Profit downturns and big losses feature in latest results batch

Thursday 22nd March 2001

By Peter V O'Brien

Company results and other news at the end of the reporting round confirmed the view it is misleading to treat the sharemarket as a single entity.

Profit downturns and substantial losses were a feature of results announced in recent days,

Technology group Newcall Group issued a report for the year ended December that showed shareholders' equity was wiped out, subject to adjusting investments from their carrying value in the books to their realistic realisable market value.

Newcall's final loss was $19.48 million after reducing the carrying value of goodwill to reflect the investment at cost on realisable value, whichever was the lower.

Newcall signalled difficulties in December when it said a forecast of monthly breakeven on an earnings before interest, tax, depreciation and amortisation basis by the end of 2000 would not be achieved.

In January the company said it planned to sell most of its client base in telecommunications to Telstra Saturn and to dispose of internet service provider Internet Prolink (NZ).

The overall loss reduced shareholders' equity to a negative $1.19 million, compared with a positive $12.64 million at the end of 1999.

The accounts consequently were prepared on a "going concern" basis but the directors considered there would be a pre-tax surplus of $1.66 million if certain assets were realised for at least $2 million, increasing consolidated equity by an equivalent amount.

Newcall is a revamp of the former New Zealand Salmon Company and it seems, if the expression can be excused, the organisation is again struggling to get up stream.

Some market observers might shrug off the Newcall situation, given the current share price of 5.1c but the company has 111 million shares on issue and they sold as high as 74c in 1999.

Oil and gas investor Cue Energy Resources prepared its accounts for the six months ended December on a going concern basis which "assumes the realisation of assets and the extinguishment of liabilities in the normal course of business at the amounts stated in the financial statements."

Cue said legal proceedings instituted in New Zealand had constrained the ability of the directors to raise additional capital.

It was intended to have an issue of 1.4 and one option for each new share. The company was restrained from that action but appealed the decision.

Other matters "off the field" were also mentioned. Cue's directors said they considered a censure from the Stock Exchange's market surveillance panel for not having two New Zealand resident directors was unjustified.

The company had received New Zealand legal advice "a considerable time ago" that having alternate directors who were New Zealand residents satisfied the requirement.

A special meeting of Cue shareholders has been requisitioned and will be held on March 30.

The requisitioning shareholders were Browse Petroleum, Todd Petroleum Mining Company and Ansoil NL. They want to remove two named directors and "any person appointed a director after November 27, 2000" and appoint four of their nominees.

It should be an interesting meeting.

Cue's share price has wandered around the 4-5c range for some time. The high in the past two years was 13.4c.

Companies reporting profit downturns included Colonial Motor Company, Force Corporation and Pure New Zealand.

The motor vehicle dealer's profit for the six months ended December was $2.02 million, compared with $4.37 million in the corresponding period of the previous year, the latter including unusual gains from property sales.

Colonial Motor's investment in Auckland dealer Auckland Auto Collection resulted in a deficit of $1.21 million from equity earnings.

Entertainment and property group Force reported a profit of $936,000 for the six months ended December, compared with $5.89 million in the first half of the previous year.

Sky City earlier this week made an offer for the shares it does not already own at 25c through the stand-in-the market procedure.

Pure New Zealand says its principal activities are through its subsidiary Tasman Extracts which operates in the "food and consumer products/technologies sector."

The company lost $584,000 in the six months ended December, compared with $485,000 in the same period last year and its shareholder equity is now down to $126,000 after taking out an accumulated deficit of $11.62 million.

Pure made the interesting comment that the results had "necessitated a major change in strategic emphasis from an early-stage start-up company to the established company business model."

The company would apparently achieve this through acquisition and merger proposals under consideration.

That change in emphasis may be harder to achieve than thinking up the basic idea.

Variations in profit performance are an inevitable aspect of the sharemarket and therefore equity investment has to be considered on a company-by-company basis, rather than thinking of one indivisible market.

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