today in bullsh*t

Stuff what is too long to go on twitter.

[taxlosstrades]

ISX Milestone Millstone?

As the ASX and ASIC investigations into ISX ramp up, some delicious disclosures are now being made, which make it possible to tease out some interesting detail as to just how the massive performance right grant milestones were met by the tiniest of margins.

Now the period of interest for these performance rights is the half ending Jun 2018, and by putting together various details we can see where this $5m of revenue was derived from:

ISX also disclose that 25.9% of their revenue in the first half of 2019 came from the two CFD chop shops that ASIC shut down in March 2018. This translates to just shy of $1.3m, which suggests that substantially ALL of ISX’s Australian revenue was derived from what ASIC alleges are fraudulent businesses - quite some achievement for a company for whom KYC and AML are specialties!!

Most of the remaining revenue came from the Netherlands and substantially all of it in June quarter. It is also clear that this Netherlands rev was through the payment gateway.

Drilling down into the monthly numbers, a large part of this revenue was generated in June from the “financial services” merchant sector, a timeline that corresponds with the timing of the SMRs raised at KAB, as reported in the Financial Review. This revenue then suffers a precipitous drop in July, as does the Netherlands revenue as a whole.

Now $1.86m of revenue in a month is ~$90k per working day. This then drops to $34k for the entire month of July - this business has fallen off a cliff, straight after the revenue target was met at the last possible moment.

Comparing this to what the company said at the time:

ISX claim that the KAB matter (ie the Danes shutting them down due to money laundering) was impacting them only “intermittently” in July and August - yet Dutch revenue had already vanished in July and was actually higher in September! It would appear from this that the KAB matter was NOT the cause of the revenue drop.

So we are left with a business that was deriving 85% of its revenue from alledgedly fraudulent business, which then performed a stunning pivot to Dutch CFD/FX business, which then added a one month Financial Services client, met the milestone by a gnat’s todger then immediately lost all of these revenue sources.

So if the Dutch revenue drop was not caused by the KAB matter, and the Australian business was used almost exclusively by dodgy CFD chop shops,  perhaps the better question is what caused the one month Financial Services revenue spike just before the Performance share milestone was due to expire? Could the milestone be the millstone hung around ISX’s neck?

[taxlosstrades]

Syrah’s reverse upgrade

Syrah announced an updated resource and reserves update this morning, and predictably the first “highlight” is that mineral resources have increased by 19%:

This 19% appears to relate to total tonnes across all categories, not total graphite, which is up 14% due to a lowering of the overall grade. However, that’s where the “good” news ends.

The JORC code specifies that a resource is an mineral deposit of economic interest, where as a reserve is the economically mineable part of the resource after considering how to mine it. Clearly for a company in production we should be less interested in the resource, and more focused on the reserve.

It further breaks down a resource into three levels of confidence from Measured (highest confidence) to Inferred (lowest confidence), and two types of reserve, proven and probable, as shown in this natty diagram:

So turning to Syrah’s updated resource, we can see that the highest confidence category of measured resource has been downgraded by two-thirds tonnage and halved the amount of graphite contained. 

And looking at the actual mineable bit - which is all that should really matter for a producer! - we can see that both tonnage AND grade have been slashed, taking the Proved mineral reserve down >75% from 3.8Mt of graphite to 900kt. At nameplate production of 350ktpa, that’s less than a 3y mine life!

This comes despite lowering their cut-off grade from 9% to 7.2%, which has the optical effect of maintaining reserve tonnage at the expense of lowering the confidence that it is economic to the probable category.

What has caused this monster reserve downgrade? Well, turns out a bit of everything. Based on bitter experience, they’ve cut their long term recovery assumption from 92.5% to 87%, still well above their highest experience of 74%:

However the biggest change seems to be around pricing: 

Syrah have consistently disappointed on the pricing front - indeed they seem to be selling largely fines to the well supplied carburiser market, rather than supposedly higher value flake to the battery market. Whether this is down to a lack of demand, preferences for synthetic graphite in the battery space, an inability to produce flake of sufficient quality or a combination of all of the above is unknown.

What is clear is that this announcement shows that the Balama mine is at best marginally economic even after discarding sunk costs of nearly $500m, which places even greater importance on the vaporware BAM downstream project. With the only person with any battery material experience leaving the board recently and capex continually deferred to maintain cash levels, this project also must be under serious doubt of ever being built, making the entire viability of the company highly questionable, as the shorts have believed for quite some time.

[taxlosstrades]

Domino’s is bad, buy Domino’s!

Domino’s Pizza Group PLC (DOM LN) is the UK Domino’s franchisee, and overnight they had some shocking results, sending the stock down 10% overnight in London. As at pixel, Domino’s Pizza Enterprises (DMP AU), the Aussie, German, French and Japanese Franchisee is down a little more than 4% on the ASX.

