Some observations following a review of the half year financial...

Some observations following a review of the half year financial statements which suggest the underlying performance isn't as good as the headlines:

• The income statement includes $2.8m of US and Australian Government COVID wages support ($1.85m of Paycheck Protection Program loans forgiven in the US and and $0.95m of Job Keeper payments in Australia.
• There is a credit to the income statement for $0.78m for bad debts. Followers may recall there was a provision raised at June 2019 of $M, so a big chunk of this has been reversed bolstering reported profit in the December 20 half year.
• Employment benefit costs have more than doubled to $8.39m, depreciation and amortisation is up by nearly $1.0m and other expenses (what ever they are) are up by $2.43m.

Matching or betting the first half profit in the second half year will therefore a significant pick up in underlying business. Its good to see the data on the Maldives - hopefully this increased activity will help bridge the gap. Is signaled in the Warriewood property sale announcement last December, there are some IAP relocation and restructuring costs to come in the second half.

Overall FY21 guidance today appears to be unchanged from the December announcement.

Some other comments:

• Operating cashflow for the period was down to $1.95m from $3.36m in the December 2019 half year. In addition, current tax liabilities owing are $3.83m up from $1.17m as at December 2019. Operating cashflow will continue to be under pressure.
• Other comprehensive income (i.e. amounts that don't go through the net profit before tax) includes a loss on foreign currency translation of $4.36m. Presumably this is a loss in AUD terms of the net investment in the US business due to exchange rate movements over the last six months. It directly impacts on shareholders funds and therefore net assets per share.
• Inventories are down by $5.5m - it would be interesting to know how much of this relates to the CT Inventory acquired in the US at the time of the Prime Turbines acquisition and also what sort of profit margin is being achieved on the sale of spare parts.
• Good the Steve Smith is temporarily relocating to the US to drive the integration of the Prime Turbines business, The active restructuring and roll out of a consistent business model across the group should continue to bear results. Some further runs need to be achieved from the Prime Turbines acquisition before any further material acquisitions are attempted.