Hi SDE,To alleviate your concerns for us I have had a good look...

Hi SDE,

To alleviate your concerns for us I have had a good look through the accounting reports as it relates to the negative cashflow from operations.

As you state, cashflow from operations was a negative $26m for the 1H.

However, you will see in Note 12, Accrued income of $27m. This relates, in part, to the sales under the BCUT sales program for which funds are due to be recieved in April 10. That is; money has been earned but not recieved yet.

In addition you will note that TFC is increasing its asset stocks (at an expense to itself) in preparation for selling more Sandalwood investments in the coming Half.

This can clearly be seen as an increase in the value of 'Seedlings' from $213k to $1.540m and are recorded at cost. Thus TFC has incurred costs of about $1.3m getting Sandalwood seedlings ready for planting - an expense in this 1H to earn a revenue in the 2H.

Whilst not cashflow related, you will also see that because TFC's plantations are valued in USD it contributed a neglible amount to the revenue for the 1H ($130k vs. $10m in the previous corresponding period).

No of course we all know that trees don't stop growing and that the AUD asset value will have increased (generating revenue for TFC). You will also now note that already in the 2H 2010 the USD is strengthening against the AUD, thus meaning a double-play for the 2H revenue in that (1) trees keep growing and (2) improvement in USD/ AUD valuations.

You will also note that finished goods inventory has increased by $1.6m to approx $8m. Thus, all the expenses have been incurred in creating these finished goods ready for sale and we are just awaiting the sale of these. When sold, maybe in 2H 2010, this will drop solely to the profit line as expenses have already been accounted for.

Further you will note that the asset "Land Preparation" recorded at cost has increased in 1H 2010 from $4.2m to $9.0m. Thus during the period $4.8m was spent getting the Kingston Rest land ready for the coming 2010 product offering and thus negatively impacted upon the cash flow for the period.

In 2H 2010 when this land enters either the MIS or BCUT sales programme these costs will be more than reimbursed.

You will also note (Note 13) that TFC has significantly reduced its current liabilities from $19m to $6m during the period. Out of cashflow TFC has paid the people it owes money to... I am sure that they are very happy and don't have an issue with TFC's cashflow.

In the 'Long Term Liabilities' category note how the borrowings secured by mortgage have fallen from $63m to $38m, a significant reduction.

Combined with the funds due from the 2009 BCUT sales in April and you can well appreciate why TFC will be net-debt free by Jun-10.

So SDE, as I said previously, I think TFC is a quality company and am wondering how you took such a good photo with that egg on your face :)

Cheers
John