So far, so normal reaction to a poor result from a close peer, however this isn’t the whole story. The master franchisor for Domino’s world wide is Domino’s Pizza Inc (DPZ US) and they reported results for their International segment (within which both DOM and DMP sit) on the 5th July - it was safe to say that they were particularly poor, with Same Store Sales Growth (SSSg) slowing to 4% from 5%, which prompted various brokers to downgrade and DMP to fall 9% on the day. 

Again so far, so normal reaction. But the key thing it appears the market has missed today is that DPZ’s International sales split is about 30% DOM, 30% DMP and 40% an assortment of smaller franchises in various locations.

This therefore means that arithmetically (and hand-wavingly) 

DPZ (international) = DOM + DMP + rest

So once DPZ’s international sales were known (and holding the rest constant) then what is bad for DOM is good for DMP - the worse DOM is, the more of DPZ’s international miss is explained by DOM’s poor performance, and equally the better DMP + the rest’s sales must have been.

Now any regular readers of this little corner of the interwebs will know I’m a DMP skeptic, in large part due to the bombastic CEO and questionable profitability of its franchisees - however I think that anyone looking for the DOM result to reinforce their DMP bear thesis is mistaken, and there’s a much better chance that DMP’s result next week won’t be as bad as the market had feared post the DPZ result.

[taxlosstrades]

Unpacking Hayne to blame

An amazing story in the fin today, that Christian Beck, a man with $800m net worth, $12m in property and $50m cash in the bank couldn’t get a $6m loan from a bank at an LTV of 60% - an obvious case of APRA lending limits and Royal Commission induced hysteria preventing low risk lending surely?

Well maybe, maybe not. 

To understand why a bank may choose not to take on such an obviously low credit risk, we should probably first understand what criteria banks lend on. When a bank assesses you for a mortgage they require evidence of your income, usually taking the form of tax returns for the past two years. After all, it’s all well and good claiming an income of $1m to the bank and pleading poor to the tax office - so what you report to the ATO is likely to be a conservative estimate of your income.

Now to support a loan of $6m, a bank would typically require a taxable income in excess of living expenses in each of the past two years of around $1m. Note that banks don’t do mortgages based on your net worth, they base it on your income - if you want to borrow against assets, that’s called asset based lending and is much more expensive. 

Why would a guy with $50m in the bank want to borrow money? The only logical reason to borrow against your property instead of using cash is to access the incredibly generous negative gearing rules applicable to investments, in order to further minimise tax payable. Any interest payable on the loan would be entirely deductible against any income Beck makes from other sources.

So we’re left with a guy who has minimised his income to such a degree that he can’t even qualify for a loan worth less that 1% of his net worth that he wants in order to even further minimise his tax payable, who has the fucking temerity to whinge about it on the front page of the AFR.

Now it would be sensible at this point to look at the incentives created by a tax system that taxes income earned from labour at 49% above $180k whilst giving large tax incentives to those with capital to borrow money and minimise their income, but I’m not that sensible. So over to Steve Coogan, who sang this about Christian Beck:

[taxlosstrades]

Kogan quarterly

Interesting result from Kogan today. On first pass, >40% revenue and >90% EBITDA growth look stellar and operating cashflow of $24.5m goes a long way to countering the bears’ case that the company doesn’t produce any cash flow whilst the founders take advantage of the company’s nosebleed valuation of >20x EV/EBITDA to offload as much of their stock as they possibly can at every opportunity.

However, digging a bit deeper and it becomes harder to shake those charges.

Guidance implies revenue >$405m and EBITDA of >$23.8m against UBS estimates of $424m and $28m respectively - so actually a reasonably chunky miss - up to 15% at the EBITDA level.

More important however, is to understand where the $24.5m cashflow in 4Q came from.

So the vast majority of this cashflow came from not paying suppliers, whilst the claim of ‘seasonality’ doesn’t seem to be borne out when comparing it to 4Q17:

The magnitudes don’t match, whilst we also have a positive impact of $4.5m from decreased inventories. 

That makes the 4Q operating cash flow of $24.5m look more like just over $3m - cash flow concerns haven’t gone away just yet.

Most concerning of all is the total absence of any metrics regarding the new verticals that Kogan have been entering with huge fanfare. The 3Q update contained information on Mobile customers and profit:

This is conspicuously absent from today’s update.

So the question remains - if the online shop is essentially only marginally profitable, whilst the mobile, internet, travel and insurance verticals don’t even warrant a mention in the quarterly - with headwinds in mobile from increased competition and online shopping from Amazon and GST on overseas purchases - why is this worth a $600m EV? 

