restructure, page-29

I have to be honest with you, and that goes for all those that are angry at management, but I still believe in the current leadership team and company. I totally agree that mistakes have been made, but what has brought us to this stage is a mistake in the structure of the earn-out payments. When Photon bought businesses part of the deal was an 'earn-out' arrangement between the company (PGA) and key staff of the target-company. The reason why nobody ever new what the liability was and how it was structured (i.e how it could get bigger) was because Photon never disclosed it. These agreements were effectively confidential job contracts; the business does well, you do well. Hence as some units performed very well, as did the people. Tim and team got it wrong, the model wasnt right..so much so, that it has created a massive gap in the ability to fund the payments.

I have put it here, as simply as possible to try and make everyone aware where the problem lies. Well the major problem at least. I think people forget that Hughes, and in turn Grundy, are industry veterans. They know exactly what they are doing, but without stating the obvious, have made a major error. I dont believe a complete overhaul of management is necessary. In fact I would hope everyone remains as is. Phillips is also the right man for the job. Photon, as a group, isnt performing too badly on an operational level. Revenue is still good as are earnings. Plently of businesses have gone through funding issues of late - businesses affected by the GFC, but also those that run pension funds (funding payments), or have had to set aside funding for liabilities (James Hardie or BP). Photon is another one of these, where there will be some short-term pain but long-term rewards. I am a long-term holder so I understand the anger, frustration, and worry about how much money I will lose on paper. But I also believe PGA will come out of this as a viable business. Lets not forget this point:

- Normalised NPAT will be 19Mill for FY10.

Adjusting for one-off costs the company may turn a loss, but we dont know this at this stage. Lets just wait and see how this plays out, but again, its not as bad as everyone is making out.