Anyone watching this?, page-6

What about that 900k of intangibles spend? Some of this is for the QLD area development territory buyback but how much - 200/300k? The remainder presumably relates to software development like in prior years but the amount is creeping up all the time and is much higher than the 300k depreciation/amortisation charge.

Intangibles spend:

2015 H1 - 221k
2015 H2 - 232k
2016 H1 - 438k
2016 H2 - 538k
2017 H1 - 600/700k (assuming 200-300k QLD area development territory buyback)

Last year KME brought its software development in house (it was previously outsourced) and this could be driving the rising intangibles spend. If so then perhaps the increase has run its course and we'll see it stabilise at around 1m - 1.2m per anum?

However, as there is now a full-time development team employed by KME it seems unlikely that the spend will fall, in which case is it not just another cost of doing business and so reported profits are overstated?

On the other hand you could take the view that KME are yet to reap the returns from the work done by this team. Company policy is to depreciate the "investment" over 10 years which seems like quite an aggressive assumption to me based on the pace of change in the software industry.

If the spend mostly relates to developing Kip at Home then I can live with this as this product has the potential to generate a significant incremental revenue stream. However, I am less inclined to accept that money spent upgrading existing products should be considered as anything other than a cost of doing business.

Ultimately, I am happy to hold as long as core revenue continues to rise and spend on intangibles plateaus.