RE: Reality Check...The perfect Storm..29 Feb 2020 19:50
Having looked at the Balance Sheet in the Half year accounts to the end of June, 2019, I don't think the picture is as bleak as some people are making out.
It isn't debt per se which is the real issue, ,it's the root cause of that debt...I have drawn attention to this before .
In the 5 years since 2014, total assets have increased from circa $1 billion to circa $4 billion...i.e. $3 billion..
Net equity, however (receipts from issue of shares and retained net profits after dividends ) has only increased by $1 billion to leave an additional shortfall of
$2 billion which has been funded by extra debt until now, and the debt burden has become overstretched..
The root cause of this debt , therefore has been acquisitions , NOT to fund operating deficits , which is positive.. however to rebalance equity and debt , one or more of the following has to happen to prevent a fire sale .
1...Some of these ssets have to be sold, starting with lower performing non core assets and Aspen Healthcare which seems to be nothing short of a UK trophy asset would fit that description ..
2...Current Assets exceed current liabilities by
$ 600 million ..liquidating these current assets which debt is effectively funding would make a huge difference to short term liquidity ...
A good place to start would be debtors which stand at around $700 million....80 % of these can be factored i.e. sold on at a cost of around 2% for every 30 days of debt...average debt of NMC is 90 days so 80 % of these debtors can be converted into cash ($ 560 million) for a
6 % fee giving instant extra liquidity of around
$ 525 million..!! Continuing this process would lead to a permanent, rather than a temporary reduction in required debt funding of the same amount. ..
3...Stocks are valued on the balance sheet at around
$ 200 million ....would it be possible to change the funding arrangements to only pay for the goods when they were consumed rather than purchased, so in effect the supplier funds NMC stocks rather than NMC (may be difficult to achieve but worth a try...)
4.....Suspending dividends would save $21 million per annum...
5...Finally have a rights issue if necessary to rebalance equity with debt. .the business and profits have increased substantially since 2014 but shareholdings haven't ...it would be justified to increase share holdings to allow future growth to resume
All of this might appear troublesome but what other options are there for equity shareholders if a fire sale is to be avoided.... In my view , this remains a strong long term business which just needs a restructuring of its finances....
Sign In
Follow the stocks
