Member Info for TheTrotsky

I recently looked at the annual results of BYG because the headlines were screaming that profits had fallen 80%! However, on further investigation, it became clear that BYG's operational turnover and profits had increased, despite the economic headwinds, but that its profits had fallen off a cliff because it had booked a large, unrealised, valuation gain the prior year. BYG does not hold its properties for sale and does not pay out any dividends from its unrealised valuation profits (it's a REIT and, as such, it pays out at least 90% of its operational profits). So, despite the negative conotations, of the headline, the business was still in rude health. Before IFRS, such unrealised valuation gains/losses would have been booked to reserves so as not to distort the reported realised profits. Just one of the supposed "benefits" of IFRS. What makes it worse is that some people trade based solely on the headlines!

Personally I'd like to scrap IFRS. Under the old accounting regs you were only obliged to reflect liabilities to the extent that they were more likely than not to arise. Now it appears that you have to reflect liabilities regardless of how remote they are and/or whether or not they will create a genuine cash liability.

DEC's current liabilities are great example in point; you appear to have a mix of cash and non-cash liabilities which, on just a cursory view, are indiscernible and which, on an in depth view, may still remain unclear. How can anybody be expected to understand a set of accounts these days when you have to pick through figures with a fine tooth comb to try and tease out the salient from the irrelevant.

IFRS was supposed to make accounts easier to understand. In that respect IFRS is, in my view, an abject failure.

An interesting an analysis but if your analysis of the cash flow was correct then nobody would ever utilise cash generated from operations and borrowings to invest.

Essentially DEC has invested c$1.01bn over the the last two years, of which c$500m was funded from operational cash flow. If you strip out capex, that means DEC used c$350m of operational cash flow for discretionary investments (acquisitions it chose to make but did not necessarily need to make).

In analysing DEC's current assets you've completely missed the potential elephant in the room. There's one key asset that's not being reflected in current assets because of how DEC accounts for its investment in its natural gas and oil properties. If DEC accounted for its gas and oil investments based on the market value of its proven reserves (rather than their historical cost of acquisition) then part of those reserves would be reflected in current assets (the forthcioming year's production) i.e. inventory. I appreciate it's a debatable point (inventory is normally booked at the lower of cost and net realisable value) but it does strike me that DEC's accounting for its oil and gas assets is, perhaps, conservative when you consider the mauling it gets from IFRS due to its use of derivative financial instruments (aka hedges). I'm not an auditor but there does appear to be a mismatch between the accounting treatments (the conservative approach on the one hand versus the kitchen sink on the other).

As regards, current liabilities I think you may find that you are being slightly disigenuos. First of all, current liabilities include $294m of derivative financial instruments (aka hedges); these are not historical liabilities but are yet another reflection of IFRS accounting and the expected "lost opportunity" in the forthcoming year based on the spot price as at 31 December 2022 (they are non-cash liabilities). Also, there are $271m of borrowings which are expected to be repaid over the next year (they were not due for payment as at 31 December 2022). Some of the other current liabilities are a "bit more tangled", they are included because they fall due for payment when certain criteria are met but it's not at all clear whether those criteria will actually be met within the next 12 months or longer.

I think it's fair to say that DEC's fortunes are tied to being able to continue to operate and generate income. It clearly doesn't have sufficient realisable current assets to meet all of it expected current liabilities (e.g. loan repayment) should its income become disrupted but I think that's true of most companies.

Personally, I think a lot of people stuggle to understand IFRS accounts; in my view, DEC is not the only company to struggle under certain misconceptions. You only have to look at some of the headlines when companies publish their annual results to appreciate that analsyts are too focused on PBT without appearing to undertand the nuances of IFRS.

Machin/Modex,

As far as I can determine, ACA and COFA pay one dividend per year and there would be 15% withholding tax, regardless of whether the dividend was paid into a SIPP, ISA or general trading account.

Also, I would point out that:

1) Albeit that COFA paid dividends of €1.52 (2022) and €1.50 (2021), pior to that it paid €0.55 (2020), €nil (2019), €0.79 (2018), €0.34 (2017) and less for prior years. So there is a question whether the current level of dividends is sustainable and/or has significant scope for further increase. Also, the share price took a bit of nose dive at the beginning of this week, so the yield rose from c10.8% to c12.5% as of today (which would equate to a net yield of c10.6% after 15% withholding tax). Not sure whether the fall related to COFA specific news of the general economic outlook.

