Ann: Annual Report to shareholders, page-48

You are right about the accounting for intangibles, the thing about which many here are getting their knickers in a knot. This issue is little more than an accounting oddity, reflecting the acquisition(s) in the past.

(In terms of shareholder value creation/destruction, if one wanted to squirm and stamp feet, the time to do so would have been when those acquisitions were made. What's happening now is merely some arbitrary accounting treatment of those acquisitions).

The other area where the market is getting all hot and bothered is the debt.
The reason for the jump in Net Debt, from $26m @ 31 Dec '23 to 30 June '24, is due to a number of factors in the second-half, which I believe are one-off, and due to reverse in coming periods:

1.) a $12m jump in working capital (non-inventory related; Receivables up $6, Payables reduced by a similar amount), taking Working Capital-to-Sales to finish the year at 16% (up from 6% @ 30 June '23 and 11% @ 31 Dec '23). I think this will come back a bit in the coming half-year, by maybe 200pb or 300bp, to a more normalised level of 12% to 13%. This would liberate around $6m or $7m of capital.

2.) The calls on capital are reducing after the investment in new capacity, so the PP&E spend will also be a lot lower (to which you have alluded).

3.) The legacy debt was taken out at elevated levels; refinancing it will be at lower rates will ease the impost on the cash flow that interest payments were in FY2024 (but the benefits of this lower cost of borrowings, being applied to a lower level of borrowings, will only be seen in any meaningful way from JH2025).

So all up, I think that, having existed FY2024 at $42.6m, by the end of the current half, the Net Debt figure will have fallen to somewhere in the low- to mid-$30m level, which will be palatable for the market; and by the end of FY2025 I fully expect the Net Debt figure to start with a number 2. i.e., $25m-$29m which I think will completely erase the market's concerns about the balance sheet, because - assuming the business doesn't go backwards in FY2025 - that would equate to Net Debt-to-EBITA of just 1.0x, which is eminently manageable.

The state of the balance sheet is not the issue with this company; the issue is that the market can't get a grip on what its underlying level of profitability is.

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