Good recoveries hide in rush of reports

By Peter V O'Brien

Friday 1st March 2002

Some good recovery situations were included (or buried) in the swag of reports issued in recent weeks from companies with a half or full-year balance date in December.

Companies that have performed poorly in the past have an advantage in terms of improvement, provided they received solid corrective treatment.

A turnaround can appear spectacular when set against moderate profit gains from a company that has consistently increased its earnings in good difficult times.

There were at least four examples of good recovery in the results released to the end of last week.

The number could be five with the inclusion of rural services group Wrightson but that company benefited from factors outside its control as well as the continuing drive to get back to the position ruling before a nonsensical reconstruction.

The four resurgent companies were Advantage, Designer Textiles, Eldercare and The New Zealand Experience.

Investors had noted the companies' improvements before the results because they lifted share prices over the past year.

Advantage sold at 47c last week, compared with a high of $1.69 and a low of 27c since the end of 2000.

The current price would be a disaster for anyone who bought early last year but a nice earner for the canny who took a punt at, say, 35c or less.

Advantage's report for the six months ended December 31 showed a profit of $880,000, compared with $386,000 for the corresponding period of the previous year and an overall deficit of $65.89 million for the 12 months ended June.

Managing director Tony Bradley's interim report was succinct, comprising seven short sentences.

Mr Bradley said the result showed the first steps towards recovery following last year's difficulties.

He said domestic demand for Advantage's products and services was leading the recovery but the international market continued to be slow.

The outlook for the second half was for the gradual recovery to continue.

Advantage had been in trouble for some time, after being a technology high-flier. It wrote off all goodwill assets in the accounts for the year ended June.

That accounted for $60 million. Other writeoffs took $6.5 million, the main items being restructuring costs of $3.9 million, $1 million for writeoffs of businesses sold and $2.1 million for various provisions and investment adjustments.

Advantage realised it was operating in a new world after massive losses in technology companies.

When he announced the 2001 preliminary result Mr Bradley said technology stocks worldwide had been rerated, with "billion dollar losses posted recently by Lucent, Cisco and Nortel" reflecting the difficulties in the technology sector. New Zealand had not been immune.

Advantage will have to continue recent progress to regain the market status of the late 1990s.

Designer Textiles' net profit was $1.32 million for the six months ended December, compared with $850,000 in the first half of last year. That comparison disguised substantial asset writedowns, goodwill writeoffs and other costs in the January-June period of 2001.

The company ended the year with a total deficit of $11.61 million.

It is being changed from a textile production company selling fabrics "into a sales and marketing organisation that delivers textiles, readymade curtains, garments and other solutions to its customers."

Investors seem to think the new strategy is working. The share price was 58c last week, compared with a 2001-02 high of 60c and a low of 27c, the latter last year.

Medical and healthcare service provider Eldercare was "sort of" in the December balance date reporting round. The company reported in January for the half-year ended November 30.

It "recovered" to the extend that a total deficit of $6.73 million for the first six months of the previous year was reduced to $842,000. The deficit was $8.18 million for the full year ended May 2001.

The result was said to follow a "comprehensive 15-month period of company restructuring, moving away from property development and refocusing as a listed medical and healthcare operator with retirement, rehabilitation and medical operations throughout New Zealand."

The share price responded, going from a 2001-02 low of 11.5c to a high of 3c and last week's 27c.

Tourism group The New Zealand Experience has struggled in recent years, sometimes against matters such as climatic problems over which it had no control.

The company's $356,000 profit for the six months ended December was unsatisfactory when related to total assets of $10.29 million but much better than the $54,000 earned in the first half last year, an indication things may be on the way to an appropriate performance.

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