Vita Life Sciences Limited ("VSC")

[steve fleming]

VSC has demonstrated some of the most amazingly consistently strong revenue, gross profit and now EBITDA growth, over the past 7 years.

From the update on Monday, earnings growth now appears to be accelerating.

"based on Vita Life’s half year management accounts to June 2013 and subject tocompletion of the half yearly audit review:

i. Sales were approximately $17.0m, an increase of approximately 18%compared to the $14.4m reported for the six months to June 2012; and
ii. EBIT was $2.3m - $2.4m, an increase of approximately 113% compared tothe $1.1m reported for the six months to June 2012."



X'ing of $2.3m today suggests that funds are starting to enter. Not cheap though.


4674

[steve fleming]

VSC continues to deliver outstanding growth.

Now forecasting sales of $35m for 2013 (2012: $30m) and EBIT of $5.2m (2012: $2.9m)

Quite pricey at 12 x EBIT, but outstanding fundamentals and earnings are growing rapidly.

Margin expansion as sales increase plus strong growth outlook as new markets (indonesia) ramp up.

[OneUp]

VSC continues to deliver outstanding growth.

Now forecasting sales of $35m for 2013 (2012: $30m) and EBIT of $5.2m (2012: $2.9m)

Quite pricey at 12 x EBIT, but outstanding fundamentals and earnings are growing rapidly.

Margin expansion as sales increase plus strong growth outlook as new markets (indonesia) ramp up.

Thanks for the idea Steve, I've picked up a few. High gross margins combined with good top line growth leading to explosive growth in profitability. I am however a little concerned with their MLM aspect having shades of New Image (NEW.NZ) - the Chairman of which was infamous for wearing a sparkling blue suit to shareholder meetings!

[mark100]

I bought a few after their upgrade on 30 July. It's pricey but you can't ignore that growth. Based on growth to date their guidance for the second half appears conservative

[steve fleming]

In an article in the AFR today, it talks about EBOS "closely examining two acquisition opportunities in Australia, one in animal healthcare and one in the over-the-counter pharmacy sector, as it continues its aggressive growth plans."

The MD also says "EBOS is really a house of brands,"….. and… "Chemmart, in particular, has been doing well, with its model of focusing on good health and wellness"

I don’t think you would find a faster growing, over-the-counter, health/wellness brand-owning pharmaceutical company (VitaHealth and Herbs of Gold) than VSC.

Would also be god for EBO’s profile among the Australian investment community if they successfully close an ASX acquisition prior to its ASX listing.

[trackers]

You're a genius Steve, well done again - Wish I had half the stock picking abilities you do!

[stoploss]

In an article in the AFR today, it talks about EBOS "closely examining two acquisition opportunities in Australia, one in animal healthcare and one in the over-the-counter pharmacy sector, as it continues its aggressive growth plans."

The MD also says "EBOS is really a house of brands,"….. and… "Chemmart, in particular, has been doing well, with its model of focusing on good health and wellness"

I don’t think you would find a faster growing, over-the-counter, health/wellness brand-owning pharmaceutical company (VitaHealth and Herbs of Gold) than VSC.

Would also be god for EBO’s profile among the Australian investment community if they successfully close an ASX acquisition prior to its ASX listing.

Hi Steve, does MYX fit this bill ? seems to have perked up a bit recently .
DISC: Holding as per all my picks in the 2013 share comp.

[steve fleming]

Hi Steve, does MYX fit this bill ? seems to have perked up a bit recently .
DISC: Holding as per all my picks in the 2013 share comp.

Don't think MYX does much OTC. Anyway, most of MYX sales are in the US so not much synergy with EBO. Plus at $330m would be a pretty chunky acquisition.....anyway just speculation, most likely completely off the mark.

[stoploss]

Don't think MYX does much OTC. Anyway, most of MYX sales are in the US so not much synergy with EBO. Plus at $330m would be a pretty chunky acquisition.....anyway just speculation, most likely completely off the mark.

Todays MYX announcement probably explains the run up in s/p ... :)

[steve fleming]

Chairman arrested, not good.

Normally, you could separate the arrest from the operations of the business, in this case I don’t think so.

Now that I had a closer look at the register it looks like a number of the VSC shareholders are mixed up in the tax problems.
Vanda Gould’s accounting firm does the audit of VSC
Vanda Gould’s share registry is the share registry.
The MD let a chunk go a couple of weeks ago. In isolation not a big deal, but the timing of that smells now.
Not a good look and all starting to smell a bit.

Also "The AFP said the operation was ongoing and further arrests were likely."

The stock was already priced quite aggressively, so on any further negative surprises means potential large downside.

However no reason why the business can’t continue to perform, but I am no longer comfortable holding. A fair bit of the selling today (50k shares) has been me, prefer to protect my capital/profits.

[mark100]

I had already lightened but dumped my remaining holding very soon after open. Like you I noticed the Gould name was associated with a lot of VSC's dealings. CVC of which Gould is Chairman is also a sub holder of VSC.

[mark100]

From smh.com.au

As Vanda Gould told it, Tax Office action against companies that bought shares in his listed investment company, CVC Limited, was putting at risk foreign investment in Australia.

ATO lawsuits against five offshore companies that bought shares in CVC ''could lead to a substantial reduction in future foreign investment'', Mr Gould said in a letter to then-treasurer Wayne Swan in May 2011.