From their trading history, Ruslan and Shafer don’t seem to think it is

[taxlosstrades]

WHAAAT’S SUP?

Superior Lake Resources (SUP) was up 56% today on the back of their maiden resource at their Pick Lake project in Canada, and didn’t twitter want us to know about it. Bullshitmonitor was agog:

The usual suspects were playing to their personas of giddy rampers:

or knowing gurus: 

Either way - standard day in penny stock land on the ASX. 

However, on first blush this does look like an incredible resource:

Even at the higher cut off grade, this is 1.88Mt @ 18.7% Zinc. It’s so good it warrants further research. 

The first thing that jumps out from the JORC Table 1 disclosures is that all of the resource has been defined using drill cores from 1988-1999, many of which appear to have been previously disclosed. Indeed digging into Canadian disclosures from a prior owner who subsequently relinquished the project, they had identified a historical resource of 1.46Mt @ 15% zinc.

So it would appear that this has been a known high grade deposit for a number of years. So why did it close in the first place? According to SUP, it was because of a low zinc price.

Indeed, when the mine closed in 1999, prices were hovering below US$1000/t, whilst they are currently about $2800/t. Bingo!

However, checking out longer term prices, we see that zinc went parabolic in 2005, yet the mine wasn’t restarted. Indeed for the last decade, prices have averaged double what the price was when the mine closed. So why on earth hasn’t this monster been restarted since? Could there be other factors at play?

Digging further into SUP’s resource statement brings up this picture of the the two deposits: 

It appears that Winston Lake has been largely mined out, and the brief mining at Pick Lake didn’t amount to much.

Maybe we ought to check out why the original miner closed it in the first place.

The original miner was Inmet and according to their announcement in 1998, Winston Lake was shut due to it being uneconomic - potentially due to it being largely mined out - whilst Pick Lake (the vast majority of SUP’s resource) was shut due to the development undertaken to date revealing that “weak hanging wall rocks” would result in significant dilution. Long story short, Pick Lake is a bitch to mine due to the geotechnical factors. 

Perhaps this explains why this project has passed through so many hands in the last 20 years and despite elevated prices relative to those prevailing at the time of closure has never been restarted. Perhaps that’s why it took the tenements being wrapped up into “Ophiolite Pty Ltd” - apparently partially owned by friend of the show Tolga “Wontcha” Kumova:

Seed cap raise sorted for stock promoter Assad Tannous: 

and optioned to SUP for it to come to the attention of the denizens of Hotcopper, Twitter and penny stock punters at large. 

Who really knows what’s SUP?

[taxlosstrades]

Treasure Hunt, Boral Edition

Our favourite analyst combing through Boral’s announcements

ASX listed companies have a habit of giving very clear guidance when it is positive, and making the buggers work for it when it’s bad.

Prior examples include SUL referring to a footnote on page 7 of a two month old presentation, Bradken converting $163m into an arithmetic exercise and (my personal favourite) Bradken forcing the resourceful analyst to resort to acrobat’s ruler to glean an 11% downgrade to revenue expectations

Boral, being relative novices at this, still put in a highly commendable effort, managing to employ such strategies as the Shit Sandwich, Referring to a previous presention and the expressing the number as a complex equation.

Firstly the Shit Sandwich 

GOOD NEWS: 

One off property earnings! Prior expectations were for around $10m of earnings so this is just fantastic result.

BAD NEWS:

If we trek back to the half year presentation, Boral Australia EBIT was expected to be up ‘low double digits percent’ on the prior year - however this crucially excluded property earnings. Now we’re expected to be up 10-20% including property earnings.

Trekking even further back to the FY17 results presso, we find that total EBIT was $349m, implying a midpoint of FY18 guidance of about $400m including property. 

FY18 will have $60m of property EBIT, so that makes guidance ex-property around $340m. Consensus estimates for EBIT ex-property are around $365m, so that’s around a 7% EBIT warning for Boral Australia at the operational level.

MORE BAD NEWS:

Back to the Half year result! That was $101m of EBIT, so new guidance in the mid is $219m for the full year (+/- $7.5m), below consensus of around $246m and guidance two months ago of “significantly higher EBITDA skewed to 2H”.

GOOD NEWS:

... as previously announced.

So where does this leave our plucky analyst? We’re going to have to deduct around $52m of regular operational EBIT from prior estimates of around $672m, so around 8%, which will flow through to pre tax profit ex property downgrade of around 9%. BLD are down 8% at pixel time - nice try lads, must try harder.

[taxlosstrades]

Blue Sky thoughts

Blue Sky has finally responded to Glaucus’s hit piece, after managing to redraft it’s original response by answering half a dozen ASX queries over the course of Tuesday.

