Analysts attack 'misleading' Vertex Group prospectus

By Nick Stride

Friday 14th June 2002

Alan Robb

Analysts and accounting professionals have taken issue with the prospectus for a sharemarket float of plastics packaging company Vertex Group, saying some of the figures are likely to mislead investors.

Their problem is with the presentation of the company's financial results for the year ended March 2002.

These show revenue of $89.17 million, earnings before interest and tax (ebit) of $3.71 million and a bottom-line profit of $3.81 million.

But footnotes to the prospectus table show those figures include a $2.43 million gain on the sale and leaseback of land and buildings.

Included in the ebit and net profit figures are a $2.15 million gain on revaluation of intangible assets and plant and equipment, and $2.08 million of restructuring costs.

Alan Robb, a senior lecturer in accountancy at the University of Canterbury, said the presentation of results "is poor and likely to mislead."

All three one-off items should have been disclosed in the statement of financial performance, not as footnotes, Mr Robb said.

"There is a line in that table headed 'extraordinary items' which contains no figures at all. This suggests there were no unusual items but that's patently untrue when one reads notes 2 and 3," he said.

A sharebroking analyst, who declined to be named, agreed, saying that, adjusted for one-offs, Vertex's "core" ongoing earnings for 2002 were only $1.31 million.

"That means the 2003 forecasts are for ebit growth of 65% and net earnings growth of 342% on revenue growth of just 4%. How credible is that?"

Mr Robb said, when one-offs were taken into account, the expectation that earnings would grow to the forecast 2003 figures was questionable.

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