End of Financial Year, page-37

Disagree. Cash flow can be changed by management easily. Don't pay a vendor Cash goes up Payables also go up so profits are unchanged. Many on this page says cash flow is what is important. Go to any financial page look at summery, what do you see? Earnings per Share. Have you ever seen cash flow? I haven’t and I now look all the time. Earnings are the true measure of how a company is doing. No earnings Cash will run out. Lynas has done a great Job of Managing Cash. All legal and clearly shown in Semi and Annual report. Not Q reports. Any time you see Payable and Receivables severely out of balance, getting worse every report, there will be problems. Some of these problems are not so obvious but long term they hurt. Take receivables they are $11M 13 days of revenue. This is unheard of! Most companies run about 60 days. Many over 90 days. Now this is great for cash flow but how do they do it? Simply they Make deals on product. The most common way and one that two companies I worked for used when they were very low on cash is you offer to lower the price in exchange for say a 50% payment with the PO and 50% within 15 days of shipping. Totally legal and a very good way to maintain cash. Problem is you are trading a small amount of profits for cash. At 11 days this can not be pushed much further. So new deals generate no new cash they just maintain the cash from expiring deals, and lower profits a little. Soon maybe this half you will see this 11 days increase and that will be a big drain on cash, about $777,000 for every day it increase. IF it increase to 42 days, still less than typical but a good number, it will consume 25M in free cash all they had at end of Q3. No impact on profits.

If they do not ship by end of Q then the advance payment goes into liabilities to keep everything in balance. No earnings on advanced payments.

I am not saying Cash is unimportant. For a company losing money like Lynas has it is the most important, run out of cash you are done. When you talk about paying Millions of dollars of debt in the future the only thing that will generate that kind of cash is true profits. You cannot make receivables less than zero days. You cannot continue slow paying vendors because they will stop shipping without advance payment or worse. Long term Cash flow will equal earnings if not the company is headed for trouble.

Think of selling stock directly or through convertible bounds. The balance sheet does not change Cash goes way up. Profits are unchanged. Stock holders are hurt by dilution. Borrow money Long term profits go down because interest is an expense. When principle is repaid cash goes down but no impact to earnings because liabilities are reduced by same amount. Borrowing money is just a way to take future cash flow and have it today. Without earnings it cannot be paid.

There is one thing that will really hurt Lynas’s Cash in 2020. When I first saw it I thought it had to be illegal but have talked to people and they assure me it is not. That is all the deferred payments. Because there is no interest and nothing is due they do not show up as liabilities. As stock holders we cannot see them. They helped cash because they did not get paid. They helped earning (decreased loss) a lot because they were removed from liabilities. But they are out there and will pop up in 2020. If Lynas meets some goals some of these are erased. Best explanation is in the notes of 2016 AGM proxy.

My only problem with all the cash talk on this page is everyone is happy with it going up (as am I) but are clueless as to how. (Which upsets me) They seem to have no idea of the long term implications of Cash and earnings going in opposite directions. The drain this will cause on future cash flow.

Lynas has done a great, fantastic, amazing job of managing Cash. To not understand the long term implications of unwinding how they did it is just foolish. Nothing illegal and it is all shown in Semi and Annual reports. Think I am making it up read a good book on “how to understand annual reports”. If you still disagree post some info from book.