I’ll try to do a point by point later, but here are some initial thoughts. TL:DR - despite BLA’s incredibly opaque business model, Glaucus have scored more hits than they have misses, whilst the company’s response on social media and through friendly journalists has been full of hysteria - calling Glaucus “foreign short sellers” as if their nationality mattered.

Here are some of the hits:

1) BLA have confirmed they are quoting gross assets, whilst also including (no doubt lower margin) advisory mandates. BLA compare themselves to REITs (which own the assets), when a proper comparison would be a fund manager (which charges fees on the assets). Fund managers quote (and more importantly charge fees on) FUM net.

2) BLA is opaque, and the response to Glaucus shows they want to keep it that way. 

Accounts for vinomofo are publicly available - confidentiality isn’t an issue. They’re losing a shittonne of money, they’ve stopped advertising, and the ‘growth’ that is used to back an upward revaluation is top line growth that has turned a profitable business into a loss making one - that’s not a great business..

3) Beach Burrito - glaucus used the data from BLA’s VC2017 info memorandum to back out the value of their investment.

BLA responded thusly: 

This means either BLA’s VC2017 info memorandum is incorrect, or BLA are not being candid.

4) The biggest hit concerns the eye watering upfront “due dilligence”, and other transactional fees charged on single asset VC funds. BLA fails to address this in their response. This is hugely important because the market values recurring management fees on a much higher multiple than one-off transactional fees. 

By claiming AUM of $4bn, this invites the investor to multiply this by an annual management fee and come up with a recurring revenue stream. On one side, BLA include debt and advisory mandates in the AUM, whilst their fees include significant non-recurring items. This point alone is enough to suggest that BLA’s multiple is grossly inflated, and should trade at a large discount.

[taxlosstrades]

Domino’s statement, parsed

The feds have been in touch.

Of course it wasn’t ‘misused’. It is a unintended side effect that buying back 25% of volume with an obvious limit of $40 avoids another 1.84m shares hitting the market at a time when our whole business model has been called into question.

It’s all in your head - buying back stock in the market only creates a PERCEPTION that we’re supporting the share price. Just cos you are SO silly to think that, we’ll change it. In a bit. Once this margin call business is out of the way.

Why won’t you believe us? Look, we’ve said it twice now, are you deaf?

Of course the Chairman knew! If not the market! That first sale of Don’s was just for the divorce remember?  The chairman after all owns 26% of the company, so is utterly independent. Don’s only sold a little compared to that!

5% is miles away, and even if it isn’t Don can always sell the house. Loads of buyers around for $12m houses in Brisvegas!

now please go away. Please!

[taxlosstrades]

Unanswered GSW questions

Getswift resumed trade today after a one page letter was enough to convince the ASX that they were now in compliance with continuous disclosure obligations. 

However many serious questions remain:

Cash

Why did GSW receive no interest on its large cash balance?

Where is the cash held?

What led to GSW paying $15k in interest last quarter despite no debt and large cash balance?

Why were cash receipts less than half of revenue?

What are GSW’s payment terms?

Conversion and Retention

GSW claims a 90% enterprise client retention rate. How does GSW define ‘retention’? Are clients who have ‘paused’ their usage of the platform included?

GSW claims ‘almost 50%’ of its clients have progressed to ‘early stages of the revenue generation phase’. Does this mean they are actually paying for the product or that they are just in a phase where they might? 

What’s the average fee per delivery for these clients? 

GSW claims “the majority of announced Enterprise Client contracts continue to progress through various pre-revenue phases” - If almost 50% of contracts are in a revenue stage, a majority (ie >50%) of contracts are in pre revenue, and 10% of client contracts have been lost (ie not retained), then that adds up to more than 100%. Can we just have the details of which clients are paying, which in Proof of concept stage and which have ‘paused’ or quit?

Amazon, Yum! and NA Williams

Yum! recently announced a partnership with Grubhub for ordering and delivery. What is the nature of the continuing relationship between Yum! and GSW?

What is nature of the continuing relationship with Amazon?

Is the NA Williams contract a reseller agreement, and if so how many contracts and deliveries have been done through this channel?

Corporate Governance

Why have GSW changed offices 4 times in the last year? Is GSW’s registered office the main place of business? If not where is?

Were free deliveries under “proof of concept” or free trials included in the calculations of management’s performance milestones? 

What proportion of deliveries done to date that counted towards the stock grant milestones were paid?

On what terms have PwC been engaged? What responsibilities and warranties do they make as to the accuracy of GSW’s announcements?

[taxlosstrades]

Getswift reformatted

-GSW Appendix 4C, 31 October 2017. By way of context.

