ASX questions Sonnet’s operating loss disclosure

Services specialist Sonnet has been grilled by the ASX over its 15 November company update statement.

The update reported that the company's operating performance, coupled with the seasonality of the first two quarters, would result in an operating loss for the period ending 31 December 2005.

On 21 November the ASX issued Sonnet company secretary, Campbell Nicholas, with a letter questioning the length of time between when the company became aware of this loss and the time it was reported to the ASX.

The letter also questioned an increase in trading and a change in the price of the company’s securities.

On Monday 14 November the shares closed at 12.5 cents down from a closing price of 16.5 cents on Friday 11 November.

In a replying statement, Sonnet chairman Jim Landau said the company first became aware of the operating loss — confirmed as an EBITDA loss of between $100,000-$600,000 — first occurred on 14 November.

“The likelihood of a possible operating loss for the first half period was discussed at an operational management meeting on the 14th November where a review of the timing of the IT sales pipeline and current work in progress indicated the possibility of poor operating results in the second quarter,” Landau said.

“This conclusion was reached despite the fact that month to month variation in operating results is common in the IT services business and the second quarter historically provides the majority of the company’s first half profit.

“As such the executive team drafted a company update which was released the following morning prior to market opening."

Landau also responded to the ASX’s query over the pricing change and increase volume in trading of its securities.

“The company is not aware of any reason and does not have an explanation for the price change and increase in volume on the 14th November 2005,” he said.