2) The current ACA dividend is a bit misleading. It appears to be the bank's policy to pay out 50% of its annual earnings but both the 2020 and 2021 dividends included a 20¢ catch up dividend payment for 2019 due to the regulatory prohibition to pay dividends in 2019. It would appear that ACA has another 30¢ to catch up in 2022 and 2023, so its quite probable that the dividend payment will fall thereafter until such time earnings permit. Excluding the catch up dividend, ACA is currently trading on a yield of c7.2% as of today (which would equate to a net yield of c6.1% after 15% withholding tax).

3) As far as I can determine, COFA's current dividends don't include any catch up dividend for 2019 but it might be worth double checking.

GLA

We went ex-dividend today, so that accounts for c3.50p of the fall over the last two days.

That should have read as c£2.8m increase in profits in H2 compaered to H1 (I unintentionally doubled the expected energy saving in H2).

I think today's fall is a combination of several factors currently affecting the sector:

1) Today's inflation figures;

2) The ongoing US debt cap negotiations; and

3) The government currently considering to force the pension sector to support their proposed £50bn Future Growth Fund

The latter seems to have slipped somewhat under the radar but will potentially have the more far reaching impact on the sector.

Because of the reversal of the holiday pay provison (essentially bringing forward H2 expenditure into H1) and the reduction in energy costs in H2 compared to H1, they already expect a c£3.8m increase in profits in H2 compared to H1, even before allowing for improving margins (they expect to benefit from lower input costs whilst at the same time being able to pass on some of the more recent inflationary costs, through some pricing increases, that they've had to absorb to date), increasing LFL sales and improving profits in new businesses.

In their FY22 accounts they said that they expected to have to absorb about £5m of additional costs in FY23, of which about £2m relates to gas and electricity. The market is competitive and they want to maintain/increase their market share and, as such, are willing to absorb some costs to achieve that aim. They also said (in effect) that they expected some of those extra costs to be offset by the additional profits generated from increased YoY sales. Bottom line, they predicted FY23 profits to be marginally lower than FY22 (I'd interpret this to imply no more than 10%) and today's RNS would indicate that there's been no material change in their FY23 outlook. It's all steady as she goes.

At first glance the dividend doesn't appear to be covered by EPS but I believe adjusted EPS is a better guide. Due to changes in accounting rules, "earn-outs" under the terms of the Pro Tiler Tools purchase agreement are being expensed rather than capitalised (£1.7m was expensed in H1). It's normal business practise for part of the purchase consideration (the earn-outs) to be dependent on post-acquisition performance (acquirors want to try and ensure that they're not buying a "dud" and/or that pre-acquisition performance has been artificially boosted in some manner to try and increase the purchase price). In the past, these earn-outs were accounted as part of the acquistion cost but accounting rules now say otherwise. Whether or not you think the new accounting treatment is correct (from a tax perspective the earn outs are still treated as part of the acquisition cost for the purposes of any future sale and are not deductible as a normal business expense), these costs are not expected to be recurring beyond the end of the agreed earn-out period.

JiffyBag, How can you lose something that you never had or never expected to have? The $895m represents the additional income DEC might have earned if it hadn't hedged its production. By hedging its production, DEC has certainty that it will be able to pay its trade debts, loans and dividends. If the spot price had moved is reverse, you'd be asking why DEC hadn't hedged its production! In the not too recent past, a number of producers went out of buisness when the oil/gas price hit the floor and they hadn't hedged. DEC is about de-risking. The problem with comprehensive hedging policies is that they don't just happen overnight; DEC takes yeares to build its forward hedge positions (it's already building some hedge positions 5+ years hence) and so its not something you can just stop and reverse to try and increase your near term free-float to benefit from opportunistic price spikes. It's also the quid pro quo for your counter parties when prices move in your favour and the spot price falls below the hedge prices (which is, I believe, the position on DEC's current book); if long-term spot price were always above hedge prices then nobody would hedge, likewise if hedge prices were always above the long-term spot price then there would be no counter parties. DEC moves the risk to the counterparties and because price swings between peaks and troughs can be very large, so can the corresponding potential gains and losses.

DEC's recent foregone profits were much larger than normal because of the sudden impact of the Ukraine war (which DEC could never have predicted years in advance when it started building its hedge position) but it also serves as an example of what could happen (in reverse) if there was a sudden production glut, for whatever reason, which far exceeds demand (it can take months, if not years, for markets to adjust, particulalry if national producers start chasing volumes to try and maintain their revenues - even OPEC can struggle to get its members to comply when they are faced with a steep decline in revenues). It can happen; it's happened before.

Have to say that I'm not a fan of the latest iteration in AI, based on certain dystopian views.