He accused the ATO of deciding to ''ignore the commercial realities'' when levying tax bills totalling about $40 million against companies in Britain, the Bahamas and Western Samoa.

On Tuesday night, Mr Gould faced a reality of a different kind: arrest on criminal charges after Australian Federal Police swooped on his palatial home in the Sydney suburb of Chatswood.

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At the same time, police arrested fellow CVC director John Leaver at his $5.8 million beachfront house in Point Piper.

A third man, Belgian national Peter Borgas, was arrested at the airport as he waited for a flight back to his home in Switzerland.

Police also searched the Sydney CBD offices of CVC, which is not related to the similarly named US private equity group, a Melbourne office and a rural home at Glenquarry, near Bowral in NSW.

The trio were accused of millions of dollars of tax evasion and charged with offences that could see them jailed for up to 25 years.

Federal police will allege that the men used a complex network of offshore companies to conduct business in Australia. The profits were allegedly then transferred back to Australian companies controlled by the men disguised as loans, fraudulently reducing their tax liabilities.

The AFP said the operation was ongoing and further arrests were likely.

The raids and arrests were the fruit of a four-year investigation, Operation Rubix, into Mr Gould, run as part of Project Wickenby by senior AFP and Tax Office officials.

It is an investigation in which the ATO last week ignored the ruling of a court in the Cayman Islands, potentially committing an offence against the tax haven's strict financial confidentiality laws, during bitterly fought civil litigation that continues despite the arrests on Tuesday night.

The arrests are also a welcome fillip for the AFP and the ATO, bolstering the image of Project Wickenby, which critics regularly attack for its cost of more than $500 million.

ATO deputy commissioner Greg Williams was quick to trumpet the arrests as a success, calling them ''a warning to people who abuse tax secrecy havens''.

''We will hold tax cheats accountable," he said.

The first the public heard of the stoush was in September 2010, when the Federal Court froze millions of dollars of shares in Australian-listed companies held by companies associated with Mr Borgas.

One of the companies, British-registered Chemical Trustees, held stakes in 26 companies including Woodside, Westfield and AMP.

It also held 15.7 per cent of Vita Life Sciences and 16 per cent of Cyclopharm and was a top-20 shareholder in CVC. Mr Gould is chairman of all three companies.

CVC's most recent annual report shows that as of August 26, 4 per cent of its stock was held by Chemical Trustees.

A second company targeted in the ATO's civil lawsuits, British-registered Derrin Brothers Properties, holds 6.5 per cent.

At the time of the freezing order, Mr Gould denied any wrongdoing or any involvement in tax avoidance.

He told Fairfax Media the ''majority of income'' from shares sold by the British companies had been distributed to charities in Australia, Africa, Asia and elsewhere.

While Chemical Trustees and Derrin Brothers Properties and a third company, Southgate Investment Funds, are registered in Britain, two others are more exotic.

Bywater Investments is registered in well-known tax haven the Bahamas, while Hua Wang Bank holds a banking licence in Western Samoa.

After losing one round of their battle with the ATO, the companies have paid about $40 million in tax assessments for as far back as 2002.

However, they will be entitled to a refund if they succeed in their civil battle with the ATO in the Federal Court. It was this civil stoush that brought Mr Borgas to Sydney, into the net cast by Operation Rubix.

In the Federal Court, Derrin Brothers Properties, Chemical Trustees and Bywater Investments claimed they were run from Neuchatel, Switzerland, where Mr Borgas is based.

Southgate Investment Funds said it was run from the offices of Lubbock Fine, a firm of accountants in London.

However, their case took a hit on September 19, when Justice Nye Perram decided to admit into evidence documents the ATO obtained from Cayman Islands authorities relating to two companies, JA Investments and MH Investments.

''These documents have a tendency to show that it is Mr Gould, and not Mr Borgas, who is the ultimate beneficial owner of [JA and MH] and that Mr Gould controls them de jure,'' Justice Perram said in reasons published last week.

Justice Perram's decision directly conflicted with a decision of the Grand Court of the Cayman Islands, which on September 13 decided the tax haven's authorities should not have handed the information over to the ATO. In a decision that has the potential to undermine the operation of an information-sharing agreement between the Cayman Islands and Australia, Justice Charles Quin said the information remained confidential to JA and MH.

He ordered the Cayman Islands Tax Information Authority to write to the ATO, revoking its consent for the documents to be used in Australian courts and their ''immediate return and/or destruction''. But back in Australia, Justice Perram said that the fact that tendering the documents might be an offence in the Caymans was ''irrelevant''.

The barrister who represented the companies, John Hyde Page, declined to comment on the Federal Court case.

[steve fleming]

Surprised this held up.

Good business, but how can the market have confidence in a stock whose chairman is currently in jail (subject to a $12m bail), and which has a number of major shareholders subject to tax avoidance charges??

And this is not any old chairman, he has his paws all over VSC as a major shareholder, as auditor, as registry owner etc.

How can you have board meetings when the chairman is in jail??

Prefer to be out than in.

[Corporate]

The governance issues are scary. How, on earth can you justify having the Chairman and Auditor related? Where is the independence!

[mark100]

All charges dropped against Vanda Gould and John Leaver