CS Holdings gets a very bad review from JSE but Bytes may still bite
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Bourse slams IT group for poor reporting of deal involving EDD unit
Information Technology Editor
ACCOUNTING practices at troubled technology group CS Holdings have been condemned as deficient by the JSE Securities Exchange SA (JSE), which has ordered the company to publish an explanation of how it misaccounted for the sale of a subsidiary.
But this attack on the company`s accounting standards is neither a surprise nor a deterrent to larger IT group Bytes Technology, which has conducted its own probe into CS Holdings as a prelude to a possible takeover.
Yesterday, Bytes CEO Dave Redshaw said his company was wading through due diligence reports `six inches thick` and had not lost interest in a deal.
The JSE`s rebuke of CS Holdings concerns the way it recorded transactions involving its EDD subsidiary.
The JSE concluded that the 2002 interim results were deficient, as the sale of EDD to Faltalia Investments was material and should have been disclosed separately. The proceeds of the sale were overstated by R1,7m, and the company`s profits were overstated by R295000.
Disclosure around a change in a tax estimate was also inadequate.
Deficiencies continued in its 2003 annual results, with insufficient disclosure that the EDD sale had been cancelled. Nor had its accounting improved in the interim results for 2003, when its accounts were also ruled as deficient by the JSE.
The JSE findings follow a series of controversies involving CS Holdings, including an investigation into its accounting practices by its major shareholder, Reunert. The group then saw the resulting resignation of CEO Annette van der Laan; and the withdrawal of takeover proposals by Reunert and two other groups after conducting due diligence.
Last week, the Financial Services Board announced it was investigating potential insider trading in CS Holdings shares. The period under scrutiny is prior to the issuing of a profit warning in April, shortly after Van der Laan sold some shares.
None of the trio of companies UCS, Reunert and EOH that expressed an interest in acquiring CS Holdings had specified why they decided not to proceed with a formal bid, although Reunert CEO Gerrit Pretorius said efforts to get all necessary parties to support its takeover offer had not been successful.
That unsettling series of events was making Bytes `extremely cautious` about its proposed acquisition, said Redshaw.
`Nothing which has been put out by the JSE is a surprise because we have known it all the time. We have been doing due diligence for two or three weeks and we have been through their accounts in considerable detail,` he said.
`They had fairly aggressive accounting policies in place and we have taken all that into account in our assessment.`
Once it has studied due diligence reports, Bytes will decide whether to make a firm offer , and if so, at what price a share.
CS Holdings shares were trading at just 17c yesterday, well below the 37c price at which they were trading when Reunert proposed a bid at 35c and even further below the company`s 76c price immediately before the accounting scandal broke with news that profits had been inflated .
The Bottom Line: Page 12
Jul 15 2004 07:04:54:000AM Lesley Stones Business Day 1st Edition
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