Firtsly, we don't even understand how the human brain really works and yet the ultimate aim of many of those involved in modern AI research is to try and write software capable of independent thought for no other reason than the challenge. The problem is, if we succeed (and I'm not saying we will) it will be too late to put the jack back in the box. Robert Oppenheimer long regretted his involvement in the Manhattan Project. He thought that nuclear fission could help humanity (lots of cheap abundant energy) and that, if weaponised, just the mere threat of dropping a bomb would be sufficient. Hiroshima put paid to his original delusions.

Secondly, although I frequently get irate with staff on customer support lines (too often that's an oxymoron) I'd much rather speak to a human being in a paid job, despite all their deficiencies, than a bot. Bots may be more efficient and cheaper but what happens when there aren't any jobs left? Will governments and big buisness step in to pay people not to work? Worse still who will be able to afford even the basic services if they' don't have a salary? We really need to talk about AI and the profound affect it will have on our future society and jobs, even if it just remains a "dumb", rules-based piece of software incapable of independent thought.

That's actually disappointing because if Caspian had repaid $5m in February it would lend further credence to the idea that 802 is flowing but, if Caspian had repaid $5m in February, the loan would have been evident in the accounts and everybody seems to have lost sight of that in their excitement. Contrary to common mythology 2+2 does not equal £m+ and it always serves to double check the facts.

Okay, I can now see that everybody appears to have misread the documents at Companies House.

Check out Note 20 to the FY21 accounts. The original debenture, back in 2011, may have been $5m but, by the end of FY20 Vertom was only owed c$1.3m and by the end of FY21 this had dropped to no more than c$600k. The FY22 interims appear to indicate that any remaining balance may have been repaid during H1 (the notes only refer to Vertom making a new $350k loan).

Therefore, unfortunately, it would appear Caspian did NOT repay $5m in February. Instead, it would appear that Caspian has been paying down the loan progressively for a number of years. Also, I rather suspect that the release of the charge may have been overlooked when the loan was repaid during 22H1 and that the submission in February was merely putting right an earlier administrative oversight. This is not uncommon because once the loan has been repaid the charge ceases to be enforcable and people often tend to forget to register the release until such time as they need another loan (at which time the new lender does a search, discovers the charge and points it out). I'm not saying that Caspian has taken out a new loan, just pointing out that registering the release is not as big an issue as it may appear.

Where is this debenture? When did it arise? As far as I am aware, the debenture would constitute debt and yet, in the RNS issued on 15 Feb 2022, Carver stated "On completion of the Debt Conversion the Group will be free of debt and therefore better placed to further develop the Group's assets and to commence dividend payments".

That statement does not appear consistent with existence of an ongoing debenture at that time. Anybody care to shed some light?

Bertram the government has been shovelling out R&D tax credits like there's no tomorrow. The problem is that they haven't been targeted and that's why fraudsters have now been making a killing.

The R&D tax credit system was always intended to encourage "blue sky" technologies by, in effect, enabling companies to recover, some if not all, of their annual PAYE and NIC costs in the first instance and potentially reduce their corporate tax bills further down the line as the companies morphed from R&D to commercial sales. The priority wasn't to find unique offerings (it's perfectly feasible for companies working in the same field, expending money on R&D to try and achieve the same endgame, to all claim R&D tax credits as long as they are reliant on their own R&D i.e. all striving to get to the same destination but by different routes).

For me, the real problem with the R&D tax system was that you were often asking HMRC Inspectors, often with absolutely no technological background, to assess whether or not R&D expenditure met the the intended aim. Larger R&D claims would always tend to be subject to closer scrutiny and, if warranted, Inspectors could call upon technological support. However, smaller R&D claims, too often than not, because it wasn't economic were rubber stamped without even some of the basic financial checks being made e.g. HMRC didn't even do some rudimentary tests to determine whether the amount claimed actually met the minimum qualifying criteria. As a result, a whole industry has grown up around making (fraudulent) R&D claims that should never, ever, have seen the light of day e.g. apparently one restaurant business was apparently able, on "advice", to make a successful R&D claim for re-designing its menu (both for the design of the menu and the formulation of new dishes). The fraudlent advisors were relying on HMRC rarely, if ever, checking small R&D claims in any detail; not even skim reading them.

This is why the whole R&D tax system is now currently in turmoil with long payment delays because HMRC has, at long last, woken up to the fact that the system is being abused and are now scrutinising most, if not every, claim in detail. It's a mess of the government's and HMRC's own making. Rules are only as good as the system for inspection and monitoring. If you can't be bothered to inspect and monitor the application of the rules, because it's deemed to expensive, then you may as well not have any rules in the first instance. It's a national disgrace and it's not just restricted to HMRC; the same applies to our financial regulators, food, water etc. etc.

