with losses.

Nobody got excited about losses from Blis Technologies ($2.8 million), Botry-Zen ($1.27 million loss from developing anti-botrytis products for the wine industry) and Pacific Edge Biotechnology ($2.65 million loss in development of cancer treatments).

The companies, shareholders and market observers expected the deficits and will probably have to accept more losses until developments reach commercial takeoff.

Other losses needed a bit of analysis before downgrading their makers.

Early childhood education centre proprietor Kidicorp Group, for example, reported a loss of $11.6 million but $10.94 million related to "impairment of goodwill" and was taken as a writeoff. Another $1.05 million was amortisation of licence goodwill, licences being required for running child centres and having an asset value, albeit as intangibles.

Kidicorp's earnings were $436, 000 before the amortisation and writeoffs. The market seemed to miss a point about Kidicorp in post-Budget trading.

Companies to benefit from the government's family-oriented Budget should include those that provide care facilities for pre-school age children, irrespective of how they are titled in marketing battles.

The health of corporate affairs can be assessed from results of solid industrial and commercial businesses, rather than fragile organisations but, before doing so, an unusual profit figure profit figure deserve examination.

Telecommunications company Zintel Group earned $4.1 million in the year ended March, a 26% increase on 2003's $3.25 million. Nothing unusual, so far but the profit was earned on a small investment.

Zintel's shareholders' equity was $5.35 million on March 31 and total assets were $10.55 million. The return on year-end shareholders' equity was 76.5% and the equity was "real" in the sense that there was no erosion from any negative reserve accounts.

Zintel's return of earnings before interest and tax (ebit) on year-end total assets was 58.7%. Total liabilities were $5.2 million, comprising $4.37 million in trade creditors and, $833,000 as income in advance.

Trade receivables of $4.79 million offset trade creditors.

Zintel was quoted on the unlisted securities market until November when it moved to the alternative market (NZAX).

The share price went to $1.26 but was $1.16 last week.

A shareholders' letter in March said shareholder numbers increased to more than 350 from 128 on listing, so the company is small by most measurements.

It will become bigger rapidly and add many more shareholders if the extraordinary returns on investment and sound management are maintained.

Big companies underpinned the reporting round, particularly in the energy sector where Contact Energy, Horizon Energy Distribution, Powerco and TrustPower produced useful profit gains.

Energy consumers might have a prejudiced view of energy company profits, but the shareholders have an equally prejudged view (the other way) about their companies' profit performances.

There would be no quibbles about the performance of the Fisher & Paykel companies, Healthcare and Appliances. The former's net profit was $54.7 million for the year ended March, compared with $49.9 million in the previous year, after excluding that year's unrealised foreign currency gain of $23 million after tax.

F & P Healthcare's main business was conducted in the US, while Australia was the appliance company's biggest market in terms of gross revenue, with 49.1% ($418.86 million) of the total $852.75 million.

New Zealand accounted for $244.22 million of sales, 8% ahead of the previous year's $226.08 million.

Telecom was another biggie to produce a respectable profit gain, with a 19.8% increase for the nine months ended March.

Current indications are that the June-year reporting round will be similar to that of February-March in terms of buoyancy, subject to the continuing losses of cutting-edge companies. There is unlikely to be a company reporting a return of 76.5% on year-end shareholders' equity, as seen in Zintel.

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