Response to ASX letter regarding GetSwift Limited ("GSW"): aware query

We refer to recent articles appearing in the Australian Financial Review and your letter of 22 January 2017 entitled “GetSwift Ltd (GSW) – aware query” (ASX Aware Letter). GSW refutes the negative claims made in the Australian Financial Review articles and categorically denies that it has failed to report material information in any of the circumstances suggested therein. GSW takes its compliance obligations seriously. Clearly the integrity of its disclosures is paramount to a successful partnership with its shareholders and the market generally. The Company believes it has carried out its responsibilities with proper diligence regarding the matters raised and has not failed to disclose matters that were required to be disclosed. We have set out below our responses to the questions and requests for information of the ASX Aware Letter (adopting your numbering and defined terms) in section B, below, to the best of the Company’s knowledge and belief. In addition to those responses, we also make some general comments. A. General Comments 1. GSW is growing and has continued to grow consistently quarter on quarter. GSW has regularly reported not just percentage growth figures of both revenue and deliveries, to demonstrate the extent of the growth being experienced, but has also reported on specific delivery numbers. There is nothing unclear to the market about what these numbers are, and the extent to which they are growing. 2. GSW's business model uses a Software as a Service platform (see section 3.2 of the prospectus of 7 December 2016 (the Prospectus)), rather than deployed software.

3.GSW offers a white labelled, enabling technology to companies for a low, pay as you use, transaction based fee (see section 3.7 of the Prospectus. Revenue is generated on a per delivery basis using a transaction fee of up to $0.29 per delivery. Discounts are applied to larger clients using a tiered fee structure, based on the client's monthly transactional volume and the length of contract commitment. No fixed maintenance or upfront set-up fees apply. Additional fixed subscription fees are payable on a per delivery driver basis for fleet management and smart routing (see section 3.7 of the Prospectus).

4. As specified in our Prospectus, enterprise clients are larger organisations with multi-site requirements and trading volumes of greater than 10,000 deliveries per month. The sales cycle is more interactive with these clients and requires a GetSwift sales person to onboard and monitor. Typically, a 90-day Proof of Concept (POC) is granted and the client then moves to a standard contract (see section 3.7 of the Prospectus). Contracts for enterprise clients are typically two-three years initially in length. Bespoke solutions are also available to enterprise clients and these are assessed and priced individually based on the complexity of the requirement. 5. Because GSW's revenue is generated from low, pay as you use, transaction based fees (see section 3.7 of the Prospectus), this means that clients, that no longer wish to use the platform, simply cease using it (http://www.getswift.co/pricing) and this is reflected in GSW's periodic reporting of delivery transactions and revenue.

Q1. Does GSW consider the information in the Fruit Box Announcement to be information that a reasonable person would expect to have a material effect on the price or value of its securities?

At the time, GSW considered that the addition of The Fruit Box Group as a client could potentially have had a material effect.

Q2. If the answer to question 1 is “no”, please advise the basis for that view. 

Not applicable. See response to 1.

Q3. Was the contract with The Fruit Box Group subject to any initial pilot testing trial period? 

No. Clause 4 of the contract provided for a Limited Roll Out period. Fees were only to be charged from the start of the Initial Period.

GSW does not believe the POC period to be a material condition to the contracts, as it will typically have no bearing on the commercial relationship in terms of any ability of the client to cease using the GSW platform. Regardless of any POC period, because the contracts are pay as you go, clients that wish to no longer use the platform simply cease using it and this is then reflected in our periodic reporting of delivery transactions and revenue. 

Q4. If the answer to question 3 is “yes”, please state how long was the trial period and explain why this information was not disclosed in the Fruit Box Announcement. 

Not applicable. See response to 3.

Q5. Has the contract with The Fruit Box Group been terminated?

Yes. On or about 20 March 2017, Fruit Box Group sought a release from the contract.

Q6. If the answer to question 5 is “yes”, did GSW consider termination of the contract with The Fruit Box Group to be information that a reasonable person would expect to have a material effect on the price or value of its securities?

No.

Q7. If the answer to question 6 is “yes”, when did GSW first become aware of the information, and did GSW make an announcement which disclosed the information? If so, please provide details. If not, please explain why this information was not released to the market.

Not applicable. See response to 6.

Q8. If the answer to question 6 is “no”, please advise the basis for that view.

GSW formed that view because:

(a) the share price movement following the Fruitbox announcement suggested that the market did not consider it to be a significant transaction; and

(b) at the time that Fruitbox sought a release from its agreement, GSW was finalising its agreement with CBA, which was a significant transaction and due to be announced to the market shortly thereafter thus putting the nature and size of the Fruitbox transaction in a different light. 

Q9. Does GSW consider the information in the Betta Home Living and Fantastic Furniture Announcement to be information that a reasonable person would expect to have a material effect on the price or value of its securities? 

