Ann: Appendix 4E June 30 2017, page-32

@PortfolioPlus and @Jimmy_C,

I appear to have ended up somehow being in the "Apologist for Brazil" camp, which is not what I had intended.

I agree fully that the foray into Brazil has been unsatisfactory for shareholders. But there is a not-insubstantial revenue base there now which - I think - would be crazy to allow to now let it merely wither and die off.

Besides, I think that there is a degree of transfer pricing between the Brazil and Australia segments; so while the segmental accounts might shed Brazil's accounting contribution in a poor light, I have been assured on many occasions that - in terms of the consolidated cash flows of the Group - Brazil's existence washes its own face.

So, I think the descriptor "hemorrhaging" is a bit wide of the mark. I think "not exceeding its cost of capital" is more apt, but then again, they don't have much of a capital base in Brazil. Just a bit of working capital. Less than $1.0m of it, was the answer I received when I asked the question.

But your point, @PortfolioPlus, about SDI needing some kind of local partner to navigate the maze of "local knowledge", is a well-made one. I know they have looked (are looking?) at this as the solution, but the problem with a geography where a not-insignificant amount of business is facilitated by the exchange of brown paper bags is that finding the right partner - one that will not cause reputational contamination by association - is not easy.

I think the point I was trying to make is that Brazil is what it is, and that the market has become inured with it from a valuation point of view:
At best, if it doesn't burn a cash hole in our pockets, then it is a free option on some or other magical distributorship "breakthrough.
At worst, it is a distraction for management.

But I don't see it as a cancer that is rotting the company from within; rather, I think it is quite an inert feature of the company, in valuation terms. A perennial disappointer, in not scoring any goals, sure, but not a millstone around the company's neck either.