Sat | Oct 20, 2018

Elite Diagnostic delays IPO, numbers under review

Published:Friday | January 26, 2018 | 12:00 AM
Warren Chung, CEO of Elite Diagnostics Limited.
In this September 2013 file photo, Elite Diagnostic radiographer Judy Lawson shows off the MRI machine at the imaging centre at Holborn Road in Kingston.

Elite Diagnostic delays IPO, numbers under review

Elite Diagnostics Limited has delayed its initial public offering (IPO) that should have opened for subscription on Wednesday, while it provides new documentation, according to an advisory to the Jamaica Stock Exchange, JSE.

"Revised statements, along with new opening and closing dates, will be published on the JSE's website once finalised," the company said in a statement.

The diagnostics firm had issued a prospectus in December offering 70.68 million shares at $2 each. The $141.36 million it aimed to raise was to be used for expansion and debt repayment.

In relation to the delayed offer, Elite CEO Warren Chung said on Thursday: "We still don't have an explanation. All we are doing is reviewing the numbers. I guess it started with an article from IC Insider."

The writer of the article, he said, had recommended Elite as a 'buy' but also pointed out that the company's numbers did not add up.

"All sides are reviewing the numbers to make sure they are 110 per cent correct," Chung said, adding that he expected the IPO to be opened immediately after everyone - including accountants and brokers - had signed off on the revised figures.

The offer is co-arranged by NCB Capital Markets Limited and Sagicor Investments Jamaica Limited, both of which also own stakes in Elite and were early backers of the five-year-old company. The private partners in the venture hold their stake through Excel Investments.

Elite's IPO documentation had already been revised once, with an addendum providing new information to the prospectus regarding depreciation data, which was missing from the invitation document.

"The Unaudited Statement of Financial Position for the period ended September 30, 2017 set out ... reflects the depreciation of the company's fixed assets which was not reflected in the Unaudited Statement of Financial Position set out in Section 10.13 of the Prospectus," said the addendum.

"For the first quarter ended September 30, 2017, the company's unaudited trading results showed net profits of J$14,308,306.04 on revenues of J$69,814,899.10. Annualised over the 2017/2018 financial year, this would translate to net profits of J$60,366,776.69 (after adjusting for one-off shipping expenses in the first quarter of $1,044,517.51); representing a 36 per cent increase over the previous financial year," it said.

IC Insider, an online investment site, said in a January 17 posting that $11 million was missing from the first financials posted, even with the addendum.

"While the 2017 audited accounts show depreciation and amortisation of $28 million and administrative expenses of

$81 million, the interim figures show no amount for depreciation, with adminis-trative cost of $24 million which is just over 25 per cent of the full year's cost to June," said the article.

"Direct cost is $87 million for the fiscal year or just under $22 million, in line with $21.7 million in the September quarter. The conclusion is that the cost of depreciation is not included and would result in profits falling from $23 million reported to $14 million, and would reduce the expected full-year earnings below the annualised figure of $92 million down to a much lower amount, assuming that the new location at Old Hope Road just breaks even."

IC insider added, "The intrigue does not end there. The movements in fixed assets shows a missing $11 million, with fixed assets at June being $187 million and the cash flow statement showing additions of $71 million and that should result in a total of $257 million, which should be reduced by approximately $9 million for depreciation for the quarter and should bring the net figure to $249 million - but the interim figures have fixed assets at $246 million. For short, a material amount of $11 million is missing."

Elite was launched in 2013 with equity participation from NCB Capital Markets, Sagicor Investments, and Barnett Limited, a Montego Bay-based company owned by the Kerr-Jarrett family.

Elite aims to use the funds raised to grow its operation, plans that include the expansion of its services to Montego Bay and Ocho Rios. It currently operates from Kingston.