nice of colin to prop up the shareprice!, page-12

rappper -

am impressed by your optimism...

At the end of the last half their ebita position was approximately -280k.

Note that it was +1.9 million at the end of the 04-05 year.

In order to improve their performance on last year (and therefore demonstrate an increase of value worthy of a rise in the share price) - they will have to make more than 2.2 million ebita in the second half of 05-06 alone... and they have to do this on a reduced gross margin from 25 to 23 percent.

Projected revenue is at 115 mill... with 55 million of that already achieved in the first half. 60 million to get.

Assume they do...

At 23% they'll be left with 13.8 million to pay for everything. Costs + depreciation for the last half were at 13.5 million. If costs stay constant then that would leave them with an ebita of 300k - a drop on last year of 1.6 million.

In order to keep an even keel with last year, they need to cut costs to the tune of 1.6 million. Where are they going to find such savings?

More than likely the 300k will be roughly equivalent to their net profit and they will tout this as their maiden full year net profit... and if they are true to form they will leave out the fact that their ebita has fallen by such a vast amount.

Of course it is possible that they cut costs... but it seems unlikely to me that they will be able to do it by that much. I used to think the fact that a certain percentage of their costs was fixed would see them very significantly in the black by now... but this didn't happen because of their investment in growth. Now even if this investment in growth has been curtailed over the last half this wouldn't do anything to peg back any of that 1.6 million... they would have to actually scale back that investment... i.e. probably get rid of some of their sales force etc... but if they are touting how great the growth has been in the third quarter, then I think it's unlikely that this sort of cost cutting has been put in place. You have to pay for that growth.

I also just noticed that they impaired the intangibles for 05 because of events that happened through the course of the year. This is another aspect where Colin led me to believe that this wouldn't happen - that it was very unlikely that peo would suffer from that impairment. And given that their margins have taken a hit - there is still the real possibility that they will impair those assets this year which would mean that the ebita won't be near equivalent to net profit. Net profit would in that eventuality - much less.

I agree with the market. (and the market had been right all along).