investment treatise on cof, page-9

Corporate,

Ah, but remember that when modelling debt balances we need to think in strict cash flow terms. The MD spoke of Interest Expense as it pertains to the P&L.

But if you look at the Notes to the Accounts (specifically, Note 7 on page 67 of the FY12 Annual Report, you'll see that COF includes non-cash items in their interest expense line reported in the P&L.

Specifically, in FY12, over $2m was expensed for ineffective interest rate hedges.

That means the CASH interest expense in FY12 was just over $13m. This relates to average Net Debt over FY13 of $90m (taking a crude average of the reporte NIBD @ 30 June 2011, 31 Dec 211 and 30 June 2012). (The implied borrowing cost for FY12 is calculated at over 14%!)

By comparison for FY 13 the average NIBD I expect will end up being around $55m, yielding a derived cash interest expense by me of $7m. (Implied borrowing cost of $12.7%)

The accounting alchemy aside, I might be guilty of being a few hundred kay or so light-on in my cash interest assumptions, but I don't think its enough to de-rail my thesis.

Thanks for pointing it out though.

Cam