Half Year Report 2011, page-2

@travelightor

Unfortunately I'm not going to be able to shed too much light - perhaps @Jimmy_C will be more illuminating.

I agree that the MD can be a little selective - and I've commented on this before. I must admit, it's at the limits of my tolerance threshold. I too like managers that I have a high level of trust in - though "complete trust", to use your words, I think is a bit of a pipe dream. For instance, I think REH is a little opaque in its reporting. Though I acknowledge that there is a difference between reporting little, and reporting selectively.

With regards to DMA, if the MD has a stake additional than that through 1300smiles, I would think it would be disclosed in the related party transactions. I cannot see any evidence of such in the FY2011 accounts.

I personally see nothing sinister in the trend of self employed dentists versus employees. After all, isn't 1300smiles' key value proposition that it offers dentists practice management services, more than in the delivery of dental services?

I believe the most effective companies, or certainly those that are of most value to shareholders, are those that are run by benevolent dictators with properly aligned incentives. I say dictator because democratic notions in business generally result in rule by committees, and a whole lot of seat warmers in fancy suits and ultimately poor shareholder outcomes.

The alignment of incentives, at 1300smiles, looks good to me, as evidenced by the MD's stake, protection of shares-on-issue, low equity based compensation (none), judicious use of capital etc.

I judge the benevolence of the dictator by:

• the candour in the language and reporting
• plain talk
• straightforward accounts
• a clear willingness to further the culture, rather than to command and control.
• track record of returns on capital (if within the control of managment)
• track record of cash generation to reported profits

A management that meets these tests gets a lot of leeway from me. I have not yet absorbed the FY17 results, but on the tests of of the long track record of returns-on-capital, and on cash generation, I give a big tick. On the other criteria, I am yet undecided.

Sorry I couldn't be of more help.

Mars