1/3/23 Half year results release notes

·        Disappoint market with sales flat PCP and down 40% on previous half explained as invoice timing for large customers (pcp case repeated has some credibility).

·        ACV figures withheld pending confirmation has impacted investor confidence.

·        Cash outflow (0.95m) well below loss (3.1m) due to improvement in AR balance, with expectations that sales expected for H1 will fall into H2 much like prior year…

·        Expecting positive CF in the next 2 quarters, but cap raise possible/likely if that doesn’t work out.

·        90% GM is maintained pointing to good operating leverage potential still in play.

·        Interesting to see share based payments as negative, reflecting resignation of entitled staff and hence forfeit of rights leading to a write back of the expense. Does this indicate staff moral or other issues? Note that 7m loan shares to KMP remain outstanding, no options or other rights to directors or KMP, so relatively clean/light SBC.

·        Expense increase Vs PCP is mostly US operations segment +2.3m Vs Australia +0.7m which aligns with sales growth opportunity.

·        Working capital deficiency (-372k) change from 30 Jun 22 (+3.1m) is almost totally explained by 3m reduction in AR balance over the period which also shows why Operating CF was significantly better than the P&L result for the half. The 30 Jun 22 AR balance was a blow out on historical averages so seems to be the main cause of the distortion. Not an issue.

Conclusion: Result could reflect the bumpy effect of a transition to large US customers for sales growth or be a red flag on execution and growth rates going forward. Will wait for more information on release of ACV to assess level of transparency of management and future growth expectations.

Valuation Range: $0.10 to $0.24 (based on 30% Vs 80% FY23 Sales growth, then 17% CAGR to 2030)

Disc: Own RL + SM