Pinned straw:
Just trawling through the recently release 2023 Full Year report to review my valuation. I'm wondering if anyone wiser than me is able to help interpret the taxation & R&D credit situation as it makes quite an impact on overall profitability.
Looks like Earnings before tax is actually only around 3.166m on about 55m of Revenue (so < 6%) but the headline numbers DRO are throwing around are after tax profit of 9.3m (about 3x) which seem to mostly be constituted from Deferred Tax Benefits and R&D Tax incentives. This makes a pretty major difference in future valuations as they are material to the models and it seems difficult to predict what these amounts will be in future years.
They seem to be chewing through their accumulated losses pretty quickly (going from 26.6m in FY22 to 11.34m in FY23)
Additionally there is mention of a 9.9m R&D contract received from Australian DOD which presumably will be treated as revenue.
Escapetrader
I asked Oleg yesterday a question about the sales pipeline in the annual report, particularly about the 24 projects totalling $42M. (apparently PO processing is happening at customer end for this $42M.) The next line in the sales pipeline says there are 34 projects worth $86M, but this includes the 24 projects totalling $42M.
I asked Oleg how large a contract needs to be to make it worthy of an ASX announcement.
His answer: "ASX has specific legal definition on what’s announceble. Practically, this would be a few mill size sale, or a smaller sale but with a strategic element to it."
This quarter (Jan-Mar) the big question for me remains whether or not the pipeline is still being delivered on, albeit with smaller, sub $3M contracts that are not being announced. We haven't seen any large above $3M this quarter except the recent $4M order from a US Government department.
We will know what is happening in the April 4C document. Fingers crossed a bunch of smaller orders have still been coming through!
Rudyboy
Having run a company that used the R & D Tax incentive scheme, have to say it's a good way to drop some overheads into a bucket that will get from memory a 43% tax rebate which can be monetised in the form of a loan as soon as you put in the claim. There are not too many issues in claiming it and that is why so many people find R & D projects to attract the extra 13% free hit.
As the rebate, whether you wait for the ATO or your lender, is a cash payment, it is effectively a reduction in overheads (I'm a C.Eng not a CA so don't shoot me here). Therefore it increases profits.
An R & D contract from the DoD is a plain sale, and any Tax rebate from a third party's contract goes to that party (although I assume the DoD doesn't need to worry about tax, unless we don't pay enough to cover the costs of a few nuclear subs!). In that case I would expect Droneshield to drop a few overhead bods part salary into their claims, pretty legitimate as long as you can prove the toilet cleaner and accountant were necessary to undertake the work to complete the contract.