THE restated results from Mackie International, the Northern Ireland engineering and textile machinery group, are as bad as the worst fears.

The reassessment of the company indicates very questionable investment decisions in the past and the restating of 1996's results which increased the published losses from £0.4 million sterling to £7.2 million must be deeply disturbing.

This raises the question: were the previous year's accounts overinflated? That is a very valid question which should be asked by the shareholders who participated in the group's flotation in 1994 and who saw their shares reach a peak of 380p 18 months ago, only to see them slump to 113p prior to the suspension of the share listing.

The numerous shareholders who rightly shunned the rights issue last June, at 275p per share, must be thankfully mopping their brows that they didn't get caught.

Either the new management is taking too conservative a view of the accounts, or the previous management took too liberal a view.

There is a temptation in restructuring programmes for the new management to write off as much as possible. This avoids extra contingencies arising and gives the new team leeway to have some writebacks at a later stage.

However, the extent of the financial scrutiny is surprising. It covers a whole host of items and includes stocks, debtors, creditors, trading contracts and investments.

Under scrutiny

. Stocks - additional provisions of £1.7 million were made following a "reassessment" of the estimated net realisable value of machines purchased as part of discount arrangements for supply contracts, and other stocks.

Clearly the new management has a different view of these values which says a lot for published accounts. Question: when is a profit, a profit? Answer: when the management decides on a particular valuation for the stocks.

That might be taking too cynical a view, but the changes made by the new Mackie management clearly indicate the degree of flexibility there is in finalising accounts.

. Debtors - a "prudent" approach has been taken leading to additional provisions of £1.2 million as there were a number of accounts where recovery was in doubt. That approach also clearly shows the degree of subjectivity involved.

. Trading contracts - two contracts involved the sales of new machinery for £6.8 million. Part payment was received but curiously the new arrangement was made to cancel part of the orders so that the group receives only a total of £3.3 million.

The third contract involved the purchase of secondhand equipment for £0.6 million but it has been valued at nil in the group's balance sheet. That certainly looks like an over prudent decision.

. Investments - this is the oddest one of them all. It involved a "strategic alliance" with Uniwear, a Belgian listed company under which it took a 17.6 per cent stake (this was later reduced to 9.6 per cent following a placing in which Mackie did not participate) for £2 million. But following a "mutual" agreement, Mackie International sold 44 per cent of its investment to Connie, another major shareholder in Uniwear, for £510,000 which is to seek purchasers for the remaining stake. This whole sorry "alliance" with Uniwear will lead to a £1 million writedown.

Mackie International is now talking about the "need for revised and more stringent financial controls". And "more appropriate" controls are to be introduced. Does this mean that controls were not appropriate in the past?

So much for the group's sorry past. Now what about the future?

The group has forecast continuing losses in the first half of 1997 with an estimated loss of £4 million. This will swallow up most of the £5 million proceeds from the proposed rights issue. That will be on the basis of five for two at 20p per share, thereby more than doubling its equity base.

After the rights, but before the losses in the first hall, the gearing will be around 48 per cent and the net asset value per share will be 52p. The losses will push up the gearing to over 70 per cent and reduce the net asset per share to 43p, indicating a much lower share price when the quotation is restored, unless there exists a predator brave enough to take a quick opportunistic move.

Mackie International should break even in the second six months. However, it will be 1998 before it goes back into profit. The new management under Sul Sahota should somewhat renew the group's credibility but it will have to have a record of sustained growth, without clawbacks, before it is fully trusted again.