Iwai's listing prospectus begs a raft of questions

PUBLISHED : Wednesday, 03 January, 1996, 12:00am
UPDATED : Wednesday, 03 January, 1996, 12:00am

IWAI'S International Holdings could not have picked a worse corporate motto than the one which appears on the front page of its new listing prospectus published on October 6 last year.

With the benefit of hindsight investors in the company's share can only surmise that 'cross one's fingers' was a corporate logo to describe what some of the interested parties were doing at the time of the listing.

The company directors, the authorised representatives of the companies and the sponsor, Lippo Asia, had better come up with some convincing answers to a growing chorus of questions surrounding Iwai's financial disclosure.

In the prospectus the company states quite clearly that operating profit is not expected to see significant growth in the current financial year to March 31.

Profit attributable, on an adjusted basis, on the elimination of exceptionals, was noted in the listing document for the period ended March 31, 1995, at $20.91 million. Operating profit for the same period was shown at $24.73 million.

On this basis, a potential investor in Iwai's listing might have concluded profit this year would be unexciting and possibly flat at somewhere between $20 million and $25 million. This is definitely the overall impression given by the statements in the prospectus and on a superficial read of the group's trading record.

At the time of publishing the listing prospectus, the period for the six months to September 30 had passed just six days earlier.

Yet on December 28 the company announced a collapse in profitability for the six months. Profits slumped from $7.6 million to $9,000. Overall sales were down nine per cent to $53 million, because, the management said, of a drop in sales and additional discounts offered to customers in order to boost sales.

Sales and profits were poor because of the poor economy, lack of consumer spending and the heavy mortgage burden on consumers.

All these factors were present in the interim period and were also present in the six days between the ending of the interim period and the publication of the listing prospectus.

Given the poor interim result there appears to be a mountain ahead for Iwai's to climb to achieve its inferred profit forecast.

On Page 22 of the listing document, the inferred forecast is repeated: 'The directors do not foresee any significant growth in operating profit of the group for the current year ending March 31, 1996'.

In addition, the document added: 'The directors are aware that under the listing rules, the latest financial period reported on by the reporting accountants must not have ended more than six months before the date of the listing document.

'However, the directors confirm that they have performed sufficient due diligence on the group to ensure that, save as disclosed, up to the date of the prospectus there is no event which would materially affect the information shown in the accountants' report.' A reasonable man might conclude the investor's view of Iwai's would almost definitely have been materially affected if he had known on October 6 that the company was experiencing a collapse in profits and profitability for the six months to September 30.

It would seem to be fair and reasonable to suggest investors were not warned about this collapse in any meaningful way in the prospectus.

It would also seem to be fair and reasonable to suggest the management of the company, or at least key members of the management team, would have had a general view of how badly the company was performing in the lead-up to the end of the interim period and the publication of the prospectus document.

If the directors or key members of the management knew of the likely collapse in profit in the lead-up to the publication of the listing document, why did they not make this information clear to the public ahead of the flotation of the company.

If the directors or key members of the management team did not know about the company's poor performance at the time of the listing, then they need to ask themselves do they know anything about what goes on at their company.

They also need to ask themselves whether they are fit to be in charge of a such publicly listed company.

The exchange listing rules on these matters are quite clear. Any information that may have a significant bearing on or have a material impact on the financial affairs of a listed company should be brought to the public attention as soon as is practically possible.

In the light of the December 28 publication of the interim results, a new statement is needed from the company directors to clarify what was known to whom and when.

Investors ought to know now what the status is of the inferred profit forecast in the listing document, where it is suggested there would be no significant rise in operating profit.

The responsibilities and obligations of the sponsor need to be carefully examined in this case.

Did Lippo Asia fulfil its deemed task under the exchange's model code for sponsors.

The sponsor needs to satisfy itself the issuer's board is up to the job, with the necessary skills and experience.

The sponsor needs to be satisfied the issuer's directors can issue the information necessary for an informed marketplace to take place in the issuer's securities.

The sponsor needs to be sure the directors know their responsibilities and obligations as directors and that they will honour these obligations and responsibilities.