VTL - Vital Telecommunications (formerly Team Talk)

[Snoopy]

The key line in the above cashflow statement is the 'Payments to Suppliers' line. My contention then, is that, during the Covid-19 lock down, and in the months of doubt that followed, the cashflow was saved by not installing new customer equipment for the equivalent of several months. The ceasing of this work had a big effect on 'cash out'. But capital previously spent meant that the existing capital installations(*) were cash cows that kept churning out revenue. Thus capital spending (*) at suppliers stopped, but revenue kept coming. This is my explanation for the dramatic positive change in cashflow at the operational level over FY2020!


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(*) The 'capital installations' and 'capital spending' I am referring to here is what I call 'micro capital spending' on equipment dedicated to one customer that would be recovered from that customer as part of the operational business model. I am not talking about the generally larger spending on networks that service many customers with an indeterminate payback date that I would be class as 'Investment cashflow'.
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If I am correct in reading this situation, then once the FY2021 results are released, the operational cashflow will drop back by at least $5m, confirming we are not in a bold new era of generating large excesses of operational cash.

Well it looks like I called this one wrongly! Updating the operating cashflows.

	FY2016	FY2017	FY2018	FY2019	FY2020	FY2021
Operating Free Cashflow	$8.241m	$7.121m	$7.680m	$7.102m	$13.698m	$13.351m

The Operating Free Cashflow over FY2021 continues to be strong. So let's have a look at the Cashflow Statements for the last three years to try and unpick this.

	FY2021	FY2020	FY2019
Cash flows from Operating Activities
Cash provided from:
Receipts from Customers	$33.094m	$37.197m	$35.865m
Net GST Receipts	($0.114m)	$0.212m	$0.087m
{A}	$32.980m	$37.409m	$35.952m
Cash applied to:
Payments to Suppliers & Employees	$17.798m
Payments to Suppliers		$11.061m	$15.968m
Wages & Salaries		$9.840m	$9.659m
Interest Expense net of Realised FX Gain/Loss	$1.771m	$1.652m	$1.133m
Income Tax Paid	$0.060m	$1.158m	$2.090m
{B}	$19.629m	$23.711m	$28.850m
Net Cashflows from Operating Activities {A}-{B}	$13.351m	$13.698m	$7.102m

When discussing last year's Operating cashflow result I wrote:

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To figure out what has happened we need to step back and think about how this company operates. A new bespoke job will typically involve a large payment up front for hardware, software and installation. This money, plus a profit margin, is recovered by Vital gradually over some years.

From p2 of AR2020 we learn
"Overall, we did see an impact to revenue, and we are experiencing a delay in forecasted orders, with some projects being postponed out to future years."

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I wonder if the reason for the good operating cashflow remains the same (set up costs for new contracts postponed)? Perhaps, when making that AR2020 commentary, they had assumed the RFP contract bid would have been sorted out by now?

Looking at other costs, the suppliers and employees gobbled up $3m less cash over the year (that's good). The income tax cash payment was down a million, although that seems a payment timing issue. The thing that most concerned me about the result was that, although the cashflow is good, the depreciation and amortization is large and real with the wireless assets (wireless assets are not long lived assets like fibre in the ground). Almost all of the welcome new wireless revenue looks to be offset by an equally large increment in depreciation. Meanwhile wired revenue dropped by a million, but the running costs of Vital's 'fixed fibre broadband' wired network barely moved.

Capex is tipped to be $5.3m for FY2022, despite the company announcing that it has completed its own major capital investments. Granted that $5.3m is not 'operating cashflow'. But that figure does show there is considerable demand on redirecting the surplus operating cashflow Vital does have into reinvestment. Does the $5.3m include future investment, assuming an RFP win? In the new 'work from home' era, is there a path back to recover some of that inner city fibre revenue from city offices scaling down or closing? I don't know the answers. I also don't feel the compelling urge to own the shares!

SNOOPY

discl; I am not and have never been a holder