INVESTOR UPDATE JUNE 2020, page-79

Roy2U

I am not concerned about capture costs, its ratio to revenue is low. That may be the only item that an accountant would call a cost, the rest are expenses, and expense containment is where I suspect NEA has a poor culture. For my last two decades of economic life I advised large organisations on expense reduction, and I would usually know whether I would effect significant savings, or not, by observing the culture of my clients – small examples of wastage often led to finding larger areas of watage.

That management took a pay cut is fine, but it raises a point that bothers me – the growth of the share tally, especially via options. Focus on cash flow and ACVs might draw attention away from shares and options issued as bonuses, or new shares sold to staff at a discount, and often shares issued at discounts via capital raisings. They all can work against the best interest of the vast body of shareholders. Share dilution is a reason why I focus on EPS, if there is a positive NPAT, rather than the NPAT. Free cash is important, but it too can be fudged by selling the family silver, and remunerating people via share issues is just a variation of selling the family silver.

Below are the the shares over a decade in millions:

FY10 .. FY11 .. FY12 .. FY13 .. FY14 .. FY15 .. FY16 .. FY17 .. FY18 .. FY19
323.1 – 323.1 – 323.1 – 323.1 – 337.3 – 355.5 – 356.2 – 387.7 – 394.0 – 448.3

Growth since FY13 has been:

FY14 – 14,290,000 shares, 14m being via exercising options.
FY15 – 18,150,000 options.
FY16 – 750,000 options.
FY17 – 1,833,333 options, plus 29,607,081 issued (28,571,429 via capital raising).
FY18 – 6,333,340 options.
FY19 – 10,510,761 options, plus 43,750,000 issued via capital raising.

Sourcing this information informed me that the current style Annual Report with its text jumping all over the place to squeeze between the pictures first appeared in FY17. Kilobytes to store the reports have grown from FY13 to FY19 as follows: 2757, 2719, 5305, 5737, 25364, 15269, 17359.