A closer look at Sales Growth.

17 hours! that's nothing - try 20 hours. Up at 3am, car, plane, big red bus, walk, presentation, big red bus, plane, car, back home at 11pm. 20 hours - beat that Rog! :)


Seriously, having the Half Year Results fleshed out by the Company is invaluable. For me, it demonstrated that just looking at reported figures often does not paint the real picture. Particularly so when we are looking at a company that is still only taxiing out to the runway for lift off. At this stage in the development of the company, it is all about growth. Both actual growth and projected growth.


Firstly look at these two graphs from the presentation. They show the six monthly Sales revenue for the Europe and USA territories respectively.

Note very carefully that these graphs show the sales revenue in these territories in their native currencies - Eu and $US respectively. That is, we are looking directly at how sales grew in these territories exclusive of any forex impact. So what's that we can see? Sales growth continued on it's merry way, despite the impact of the GFC and H1N1. 

I guess we could ask what might have been if those things had not happened but it's a pointless question. They did happen and that's that. The only crystal ball conclusion that we might draw is that if we believe that the impact of GFC and H1N1 is now lessening then we can look forward to a much "nicer" growth in future periods - hopefully even the current one.

So, the less than impressive financial figures for the half were due to our remaining two impacts of the last six months, forex and Japan. Let me deal with each of them individually.

Clearly, the forex impact was to severely dampen our growth in Europe and USA when we translated the sales back into Aussie Dollars.  Remember that we are talking about that most important metric here - sales growth. Sales growth is not impacted by the level of the exchange rate but the movement in the exchange rate. In other words, if the exchange rate for the next six months is exactly the same as for the last six months then the exchange rate has exactly zero impact on sales growth. Therefore, if we make the bold assumption that the exchange rates for the current six months will be no different from those of the last six months then we would expect to see the sales growth in these territories be fully and naturally reflected in the figures that will be reported for the period in $A. Of course that assumption may not end up being true - the exchange rates could go either way.

In the end, if we want to look at sales growth, we must look at it in terms of the home currency in which the sales growth took place. Clearly that is why we have been provided with these two important graphs.

Japan.

Obviously, Japan was the real killer. In addition to GFC and H1N1 impacts we had the problem of the delayed release of the QFT In-Tube product. This resulted in a negative sales growth for Japan. However, that was a negative growth in sales from Cellestis into the Japan distributor. We were told at the AGM (and assume that this applies for the entire period) that in actual fact, end-user sales for Japan actually increased for the period. Those sales were met by the distributor from inventory of the (old) QFT-Gold product which they have totally sold out in anticipation of moving to the (new) QFT-Gold In-Tube (3G) product. That change has now happened.

In the end, if we are long term investors in CST we really do need to be able to see the "big picture". That picture is really just one that describes how this company is going to reward us in the future. It goes without saying that that happens in one way and one way only - by increasing sales. That is what we need to watch. We can see from the Investor Presentation document that that future is far, far better than a cursory glance at the financial figures might have led people to believe.