GSW announced its separate agreements with BETTA Home Living and Fantastic Furniture, together, in one announcement by the Company on 23 August 2017. However, BETTA Home Living and Fantastic Furniture are a separate entities and the Company’s agreements with each of them are completely separate.

Each new client added or each client lost does not necessarily have a material effect.

At the time, the Company considered that the addition of both BETTA Home Living and Fantastic Furniture as clients could potentially have had a material effect. However, if just one of those new clients had been added at that time, in isolation, the Company considers that information would not have had a material effect.

Q10. If the answer to question 9 is “no”, please advise the basis for that view.

Not applicable. See response to 9.

Q11. Was the contract with Betta Home Living and Fantastic Furniture subject to any initial pilot testing trial period?

As noted in its ASX announcement of 23 August 2017, GSW entered into separate agreements with BETTA Home Living and Fantastic Furniture. The answers below relate to the Fantastic Furniture contract.

No. Clause 4 provided that the term was 38 months, comprising a Trial Period and an Initial Term (of 36 months). Fees were only to be charged from the start of the Initial Period.

Q12. If the answer to question 11 is “yes”, please state how long was the trial period and explain why this information was not disclosed in the Betta Home Living and Fantastic Furniture Announcement

Not applicable. See response to 11.

Q13. Has the contract with Betta Home Living and Fantastic Furniture been terminated?

Due to the circumstances of notification by Fantastic Furniture regarding the contract with them, the Company was left with the impression that activity may resume. The BETTA Home Living contract remains in effect. 

Q14. If the answer to question 13 is “yes”, did GSW consider termination of contract with Betta Home Living and Fantastic Furniture to be information that a reasonable person would expect to have a material effect on the price or value of its securities?

No.

Q15. If the answer to question 14 is “yes”, when did GSW first become aware of the information, and did GSW make an announcement which disclosed the information? If so, please provide details. If not, please explain why this information was not released to the market.

Not applicable. See response to 13.

Q16. If the answer to question 14 is “no”, please advise the basis for that view.

Please see our responses above.

Q17. Does GSW consider the information in the CBA Announcement to be information that a reasonable person would expect to have a material effect on the price or value of its securities?

Yes.

Q18. If the answer to question 17 is “no”, please advise the basis for that view.

Not applicable. See response to 17.

Q19. Was the contract with CBA subject to any initial development period and/or pilot testing trial period?

No.

Q20. If the answer to question 19 is “yes”, please state how long is the development period and/or trial period and when did it or will it commence, and explain why this information was not disclosed in the CBA Announcement.

Not applicable. See response to 19.

Q21. Has the CBA agreed to adopt the GetSwift Application?

GSW has no reason to believe that CBA will not use the GSW platform.

Q22. If the answer to question 21 is “no”, please explain on what basis GSW expects to see revenues from the market utilization to start manifesting in mid-2018, and that the CBA deal is estimated to result in in over 257,400,000 deliveries on its platform over the next five years, with an estimated aggregate transaction value of $9 billion.

Not applicable. See response to 21.

Q23. GSW has announced to the market other contracts and/or partnerships not mentioned above. Are any of these subject to initial development and/or trial periods?

No POC periods are in effect for any contracts or partnerships that GSW has previously announced. POC periods were not disclosed for any contracts because GSW does not believe any of the POC period provisions to be material conditions to the contracts, as it will typically have no bearing on the commercial relationship in terms of any ability of the clients to cease using the GSW platform. Regardless of any POC period, because the contracts are pay as you go; clients that no longer want to use the platform simply cease using it and this is then reflected in our periodic reporting of delivery transactions and revenue.

Q24. If the answer to question 23 is “yes”, please advise which contracts/partnerships and if not already disclosed to the market, please explain why this information was not disclosed to the market.    

See response to 23.

Q25. In relation to these other contracts and/or partnerships, have any been terminated, and if so which ones.

The Company is not aware of any contracts announced to the market that have been formally terminated. Each new client added or each client lost does not necessarily have a material effect.

Q26. If the answer to question 25 is “yes”, when did GSW first become aware of the information, and did GSW make an announcement which disclosed the information? If so, please provide details. If not, please explain why this information was not released to the market

Not applicable. See response to 25.

Q27. Please confirm that GSW is in compliance with the Listing Rules and, in particular, Listing Rule 3.1.

GSW considers that it is in compliance with the Listing Rules and, in particular, Listing Rule 3.1.

Q28. Please confirm that GSW’s responses to the questions above have been authorised and approved in accordance with its published continuous disclosure policy or otherwise by its board or an officer of GSW with delegated authority from the board to respond to ASX on disclosure matters.

GSW confirms that the GSW responses have been authorised and approved for release to ASX by the board of directors of GSW.

