Savoy share wakes up after third annual result and suspension lift

Friday 10th August 2001

Savoy Equities may have set some type of record in issuing three different results in four months for the year ended December 31.

The company released a preliminary unaudited result on March 30 giving a deficit of $77.1 million after abnormal intangible asset writedowns of $70.81 million (related to litigation over Auckland's Britomart project), a tax credit of $160,000 and minority interests of $1.24 million.

On April 4 Savoy advised the minority in the statement of assets, liabilities and shareholders equity should have read zero and not $390,000.

Shareholders' equity attributable to members of the holding company should have read $1.357 million, the unaudited deficit before tax, abnormal items and minority was $7.299 million and the full-year deficit after abnormal, tax and minorities was $76.71 million.

The amended adjustment result was also unaudited. Savoy produced a third set of figures, audited, last week in which the operating deficit before unusual items and tax was $8.9 million and the total deficit was $78.87 million after an adjustment to minorities from $1.24 million to $675,000, both deficit deductions.

Total shareholder's equity was $1.36 million in the first unaudited releases, the same in the second unaudited accounts and $519,000 in the audited version.

Changes can occur in accounts after auditors get their hands on the preliminary version, and Savoy's amendments were relatively minor in the context of the total deficit.

More important was a statement that the directors noted the company's future viability was dependent on ongoing and future support.

They had taken the view that the measurement base for valuation of assets be on the basis of expected net realisable value, not on a going concern basis as in the preliminary report. That position would be reviewed as "initiatives are further developed."

The audit report referred to the Britomart saga and said the value of the rights and of the investment in subsidiary Savoy Properties - dealing with Britomart - would vary significantly if legal action against the Auckland City Council were successful.

It noted the financial statements included shareholder advances of $110,957 and other related party advances of $1.02 million.

There was a dispute in related party advances. The auditors were unable to obtain independent confirmation of the balances and a provision of $600,000 was made against the related party advance.

"Failing any evidence to the contrary these balances have been included as current assets. Any adjustments to these figures would have a consequential effect on the deficit and retained deficit for the year of the company and group results."

Back in April the preliminary report said the directors were clearly disappointed at the outcome of what was expected "to be a promising and profitable period for the company, particularly the initiatives in the technology sector."

Re-rating of that sector and the other events had necessitated "a dramatic change in direction to ensure the future of the company."

Having finally issued an annual report and audited financial statements for the year ended December, Savoy Equities was "unsuspended on the Stock Exchange on August 1. The share price almost doubled in the two trading days to the end of the week on turnover of more than one million shares.

At the other end of the money scale, Mowbray Collectables issued an amended profit statement after the auditors did their work but the changes related to transferring items from expenses of trading businesses to goodwill on acquisition.

They were technical timing matters but at least had the effect of reducing a previously announced deficit of $284,000 to $175,000.

New Capital Market (NCM) companies rarely show a profit in their first reporting period. They have expenses before finalising a "key transaction" which is the formal acquisition of an existing, operating business.

Tranz Rail was another company to produce an interesting result last week, although it had nothing to do with audit report adjustments because the figures were audited.

Little can be read into substantial profit falls before and after abnormals. The company's restructuring, shift of head office from Wellington to Auckland and consequent disruptions to "normal" conditions obviously affected profitability.

The key issue is what happens next.

Tranz Rail's report to the Stock Exchange quoted chief financial officer Mark Bloomer saying the company's "change programme" would continue into 2002 and savings and efficiency gains would flow through to the bottom line progressively as the various initiatives were completed.

Big re-organisations and "new direction" programmes have come unstuck in New Zealand in the past, the now
re-organised Wrightson experiment being a prominent example.

Tranz Rail could be an exception. The market may think so, because the company's shares are close to a two-year high.

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