re: Ann: BOARD APPOINT MOELIS & COMPANY TO AS... Hi SD and all,I...

re: Ann: BOARD APPOINT MOELIS & COMPANY TO AS... Hi SD and all,

I have been aware of TFC since James Cornell first recommended them in Jan-07: He still holds. His latest monthly report, out today, was very critical of TFC (the most I've seen whilst he still holds a share).

Taking on board his assessment and what I/ we know I think in TFC's case the "Strategic Review" is due to company being financially distressed due to past management strategies vs. the "game playing" theory put forward here.

In FY12 TFC suffered a $60.5m operating cash DEFICIT.

A large Beyond Carbon sale failed to settle for $20.6m and the land returned to TFC.

A second Beyond Carbon sale has failed to settle $38.3m in FY12 and has been delayed until Dec-12 (will it too fail?).

JC's interpretation is that these wholesale transactions aren't in fact to end buyers but instead to 'middlemen' who are trying to then on-sell to their retail clients. When the institutions can't on-sell TFC products then the Beyond Carbon transactions are failing to complete.

In addition, JC criticizes TFC's financing of grower obligations in deferred fees as creating a cash hole for the organisation. He rightly states that TFC shouldn't be acting as a financier in an effort to achieve 30% growth but should be acting more prudently - attracting cash buyers for its products and growing at a more conservative and sustainable pace.

This sales-with-no-cashflow approach obviously crashed down on TFC when their Aussie bankers pulled their funding line and it had to be replaced with VERY expensive US debt.

The prospect of these problems being resolved once TFC starts harvesting oil - and thus generating operational cash flows - has been dealt a harsh blow (IMO) given their recent narrative about under-performance of oil yield in early plantations for a variety of (vague) reasons.

Yellowcake has also repeatedly warned investors of the lack of depth and transparency in the Indian Sandalwood oil market - i.e. what is the real price discovery and market capacity?

My personal opinion is that TFC is under the pump. There was no dividend declared because there is no cash. A strategic review is required because the outlook is dim and current management/ board are worried about the viability of TFC if further Beyond Carbon transactions fail to settle or new transactions are not forthcoming. I think TFC is up against the wall and I have seen many companies fail from this point since the GFC commenced.

I would avoid TFC in this market environment or seriously consider your position if you still hold.

Cheers
John