Why Is Share Price Tanking?, page-237

ValueSearch

Basically I agree with what Baycorp wrote, and so would CCP, who now own Baycorp. In my post 37283081 there is a link to a NZ tax ruling along the lines that Baycorp detailed. CCP uses that approach, but over six years, not five.

I would not be too hasty to comment on the US profitability potential. CCP started up there from scratch when PDLs were expensive, but it had to keep going in a limited way to establish itself to take advantage of the market when it changed for the better. We were, I think, on the cusp of growing rapidly there, but along came Covid-19.

PS for SteveSage

I am not an accountant, so read my views on that subject with caution. That said, the AASB does not, I think, set a lower rate of PDL amortisation, it merely invites management to invent a “fair value” for the PDL assets, and that has the effect of allowing them to upvalue assets on a whim, and thus inflate profit. AASB 9 does not even require an amortisation account. CCP claims that it adopted AASB 9 in 2010, and yet we see the PDL amortisation each year, and it explains how CCP handles the valuation of PDLs to comply with AASB 9.

I do not hold CLH, so I do not keep up to date on what it has stated, and the background thereto. CLH has historically amortised PDLs at five or more percentage points lower than CCP has, and it seems that it has grabbed hold of AASB 9 to give it latitude to report even lower amortisation. The FY19 Annual Report states, “With the full adoption of AASB 9 there is no longer an amortisation charge. We have included it for the purpose of comparisons. The FY19 number represents an implied amortisation amount only.” It gives the following metrics (I added the % row):

.......................................... FY17 ... FY18 ... FY19
PDL Cash Collections .... 104.6 ... 126.8 ... 135.7
Amortisation of PDLs ..... -39.6 .... -51.8 ... -42.0
Amortisation/Collections 37.86% 40.85% 30.95%

Obviously, real profits cannot be fabricated – however, reported profits can be manipulated for a few years, but the chickens will eventually come home to roost. CLH's CEO of FY19 has since flown the coop, so it is not his problem now. This simply repeats what happened some years ago when the then CEO resigned after a reported bonanza year.

AASB 9 applied to PDLs is philosophically seductive, but its reliance on managements subjectivity fails to recognise the venal nature of human beings. I do not know for sure why CCP also reduced its PDL amortisation in FY19, so I suggested a possible benign reason, but who knows?

I think we have done this topic to death.