Stiassny leaves some skin in RMG but options raise fears

By Nick Stride

Friday 4th June 2004

Michael Stiassny may have bailed out of struggling debt collector RMG but he has left behind a substantial slice of his net worth.

His final director's interest notice shows he has 2.2 million shares and 12.5 million options worth, at recent market prices, about $734,000.

The annual report shows his family trust, Twin Palms, has lent the company $A588,000 ($660,000), taking his exposure to $1.4 million.

Stiassny could not be contacted for comment by press time, so it is unclear whether he intends to exercise his options at the exercise date of October 31.

Exercise of the 341 million options on issue will be critical for RMG, which looks certain to book a large loss for the June year, wiping out its shareholders' funds.

That will leave it at the mercy of its creditors, including Stiassny and other well-wishers with connections to the company.

These include retailer and finance company Pacific Retail, which has lent RMG $3.25 million. The link here is expatriate businessman Eric Watson, who set up RMG four years ago.

Watson's Cullen Investments owns 73% of Pacific Retail and 17% of RMG.

Stiassny's resignation as chairman on Tuesday, effective immediately, came six days after a profit warning and after 14 months in the job.

A statement said he "could no longer devote the time necessary to be the company's chairman given his increasing work and time commitments on both sides of the Tasman."

He also resigned, on May 25, his directorship of listed technology investor Spectrum Resources.

It has since been announced he will be on the board of Pacific Retail's retailing arm, which is preparing for an initial public offering and a sharemarket float.

RMG spent the first half of this financial year buying debt portfolios with borrowed money, spending nearly $A8 million ($9 million).

At the annual meeting in Melbourne last October, Stiassny told shareholders distressed debt portfolio acquisitions were the fastest-growing area in receivables management around the world.

He also predicted RMG would this year post earnings before interest, tax, depreciation, and amortisation (ebitda) of at least $A5 million.

At the half year it broke even at the ebitda level with a modest $A26,000 gain but lost $A3.8 million at the bottom line.

On March 1, it warned full-year ebitda would be "closer to $A3 million." Two months later it said its profit would "not meet expectations."

In response to a query from the Australian Stock Exchange asking for more detail, managing director Ron Logan said the company expected ebitda to be in the vicinity of $A500,000.

However, it was trading at a monthly operating profit.

"The level of current work on hand should sustain continuing growth in operating profits and cashflow. This does not take into account any additional major contracts which may be secured by the company," Logan said.

"The directors believe the company's financial condition is sufficient to warrant continued quotation of its securities under listing rule 12.2."

It is now inevitable RMG will add a substantial June-year deficit to the four-year losing streak in which it has clocked up $A117 million of losses.

The first-half interest bill was $A1.4 million. Depreciation and amortisation, which accelerated because of the debt ledger purchases, took $A2.5 million.

Doubling those figures for the full year and subtracting them from the forecast $A500,000 of ebitda suggests the bottom- line loss will be of the order of $A7.3 million.

If so, shareholders' funds of $A2.5 million at December 31 will be wiped out.

The cash situation looks similarly precarious. In the first half, receipts from customers provided $A16.9 million but payments to suppliers and employees took $A17.9 million and the company paid $A1.3 million cash interest, leaving it with a $A2.3 million operating cash outflow.

Cash held was just $A173,000. According to the annual report, a $A500,000 loan from former director Paul Cooney is repayable on June 30.

Much of the company's borrowings are tied to the performance of the acquired debt portfolios, with loan repayments geared to the cash collected.

The company's options are exercisable at 3Ac. If all were exercised that would raise $A10.2 million but they are heavily out-of-the-money at the current share price.

The group came into being in June 2000 when Watson's Cullen Investments backed 16 smaller Australian and New Zealand debt collection agencies into Frontier Petroleum, a listed shell. Cullen had a 20% stake.

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