To put some rough numbers on cash flow, overheads using Newing numbers (which may be too low given the new factory costs and extra management) are around $12 million for the first 3 quarters and if $40 million of work is done in the first three quarters at a gross profit margin of 50% then related costs are $20 million. So expenses of around $32 million by the end of the third quarter.
We had receivables of $17 million and cash of $15 million at 31 December 2019. I guess $3 million in cash from new work in 2020 by the end of the third quarter given the deferral of work until May, the need for work to be completed before invoices are sent out and then the lag in being paid (particularly on China work).
Thus we could probably manage if cash was run right down, but the Board would not want to do that given the risks of further covid related delays, particularly if inventory has to be built up further for future work.
On these numbers if they wanted to keep cash on hand at around the current level of $15 million they needed an equity raising of $10-15 million just to get us through this year, until the cash starts flowing in again. Of course the exact numbers depend on the budget plus an allowance for risk, but a substantial equity raising was needed.
The rapid spread of covid during March thus probably explains how we went from a claimed strong balance sheet at the start of March to a capital raising on 9 April. With the deferral of international projects, we suddenly found we were dependent on slow playing Chinese projects until late in the year and had a hole in working capital even if work done this year is $50 million plus as forecast.
PET Price at posting:
50.0¢ Sentiment: None Disclosure: Held
(20min delay)