Ann: Preliminary Final Report-TSN.AX, page-28

Morning All,

The below is from a financial perspective, as I will leave of the great operational commentary to Tony, Marty etc. My take-aways from the report:
1. H2 other income was actually negative $85k - not a concern as TSN is not the revenue generator
2. Employee benefits expense is down ~$54k YOY. More importantly it is down $63k from H1 to H2 ($215k vs 278k). The number is not material, but the important point is it shows that they are acting on what they have said - that is, executive management all took a pay cut.
3. Share based payment expense has appeared again ($129k), and will be a function of the incentives given to Management to grow the company. It is non cash. This is managements driver for rapid expansion / acquisitions. A good thing!
4. Other expenses are down YOY by $53k, but have increased from H1 to H2 - hopefully due to all of the travel etc they have been doing to India....
5. Movement in fair value of assets of $4.1M is the material amount in the P&L. This is not a function of the performance in the period, but a function of the valuation of TSI as detailed in note 12. It is accounting "profit", not operational profit, and is non cash.
6. Cash is solid at $1.88M - operating cash outflow of $703k offset by share placement proceeds of $468k.
7. Minor concern from an accounting point of view is the sum of the equity balances comes to $16.077M per the balance sheet, yet they reported $11.557M - I am sure there is just a minor typo (probably in the reserves line) per changes in equity page - they will need to re-issue this report.....

All of the above is just minor detail, and dancing around the edges. The commentary I have read here on HC seems to be around the concern of the valuation put on TSI per Note 12. Let me try and put you all at ease:
1. The valuation is purely an accounting exercise
2. There is absolutely no motivation for management to push this valuation higher - it is non-cash, and from a business operations point of view, meaningless
3. I have an analogy, and whilst this analogy is not 100% correct, it is as good as I have at the moment. Look at the net assets of all of the ASX Top 200 companies. This is effectively (simple terms) the accounting value of the company. Then look at their market caps. In 90% + cases they are much higher than net assets, let alone their net tangible assets. Accounting values the business (conservatively) as it stands today, yet market cap values the business based on the future.
4. I could pick many holes in the valuations within Note 12, but I won't - as I have said above, it is not important.

For what it is worth, and this is just my opinion, the balance sheet looks stable, there is cash to carry current operations for 2 years, and the investment in India is growing. Some would say there is no cash flow to TSN - that will come through dividends from TSI once their growth phase has peaked and they don't need to invest more capital. More importantly, TSN has not had to contribute cash to TSI over the last 2 years to fund the growth - this has been done by CX partners.

May I suggest you all DYOR, but I can personally say I am heavily invested in TSN, and this report does not change my investment decision. The key will be in the roadshows and the operational detail.

Best of luck, and let's look forward to the good times ahead.

Phlipper.