Thank you for the analysis, richardwth. Underlying EBITDA for...

Thank you for the analysis, richardwth. Underlying EBITDA for the first 10 months of the 2024 financial year was $200m so annualising that should mean $240m (not $220m) but I may have misinterpreted your message. As you have mentioned, you have understandably ignored seasonality and other factors.

The reference to 2.8x gearing does provide some (albeit very limited) guidance in terms of how the business is doing. Based on the 2.8x gearing figure I find it difficult to estimate the expected net debt at the end of FY24 and even so we still require the balance sheet and cash flow statement to be able to make sense of it particularly in terms of changes in working capital.

I’ll also acknowledge that I’m not entirely sure how Pact calculates their gearing levels. As you have likely seen, there is a note in the FY23 Annual Report and H1 FY24 Report stating “Gearing is a non-IFRS financial measure which is calculated as net debt divided by rolling 12 months underlying EBITDA. Gearing has been presented both excluding and including the impact of lease accounting since the adoption of AASB16.”

The footnote in the Trading Update has slightly different language “Gearing is calculated as interest bearing liabilities (excluding lease liabilities recognised under AASB16 Leases) less cash and cash equivalents, divided by rolling 12 months underlying EBITDA (excluding the impact of lease accounting under AASB16).”

In the FY23 Annual Report Pact reported the following figures for FY23:

• Underlying EBITDA: $277.0m
• Net Debt: $585.6m
• Net debt including lease liabilities: $1,117.9m
• Gearing: 3.0x
• Gearing (including leasing): 4.0x

Clearly maths isn’t my strong suit (I’m still trying to work out what is) but there is a significant adjustment to the Underlying EBITDA figure and / or net debt figure to result in the 3.0x gearing based on the formula that Pact has adopted to express their gearing levels. Is it due to accounting for the impact of lease accounting?

The gearing (including leasing) appears to be easier to calculate although I still have some difficulty when reviewing the H1 FY24 results:

• Underlying EBITDA (H2 FY23): $136.0m (FY23: $277.0m - H1 FY23: $141.0m)
  
• Underlying EBITDA (H1 FY24): $137.0m
• Underlying EBITDA (rolling 12 months to 31 Dec 23): $273.0m
• H1 FY24 net debt: $428.5m
• H1 FY24 Net debt including lease liabilities: $944m
• H1 FY24 Gearing: 2.7x
• H1 FY24 Gearing (including leasing): 3.8x

I clearly haven't placed much emphasis on how Pact expresses their gearing numbers and I don't focus on EBITDA but we only have very limited information to work with from the update.

With regards to the Trading Update, the primary positive for me is that there were no new concerns raised and the business appears to be doing reasonably well despite the very challenging trading environment.