Previously I have speculated how large the capital return will be, that we PGW shareholders are due to receive. It has now been announced that it will be $235m; somewhat lower than the $292m shown in the projected balance sheet that we shareholders all voted on! Of the originally projected capital injection, $100.5m was shown to be used to retire debt, leaving just $17.5m of debt remaining inside 'PGW Rural Rump'. Yet because the projected capital return will be $57m lower, that means the amount of money available for debt to be retired is consummately higher - by $57m.
From an end of June 2018 balance sheet perspective, the maximum debt that can be retired is $100.5m + $17.5m = $118m. This means that with all debt retired, we still have:
$57m - $17.5m = $39.5m
of net cash on the balance sheet, after the $235m capital repayment has been made.
Step 1/ Calculate the incremental peak seasonal debt multiplication factor:
PGW has various seasonal funding requirements that are met by taking on extra debt. The seasonal funding requirements are best measured by changes in 'Net Working Capital'. An annual picture of this variation in net working capital is graphed in the 'KordaMentha' October 2018 report on p34, Figure 6.1. Over FY2018, the minimum net working capital required was around $275m on July 1st 2017 peaking at just over $340m in November 2017. If more net cash was on hand through more capital going to debt repayment, then the funding requirements of the working capital, via interest payments, would be consummately reduced.
The half year balance sheet reported to the NZX for FY2019 (my post 4499) shows working capital requirements $29m higher that at the EOFY2018. However, based on the previous year, the half yearly reported debt is still $10m below annual peak debt. The annual peak debt of $29m + $10m = $39m will therefore be wiped out by the $39.5m of new net cash on the balance sheet.
PGWRR can effectively be debt free all the year round going forwards.
This means there is not longer any need to calculate 'incremental debt' over a business year: All interest payments should be wiped out going forwards.
Step 2/ Calculate Annual Debt Interest Payment
Answer: Zero
In a departure from the previous calculation, this time I am going to use average EBITDA over the business cycle, as worked out in post 4486.
|
Rural Services ($39.5m EOFY cash balance after debt repayment) |
EBITDA |
$29.875m |
less DA |
$6.918m |
less I |
$0.0m |
equals EBT |
$22.975m |
x 0.72 equals NPAT {A} |
$16.529m |
No. shares on issue {B} |
754.048m |
eps {A}/{B} |
2.19c |