Some company directors read discussion boards. So watch what you say!
This is neither an AGM report or a site visit, instead these are notes taken at a lunch organised by Lo-Q's (LSE: LOQ) wonderful PR advisers, to whom many thanks. Sitting in the hot seat presenting and answering my questions, often at the same time, was Jeff McManus, executive chairman at Lo-Q.
Only the paranoid survive
It has to be admitted that Jeff is paranoid, but paranoid in a good way, much like Andy Grove, once CEO of a small chip company called Intel that over time grew and grew and grew again. Before answering any question, for instance, 'are those socks from Pringle?' the following thoughts go through Jeff's mind:
- Will the answer help the competition?
- Will the answer impact on Lo-Q's relationship with its customers?
- And finally, is the information in the public domain?
This thought process is tough on someone who is as naturally gregarious as Jeff. And yes, the socks are from Pringle.
Help Jeff to help us
Jeff has a habit that he is trying to break, and you dear reader can help. Like many directors, Jeff does look at financial bulletin boards from time to time. Unlike many, Jeff is willing to admit it. In fact, Jeff can quote extracts from posts, so if you insult Henley-Upon-Thames in a review of the 2009 AGM, watch out, your card is marked.
So dear reader, before posting something about Lo-Q on a bulletin board, ask yourself the following question: would I rather have Jeff read my post or would I rather have Jeff spend an additional five minutes thinking about how to increase sales or reduce costs?
I have cost you £5k
Hands up, in my Lo-Q 2009 AGM review I commented in less than enthusiastic terms on Jeff's (now famous) mobile-phone movie of the Q-Bot in action. Jeff has taken this to heart, I feel such a heel, and sometime soon the company is going to spend '£5k', hopefully a lot less, on a more professional short film, possibly to be called Q-Bot the Movie. I look forward to seeing it.
Yes dear reader, it is your fault
The 2009 AGM is still talked about at Lo-Q head office. They expected 10, but 30 turned up. They expected the meeting to last 30 minutes, it lasted 2 hours. They expected cheers and applause, they got an interrogation.
One of the reasons, but I hasten to add not the only reason, why the financial year end is being switched from December to October is to avoid future AGMs being events where investors seek a definitive view on the current year's all-important summer season. The October year end also fits more sensibly with the Lo-Q annual business cycle, with November/December being historically quiet months, so ideal for accounts preparation.
So drawing breath, what should one gather from the above?
- Lo-Q are cautious, they like to underpromise and overdeliver.
- The directors do take onboard comments from shareholders.
- Jeff does read the bulletin boards.
The Perfect Storm
Before looking at the half-year figures, it is worth casting our minds back to the beginning of the year, when the world faced financial collapse, and if debt did not get one depressed enough one could always worry about swine flu. Bearing that in mind, Jeff was pleased to report first-half figures that showed:
- Revenues up 44%
- Profit before tax unchanged at £0.2m
- Strong cash position of £1.9m
- Now six operators/16 theme parks
- Successful installations have included those at Flamingo Land, Dreamworld and Mirabilandia Italy
One could gripe about the increased turnover but static profits. Increased R&D costs, sales resources and upfront costs for new installations 'squares the circle' in this regard.
Cash is king
When looking at Lo-Q, what I focus on is cash. £1.9m was sitting in the balance sheet at the half-year stage. This was well up on 30 June 2008, but down on 31 December 2008. The reason for the recent decline being a big jump in trade and other receivables. I am told this is a timing issue, and that debtors fell sharply after the end of the half year.
Operating cash generated in the second half of last year was £2m. Let us assume the same again for the second half of this year. So, by 31 October, the new period end, Lo-Q should be 'sitting on' circa £4m because this company spends very little on fixed assets. Not bad for a company that has a market cap of about £10m.
Conditions have been very difficult, but Lo-Q is expecting to meet market expectations for the current financial year. Lo-Q now operates in 16 theme parks, up from 11 in 2008. There are lots of upfront costs, so the benefits from the new parks should be seen from 2010 onwards.
All things to all men
Managing expectations going forward is likely to be difficult. Some will wish to see Lo-Q racing ahead, increasing revenues, keeping costs to a minimum (unless spent on R&D), highlighting at every opportunity the potential of the technology and the market. Others though will wish to see slower growth but coupled with an aggressive dividend policy and a continuation of the underpromise/overdeliver mentality.
Lo-Q will have to decide whether it is a sexy technology company operating in an environment where dividends are for wimps or whether it is company that provides an excellent service to clients and shareholders with an attractive dividend yield. It is almost impossible to be both.
It will be interesting to see which route Lo-Q takes. It will also be interesting to see how they manage the difficulty of having the mindset of a private company, but having to operate in the public arena.
More of Alice's AGMs
Discussion board poster AliceInWonder1 is a serial AGM attendee and is keen to encourage other private investors to take a more 'hands on' approach with their holdings. He owns shares in Lo-Q.
