John Holt Plc released its 2014 results on Monday posting a 535% increase in Earnings per share. However, the auditors of the company, BDO Professional Services, in the Financial Statements have given a qualified opinion on the results of the company. A qualified opinion from an Auditor basically means the auditor does not have sufficient evidence to verify an aspect(s) of a company’s financials. They claim they could not obtain adequate working papers from the prior auditors to enable them give an unqualified opinion. In addition to that and most importantly, they have identified a serious matter regarding the going concern status of the company. In this regard, the have looked at the cash situation of the company and do not believe it has enough liquidity to keep it as a going concern. Here is a snap shot of the opinion;
In other words, despite posting significant high profits the company just doesn’t have enough cash to back it up. No matter how much a company makes, lack of cash will surely lead to bankruptcy. John Holt acknowledges this situation in the audited accounts by saying ‘In the absence of financial support from shareholders, bankers, and major creditors the company going concern abilities will be in question’ leading to a possible liquidation. John Holt in the result owes the likes of First Bank, Standard Chartered, AMCON and Fidelity Bank N229m, N314m, N707m and N527m respectively. I doubt these loans are being serviced and must have included capitalized interest over time.
Options for John Holt
The company claims it has already began the following;
- Closure of branches
- Exploring additional Bank Finance
- Disposal of properties surplus to requirement
- Exploring ways to enhance long term finance
- Implementation of strategies to enhance revenue
These options are all laudable and if it works should get the company back on track (though I doubt it will work fast enough). However, the quickest solution will be to sell most of its properties and raise cash. It could also spin of its most valuable subsidiary, JALLCO Ltd (Property and Warehousing) with a net asset of N5.9billion to raise additional cash. For now the company is on the edge of bankruptcy and further delays may result in a liquidation. Retail Investors should therefore be aware of this situation and thread with caution.