Ann: AGI Release re Full Year Results 30.6.2016 and Dividend-AGI.AX, page-4

I initially read the results as quite negative given my expectations but the more i delved into the result the less sure I am. There are however some lingering questions that remain unanswered, if anyone is dialling into the call tomorrow it would good if they could summarise the commentary.

Firstly I don't believe we can exclude the prior year gains without understanding exactly how they are accounted for. Something which I have struggled to decipher from the information provided in the financial report.

What appears to be happening is the company has a significant degree of operating leverage working both for and against it.

Firstly lets deal with the domestic market. Whilst the report appears to indicate some degree of stabilisation in the domestic market I am yet to be convinced.

Revenues & Profits for AU.

FY13 H1 66.2 ---> 38.1
FY13 H2 58.2 ---> 31.8
FY14 H1 81.4 ----> 46.4
FY14 H2 61.9 ---> 37.2
FY15 H1 53.5 ---> 28.5 (Margin 53%)
FY15 H2 39.5 ---> 17.6 (Margin 45%)
FY16 H1 50.3 ---> 19 (Margin 38%)
FY16 H2 31.2 ---> 10 (Margin 32%)

Without any additional information the domestic market looks as though it is showing few signs of stabilising and with margins and revenues contracting. Revenues declined by 20% H2 on H2 but domestic profit contribution declined by 40% or put it this way margins and revenues have fallen so rapidly that for each $1 of revenue lost the company is losing almost $1 of GP.

If we were to compare FY15 on FY16 it can also be seen that revenues have declined $12m whilst profit contribution has declined $17m.

Given that margins half on half tend to be linear in their direction if we assume a conservative average 27% margin on revenues of ~70 brings domestic revenues down another $10m. I noted that they mention an increase in ASP so would be interesting to not how margins can continue to decline despite a higher ASP unless there is an embedded fixed cost base in each segment which would be understandable given the decrease to which margins have fallen.

The Americas are a little difficult to analyse because the company did not isolate the contribution from Nova for the second half.

FY15 H1 30.2 ---> 12.9 (42%)
FY15 H2 52.5 ---> 25.2 (48%)
FY16 H1 43 ----> 18 (41.86%
FY16 H2 68 ---> 31.3 (46.03%)

It can be noted that profit for H2 is roughly double that of H1 historically. So whilst the US appears to be performing strongly revenue growth of $16m resulted in an increased segment contribution of only $6m which whilst solid just shows you how poorly the domestic segment is performing when a $8m decline in revenues has resulted in an $7.5m decline in profit.

Latin America has been a massive contributor with the last four halves as follows:

FY15 H1 22.5 ---> 7.8
Fy15 H2 27.8 ---> 12.4
FY16 H1 39.6 ---> 16.8
Fy16 H2 37.9 ---> 17.2

But looking at the numbers the fun may be over if the past two halves are anything to go by revenues have actually declined H2 on H1.

And after all that I'm not sure what to make of the result. I would like to understand the american performance in isolation (ex Nova) so would appreciate any posts on that. Underestimating the decline of the domestic business has been a a painful lesson, and should the current trajectory continue it would require an extra ~22m in US revenue contribution just to put us in exactly the same position next year.

Please DYOR.