JSE & FSC should explain Knutsford capital mess

Knutsford Express 2014 & 2015 audited accounts filled with errors & 2018 needs correcting.

Knutsford Express recently released full year audited results to May 2018 with s lightly higher profit of $178 million after taxation compared to $170 million in 2017. The profit resulted in earnings per share of 35.5 cents for the year versus 34 cents in 2017.
The initial release of the results had the 2017 earnings per share as $1.70, but that was incorrect as the wrong number of shares were used. The company released an updated report but that still reflects the error in computing the EPS. In June 2017, the shares were split in to 5 each, raising the issued capital to 500 million units. But the revised report carried the error which was in the first report that the weighted number of shares issued was 498 million units, that is completely wrong.

JSE failed to have errors corrected in audited accounts.

Stock splits and bonus shares don’t give rise to weighted number of shares as no value is added to the company. As a result, all the issued shares have to be used in computing the EPS for both periods.
The appropriate methodology is that the “Additional shares from the share split are incorporated in the calculation of EPS in full without any time apportionment so that the increase in number of shares in the current period, comparative prior periods and all subsequent periods is the same therefore resulting in EPS which is comparable over several accounting periods.”
Interestingly, the number of shares used to compute the interim report to February was correctly shown as 500 million units. As it now stands, the audited accounts and the interim reports have used different figures. What is the Jamaica Stock Exchange doing to correct this?
The first audited accounts, after listing, carried an even greater error was with no correction to date.
The audited accounts stated, “Earnings per share is computed as the net profit for the year divided by the weighted average number of ordinary shares in issue for the year as at the date of the statement of financial position of 46,857,114 (2013: 1,000). For comparative purposes, the earnings per share for 2013, using the weighted average number of ordinary shares at the end of the 2014 financial year, would be $0.74.”
The financial statements for 2014 stated, “During January 2014, the Company raised additional capital of $99,862,700 from its initial public offering of 99,999,003 shares for its enlistment on the Jamaica Stock Exchange Junior Market. Transaction costs of $5,374,140 were incurred for the initial public offering”. That is in conflict with the prospectus which stated, “The Company invites Applications on behalf of itself and the Founders (or the Selling Shareholders) for 20,000,000 Ordinary Shares in the Invitation of which 4,867,338 shares are newly issued shares for subscription and 15,132,662 shares are existing shares of the Selling Shareholders for sale”.

The FSC has fallen down on the job in reviewing Knutsford’s prospectus & reports after IPO.

While the note is saying that $100 million was raised, the cash flow and shareholders’ equity show that only $25 million was raised.
Not only are the audited accounts for 2014 and 2015 in conflict with the information included in the prospectus, it is factually incorrect as the initial public offer of shares was never 99,999,003 units. There is no indication how the original three shareholders holdings moved to the above amounts when just 973 were issued in the prior year.
The prospectus stated that “as at December 18, 2013 the latest practicable date prior to publication of this Prospectus, the holdings of Shares in the capital of the Company (including legal and, where known to the Company, beneficial holdings) were as follows: Oliver Townsend 41,858,371 or 44 percent, Anthony Copeland 30,442,452 Shares at 32 percent and Gordon Townsend 22,831,839 or 24 percent for a total issued Share Capital before invitation is 95,132,662. After the issues, the total number of shares went to 100 million units with all three original shareholders reducing their holdings.
One of the objectives for mentorship, of Junior Market companies, is to prevent errors like these from occurring, but they still continue.
While these errors remain, investors are being deprived of pertinent information to assess profitability. The company should be showing expenses in the categories of direct expenses marketing and sales, administrative and finance. But investors continue to get just one lump sum figure to assess that is not good enough.
While revenues for the past year grew by 23 percent to $925 million while other income declined from $8.5 million to $1.5 million. Cost climbed faster at 25 percent for the year before finance cost, Finance costs rose to $21.7 million from $17.6 million. The company is not subject to taxation and should not have deferred taxation amounting to $3.7 million, while the tax credit of $5.7 million in the prior year should not have been booked.
The balance sheet shows shareholder’s equity at $630 million at the end of May current assets at $304 million including cash and equivalent of $230 million and current liabilities of $63 million. Borrowed funds stand at $78 million.

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