The Hour Glass

[Boon]

the ar2012 is out.

it seems that the company is building inventory in anticipation of higher price in the future. the chairman also explained the principal-agent problem between The Hour Glass and its brand owners.

in its receivable, I noticed that they received compensation from dropping dealership with one brandin certain territories. So the principal has been taking some distribution right back from the Hour Glass.

"in anticipation of higher price in the future" sure sounds nice

Somehow inventory seen as a ratio to current assets - 0.76 for the latest fy and 0.74 and 0.68 going back to fy11 and fy10 - makes one feel uneasy. I know I am

The ratios to equity reading - 0.79 - 0.76 - 0.73 just adds on to the concern

The compensation received for dropping dealership being treated so casually in the receivables just seems not right, the amount piffling notwithstanding

(vested interest but thinking of jumping ship)

On inventory, another useful indicatior is the Stock Turn Ratio:

Stock Turn Ratio :
FY 2008 : 2.6
FY 2009 : 2.4
FY 2010 : 2.4
FY 2011 : 2.1
FY 2012 : 2.0

A low turnover rate may indicates an inefficient management of inventory : overstocking or over-investment in inventory; accumulation of obsolete and slow moving goods; dull business etc.

In some instances a low rate may be appropriate, such as where higher inventory levels occur in anticipation of rapidly rising prices or shortages. This seems to be the case as explained by the Chairman.

Overall the turnover rate has been trending lower but was for good reason. What impressed me most is net profit margin has been trending upwards from the low of 6.3% (2009) to 9.4% (2012).

Net margin :
FY 2008 : 6.5%
FY 2009 : 6.3%
FY 2010 : 6.9%
FY 2011 : 8.3%
FY 2012 : 9.4%

(Not Vested)

I am not used to looking at numbers this way. They are bright numbers.

However I did look at the inventory/revenue ratio as follow:
FY 2010 32.9
FY 2011 36.9
FY 2012 38.0
and they look dull

Ok maybe you are looking at Fuji apples and I am looking at Australian apples. Still apples right?

The chairman draws .....I do not the figure but collectively the four executive directors draw $7.8m in remuneration for the latest FY2012 and like all top honchos have to justify their keep.

As an investor I have to watch my own "backside" so have to watch where I put my dollar.

The chairman says corporate networth has increased by $43.6m to $293m which is the equity.

I see inventory tracking equity increasing by $40m to $231m. It is not a one-off thing. What is of more concern is the three-quarters of the net worth of the entity is in the stocks.

It is more of an inherent concern.

Inventory/Revenue Ratio:
FY 2002 : 0.40
FY 2003 : 0.45
FY 2004 : 0.36
FY 2005 : 0.34
FY 2006 : 0.36
FY 2007 : 0.35
FY 2008 : 0.31
FY 2009 : 0.33
FY 2010 : 0.33
FY 2011 : 0.37
FY 2012 : 0.38

I understand your concern on the trending up of inventory/revenue ratio of late. However, as explained by HT, the inventory was intentionally built up of late. Note that the ratio was as high as 0.45 back in 2003, not sure what was the reason then.

I do share your concern on the pays of the top execitive.

However, I am not concern that three-quaters of net worth of the entity is in the stocks (inventory). With a yearly revenue of 607 million (Cost of goods sold = 460 million) and a stock turnover ratio of 2.0 , an inventory of 231 million looks just right. Business expansion requires working capital.