Ann: Market Update - Continuous Disclosure, page-55

"If was forex, why wouldn't they just say so?"

They don't need to.

Because that it is due to forex to some not-insignificant extent is a known; the only thing is that it is not known is exactly how significant the forex impact is.

Because, when you have booked US$ denominated sales which form a significant component of your very material level of trade receivables at the balance date, then what the A$:US$ exchange rate does in the period between when you booked those sales and the balance date has a material impact on your account of forex gains or losses; and hence your reported profits.

But this in no way reflects what is happening at the core operating level of the business.


"Coming in at the lower end of the guidance would suggest they didn't close deals in their pipeline."

One can't conclude that.

Here's why:

Previous guidance was for NPAT between $0m and $2m.

From a sentiment point of view, "lower end of guidance" might sound like a bad thing, but it is really not when you consider that the difference between "lower end of guidance", say $0.25m or $0.5m and the mid-point of guidance (i.e., $1.0m) represents a change of just $0.5m or $0.75m, which is less than 2% of half-yearly Revenue.

Forecasting to that level of accuracy is hard to do, especially when the A$:US$ exchange rate - which is a significant determinant of your earnings - is whipsawing all over the place.

For context, the A$:US$ averaged around 0.74 during the month of December, compared to 0.77 at the end of the month, so the average sale made during December which was unsettled by the end of the period and which was therefore sitting in Receivables at 31 Dec., 2020 would have been subject to 4% forex loss.

~70% of IRI's revenues being US$ denominated, i.e., 70% of the company's typical Receivables balance of $50m means $35m of Receivables which would have incurred a 4% forex hit, i.e., $1.4m forex loss [*].

So really, for all intents and purposes, there is no real difference in the most recent guidance and the guidance that preceded it.

[*] Of course, because we don't know what period-end exchange rate assumptions the company was using when it made its series of updates over the course of December, so this sort of exercise can at best only be indicative of the kinds of hits to earnings marked-to market exchange rate moves can have. And in this case, the extent of them (~$1.4m in magnitude) are not immaterial in the scheme of $0m to $2m of NPAT.