Ann: FY17 Half Year Results Announcement Date, page-64

Thanks Dannyboy that's some great analysis there. I've been investing in this company on the back of similar reasoning regarding provisions since the drop to around 55c, but your analysis here shows a level of detail a couple of steps a head of me so I must commend you on that. When I originally bought the sellers imho were not looking at the right thing, which is as you say the real cash flow at the end of the day, and the ~17m writedown in (non-cash writedowns) provisions really scared them off, failing to recognize that this was actually a conservative move for the company. That and the trainwreck that is/was SGH was just starting to derail so the whole sector stunk.

And your right, at the time it really wouldn't have been that hard for a decent actuary, with the historical data supplied, to come up with a reasonably accurate recovery rate. Some sort of regression analysis would probably do the trick. Actuaries are people who can do stochastic calculus and Brownian motion in their second year of uni after all, I know because my residential college had a couple on my floor .

So yes, I think 21% loss rate is indeed leaning well into the conservative side and it may well be a deliberate strategy to defer revenue, avoid tax and make the company more robust if future earnings are volatile. They did adopt the new accounting policy set by ASIC the sets out the rules for how to deal with WIP early than they needed by law. It makes sense also for Morission ( and the other founder whose name I've forgot) and the other holders of the company, as they own >50% of the shares. The majority owners have been and will be in it for the long term, so having a robust and steadily growing company that can slowly increase it's (their) dividend makes perfect sense, particularly if they pay less tax and can attract some institutional investors to the share register. The extreme alternative is to overconfident in your provisions, and this will hurt the sp and confidence in the company over the long term, as it did SGH.

What I would like to see now is some CA finishing up and maybe a few of SGH employees/files being acquired by SHJ on favorable terms. But as you say that bucket of provisions is looking very full, some people may start to notice, though not necessarily the regulators, should they try to push it up to 25% in the next HY, though I don't think they would dare.