aax financials - some clarity.

First to state my position: my super fund holds significant $value in AAX and I intend to hold for the long term; I am not a trader; I am bullish about the future for AAX, a little less so after the review as below, but I will review in a year.

As a result of several postings referring to AAX 'gearing' or 'gear' of 2% and to questions about the viability of bank lending to a service company with significant goodwill, I was prompted to have a look at the latest AAX financial statements.

The latest accounts are as at 31/12/08; the 94 page document filed at ASX 24/2/09 is described as 'preliminary' - the 'final' version is not on the ASX file at 15/3/09.

Points relevant to gearing would seem to be the following, in $m:

Equity/Shareholders Funds 182
Goodwill 212
so Net tangible Assets were -30 (which would be -2 but for a 28 currency conversion deficit arising at 31/12/08).

But Net tangible assets are stated in appendix 4E at .33c ps at 12/08 down from .68c ps at 12/07. That is a mystery to me.

Most of goodwill is re acquisitions and is amortised based on perceived impairment; no adjustment at 12/08; audit PWC.
The profit retention policy (now 50%?) would act as effective amortisation.

Borrowing facilities stated at 230
Utilisation 135
Cash balances 46 also available

Gearing data from the AAX accounts:
net borrowing(gross 135 - cash 46) = 89
equity 182
total net borrowing + equity = 271
but goodwill is excluded = 212
and off-balance sheet financing of 'operating leases' = 101.
gearing ratio?

AAX states the gearing ratio as 'net gearing' 26.8 - there are several alternative ways of calculating 'gearing', but without all the information it is difficult to identify the method used by AAX.

As with the NTA statement above, the Gearing statement by the company is a mystery to me. That's unfortunate because I'm essentially favourable to the company's operation and prospects, but do not feel comfortable when I am confronted with what may be obfuscation - not a healthy sign,

Other matters in the accounts:

ANZ appears to be the sole lender at 5.95%pa.
Unsecured element of borrowing facility was 42

Major shareholders at 15/2/09 totalled 69% incl 2 directors at 28%; no change reported to 15/3/09.

Interest cost covered 21.1 by EBITA

EPS to 12/08 at 62.7ps up 24% on 07.

Outlook as stated in Company Report:
2009 'low growth'
2010 'growth'.

AAX is a clearly a very substantial and successful company/group (and must have x000000 staff in its accounts dept to produce by 15/2 the international data as at 31/12).

I did not have a look at receivables and other aspects of the financials.

I will be more content if the AAX price does not weaken after 25/3 and if the company's perspective on nta and gearing can be clarified.