The nightmare is continuing for Run Corp shareholders, after the company announced on Monday that it lost almost $18 million (which included a $9 million provision for “asset impairment”) in its first year of operation. Run’s glossy prospectus, which is less than one year old (and was criticised by Crikey) forecast a net loss of only $6 million. Run shares dipped further on the news, currently trading at around 16 cents, down from the float price of $1.00. The result was even worse than what Run predicted only four months ago, when it forecast an EBITDA loss for the year ending 30 June 2006 of $6.85 million (it ended up losing $7.9 million before interest, tax, depreciation and amortisation).
The terrible bottom line result was partly due to revenue being about 14% ($2 million) less than forecast, but mainly due to Run earlier overvaluing its main asset (being the rent rolls it acquired from agents) by around $9 million. Run also announced that it will seek to raise between $6 and $10 million in additional capital, with company founders Nathan Cher and Sam Herszberg providing $2.5 million to the company as a cash advance.
While Run investors would no doubt be disappointed with the profit result, its principal banker will also be following the company’s progress very closely. As noted in its prospectus, Run has debt facilities of more than $69 million in with NAB. Run’s prospectus noted that its banking facilities are subject to various covenants, including loan to value ratio, interest cover ratio, capital adequacy ratio and the ratio of debt to quarterly management commission revenue.
While no details as to the covenant levels were provided, a few bankers down at NAB would be a tad nervous at the moment. This may have led Run to announce that it is seeking to reduce the debt owed to NAB from $69.5 million to only $44 million.
NAB shareholders may also be wondering what, if any, influence Run’s beleaguered chairman, Frank Cicutto, had in arranging the significant debt facility. Cicutto was, of course, the CEO of NAB until he resigned in 2004 with a $14 million farewell after a foreign exchange scandal engulfed the bank.