Ann: Half Year Accounts, page-16

In the wake of the preceding discussion about the accounting treatment of the warranty provisions, and the impact of their movements on reported profits in recent financial periods, I had occasion in recent weeks to meet with LYL's CFO.

It was confirmed that none of the service warranty provisions raised over the preceding 18 months have been utilised to date; instead, the $8m reduction recorded in the last result was due to some of the warranties being reversed.

Of course, it means that the DH2018 reported profit was "over-stated" to that extent.
And, commensurately that the profits of the preceding financial periods - during which the provisions were being being raised - were "under-stated".

Given that there are still some $8m of remaining current warranty provisions - which, on the reasonable assumption that these will also not need to be utilised, and will therefore also be written-back - this implies that the reported NPAT for the current half will again be well supported by this accounting adjustment.

The financial statements for the last 18 months - featuring these very significant movements in provisions which have distorted LYL's P&L - have been quite unusual for LYL, driven by 2 large EPC projects in Africa.

That the company was, to a large extent, paid upfront by its clients for these projects, and that the provisions that were raised in relation to these projects ended up not being required, says a lot about both the risk-averse manner that the company's management goes about its business, as well as its technical ability to complete work on time and budget.

.