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Report on aspects of the initial public offering of Vertex Group Holdings Limited in 2002

Vertex made an offer of shares to the public in a combined investment statement and registered prospectus dated 7 June 2002 (the offer document). Following the IPO, the shares were allotted on 1 July 2002 and Vertex listed on the New Zealand Stock Exchange (NZSE) on 1 July 2002.

Just over two months later, on 4 September 2002, Vertex made an announcement to the NZSE that it expected its earnings before interest and tax (EBIT) for the six months to 30 September 2002 to fall short of the amount forecast in the offer document for that period. Vertex said it expected EBIT for the six months to be down by 15% on its forecast, and its full-year EBIT to 31 March 2003 to be down by 10%. The announcement also stated that Vertex expected revenues for the six months to 30 September 2002 to be down by 10% on the amount forecast in the offer document, but that full year revenues to 31 March 2003 were expected to be in line with the forecasts contained in the offer document.

The company attributed these anticipated shortfalls to a "poor second quarter", expanding on this as follows: "The major component in this shortfall is the performance of the Technical Injection business. Weak export sales for animal health applicators (primarily due to reduced US demand for 'over the counter' products) and unanticipated delays in customers' planned new product introductions have affected sales and production efficiencies in the business unit...

Securefresh packaging sales have also been under plan due to the recent substantial reduction in Australian chilled lamb exports related to drought and market changes. The business has also experienced delays in customer take-up of new technology...

The final stages of the 18 month restructuring program, Project New Age, have resulted in higher than anticipated costs in recent months in the Dairy and Industrial businesses."

On 5 September 2002 the NZSE announced that it had referred the matter of Vertex's compliance with the continuous disclosure obligations of the NZSE Listing Rules to the Market Surveillance Panel for investigation. The Market Surveillance Panel's investigation considered the period between the release of the offer document on 7 June 2002 and the announcement made by Vertex on 4 September 2002. The Market Surveillance Panel announced its findings on 4 March 2003.

In its statement of 5 September 2002, the NZSE said:

"[A]s yesterday's announcement by Vertex may cast doubt upon the accuracy of the forecast financial information presented in the Investment Statement and Prospectus dated 7 June 2002, the Exchange has referred this matter to the Securities Commission for its further consideration."

The Commission notes that on 20 February 2003 Vertex made a announcement to the NZSE that it had further revised its expected earnings before interest and tax (EBIT) for the full year to 31 March 2003, and expected EBIT to fall short of the amount forecast in the offer document by between 14 and 18% for that period. The Commission has reviewed that announcement and does not consider that it raises any further issues for the Commission.