Report Card: Growth spurt puts Vending Technology under scrutiny

Friday 30th August 2002

Technology company share prices have crashed in recent years as investors found out to their cost that they never really understood the businesses they were investing in.

In that light, it's important that a company like Vending Technology - driven by technological innovations in vending machines - communicates its performance in an understandable way.

Vending Technology does a reasonably good job doing just that in its latest annual report for the year ended March 31, 2002. It carries a lot of financial analysis, a strong marketing pitch for its new 24Seven brand, but no real hype beyond that.

The shareholders are addressed only by the chairman, and only in a one-page letter. But he sticks to the highlights of the previous year and lets the numbers do the talking, and that's not a bad thing.

Those highlights include a full-year net profit 35% ahead of the forecast in its November 2000 listing prospectus. The net surplus after tax of $5.4 million was also 10% ahead of the increased profit forecast of $4.9 million the company announced in February 2001. This was achieved on revenues of $19.5 million, up 20% on last year's revenues of $16.3 million.

This is a pretty good result and reflects the company's transformation from a vending machine operator into an international vending systems licensing company.

The current year also saw VTL establish a subsidiary finance company (Nathans Finance) and the 24Seven convenience brand, both of which are part of its growth strategy through licensed vending machines.

VTL turns part of its annual report into an effective marketing document, something few companies manage to do. It's hard to understand why so many companies fail to see the marketing potential of a glossy document on which they will spend a fortune, with an audience of existing and potential stakeholders.

The quality of the communication is even more important for a company like VTL that is marketing itself to licensees and franchise holders. The annual report is the one document that someone about to go into business with the company will want to see.

VTL takes the opportunity to produce a colourful sales pitch to support the launch of its new brand, 24Seven, explaining the technology behind its machines and the diversity of their products.

"Introducing an exciting new style of Vending," is the headline for a section that sticks out from the rest of the annual report because of its striking use of yellow when the rest of the annual report is a sober blue. Any potential licensee will have no problem finding those pages among the dry financial stuff.

In fact, the financial information is also well presented.

VTL's performance is compared in detail to its prospectus forecasts and considerable information is provided on the company's liquidity risk management.

In its liquidity profile, VTL lists its financial assets and financial liabilities and splits each into periods of six months stretching forward for over two years to show how its commitments will be met in each period. It also provides a profile of interest rate risk as it affects financial assets and liabilities.

The comparative performance table shows a rapidly growing company between 2000 and 2002 in terms of revenues and assets.

However, in a rather worrying trend, earnings per share has been sliding, from 31.9c in 2000 to 18.3c in 2002.

This shows the pressure from new shares being issued to fund expansion, and the setup costs incurred in expanding its business at a great rate. Investors will be watching the per-share trends closely and are unlikely to be supportive if they believe VTL is chasing growth for its own sake.

David McEwen is an investment adviser and author of weekly sharemarket newsletter McEwen's Investment Report. Web: www.mcewen.co.nz, email: davidm@mcewen.co.nz

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