Technology companies gung-ho despite more losses for some

By Peter V O'Brien

Friday 14th December 2001

The resilience of companies associated with technology was a feature of 2001.

There were 22 listed groups directly associated with technology, the internet and e-commerce operations in January, including Baycorp and Telecom.

The number was 25 this week. Many were hanging on after continuing losses, despite optimistic comments about their prospects.

While the number was high as a percentage of all New Zealand-based listed companies in sector terms, their corporate clout was small.

Total shareholders' equity for 23 companies, a number excluding Baycorp and Telecom, was $180 million after deduction of intangibles.

There were 27 other individual companies this week which each had shareholders' equity of more than $180 million.

The final issue of The National Business Review last year (Dec 15, 2000) noted there were no more fad bubbles to burst in the New Zealand market, because there were none left.

That did not prevent people involved with technology companies from expressing optimism about the future, a trend that continued this year.

Advantage Group chairman Evan Christian told his company's 2000 annual meeting the stock was "ridiculously under value."

It closed 2000 at $1.30 and was 54c on Monday this week. Advantage's meeting this year heard more optimism, after dealing with a pre-tax operating profit of $195,000 for the year ended June 30, compared with $6.69 million in the previous year.

The company's net loss was $65.89 million after writing off a net $66.73 million, of which $60.37 million related to goodwill amortisation.

Final profit in 2000 was $2.97 million.

The meeting heard the group was trading profitably, but on October 31 the company said it recorded an unaudited loss of $169,000 for the three months ended September 30.

It will be interesting to read the interim report to be issued in the New Year.

The following companies can be classified, broadly, as having technology interests: Advantage, Baycorp, Beauty Direct, BLIS, Cabletalk, CACI, Cadmus, Compass, Cube Capital (formerly Damba), E-cademy, Electronic Transaction Technology (formerly E-phone), e-Ventures, GDC Communications, Genesis Research and Development, IT Capital, Newcall, Renaissance, RetailX, Rocom, Selector, Software of Excellence, Spectrum (switched from mineral exploration), Strathmore, Telecom and Vending Technologies.

It would be an understatement to describe those companies as a "mixed bag" in terms of share-price performance.

Software was the best performer in NBR Personal Investor's list calculated from the end of 2000 to November 26 (NBR, December 7).

Renaissance, Advantage, Genesis, RetailX and GDC were - in descending order of price erosion - five of the 10 lowest performers.

Reports from some technology companies constantly refer to "reorganisation" or "restructuring."

Nothing wrong with that. Companies should move quickly to change things when they see flaws in earlier strategies.

The problem is that reorganis-ation/restructuring diverts financial and personnel resources from operating the basic business of creating and selling goods and services to administrative activities that cost money and generate no revenue or profit in the short term.

We will see what happens when the new procedures, systems, products and services are all in place for those companies.

It is a fair bet several will go under, particularly those that resisted removing all intangible items, including goodwill, from statements of financial position.

Optimism again, based on the belief things will come right.

The truth, brutal as it is, shows corporate history has a graveyard for organisations whose "things" fail to come right.

It is obvious the internet, with its massive capacity for instant communication, will provide excellent opportunities for soundly based exploiters.

Those with unsound bases will go under.

It may not happen in New Zealand in 2002 (overnight) but "it will happen."

Technology companies divide into those that deliver real products and services to a growing client base and groups that regularly report "exciting developments" arising from deals done with local and overseas organisations to provide yet-to-be-proved concepts.

Current share prices and price movements this year show the market made the distinction.

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