HY2020 Balance Sheet Reflections
Quote:
Originally Posted by
Snoopy
No dividend, but no mention of the immediate need for a capital raising either. Net debt is $20.2m. It will be interesting servicing that on a negative normalised EBITDA income.
I have taken a more detailed look at the HY2020 balance sheet. Trade creditors are now above trade debtors ($1.5m more), whereas last year Scott's was owed $7m more than they had to collect. Some would say that change reflects 'sound debt collection practice' at Scotts. But another way of looking at the situation is that Scott's have taken on $7m + $1.5m = $8.5 of net debt by not paying their bills.
The same argument applies to the change in 'Contract Assets' to 'Contract Liabilities' position. At balance date, 'Contract Assets' exceeded 'Contract Liabilities' by $10m. But compared to the previous comparable period (HY2019) 'Contract Assets' exceeded 'Contract Liabilities' by $16m. That means we have a net $6m reduction in Contact Assets, or an increase of $6m in the net debt attributable to long term contracts.
To summarize the 'net work in progress' position at balance date has deteriorated by:
$8.5m + $6m = $14.5m
Next if we look at the actual 'net debt', the bank overdraft has gone from $5.7m to $9m (an increase of $3.3m). In the past this overdraft has attracted a very high interest rate. I sincerely hope that Scott's have since negotiated something better! Term loans are up by $5.5m - $1.5m =$4mvs pcp.
Looked at this way 'underlying net operational debt' has increased by:
$14.5m + $3.3m + $4m = $21.8m
That is a little more than the declared net debt, because I haven't included changes in tax liabilities. Some of these net debt increases could be thought of as Scott's 'exercising their partner goodwill' when working on projects. But any further exercising of this goodwill could see Scotts business reputation sullied. I can't see the announced asset sales raising much capital. Indeed what seemed like promising projects only a year ago have been written down to zero.
Majority shareholder JBS are said to be supportive. But JBS Australia are themselves caught up in the China/Australia meat spat. The following article references JBS’s Beef City and Dinmore plants.
https://www.reuters.com/article/us-a...-idUSKBN22O0FB
"JBS said in a statement it was working with Australian officials “to understand the technical issues that China has raised” and would take corrective action."
That is code for JBS not being able to resolve the issue. So perhaps a capital raising, without the support of JBS, could be on the agenda ;-P? Or perhaps more likely, dividends off the table at Scotts for some years? This is all presupposing that normalised EBITDA can be raised above zero next year, which might yet be more of a challenge than management think.
SNOOPY