[taxlosstrades]

Chris Ellison’s selfless pay rise

Occasional friend of the show Chris Ellison of Mineral Resources ($MIN) has had to endure the embarrassment of a second strike against his executive pay at yesterday’s AGM, with 41.5% of votes cast against the Remuneration report.

In the AFR, Ellison blamed proxy advisors for the result, and expressed a need to ‘educate’ them regarding the ‘unusual’ business model. 

Now if complaining about short sellers is a red flag showing a company has something to hide, then complaining about proxy advisers is a pretty sure sign that there’s something smelly in your corporate governance. Gerry Harvey’s not a fan calling them a ‘sore on corporate Australia’, whilst Solly Lew at PMV, corporate gerrymanderers the Millners at SOL/BKW/NHC, and Paladin (administrators appointed) have all fulminated against the ghastly killjoys.

In the AFR, Mineral Resources Chairman Peter Wade did concede that investors had “one major concern about the board's decision to increase the fixed remuneration package of the managing director”

Now even in normal circumstances a 90% salary increase would raise an eyebrow, even more so when the managing director already owns more than 12% of the company worth $440m, paying fully franked dividends of around $12.5m for FY17, along with receiving a bonus of $750k (cash) and another $1m worth of stock vesting from FY16.

So why the huge increase? Ellison claims that it wasn’t at all about lining his own already cavernous, bulging pockets - perish the thought! - it was just about making “the position appealing to potential future internal candidates for the managing director role”. In a genuinely magnanimous gesture, Ellison clearly agreed to accept the extra cash solely to set an example for his future replacement.

However, it may be that such future internal candidates for the MD role may be somewhat put off by Ellison’s statement that he expected to continue at the helm for "at least another 10 years" - so I suppose you can’t get your remuneration structures sorted too early to motivate your replacement, even if they probably haven’t finished university yet!

To cap off this display of cognitive dissonance, Ellison declared “I think it is fairly well publicised that I don't need a salary increase, there is no doubt about that, if they paid me $1 a year I would still do what I do,"

So to summarise, Mineral resources have annoyed their shareholders by giving their extraordinarily well remunerated MD a 90% pay rise, blamed proxy advisers for the backlash and then gone on to say that the pay rise was not only unnecessary to retain the MD, but that it was to motivate a future replacement who won’t be in place for at least 10 years.

Taking the Homer approach would have at least been less obviously disingenuous!

[taxlosstrades]

Fully funded

Ever since friend of the show Tolga Kumova resigned from Syrah in October 2016, the company has been extraordinarily keen to show just how fully funded they were:

---5 Oct 2016

---16 Nov 2016

---13 Dec 2016

---2 Feb 2017

---29 Mar 2017

---27 Apr 2017

---27 Apr 2017 Presentation

---18 May 2017

---24 May 2017

---30 July 2017

--- 7 September 2017

Amazing then that today SYR have announced an equity raise, and not a small one.

$110m cap raise! Wonder how long term supporters of the company Credit Suisse will manage to sell this to their clients? 

[taxlosstrades]

Hedging with Don Meij

Don Meij, CEO, has advised that he will be selling DPE shares in the next Trading Window in order to meet financial obligations relating to his share acquisition costs, taxation on incentives and matrimonial settlement 

- DMP annual results presentation

The Don also further reassured that he wouldn’t be selling whilst the buy back was active to avoid any appearance of a conflict - so far so reasonable.

However today Don lodged a change of director’s interest notice saying he’d knocked out 300k shares at $45 per share - in an off market transfer. Perhaps this was to his ex-wife? However the price seems very high given DMP hasn’t traded at $45 since it reported its disastrous results.

Could something else be at play? One possible explanation for an off market transfer would be to settle a derivative position taken out with a third party - such as a put option, CFD or other equity swap. However this would require hedging by the counterparty by selling in the market, and would have an identical economic effect to Don selling the shares himself. Given the price at which this was executed, it must surely have been done before the results were announced. 

In which case, surely there should have been a disclosure that the CEO had hedged some of his equity position? 

[taxlosstrades]

CBA really is a big deal

On Monday, the AFR carried a piece by the ever reliably wrong Chris Joye on why the money laundering scandal at CBA is ‘overblown’.

Joye makes the argument that CBA has been viewed as a good corporate citizen by regulators and they’d spent lots and lots of money on cyber security so best give them a slap on the wrist and move on:

Narev will probably take a hit to his bonus alongside other senior staff. But let's not throw the baby out with the bathwater.

Anyone who has a CBA account or credit card knows the extraordinary efforts the bank undertakes to protect our money and combat crime.

The issue is that the bank does not boast about the vast quantities of customer money it saves through its fraud detection and cyber-security defences, which is orders of magnitude the size of the comparatively tiny quantum of cash that was unwittingly allowed to be laundered via its systems because of a one-off error.

