Wolfgang
In a recent post, I wrote, "
I do not remember where I got the idea of a 16% EBIT margin, but I think I had taken metrics based on CIF revenue, and adjusted EBIT margin % down to suit FOBrevenue by excluding shipping from the CIF-based revenue." The underlined words are conceptually incorrect - switching to an FOB basis causes the EBIT margin % to rise, not drop. The dollar value is always common.
By chance I found that I had detailed my adjusting arithmetic and my reasoning in a 1/07/2022 spreadsheet, the contents of which I provide below.
On price per tonne, we know that CIF prices are above $300, and FOB prices must exclude shipping. The FOB price that I used could be too high. As I have later posted, the original 16% EBIT/FOB Revenue percentage should be circa twice that to start with, and the model calculates scaled-back scenarios.
I have split that 1/07/2022 working spreadsheet in two to avoid having comments cramed into a single cell when passted to HC. The comments have been converted to text.as numbered points.
WAK derive EBIT margin based on FOB Revenue
The aim here is to get a workable EBIT/Revenue ratio, and convert it from a CIF basis to an FOB basis.
I used the Definitive Feasibility Study (DFS) metrics for the year it presumed two K99 plants would be at capacity.
The road-transport permit of 383,000 tonnes (.383MT) defined full capacity. The nameplate was 400,000 tonnes.
That was DFS year 5, but we can estimate it as FY2024, being when Stage 2 plant would be fully operational.
Year 5 is reasonably representative of tDFS 12 year. EBT/Revenue ratio grows from 26.6% to 30% in Year10
The DFS was based on CIF prices. That was the basis of WAK's pilot-phase exporting.
Exporters start with an FOB price, and add shipping to get a CIF price, which varies because of shipping costs..
Shipping companies quote sea freight rates for various routes once a month.
Customers may buy on an FOB basis, and they organise the sea freight, and pay for it.
Exporters rarely add a meaningful margin to sea freight, because importers would switch to buying FOB, and be annoyed.
Also, it is difficult for me to get an idea of sea freight. It can change rapidly.
WAK has stated that it works on an FOB basis, and if a customer wants a CIF price, freight is added.
Those are the reasons why I have converted CIF metrics in the DFS to an FOB basis.
That makes revenue lower, but because sea freight is also removed from expenses, EBITDA, EBIT and NPAT are unchanged.
However ratios of these to revenue must change, as one can see below.
- If the figures below were not rounded then 26.60%*113087/95276 should be circa 31.66%, say 32%.
| Column 1 | Column 2 | Column 3 | Column 4 |
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| 1 | {colgroup} | | | |
|---|
| 2 | {col=232x@}{/col}{col=97x@}{/col}{col=97x@}{/col}{col=144x@}{/col} | | | |
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| 3 | {/colgroup} | | | |
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| 4 | | CIF | FOB | |
|---|
| 5 | Sales kt | 383 | 383 | |
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| 6 | $k | 113087 | 95276 | Exclude sea freight |
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| 7 | Average Sales Price A$ per tonne | 295 | 249 | |
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| 8 | Cost of Sales (incl freight to port) | -57527 | -57527 | |
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| 9 | Cost of Sales per tonne | -150 | -150 | |
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| 10 | Gross Margin | 55560 | 37848 | |
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| 11 | | 49.10% | 39.72% | |
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| 12 | | | | |
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| 13 | Overheads | -4040 | -4040 | |
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| 14 | Corporate | -1151 | -1151 | |
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| 15 | Transaction Fees | 0 | 0 | |
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| 16 | Sales & Marketing | -565 | -565 | |
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| 17 | Ocean Freight | -17811 | 0 | Excluded |
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| 18 | Total Operating Expenses | -23569 | -5756 | |
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| 19 | | | | |
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| 20 | R&D Activities | -240 | -240 | |
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| 21 | | | | |
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| 22 | EBITDA | 31751 | 31852 | |
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| 23 | | 28.10% | 33.43% | |
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| 24 | Average EBITDA per tonne | 83 | 83.16 | |
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| 25 | | | | |
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| 26 | Depreciation | -1690 | -1690 | |
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| 27 | | | | |
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| 28 | EBIT | 30061 | 30162 | |
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| 29 | | 26.60% | 31.66% | Note difference * |
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| 30 | Average EBIT per tonne | 78.488 | 78.751 | |
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| 31 | | | | |
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| 32 | * If the figures were not rounded then 26.60%*113087/95276 should be circa 31.66% | | | |
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| 33 | 26.60%*113087/95276 equals | 31.57% | | |
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| 34 | Had I used a later year's CIF ratio of 30%, the FOB equivalent would be | | | |
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| 35 | The valuation model could use a third (33.333%) as a high-end row in a valuation matrix, | | | |
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| 36 | then test for sensitivity via a scale-down factor, and choose values that give a higher level of comfort. | | | |
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