I think I may have misread the financial statements for 2015. I thought that we had excluded the claims that were in dispute of $9.1 million. I then looked at the report again as the Insurance claim was settled and around $2.5 million so I was trying to deduct $2.5 million from result. Then I reread the accounts and this popped up -
"The amount ultimately recovered will be included in the FY2016 financial results. Brierty has recorded all costs associated with this variance in FY2015 and provisions against the likely recoveries"
So there was costs which were obviously capitalised into WIP or debtors - against which they recorded provisions based upon likely recoveries. I would presume as the insurers had accepted liability at that time it really was only the likely amount that was in question. So I must assume that the bulk of that claim would have been cost based and recovery an estimation. I cannot see the auditor allowing them to accrue profit on a contract where the outcome was in question - So I estimate the profit element that was the big issue for us lay in the contract. That is still not resolved. So if we look at it I am assuming ( stupid me but you have to) that the insurance vs contract split is around $6 million to $3 million for insurance. I also presume that the vast majority of the $6 million would have been the profit so in fact they have not recorded much if anything in these results as i see it.
I view these results as follows:
After the badly advised extra dividend of 8c which cost $10.1 million and the raising only raised $8 million after costs but increased the shares by 16.5 million - I lost faith in the process because it looked like the company did not benefit all to use up franking credits ...
The company still has a large exposure to assets: The land process in Mitchell Creek Green will keep us going for years but the 60 odd blocks of land completed is roughly worth the asset value so each 6 months I expect to see around $5 million contribution and the land value to drop to around $10 million in a year.
We have no idea if we are going to get a settlement on the WA road issue.
The result was propped up by the R&D tax benefit but at the same time incurred a write off of $2 million. So we need to understand how much of the insurance claim was actually a profit - I suppose we wont get to that they took their pain in August so they want their pleasure now.
However whilst others are writing off assets and hugely down on the previous years this is holding up okay in a weak market.
The balance sheet needs repair and in doing so I expect we need to conserve cash - rather that than raising more capital - So I support no Dividends until we have repaired that - I am sure the bankers would have said no dividends until you are back within covenants so I never expected a dividend.
I think the exit of the founder may in some ways be a good thing - The company needs to be getting cost out of the equation to do so you need a different mindset in my opinion.
So its still a hold for me - I am happy to wait out the cycle to see a great return.
