Sigma investors expect the worst when belated results are...

Sigma investors expect the worst when belated results are released

* SHAREHOLDER: Stuart Wilson
* From: The Australian
* March 30, 2010 12:00AM

WITH Sigma Pharmaceuticals currently suspended from trade by the Australian Securities Exchange, shareholders are expecting the worst when it releases its belated results this week.

At least, they tell us that they will come clean this week. If they miss another deadline the chances of them ever re-entering the market will become very slim. The level of distrust among shareholders has reached tipping point, and it is likely their lenders are of a similar temperament. All shareholders know is that there is some kind of disagreement with the company's auditors.

On the one hand, it is encouraging that the audit fraternity is showing some backbone and standing up to their clients and from a systemic confidence perspective, examples of hard-nosed auditors provide some comfort to shareholders.

On the other hand, it is disturbing that Sigma is unable to produce a set of accounts almost three months after its December 31 balance date and the vacuum of information on Sigma leaves shareholders thinking the worst.

To their credit, experienced directors John Stocker and Linda Nichols have stayed on to deal with the crisis rather than jumping ship. And they will know when Sigma emerges from this crisis, the auditors will be untouchable.

Any move to replace PricewaterhouseCoopers in the next year will be met with a strong suspicion that it was the fall guy for management.

One of the more curious reasons for the delay in releasing results was that Sigma is conducting negotiations with lenders.

There are really only two ways this can effect a company's financials. Either they are such a distraction that management can't focus on giving answers to auditors or there is some threat to the company being a going concern and being able to pay its debts.

Either way, it has left shareholders expecting a share price cliff dive when trading resumes.

The other major disappointment with Sigma is that the expected writedown of goodwill was said to be partly influenced by the increased market pressures in the generic drug business.

Market pressures build and wane over rather long periods, and Sigma ought to have known about any substantial shifts in the competitive landscape well before the end of last year.

Too bad for shareholders, especially those who participated in a fast-tracked capital raising in September. While institutions are gearing up to take legal action against Sigma, retail shareholders are effectively hamstrung with no real access to class actions."