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Thinking outside the square

By Peter V O'Brien

Friday 26th September 2003

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Stock exchange-related business activities are brightening up as company administrators and the NZX become innovative.

The effect of "outside the square" thinking is a welcome change from the lack lustre drift recent years.

There were some good examples of the phenomenon over the past month.

Liquor distiller 42 Below, which prefers the designation "premium spirit maker," brought innovation to the company world some time ago when it began describing managing director Geoff Ross as "chief vodka bloke."

Such marketing frivolity is unlikely to catch on among the general run of staid directors and executives, although the mischievous could probably devise appropriate titles for some current and former CEOs and other executives.

Details of 42 Below's public share offer were released last week. The company will offer 30 million shares at a 50c issue price, and accompanying 1:6 2005 and 2006 warrants at the same price.

Dorchester Pacific managing director Brent King, whose company Direct Broking is lead broker to the issue, said the market had reacted extremely positively and the enquiry level was "overwhelming." He could be expected to say that, but it seems 42 Below has received considerable attention.

Mr King said it was unusual for New Zealand to have a board of 42 Below's quality, with all members having set up successful businesses, and also unusual to have directors "whose skills in developing brands and marketing platforms combine with a product range of such high quality."

That could appear a little immodest, given Mr King is a 42 Below director, but he has set up and run a successful business.

The "thinking outside the square" tag could be applied to the company's non-executive directors who, apart from Mr King, are fashion designer and exporter Karen Walker and America's Cup Team New Zealand challenge chief Grant Dalton.

Mr Ross said the company was focused on international networks to support its business growth. Ms Walker and Mr Dalton deepened 42 Below's "global networks, market knowledge and experience."

Nobody could argue against that, in view of their records. It would be interesting to know how many other public companies would have the nous to appoint such people, rather than those from legal, accounting and finance backgrounds.

Kidicorp Group displayed creative thinking when the former Feverpitch International's administration realised it had no future as an exchange-software development company.

The Kidicorp childcare centres were acquired, effectively through a reverse takeover, and Feverpitch's name changed to Kidicorp.

Last week's annual meeting was told revenue this year was forecast at about $17 million, with earnings before interest, tax, depreciation and amortisation (Ebitda) being about $2 million. Ebitda was $900,000 for the five months ended.

Kidicorp was incurring associated one-off costs from acquisitions and growth and the public listing growth. That suggested bottom-line profit should rise when such costs were out of the way.

NZX's deal with Australia's SFE Corporation (SFE for Sydney Futures Exchange) for the listing and trading of New Zealand equity derivative products was also innovative thinking.

The deal was said to be worth about $A1 million and gave NZX the exclusive ability to create and list a "broad set of futures and options" products on the Sydney Futures Exchange, based on equity securities listed on NZX markets for up to eight years.

NZX's statement said the cost was significantly less than any "buy or build" option NZX could undertake.

The lack of a futures and options market for New Zealand equities in recent years has been significant gap in trading activity.

Derivatives have several benefits for investors, particularly institutions.

They help protect portfolios at little cost, futures and options being priced at a fraction of the cost of the underlying securities.

There is usually better liquidity in the underlying securities, a point NZX chief executive Mark Weldon noted in the company's announcement.

The current New Zealand Futures and Options Exchange ceases operations next year. It is currently a subsidiary of the SFE and its interest rate derivatives will list on the Sydney exchange.

It seems everyone wins in the new deal, which should be the goal of any innovation in securities markets.

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