Fronde records $2.9 million loss

Former CEO responds to 'angry shareholder' on blog

Fronde is re-examining its growth and development strategy after failing to realise expected increases in sales for its half-year to September 30, 2007.

The company, which is traded on the Unlisted market, has announced on its website a loss of $2.87 million on flat operating revenue of $16.9 million. Revenue was almost identical the previous financial year when the company recorded a profit of $647,000.

In response to a comment from someone signing themselves "Angry Shareholder" today on his En Avant blog, former Fronde chief executive Jim Donovan said: "I absolutely understand your anger — I’m a shareholder myself. It happened on my watch and I’m responsible. We went for growth and we didn’t get it. But I think we reacted quickly when it became apparent, and the recovery plan we put in place is already delivering a significant improvement. However, that won’t make the first half figures any more acceptable."

Fronde chairman Philip Shewell says in his half-year report that the loss was driven by substantial on-going investment in Fronde Anywhere, restructuring of UK operations and the write-off of goodwill in the UK, new deferred tax recognition rules, and trading losses in New Zealand.

“The first half, especially September, was weaker than planned, driven by political and economic uncertainties across all market sectors and geographies, with a number of anticipated New Zealand projects postponed or cancelled outright,” he writes.

“In addition, during the first half, our UK operation achieved no professional services sales, and our Singapore project concluded.

“We also have a major project where there has been an unanticipated need to provide it with a high level of working capital, contrary to our original understanding of the project and our normal practice. This has put considerable strain on our overall working capital.”

In the context of the growth and development strategy put in place for 2007-08, Shewell says the group had delivered flat results over many years, and it had had to make a choice to rationalise or grow.

“As soon as the September trading result was known, directors and management re-examined the decisions to invest in growth and embarked on an immediate cost reduction programme.”

Fronde expected to post a loss for the full financial year but the restructuring programme, which would be completed by the end of March, would mean the main business was expected to return to profitable trading next year.

Shewell notes that several bank covenants have been breached related to the UK subsidiary. “Our borrowings climbed to $3.332 million while equity fell to $931,000.

Donovan resigned late in October. There has been no decision on a replacement.

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