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FINANCIAL CHRONICLE™ » EXPERT CHRONICLE™ » Touchwood Case Review

Touchwood Case Review

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seyon

avatar
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Unofficial information that the expected Touchwood case against Sri Lanka Accounting and Auditing Standards Monitoring Board(SLAASMB) next hearing will be on 26th May 2011. Yes everyone looking the favorable outcome. Today, there are rumors that outcome will be favorable to the company and some brokers recommend to buy at current price. I could see some collection (about 820,000 shares) was made @ 23.60 levels.

I just did some research on the Touchwood Case. It looks like decision will be favorable to company. (This is not a promotion, just merely to getting your views. To be honest I do not have TWOD shares at the moment.)

We all know about the case related to the valuation of biological assets. I extracted some facts from SLAASMB website of case information to start from beginning.

The Sri Lanka Accounting and Auditing Standards Monitoring Board has determined that the estimates of fair value of biological assets used by Touchwood Investments Limited in its financial statements for the years ended 31 March 2005 and 31 March 2006 are clearly unreliable. The Company has also not been able to provide the Board with any other estimates which are reliable. Further, the method of valuation used for the year ended 31 March 2005 was not in accordance with International Accounting Standard, IAS 41 Agriculture, which the company has purportedly adopted.

As the company has purportedly adopted International Accounting Standard, IAS 41 Agriculture, the Board has concluded that the biological assets should have been valued at a value which approximates cost in accordance with paragraph 24 (b) of IAS 41 or at cost less accumulated impairment in accordance with paragraph 30 of IAS 41. Based on such valuation the company would not show a net profit for the relevant financial periods.

As the impact on the financial statements is substantial the Board has decided to refer the non-compliance to the Attorney General. The Board has also decided to investigate the compliance with auditing standards by the auditors in relation to the audit of the financial statements of the Company.

Based on the above information I can see in the absence of Sri Lanka Accounting Standards, company uses International Accounting Standards 41, Agriculture for the valuation of biological assets. But SLAASMB argument is that estimates of fair value of the biological assets in not accordance with IAS 41 and the financial statements are unreliable.

Further I have received BASL News Letter (Bar Association) of December 2010, there talked about some legal judgment (I attached the newsletter in our research forum http://research.srilankaequity.com/t96-touchwood-case-basl-bar-association-news-letter-judgement-views , refer page 4 for the Touchwood case). There they briefed about the case and given their views. Based on that, Board had not statutory power to challenge the valuation of the Petitioner on non compliance with IAS 41.

Further company received the Certificate of Compliance by the Institute of Chartered Accountants of Sri Lanka for the Annual Report Awards 2010. This certificates covers the CSR, Financial, Presentation and Compliance. Therefore, this reveals that the company practice in valuing biological assets in accordance with IAS 41 as the certificated awarded by ICASL which is the statutory for setting the Accounting Standards

Followings extract from Touchwood website

Certificate Of Compliance

January 24th 2011

We are proud to announce that our Sri Lankan office, Touchwood Investments PLC has been awarded the “CERTIFICATE OF COMPLIANCE” by the Institute of Chartered Accountants of Sri Lanka for the Annual Report Awards 2010 - at the ceremony held on 7th December 2010.

This award is granted by the Inst. of Chartered Accountants of Sri Lanka every year. They evaluate and grant awards in key areas such as - CSR, Financials, presentation, compliance, etc.

This certificate emphasizes that all requirements are being met in order for us to achieve our goals and serve our investors with industry leading standards.

For the year to come Touchwood Investments PLC has its goals set on the CSR awards to be handed out in the 2011 ceremony.

Thank you to all our accounting and administration staff who made the award possible.

http://www.touchwood.com/news/certificate-compliance

So Guys, Based on the above information and facts, to me the decision would be favorable to company. How do you all look into that..

Pls Share ur thoughts and views

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Slstock

Post Tue May 24, 2011 4:27 pm by Slstock


Thank you Seyon for reminding on a long forgotten share due to this court case. rep from me.

Last year there was lot of interest in this but due to postponement of court cases on multiple times the interest died. I remember buying this for around Rs 26 last august and then later disposing it over Rs 30+. There was lot of intrest in the Rs 30.

The rumor is they might win it but the issue is will the case get postponed again. If so this can get stagant again most likely.

In the financial, one issue we should look at further is whether their gains are now actually more cash or whether they are revaluation gains. I see many opponents and proponents with this company. But I think this current price is attractive.