The government has singularly failed to properly fund inspection and monitoring, in part because it doesn't have the funds and is unwilling to levy business (and ultimately customers albeit it that it's often in our personal interests), and also in part because it seems that some MPs have a vested interest in the rules not being applied e.g. all those accounts in tax have

I believe from previous announcements, but stand to be corrected, the average price of DEC's near term hedges (next 2-3 years at least) are currently above $3, so DEC would still be reaping the benefit. However, even if the market price starts to exceed DEC's average hedge prices that would not invalidate DEC's business model.

DEC's business model is based on steady, reliable cash flows and avoiding the peaks and troughs of merely following the spot price. Also, if the market price starts to exceed DEC's current near-term average hedge prices then that will give DEC ample opportunity to hedge even more future production at significantly higher prices than it was achieving just a couple of years ago (if my memory serves me correctly, DEC was hedging in the mid to low 2s only a couple of years ago). It's not all doom and gloom.

DEC's hedging policy is not the problem and, based on its most recent results, average production costs are in hand and, if anything, are continuing to fall (or at least remain steady) despite the current inflationary backdrop because DEC has been able to leverage additional economies of scale from its most recent acquisitions (if you look at the costs and strip out the not necessarily recurring, transactional costs you will note that recurring, annual production costs actually stand up very well on comparison with prior periods).

I think DEC's forecast, future capping costs still remain the biggest issue (apart from the vagaries of IFRS). IMHO DEC has not yet done enough to persuade the markets that its forecast, future capping costs are realistic, given that revenues currently being derived from third-party capping contracts are multiples higher than DEC's own expected future costs. I believe that DEC needs to go that extra mile to explain the discrepancy. We all have our own theories but DEC needs to spell out their own assumptions. Personally, I think that the ability to cap multiple wells in one locale, rather than the odd one here and there, without necessarily the additional time and costs of having to repeatedly disassemble and reassemble equipment could play an important part i.e. DEC, in theory, should be able achieve a far higher average capping rate for its own wells (if a fully utilised crew can cap an average of, say, two DEC wells per week as opposed to one third-party well per week for the same cost outlay, simply because of the logistics of moving from one site to the next, then you can significantly reduce your average capping costs).

Not yet convinced that the failure of British Volt et al was necessarily a bad thing for two main reasons:

1) Lithium is NOT green. The environmental cost of mining lithium is appalling. Lithium-based batteries double the carbon footprint of a newly manufactured car (compared to a petrol-driven car). The greenest option of all, currently, would be to buy a second-hand, petrol driven car built since (say) 2010 onwards and look to reduce your annual mileage where possible. Have got to believe that lithium IS NOT the final say in electric batteries and that joining the current bandwagon of building lithium-based, battery production facilities may not be a sound, long-term investment given that new forms of battery may need a completely different form of production facility.

2) Existing electric vehicle technology is pants and existing electric vehicles are likely to need to be scrapped as, and when, the new iteration enters mainstream production. Electric vehicles in 5-15 years, based on current research, are likely to look totally different from today, being far more efficient and having significantly improved range. Current electric vehicles are a stepping stone, not the end game.

Therefore being "late to the table" may not prove to be a bad thing IF the government now recognises that big change may yet still be in the offing and that keeping abreast of the potential changes and making seed investment where appropriate could pay huge dividends if we are "first to the table" at the second sitting.

My only concern is that this, or any other, UK government lacks the foresight to realise that opportunity still exists and that words alone are not enough; there has to be investment in R&D too.

Hi London123,

There is no guarantee that IBPO will continue to pay dividends and, even if it does, IBPO could, in theory, change the share structure after it de-lists so that, for example, Aggawal had "A" shares and everybody else had "B" shares. Not only could IBPO potentially change the rights to capital returns on sale but it could also re-direct any dividends to just, say, the "A" shareholders. Such changes would, in principle, require a GM to to be called but the changes would, at most, only need a 75% majority to be affected and Aggawal already controls >80%. I'm not saying that these changes are going to happen but they could happen and it would all be perfectly legal once IBPO de-lists because the minority shareholders would no longer have the normal protections affored by the listing rules and/or the Takeover Code (both of which IBPO has confirmed in the initial RNS would cease to apply).

That aside, if dividends were to continue to be paid to all the shareholders, the question then becomes of how that might be affected. Dividends are normally collected and applied to your account by your broker and today's RNS suggests that you will still be able manage buys and/or sells on the Matched Bargain Facility via your broker. So, presumably, your broker will still be able to process any sale proceeds to your account after IBPO de-lists by arrangement with the MBF provider, JP Jenkins, BUT today's RNS does not say whether, in the event that there are dividend payments, the JPJ will also manage those payments on behalf IBPO.

