Ann: Annual Report to shareholders, page-2

Interesting set of numbers. On its face a $5m profit on increasing sales and new outlets (other than Beefy's). Up we go!

However, some creative accounting reclassified leased assets and liabilities to a combination of finance assets and operating lease liabilities. Miraculously, an impairment reversal of $7.7m was found. An improvement in credit quality related to it reduced its provision by $4.3m as well. So, va la, we have an offset against other expenses of $12m (see Note 5) and a $5m profit! All non-cash and all non-repeatable.

Second issue - remuneration. The report shows "underlying" EDITDA of $29.2m, right in the predicted range and bonuses all round, and as it exceeds $29.1m, at stretch levels. Would someone like to try to reconstruct this figure? Straight from the financials EBIT was $8.75m, Interest (net) was $4.68m and Deprecation was $8.32m = $21.75m, as per the remuneration report. It is then adjusted by $7.5m (increase) but this is not quantified, nor is it subject to review (see footnote 1). Was the $12m above subtracted?

A remuneration target that is not publicly measurable is not an acceptable target. Why do we pass the remunerations report year after year (I don't)?

Overall, I see little improvement in overall financial performance. It still can't make a profit without a fiddle, it is only breakeven on cash flow, albeit improved, its NTA is still negative, and a little worse following the Beefy's acquisition. Glossy, fun pictures of executives, products and hype, with a change of name, does not improve it.

As I have said for years, the company needs to make money from its franchises. It is no good supplying them with product and underwriting premises for them to operate (head leases) if you don't collect money for your products and owing from leases. The trade receivables credit risk provisions and lease credit risk provisions with little recovery is the major difference between this company being a successful business and what I regard as a "work out" investment.

At the 7 cent range, my sentiment remains at hold. I will sell down (not out) at the 8 cent range, and buy back in the 6 cent range.