Uncertain times for Mackie International

THE shock revelation that Mackie International's published accounts may have to be restated is a double body blow for the company.

First, coming so soon after the flotation in 1994 it creates a blemish that may be hard to erase. Second, Mackie, the engineering and textile machinery group is delicately straddling the two religious communities in Springfield Road, Belfast, and the flotation in Dublin (as well as London) seemed to symbolise a reconciliation of the communities and of better things to come. Indeed, its factory floor was chosen as the venue for the delivery by President Clinton of his keynote address during his visit to Northern Ireland in November, 1995.

Now for Mackie to be seriously considered as an investment medium, it needs a double dose of medicine: a return to a peaceful political environment and a credible reorganisation programme under the new management.

It came to the market in October, 1994, like a breath of fresh air, in the wake of the IRA ceasefire. Its success on that score, however, was a mere brief encounter. While the political environment is outside its control, Mackie has the potential to sort itself out as a company. But will it?

Looking at its brief record as a publicly quoted company, that will not be easy. And it has not got off to a good start. It was a retrograde move not to tell its brokers, NCB in Dublin and Teather & Greenwood in London, of its pending share suspension until after it had told the exchanges.

A number of events leading up to the flotation, and immediately afterwards, should have created some apprehension. The prospectus, subsequent trading and share sales by a director, for example, did not breed confidence. Substantial losses were recorded in the five years up to the flotation but the firm produced a profit in the first half of 1994, so it looked to be in a recovery mode. Also the future looked bright. The placing of new shares would eliminate group indebtedness and assist in the financing of its capital expenditure programme.

Confidence in the company was confirmed when the full results for 1995 were published. A healthy profit of £3.27 million sterling was recorded, representing a comfortable 14.4 per cent margin on the £22.68 million sales. A dividend of 11p per share was declared. Everyone appeared to be happy.

That illusion was quickly shattered. Despite a warning that growth would be affected by uncertainty over a major order in China, it promised that 1996 profits would be ahead of 1995 levels. Then the market rightly reacted negatively when Mr Pat Dougan, the then chairman, sold half his 26 per cent stake in the company to Irish and British institutions for £4.75 million. That represented 380p per share compared with last week's presuspension price of 113 1/2p.

A few months later a subsequent rights issue to raise £6.68 million was shunned, with only 36.85 per cent being taken up by shareholders. That response was not surprising as the share price had dropped below the issue price. It had been affected by a flareup of violence and a collapse of the stock markets.

But even at that stage, the company was still insisting that 1996 profits would still be ahead.

But the omens were looking bleaker when the half year results showed a 21 per cent fall in profits. But it was not until November before it issued a formal profit warning.

Talks of a bid kept the share price up for a little while. But then the rot started to set in when it announced losses of £437,000 for 1996, after exceptional charges of £1.9 million.

With these figures being questioned by the new management, headed by Mr Sul Sahota, it is now crunch time for the group. Mackie has been locked in discussion with its advisers all last week. These are expected to continue this week and possibly beyond.

Mr Sahota is credited with building up Burnfield, a manufacturer of laser measuring equipment, from £13 million to £58 million in a four year period, before it was taken over by the Fairey Group. He is likely to take a very conservative view of the provisions, which means they will be substantially increased. This would allow him to start with a new slate (and possibly give some leeway for some subsequent clawbacks if some of the provisions turn out to be too conservative).

When the revamped figures are announced within the next week or two, Mackie's net worth will be much lower. That could prompt the interested suitor to renew talks. Nevertheless, it is clear that Mackie is facing an uncertain period before it can be considered a serious investment prospect.