In managing the MBF, JPJ is only acting as a de-facto intermediary for the movement of funds between one shareholder and another, and today's RNS does not even mention whether JPJ will make any additional charge, over and above your normal broker's charges, for the provision of the MBF but that may have been covered off in a previous RNS (IBPO might be paying for the MBF).

Bottom line, I would ask your broker before IBPO de-lists what would happen in the event of a future dividend payment because if JPJ doesn't manage the payment on behalf of IBPO then the broker would need to be able to deal with both JPJ and IBPO directly (the former for settlement of any disposals and the latter for payment of any dividends).

Based on today's RNS it would be my understanding that any existing shares would continue to be held by your broker's nominee and, as such, as safe as they are currently are. I would assume that any new shares acuired after the de-listing would also be held by your broker's nominee but, again, I would confirm this with your broker before IBPO de-lists.

Just my thoughts, but hope that helps.

PS. Don't forget that if your existing shares are currently held in an ISA they cannot be held in an ISA once IBPO de-lists and will need to be transferred into a dealing account. Some brokers will facilitate such a transfer on request, others may not.

Hi CC,

I'm not sure whether the fact "... no spread bet long is available ..." is actually indicative of there being "... no physical stock that can be bought in order to cover that position ...".

I deal with SpreadEx and when similar circumatances occur there they frequently tell me it's because no stock can currently be bought within the spread or they can't find a counter party willing to accept the risk or, in bookie parlance, that can't lay off the risk i.e. they've currently got too much long on their own books.

As it happens, you can currently buy long on Spreadex. Can you buy long on IG?

TT

Feel free to check and refute the "synopsis" in my previous message; if any of the details are materially incorrect I apologise aforetime (I don't apologise for any poetic licence).

It's not my intention to mislead and the company can certainly volunteer to circulate news and annual accounts regardless of the Guernsey registry requirements but, without any stated commitment to that effect, there is no legal obligation on the company to do so, beyond what is set out in its Articles.

Feel free to step into the Black Hole at your own peril.

I've had a couple of UK-based companies de-list in the past and haven't heard a dicky bird since although I have, at least, been able to check their public filings at Companies House (they didn't make pleasant reading).

GLA

The Self-Appointed (TinPot) Sheriff ;-)

No, basically it is really de-listing.

A Matched Bargain Facility is totally different to a listing. There are no market makers. They are much maligned and I freely admit that I have no particular love for MMs (essentially MMs generally sc*ew you; the deck is always stacked in their favour) BUT if you want to sell (or indeed buy) the MMs will always generally offer you a price under normal market conditions (you might not like the price you are quoted but you get a price - you might have to discount the price to shift the volume but, for any given volume, MMs will generally offer a price).

MBF, on the other hand, has no MMs. You can offer to buy or sell at a price of your choosing BUT if nobody is buying (or selling) at that price (or any price) you have no deal; you are wholly reliant on a "mug" having a contrarian view to your own. I'm not being derogatory by referring to your counter party as a "mug". Essentially, what I'm saying, is that if you're looking to sell you need to find someone who, from your perspective, doesn't think the company is going "down the tubes" and has "further to rise". Likewise, if your looking to buy you need to find someone who, from your perspective, does think the company is going "down the tubes" and has "further to fall". Regardless, from your perspective, your counter party is a "mug". MMs by comparison are ambivalent and will generally have another buyer/seller in view (they have full sight of the book before they transact); they don't tend to hold long term and are risk averse.

There might be some "action" on the MBF after the shares initially de-list but after that there will be a total news vacuum (think of tumbleweed blowing through an empty, derelict town) which will make any decisions on whether to buy or sell virtually impossible.

Re-check the original RNS. Unlike UK listing rules which require companies to keep investors notified of any transactions that might materially affect the price of your shares, the company gives no commitment to keep shareholders notified of any transactions, trading updates or otherwise, other than those legally required by its Articles e.g. shareholder meetings. Also, there is no public filing requirement in respect of accounts in Guernsey; the company is not required to lodge accounts with the Guernsey registry for public viewing (check the Guernsey registry FAQ). Guernsey-based companies are required to lodge an annual validation report, which is I believe is available for public view on payment of a fee, but the information included therein is very basic and does not appear to provide any trading information. Other than the Guernsey registry filing requirements, there is no legal obligation for the company to circulate annual accounts its shareholders unless it's stipulated in its Articles.