The O'Brien Column: Troubles in triplicate show how companies can find life difficult

Thursday 12th April 2001

The placing of dotcom company E-Force and hotelier Manor Inns Group in receivership and the massive writedown of Savoy Equities' assets have shown that corporate life can still be difficult in spite of an improving general economic climate.

Savoy Equities reported last week for the year ended December and came up with an unaudited deficit before tax, abnormal items and minority interests of $7.3million.

Abnormal intangible asset writedowns of $70.81 million took the total deficit to $76.71 million.

The abnormals related to the writedown of intangible assets associated with Auckland's Britomart project.

Directors said the realisation of that asset would crystallise only on completion of a successful litigation against the Auckland City Council. They took the writedown until such time an actual realisation was achieved.

They added that the action did not "in any way mean the company has changed its view of the prospects for success of this claim."

The loss before abnormals arose from the need to "undertake an urgent restructuring and selldown of assets."

Savoy's result had a dramatic effect on the company's balance sheet. Shareholders' equity went from $78.37 million at the end of 1999 to $1.36 million in December, with the accumulated deficit going from $13.59 million to $91.62 million.

Anything can happen in litigation, but if the action goes against Savoy, the company will be unable to write back the $70.81 million and will be close to the back door in financial terms.

The report probably understated the case when it 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."

Savoy's assets at December 31 comprised $2.63 million in receivables, $3.0 million worth of investments, $101,000 of property, plant and equipment.

Accounts payable of $1.74 million, borrowings of $2.04 million and provisions of $621,000 offset the assets, leaving the net $1.36 million

Savoy could have a future, particularly if the company wins its case against the Auckland City Council, but it will be coming from a difficult position.

The future for Manor Inns Group and E-Force is unclear.

Manor Inns has struggled for profitability for some time and the latest loss of $2.79 million for the year ended June 30, compared with deficit of $1.45 million in the previous year, took shareholders' equity down to $540,000.

A brief message to the Stock Exchange in February said the company was unable to restructure its residual debt to the satisfaction of its bankers and that "prudence demands what the directors request the company's banker to appoint a receiver."

Manor Inns has solid assets in that form of $27.96 million - at book value - of property, plant and equipment, but debt at last full-year balance date was $18.67 million.

E-Force was in worse shape.

The company's balance sheet at August 31 showed current assets as $6.58 million and current liabilities of $9.61 million for a working capital (current assets less current liabilities) of $3.3 million.

After reporting a loss of $2.92 million for the six months ended August, the company said it projected a small loss for the rest of the year. Earnings in the first half of the following year would be flat with a return profitability in the second half.

That was said in November. A month later (December 27) E-Force said it was in financial difficulties and it intended to prepare a restructuring proposal to put to its bankers, other creditors and shareholders early this year.

On March 20 the company said it had been unable to produce a proposal that was acceptable to its bankers and it was put into receivership.

Balance sheet figures at August 31 showed shareholders equity of $11.85 million but intangibles were in the books at $11.12 million.

E-Force's attempt to become an e-commerce company, rather than maintain its interests in the timber industry, proved too difficult in the face of what it described in December as "substantial continuing losses" in its portal operations, which were closed.

The company's receivership was significant because it was trying to operate in the currently fashionable technology area, where there has been worldwide evidence that profit projections were over-optimistic.

Technology stocks have been heavily downgraded on all stock exchanges, including New Zealand's, in anticipation of need news flowing through from the companies.

The local market will be hoping that other technology groups do not follow the E-Force path.

Comments from our readers

No comments yet