Forum Archive Index - March 2001

["Peter Maiden" <pmaiden@xtra.co.nz>]

A rather subdued Advantage interim report this week. None of the old hype and a bit of a disappointing read.

Performance also a bit of a mixed bag

Revenues up nearly $14M but operating margin fell from 15% of revenues to 5% of revenues. Of concern has to be the 2.5% operating margin for the last quarter.

This means that operating expenses increased from $24.5M to $40.5M - in other words while revenues increased by $14M operating expenses increased by $16M.

To put it bluntly Advantage spent $16M more to generate $14M revenues. What was all this extra cost?

Taking the goodwill expense into account Advantage traded at a loss of $0.9M before tax - down from a profit of $2.2M last year. The goodwill expense needs to be included in assessing tradng profits. Without the acquisitions that create the goodwill expense there would not have any increase in revenues.

The acquisitions that have driven the revenue growth were funded by the issue of nearly 5 million shares. This has avoided an ongoing higher goodwill expense but diluted shareholders equity. In crude terms the benefits of these acquisitions come with no goodwill showing in the P&L.. The impact of this will show up in earnings per share. Nothing wrong with funding acquisitions this way as long as investors are aware of the outcomes when assessing ongoing performance.

It seems ironic that Advantage's current strength is what they have tried to move away from - electronic terminals on shop counters - even though the software that drives them now does a lot more than previously.

Oh no! - not a re-organisation with a new Group Managing Director. Four stand alone businesses with their own Chief Executive Officers sounds expensive to me.

Comments like 'maximising organic growth and improving profitability' and
'extract the greatest yield from our acquisitions...' suggest that Advantage is reaching maturity and dreams of huge profits are just that.

What is the real impact of Greg Cross's move?. He has been a charismatic
leader and no doubt has to take a lot of the kudos as to where Advantage is
today.

I do wish Advantage all the best. New Zealand needs such companies that export
our knowledge and expertise to the rest of the world.

What happens to the Advantage share price in the future only time will tell. However I fear that Mr Christian might be regretting his comments he made at the last AGM about the future prospects of the share price

I'll remain on the sideline

Cheers

 

Peter