Anway would like to see the financial report . They should release one for March. Think they were in Diri Savi board.

avatar

Post Tue May 24, 2011 4:50 pm by StocksWatch

@slstock wrote:
Thank you Seyon for reminding on a long forgotten share due to this court case. rep from me.

Last year there was lot of interest in this but due to postponement of court cases on multiple times the interest died. I remember buying this for around Rs 26 last august and then later disposing it over Rs 30+. There was lot of intrest in the Rs 30.

The rumor is they might win it but the issue is will the case get postponed again. If so this can get stagant again most likely.

In the financial, one issue we should look at further is whether their gains are now actually more cash or whether they are revaluation gains. I see many opponents and proponents with this company. But I think this current price is attractive.

Anway would like to see the financial report . They should release one for March. Think they were in Diri Savi board.


Yes slstock. The company might win the case eventually but when is the question. This has been adjourning for a considerable period of time now.

By the way I heard that the first harvest is due within few months time. I think the first harvest is due from thier Aga wood plantations. Has anybody got any idea about this?

If the above is correct, then we will see the actual return from the harvest. This will prove whether thier forecast was correct or not.

sureshot

Post Tue May 24, 2011 8:46 pm by sureshot

hi,
NOTE THE FOLLOWING PREDICTIONS.
twod is worth at this prices......
note the case will be favor of twod.99.9% sure.
the case is in July 2011.not tomorrow.
there will be a good rally before the case.
BUY ...HAPPY TRADING TO ALL.........

avatar

Post Tue May 24, 2011 9:47 pm by Thushara


Based on market behavior there is a possibility to have a run. (CSF, BLUE, CLND). If TWOD start ,it may be grater than above mentions rallys, since most of people have massive mega rally experience with TWOD.

Happy Trading...

factFINDER

Post Tue May 24, 2011 9:55 pm by factFINDER

@slstock wrote:

Anway would like to see the financial report . They should release one for March. Think they were in Diri Savi board.


Can any one explain me why TWOD releasing financial statements every six months (Sept & Mar) insted of QoQ??

avatar

Post Tue May 24, 2011 9:58 pm by Hiru

Hi friends,

On which ground the Institute has issued the certificate of compliance?

In my view, if the company has not adjusted the retained earnings in accordance with the way Board suggested, the Institute is challenging its own decisions as the Board includes members of the Institute. If the Company has not adjusted as suggested and Institute has given the CC, then the Company will win the case for sure.

On the other hand, If the Company has adjusted opening balances as suggested by the Board, it can't defend the case.

Any idea please

milanka

Post Tue May 24, 2011 10:13 pm by milanka

@factFINDER wrote:
@slstock wrote:

Anway would like to see the financial report . They should release one for March. Think they were in Diri Savi board.


Can any one explain me why TWOD releasing financial statements every six months (Sept & Mar) insted of QoQ??

If tWOD on second board , then its correct to issue statements every six months.

avatar

Post Tue May 24, 2011 10:17 pm by Light of Hope

@factFINDER wrote:
@slstock wrote:

Anway would like to see the financial report . They should release one for March. Think they were in Diri Savi board.


Can any one explain me why TWOD releasing financial statements every six months (Sept & Mar) insted of QoQ??

If listed on DiriSavi board, it is only required to lease your financials every six months.

Monster

Post Tue May 24, 2011 10:25 pm by Monster

@factFINDER wrote:
@slstock wrote:

Anway would like to see the financial report . They should release one for March. Think they were in Diri Savi board.


Can any one explain me why TWOD releasing financial statements every six months (Sept & Mar) insted of QoQ??
TWOD is listed under Diri Savi Board. Companies listed under Diri Savi board can submit the interim financial statement on a half-yearly basis.
http://www.cse.lk/listedcompanies/secondaryboard.htm

chamith

Post Tue May 24, 2011 10:58 pm by chamith

good research seyon.
I did refer the BASL newsletter, In that they have concluded in favor of the company. But today i saw high selling pressure than buying. According to DFN the cash map shows only 19.16% buying. If you refer the charts you can see that how volume has increased since last couple of days. Even if there were high selling today the price fluctuation was minimum. please refer the following snap shot;