This is an utterly specious argument. ‘Cyber security’ is an entirely different area to anti money laundering - one is focused on stopping fraudsters stealing CBA’s money, where as the other is to do with preventing criminals using CBA’s systems to launder money. Spending on one is irrelevant to the other.

More importantly, once some bright spark at CBA came up with the idea of allowing people to deposit $20k in cash into an ATM with no human oversight, the first thought should have been “who will be walking the street with 20 bags in their pocket?”

If the answer to this question wasn’t “drug dealers and money launderers”, then CBA have been recklessly stupid and incompetent.

Given the obvious risk that such a system would be a target for criminal activity, this redoubled the importance of testing the system rigorously and regularly, especially regarding AUSTRAC reporting and other anti money laundering measures.

The fact that this could remain undiscovered for 4 years and not fixed for a year afterwards speaks of a bank that simply doesn’t take its obligations in the financial system seriously, and for that reason alone Narev has to go and an outsider appointed with a large broom.

[taxlosstrades]

7.7 minutes of hot action

The much heralded proposed renewable lithium battery storage in South Australia of 129 megawatt-hours would power our aluminium smelter here in New South Wales for a grand total of 7.7 minutes

That’s a quote from Peter Freyberg, Glencore’s Polluter in Chief Head of Coal.

This suspiciously accurate time is wrong on many counts. Firstly, 129MWh of capacity and 7.7 minutes give you a power usage of 1000MW - The biggest Aussie smelter uses about 880MW, so that would be about 9 minutes.

Secondly, it’s only got 100MW output capacity so it couldn’t possibly power a whole smelter on it’s own.

Thirdly, the reason that it can’t do this is because that’s not what it is for. Freyberg may as well be saying that you can’t make a road tunnel with a hand drill - but equally you can’t put up shelves with a f*ck off tunnel borer. 

In reality, the purpose of the battery is to store electricity when it is cheap and release it when it expensive in order to smooth the price spikes we see on a daily basis.

Below is a chart of the total demand for power in NSW over the last 24hrs and its price.

So on a pretty normal day, prices have varied from about $70/MWh to spikes north of $240 - clearly a system with massive pricing volatility that manages the activation and deactivation of nearly 4GW (4 smelters Peter!) of power generation each day. A coal fired power station can’t help with this given the hours-to-days that they take to start up and shut down - a gas plant is much more responsive, but to finesse those minute by minute spikes, you need pumped storage or batteries. Adding these to a system increases their resilience and reduces the overall capacity required by transferring energy from low to high demand times.

It would be easy to say that Mr Freyberg is insulting our intelligence with his self serving nonsense, however that would also be wrong. I think he’s got the assessment of the intelligence of our Political class spot on.

[taxlosstrades]

Dominos has a Meij-or Problem

Dominos Pizza is fast food delivery company that trades on an eyewatering 57x historical earnings - a tech company rating. For all the magnificently bombastic Don Meij’s visionary talk of drone delivered pizzas, the reality on the street is that your pizza is most likely to be delivered on the back of a dodgy scooter or a 1996 Toyota Corolla.

This is the quandary facing investors in Dominos - is it a tech company that is building a sustainable advantage through innovation, or in the wake of the 7 Eleven scandal, is it a fast food company that is squeezing franchisees so hard that the only way they can make a stuffed crust is by flouting labour laws. If it is the latter, then there is no reason to pay up for a growth rating when the profitability of its franchisees has reached breaking point,

In an attempt to reassure the market about the profitability of its franchisees and the legality of their operations, in February DMP announced that Deloitte would undertake an audit of all franchisees, with the expectation of a report in June, four months later, and that the Fair Work Ombudsman was investigating a number of franchisees.

Which brings us up to today’s announcement:

Domino’s Pizza Enterprises Ltd (Domino’s) (ASX: DMP) updated the market at Half Year results in February on the progress of its proactive industrial relations compliance program, and committed to keeping the market informed on this progress.

An independent review of Domino’s compliance processes, by Deloitte, is well advanced but has yet to deliver its findings. 

Domino’s advised a nationwide audit of all corporate and franchised stores would take place – this audit is ongoing.

For these reasons, and because of the number of stores being audited, the process is taking longer than anticipated. Domino’s expects the audit to be completed in the next six months. Domino’s will provide a further update on the national audit program, and the Deloitte review, at its Full Year results.

This has left me confused, because DMP have clearly given no reason why the audit is taking 3 times longer than expected. 

The most obvious reason for Deloitte taking so much longer to complete is that they’ve uncovered something that requires further investigation - perhaps they’ve discovered that underneath that shiny drone exterior is a battered old Corolla driven by exploited labour, and that this is not a tech company, but a boring old pizza company.