Ann: Preliminary Final Report , page-33

Hi All

I don't know this company well but have had it on a watchlist for 6 months or so.

The real concern in this result is the cash flow. Specifically the Cash Flow statement is telling a very different story to the P & L.

The real concern I have is that under normal circumstances a period of poor cash flow due to a lag in receivables or a build in working capital should be plainly evident on the balance sheet. In this instance its not.

Managements only comment on the cash flow was as follows;

"The difference between FY2011 and FY2010 is represented by an increased working capital requirement resulting from the significant amount of deposits and advanced invoicing on projects that took place
during FY2010."

The problem I have with this explanation is that working capital(receivables plus inventory minus payables) as a % of sales actually fell from FY09 of 27% to FY10 15%. Even in dollar terms there was no significant increase in the level of working capital. This is clear to see on the balance sheet comparing the two periods.

Combine this with the fact that the additional 10.5m increase in net borrowings and the 35.5m additional capital raised more than covered the expansionary capex at henderson of 30.7m. So the build in the cash balance at year end of 13.1m from the prior period was largely (allowing for dividends etc) covered out of financing activities not from cashflow.

So why such poor cashflow?