Touchwood Case Review  Twod10

Disclose - I have TWOD in my pf

avatar

Post Wed May 25, 2011 12:07 am by seyon

@chamith wrote:good research seyon.
I did refer the BASL newsletter, In that they have concluded in favor of the company. But today i saw high selling pressure than buying. According to DFN the cash map shows only 19.16% buying. If you refer the charts you can see that how volume has increased since last couple of days. Even if there were high selling today the price fluctuation was minimum. please refer the following snap shot;

Disclose - I have TWOD in my pf

Yes i also have seen some selling pressure for last couple of days, i guess someones collecting at lowest price. Will see the outcome on Thursdays, if the case will not be postponed.

xhora

Post Wed May 25, 2011 12:15 am by xhora

chamith,
How did you get a screenshot of the entire time sale list?

avatar

Post Wed May 25, 2011 12:18 am by seyon

@slstock wrote:
Thank you Seyon for reminding on a long forgotten share due to this court case. rep from me.

Last year there was lot of interest in this but due to postponement of court cases on multiple times the interest died. I remember buying this for around Rs 26 last august and then later disposing it over Rs 30+. There was lot of intrest in the Rs 30.

The rumor is they might win it but the issue is will the case get postponed again. If so this can get stagant again most likely.

In the financial, one issue we should look at further is whether their gains are now actually more cash or whether they are revaluation gains. I see many opponents and proponents with this company. But I think this current price is attractive.

Anway would like to see the financial report . They should release one for March. Think they were in Diri Savi board.


Yes We will be able to see the financial in couple of days. Hope the court will not postponed the hearing this time.

chamith

Post Wed May 25, 2011 12:20 am by chamith

@xhora wrote:chamith,
How did you get a screenshot of the entire time sale list?

In Direct FN, right click on the counter you want and click on TIME AND SALE.

xhora

Post Wed May 25, 2011 12:24 am by xhora

no i wanted to know how did you get the screenshot of that entire thing??

chamith

Post Wed May 25, 2011 12:52 am by chamith

oh,

You have to join them using a photo editing software. You even can use MS Paint and join one screenshot after another.

xhora

Post Wed May 25, 2011 12:54 am by xhora

thought there would be a easier way Smile

avatar

Post Wed May 25, 2011 8:36 am by seyon

@Hiru wrote:Hi friends,

On which ground the Institute has issued the certificate of compliance?

In my view, if the company has not adjusted the retained earnings in accordance with the way Board suggested, the Institute is challenging its own decisions as the Board includes members of the Institute. If the Company has not adjusted as suggested and Institute has given the CC, then the Company will win the case for sure.

On the other hand, If the Company has adjusted opening balances as suggested by the Board, it can't defend the case.

Any idea please

Pls clear me that what u are trying to say, Certificate of Compliance i understands that some certain area like CSR, Compliance with Accounting Standards and Financial Presentation were evaluated by ICASL and awarded. This reveals company practice in valuing biological assets are line with the accounting standard ( IAS- Agriculture).

Court looked some different angle that SriLanka accounting Standard related to the valuation of biological assets is not gazetted, it still in the draft model. Since Monitory Board does not have a power to challenge the company practice in valuing the biological assets. ( Pls refer the BASL Newsletter for the brief discussion of the case, which is uploaded in our research website.

This is my understanding... anybody has different view...

avatar

Post Wed May 25, 2011 11:10 am by dimuthubas

@xhora wrote:thought there would be a easier way Smile

1.Press the "Print Screen" once
2.open paintbrush
3.Ctrl+V

Got it. ;-) enjoy

avatar

Post Wed May 25, 2011 12:39 pm by seyon

The present buying pressure reveals some good news we can expect from the company.

Hawk Eye

Post Wed May 25, 2011 3:48 pm by Hawk Eye

All thier profits are in Books. cash flow didnt look good until the rights issue. they havent given dividends for a last couple of years.

avatar

Post Wed May 25, 2011 4:37 pm by seyon

Some are telling court case on 26th May 2011( Tomorrow), Some telling It is put off to 18th July 2011. which is correct. Anybody knows the exact details.

avatar

Post Wed May 25, 2011 4:42 pm by Sana

@seyon wrote:Some are telling court case on 26th May 2011( Tomorrow), Some telling It is put off to 18th July 2011. which is correct. Anybody knows the exact details.


yes its exeactly on 18th july 2011.

mono

Post Wed May 25, 2011 6:14 pm by mono

@Hawk Eye wrote:All thier profits are in Books. cash flow didnt look good until the rights issue. they havent given dividends for a last couple of years.

i think that is because of their business structure. they're like an investment fund. profits are a fair value assessment.

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