Shareholders see red at First Asia
WHEN it comes to interesting annual reports, First Asia International must get a nomination.
Formerly known as UniSouth, the company was taken over in a cash offer by Dynamic Business Group that became unconditional on April 29, 1994.
After putting in respectable profit growth in the 12 months ending March 31, 1994, from $1.2 million in 1993 to $40.47 million in 1994, in 1995 the group lurched seriously into the red with a loss attributable to shareholders of $62.85 million.
By comparison the highest profit recorded at the group in the past five years was in 1992 at $481 million.
The loss in 1995 was put down to a fire at a factory in Sri Lanka and other write-offs.
Operating profit saw losses of $60.8 million. Disposals of assets brought in an exceptional gain of $156.4 million, while write-offs linked to discontinued operations were $160 million.
In the period, the company shows $929.79 million was spent on purchases of subsidiaries.
The subsidiaries acquired during the year contributed $11.98 million to group operating cash inflows, utilised $180.52 million for financing activities, paid $25.4 million in respect of the net returns on investments and servicing of finance and paid tax of $141,000. The subsidiaries in question brought in a net cash inflow of $396.46 million from investment activities.
There is an item in the accounts for goodwill. When one company buys another, the purchaser typically expects to benefit to a greater amount than the fair market value of the net assets acquired. Whatever this anticipated benefit, minus the purchase price, amounts to is goodwill which can be shown in the accounts as such and written off on an amortised basis.
The accounts show $210 million of goodwill on the purchase of a series of companies, some of which were linked to luxury goods packaging and distribution.
Between the two accounting period year-end dates, the value of marketable securities shown has been reduced from $260.34 million to $38.15 million. Most of the decline is through no listed investments being shown at the year-end outside of Hong Kong in 1995 compared to a total worth $244.38 million at cost at the year-end on March 31, 1994.
All these changes at First Asia do not appear to have benefited the minority shareholders much.
While disclosure regarding emoluments has improved in the past eight to nine months, it has not improved to the extent that you know definitely which director gets what. The picture regarding First Asia is muddied by the change in ownership and the change in board membership.
For minority shareholders there is not a lot to be happy about. The directors, however, in aggregate terms appear to have done quite well.
Overall emoluments rose more than three times from $2.7 million to $10.14 million, most of which was in salaries. In 1994, five directors were shown at the trough. In 1995 12 directors were shown at the trough.
Two directors are shown with payments of between $14 million and $14.5 million. The notes to the accounts say the payments include exercise of options.
Another director gets up to $7.5 million, another gets up to $4 million, and another gets up to $2 million. The plebs, of which there are seven shown, all get less than $1.01 million.
In the previous year, options to acquire 4.5 million shares in the then existing capital of the company were granted to three ex-directors under the company's share option scheme.
Those options, according to the accounts, were exercised in full by the relevant persons at a consideration of $5.10 per share on April 29, 1994, the day of the cash offer under takeover becoming unconditional. On the same date, all the 4.5 million shares of 10 cents each were tendered for acceptance of a cash offer at a price of $12.18 per share.
The benefits derived from the exercise of these options by the three ex-directors amounted to $31.86 million. In September 1994 there was a 5:1 share split.
Subsequent to the balance sheet date, on July 5, 1995, share options were granted to subscribe for a total of 23.76 million shares of two cents each of the company at an exercise price of 80 cents a share within two years from the date of their acceptance.
Of the total, 21.76 million were accepted by directors and employees of the company. Some were exercised on July 29. No doubt more are due to be exercised as the price of the group shares rose 12 cents yesterday from 74 cents to 86 cents.