Hard times for AIB and Bula in 2002 but Revenue was a winner

COMMENT / Bill Murdoch: The good, the bad, and the ugly; 2002 was well and truly peppered with all three. Which dominated? They are, of course, too numerous to list, and most, like AIB's fraud e.t.c., have been well documented. But others, perhaps, need more airing. Let us start with the ugly.

There has been plenty of ugliness in 2002 but Bula Resources, which has 40,000 small shareholders, must top the list because of the sheer litany of questionable events. It is almost unbelievable. For a start, Mr Albert Reynolds, our former Taoiseach, took over the chairmanship in March 1999. Fine, but during his tenure the company had three managing directors, before he decided to go forward for re-election at an angry annual general meeting.

Sure it was a difficult assignment and here are a few of the fallouts; dealings in the shares were suspended for eight months due to the group's uncertain future and earlier this month they were delisted. It lost its sponsoring broker in January when Davy resigned. And, as if that was not enough, the Irish Stock Exchange issued a public censure to the company for improper share transactions by Mr Reynolds and another director, Mr Patrick Gillen. Whew!

But two deals that the company was relying on always looked decidedly iffy. First, it has been trying to secure completion of a shares issue to two Libya-linked companies (linked to the Ghadaffi International Charitable Foundation). Eyebrows were raised on that one! Second, it has been seeking to retrieve a refundable deposit of €1.5 million, as part of a proposed deal with an outfit called Althamer Establishment in Bahrain. Ahem! Maybe this is a believable explanation; the chief executive of Bula, Viscount Torrington, when asked about recovery, summed it up when he said these are Arab countries. "My answer is Insha' Allah (God willing)". Fine, but what about culpability and who is going to pay the price for the questionable decisions?

A second ugly has to be SmartForce, the e-learning company acquired by SkillSoft in October. It revealed that it had booked $40 million revenue earlier than it should have had during the technology boom. This was very surprising; did it not make a great play of adopting a more conservative accounting policy a few years back? This led to an initial cut in revenue, followed in later years by what we thought were more realistic figures. It must be a major revelation that the largest overstatement, amounting to $28 million, was in the period 1999/2001, as revenue was booked on the execution of the contracts rather than over the duration of the contract.

After that, how can any investors have any confidence in that company? It is not surprising that it is now facing its second bout of class actions.

So what about the bad. I have picked just one from the very many. With the crucial talks on a successor agreement to the PPF now in trouble, the participants should take an eagle look at the erosion in our competitiveness. As anyone close to industry knows, higher costs, including that awful hike in employer liability insurance, is hitting hard.

Witness all those job losses, particularly from indigenous industry. The Global Competitiveness Report ranks the Republic 24th, down from 11th in 2001. That was picked up by everybody but what has not been highlighted is that the Republic - wait for it - had been more competitive than Britain (12th in 2001) but, significantly, our neighbour, at 11th, is now well ahead of us. That has to be ominous for the future.

Of course, there have been plenty of good tidings like new plants emerging and expansions.

Apart from those essential developments, two positive events immediately spring to mind. The pursuit by the Revenue Commissioners against tax delinquents is one. That has to be applauded even though it is coming in for flak for its non-payment of interest on tax over-payments.

But it has been active and by earlier this month had collected €50 million from holders of bogus non-resident accounts who had failed to avail of last year's amnesty. Considerably more is expected to flow through.

Another good move has been the call by the Society of Investment Analysts in Ireland for the introduction of new measures that would ensure the objectivity of financial analysts.

It wants a formal written policy on the independence and objectivity of analysts' research and those who present their research in public should disclose "personal as well as any of their firms' conflicts of interests". That should, indeed, be the goal. Aren't there supposed to be Chinese Walls in existence to stop the flow of information between research and investment banking?

There have been high-profile prosecutions in the US (and what about those company brokers who have been pursued for recommending their client's shares!) but no similar prosecutions here.

That begs the question: is our stockbroking community more pure? More about that, and other malfunctionaries in 2003.