Quarterly results and looking for needles

The results season keeps one busy. Companies with good results (or promotional management) will have half page ad's in papers with Big Up Arrows around numbers. I have not seen an ad with down arrows - actually I saw few - but they were NPA numbers for banks.

As always, it is the change in the behavior that offers more clue than the behavior itself. If the company you are following put ads in the papers last Q and not this Q, that might be worth investigating. If there is no press release this time and the announcement of results is wrapped up by just a filing with NSE/BSE, that might be worth investigating.

Case in Point: Zicom security solutions. No press release on the web site. Thankfully, results are posted under Investor section. PAT is shown as 2.23 Cr and all looks OK till you read the notes.
Note 3 is produced verbatim below:

"

3. The Board of Directors of the Company in its meeting held on July 2, 2007 has approved the Scheme of Arrangement whereby with effect from April 1, 2007, Consumer Service (Retail) Group Business ["CSG (Retail) Business"] would be transferred into Company's wholly owned subsidiary. The said arrangement is subject to the approval of Honorable High court and other authorities. Pending the approvals, the results shown above do not include results of CSG (Retail) business.

The results of the Company without giving effect to the above Scheme of Arrangement would have been as under:

Net Sales – Rs. 4516.70 Lakhs
Profit Before Tax – Rs. (417.32) Lakhs

Profit After Tax – Rs. (417.32) Lakhs

"

Let's see. The company would have lost significant money if it had not separated the results of one business unit. Moreover, this business unit , even after separation, will be fully owned subsidiary - so, consolidated results should include it anyway. Such things make me go Hmm...


Here is what the next note says:
"

4. The above results are prepared on stand alone basis and do not include results of subsidiary viz. Zicom Manufacturing Co. (HK) Ltd and Joint Venture Company viz. Unisafe Fire Protection Specialists LLC, Dubai.

"

My interpretation: We won't tell you what the results would have been on consolidated basis because picture won't be pretty.

The company had come on my radar as a possible Peter Lynch type retail expansion play. It is investing into consumer brand building (that's where the losses possibly come from) and is going to have outlets in various malls.

Unfortunately, with this kind of accounting, I have to say Pass!