Takeover-target Vertex may be hit by costs of litigation

Packaging group Vertex is expecting trading profits to match last year's but its net profit may be hit by legal costs, its court-appointed chairman has revealed.

Tony Frankham said the plastics packaging company was on track to meet or beat its budget expectations for the year to 31 March 2005, which is for an operating result in line with the previous year.

The company posted a net profit of just over $5 million for the year to March 2004, up from $1.2 million a year earlier.

But he said abnormal costs flowing from the litigation would have an impact on net profit after tax for the year. "This is not expected to be other than a 'one off' and should have no impact on earnings into the future," said Frankham.

The statement was drawn out by criticisms of the company's performance and management made by the Stewart-family owned Masthead as part of a $48 million takeover bid for Vertex announced this week. Masthead has bid $1.90 for Vertex shares, which were trading at $1.60 prior to the bid.

Frankham said he would write to shareholders early next week, recommending they do nothing until a valuation of the company by Grant Samuel has been received and independent directors have made a recommendation, expected before the end of March. He said shareholders should ignore the criticism.

"In my view Vertex is a sound company with good prospects," he said, warning Masthead's comments could cause an "unjustifiable" loss of confidence in Vertex and in the value of its shares.

Frankham said budget forecasts were on track despite large increases in raw material costs and the adverse impact of the high New Zealand dollar on Vertex's export business.

He said the company was ably led by managing director Paddy Boyle and the recent resignation of chief financial officer George Clark was not linked to the board dispute Masthead gave as the reason for its bid.

"I am satisfied that Paddy Boyle and independent director Sandy Maier have been motivated by their concerns for the best interests of the company and the shareholders when they raised concerns about the issue of potential conflict of interest, subsequent to Masthead acquiring its shareholding and gaining board representation."