december report opinions, page-3

Hi Ralphi,

I was pleased to see TMS post another positive cashflow outcome, the 3rd successive one, in recent months.

This makes for Q2 being cashflow positive, to the tune of ~$4.0m, surely a positive sign for the future, particularly as this was struck on lower than average revenues (collected, not simply billed).

I also tend to agree that the lower revenue result for December was largely attributable to the Val Morgan business (ie: being transferred out, etc).

Less impressive, however, was the subsequent payment of $4.9m that was paid out in connection with the Val Morgan business being disposed of. The nature of this payment has not been explained, at all, or in adequate terms.

If, as I suspect, it relates to the payment of provisions associated with transferring employees, etc, then that's one thing, as I suspect that ~250 employees would have been involved in this exercise. But, if not, then the only thing that I can fathom is that the cinema exhibitors also managed to collect the outstanding rentals due to them (and upon which payments were suspended), from the end of September.

The impact of this payment being made (in actual cash terms, not deferred), plus the fact that there is a further deferred payment still to be made, disappoints me somewhat.

Previously, I had interpreted the ASX announcements to mean that the exhibitors were picking up Val Morgan, in return for the "release of all existing liabilities" (ie: deferred cinema rentals, employee entitlements, etc).

Instead, it appears that:
1)
TMS has still had to pay out on the exhorbitant rentals charged by the exhibitors, and in respect of which TMS, and before it, MEG, were easily caught out on, without the support of any KPIs by the exhibitors (ie: in terms of ##ms on seats, etc);
2)
TMS has seen its Val Morgan business decline even further through lack of attention to detail, lack of management oversight, or continuing business uncertainty; and
3)
has had to continue carrying the Val Morgan payroll whilst the exhibitors have engaged in delaying tactics to further their own interests.

In consequence of this, the first half results represent a continuing distortion on what the likely future prospects of TMS will be, even though December cash was $584K, and access to continuing bank facilities was $3.17m.

Indeed, of considerable note was the fact that during December, TMS increased it's banking facilities by $3.1m. Without doing this, there appears to have been a real, or apparent risk, that TMS would have run out of cash during the month.

Added to this equation was the fact that, for the first time in some months, TMS had to go into cash overdraft, of -$525K, in order to get by (ie: the remaining $1.109m appears to be a bank deposit which cannot be readily accessed).

Management of TMS now need to act decisively on the fact that Val Morgan is now gone. They have wasted much of the last 9 months in getting rid of this business whilst trying to position themselves towards the global TV business. In doing so, however, they have sailed very close to the wind and have further damaged the credentials associated with running the business.

To date, neither TEN, nor PBL, nor ANZ, for that matter, have injected any of the $13.9m into the business which, of itself, also amounts to a matter of ongoing concern.

I have great faith in the future potential of TMS, but it is clear and apparent that, in the last few months, the business has almost been run down to the bone, and now it is likely to go easily (and cheaply) to those shareholders who matter (ie: TEN and PBL).

For the short-term, my outlook on TMS has turned to neutral, and have sold down on some of my holding.

I will complete a more detailed results analysis asap, and post my results on this, when possible.