Four months and 28 days after the reporting period ended, MFS (now known as Octaviar) finally released its December results to shareholders. Unfortunately the ASX didn’t take too kindly to MFS’s announcement and have refused to allow the stock to return to the trading after auditor, KPMG, refused to sign off on the statements.
In attempting to come up with excuses for its abhorrent performance, MFS noted that “the rapid and unanticipated tightening in credit markets and upheaval in equity markets in recent months had had a significant and adverse impact on the operations, financial position and outlook for the Group.”
MFS later claimed that “intense negative press attention continues to erode goodwill towards the group”. One would have thought that MFS was perfectly capable of eroding goodwill by itself, without any help from the press. Ironically, on that very page, MFS conceded that:
For the group to continue as a going concern, there must be an accommodation reached with … large unsecured creditors.
… There is material uncertainty as to the Group continuing as a going concern.
This sounds like MFS is teetering on the brink of insolvency, surviving only by the good graces of its lenders. (Unsurprisingly, MFS was very quick to repay its $150 million debt to hedge fund, Fortress, early in the year. Possibly because Fortress has a reputation for happily seizing borrowers’ collateral.)
Among MFS’s greatest hits was the $590 million write-down on the sale of its 65% stake in the Stella tourism business (the sale was after balance-date, and didn’t appear in the December financials). It should be remembered that MFS is essentially an investment company whose brief was to buy assets and sell them at a higher price (conveniently, the subsequent buyer was a related entity or satellite), taking commissions along the way. For MFS to lose more than $900 million on its Stella purchase (of which only $590 million has been announced) represents one of the greatest acts of corporate stupidity since Alan Bond and Laurie Connell were considered actual businessmen.
MFS’s financials are a compete shambles. The company burned cash like a dot.com during the December half (MFS’s cash balance dropped from $167 million to only $34 million). In terms of its core business, while revenue was relatively stable, costs skyrocketed, with administrative and corporate costs rising from $3.3 to $10.7 million, consulting and legal costs increasing from $2.1 million to $10.3 million and employee expenses more than doubling to $40 million.
One would also hope ASIC are looking very closely at some of Michael King’s comments (no doubt the class action lawyers are). In January, the disgraced former CEO gave an infamous teleconference where he claimed that “we could stay as we are and keep going. Our earnings guidance is unchanged and there is no change to our debt position.”
However, MFS’s result reveals that MFS’s earnings guidance was completely wrong and its debt position higher than previously claimed. Even stripping away all the abnormal revenues and expenses, MFS still lost around $40 million from its ordinary businesses in the December half. That is before the New Zealand loss of $235 million, the $590 million loss on Stella and the $100 million loss in Gersh Investment Partners are taken into account.
Since King’s resignation, MFS has been conducting a de facto liquidation. Given that they will never find an auditor to sign off on their results, it might be easier for all to pull the plug and start officially liquidating the failed company.