KEY POINTS:
The tenuous financial state of The Joneses came under fire yesterday as reasons behind the maverick real estate agency's failure began to emerge.
Brian Gaynor, of Milford Asset Management, who is also a Herald columnist, said the company's own accounts revealed it had an operating loss of $6
million from September 30, 2006, to November 30 last year.
Yet it had spent $3.2 million on advertising and promotion.
Some analysts were also angry that the company's planned reverse listing on the New Zealand Exchange's alternative market was still being promoted as recently as last week. A presentation to at least one Auckland broking firm emphasised bright prospects.
Gaynor said the firm's failure should act as a warning to others.
He issued a commentary on the collapse, saying the liquation should give a clear message that entrepreneurs had to take a long-term view when contemplating listing.
He also criticised the role of independent advisers who had valued the company, raising questions about the report prepared by WHK Corporate Finance on January 30.
Gaynor questioned how the company could fail less than three weeks after WHK's report concluded it had a mid-point valuation of $14.4 million.
But WHK's report also firmly emphasised the fragile nature of the business, giving a detailed analysis of business risks for The Joneses.
"The model remains unproven and largely untested over the longer term," WHK said. "At the time of preparing this report, its operations are cashflow negative, although cashflows are expected to turn positive in February/March 2008.
"As is often the case with new businesses in their initial development phase, funding is urgently required to provide short-term working capital and to finance future growth in existing and yet-to-be markets."
The Joneses' performance up until January 30 suggested property vendors were willing to embrace a departure from the traditional industry practices, WHK said.
"The business nevertheless relies on a range of novel practices and processes to sell residential real estate, including a desegregation of the listing and sales roles." The Joneses did not demand all a vendor's money upfront. Instead, a $675 fee was due at the time of listing and the remaining $8320 was only payable once a property sold.
Sharebroker Brett Wilkinson, a director of RLV which was the entity being used for The Joneses' reverse listing, confirmed that presentations were being made as late as last week. He was surprised by the liquidation because he did not think things were that bad financially. "And I shouldn't have been surprised," he added. He blamed high costs and rapid expansion as the main reasons behind the failure, citing the costs of the Auckland operation and large staff numbers.
"A lot of expense was incurred in establishing the office in Wellesley St, which was quite a big office but they had to take on a lot of staff. One could also argue that they moved a little bit too fast but the model was one where you had to go in and take the ground fairly quickly," Wilkinson said.
WORRYING SIGNS
* Independent advisers WHK said of The Joneses last month:
* Liabilities exceeded assets by about $860,000 on November 30.
* Liquidity deteriorated by $1.7 million since March last year.
* Funding "urgently required" for short-term working capital.
* The business employed 80 full-time salaried staff.
* Offices in Auckland, Wellington, Christchurch and Dunedin.
* Founders were Chris Knox, Chris Taylor, Peter Gilchrist, Peter Botica.