Wynyard and Pumpkin Patch

Two recently released reports on Wynyard Group and Pumpkin Patch, under section 239AU of the Companies Act 1993, highlight issues with how these growth companies were run.

The 24 page Wynyard report, which was prepared by KordaMentha, derived most of its information from public documents.

In summary, the company raised $ 65m through its IPO with $ 35.6m going to Jade Software Corporation, $ 25.8m to support Wynyard’s growth strategy and $ 3.6m for IPO costs.

The security and risk management software company expanded rapidly in Asia Pacific, Europe, Middle East, Africa and the Americas with staff numbers increasing from 151 to 297 between 2013 and 2015.

However, revenue per employee declined from $ 162,000 to $ 100,000 over this period and the company was heavily reliant on capital raisings to fund its day- today operations.

Last year, the company advised that it would reduce its monthly cash losses from $ 4.8m to $ 2.4m but this was not achieved and it was placed in voluntary administration on October 25, 2016.

KordaMentha concluded: “The cost base of operations was too great for the revenue Wynyard was able to generate from its products.”

It is clear that this fatal issue was not due to any unexpected external event.

McGrathNicol’s detailed 53- page report into the collapse of Pumpkin Patch paints a similar gloomy picture of the company’s governance. Pumpkin Patch had “an inefficient retail network”, “failed expansion into the UK and US, funded by debt”, had “inadequate merchandise planning” and lack of capital because “almost all ( 95 per cent) of accumulated NPAT from FY05 to FY11 of $ 90.7m was paid out as dividends”.

These Wynyard and Pumpkin Patch reports should be compulsory reading for listed company directors as our sharemarket will continue to be dominated by low- growth utility type entities unless we do a far better job of managing our cyclical and growth- oriented companies.