Allied Farmers' auditor refuses to give opinion, questions future viability
"How, possibly, can the board sit there and assume going concern. Apply the solvency test and close it down, for goodness sake."Featured comment
BUSINESSDESK: Auditors for Allied Farmers, which failed to turn itself into a major lender when it took on the Hanover and United Finance loan books, have refused to give an opinion on its books after questioning the validity of its forward cashflows.
The accounting firm PWC's audit of Allied Farmer's 2012 financial statements include the little-used "Disclaimer of Opinion", where the auditor declines to express an opinion.
It says it is "unable to obtain sufficient audit evidence" that the group will generate enough cash from asset sales, reach agreement with some of its creditors, retain the support of its secured lender and find new funding. Allied Farmers got qualified audit opinions in 2010 and 2011.
"The accounts were late as the auditors were waiting for a response to a loan application to form a view on the going concern assumption," Allied Farmers says. "In the event, the application was declined and the auditors considered they could not form a view."
Allied Farmers says it is progressing with an alternative loan proposal and will keep the market informed of the outcome.
The Hawera-based company narrowed its full-year loss to $14.1 million in the 12 months ended June 30, from $40.98 million a year earlier, as it wrote down the value of the Hanover and United loan books even further.
The Hanover and United deal was valued at $394 million when the assets were acquired in a debt-for-equity swap at the end of 2009.
In the latest accounts, the assets of Allied Farmers' Asset Management Services unit, where the former finance company assets are held, were valued at $22.4 million, down from about $37 million a year earlier.
Allied Farmers' shares last traded at 2.9 cents apiece, valuing the firm at just $2.6 million. It has 90.8 million shares on issue after a massive share consolidation after stock on issue billowed to some 2 billion in the wake of the debt-for-equity deal.
The company's accounts are presented on a going concern basis, meaning it is not expected to fail in the foreseeable future, on the strength of cashflows derived from continued asset sales, new funding and more business restructuring, loan repayment agreements being settled over the next two years, ongoing support from its secured lender, dividend payments from its subsidiaries, complying with lending covenants, meeting its cashflow targets, cutting head office costs and no further deterioration in the wider economy.
The firm is seeking a replacement for its $250,000 overdraft, but is uncertain of that outcome, it says.
Allied Farmers got some respite from its secured lender, failed subsidiary Allied Nationwide Finance, with its annual interest cut to 8% from 12% when Crown Asset Management took control of the lender.
Allied Nationwide is owed $17 million in two facilities, one maturing in March next year, with the remainder in July 2013.
Crown Asset Management took on the management of the Allied Nationwide assets in August as part of the government's move to exercise greater control on failed lenders that used its retail deposit guarantee.