SGH (ASX) Cash Flow or Cash Burn

Originally posted by TambourineMan ↑

The recent UK accounts may have given a clue towards the ongoing cash burn rate for the group, page 15:
“At the date of signing the financial report the group had drawn its existing facilities in full” – the report was signed on 31 March 2016

The SGH group had only drawn $783m against a limit of $850m at 31 Dec 2015, so that means that they drew down another $67m in the three months to end March.

Which suggests that they were burning cash in Jan-March 2016 at the rate of about $22m per month. Slightly more than the H1 increase in net debt from $623m to $741m, or $118m over 6 months.

Unless SGH just wanted to get the syndicate’s money into their bank accounts, possible but it seems unlikely - why pay additional interest on borrowings if they did not actually need the cash just to keep going?

It could also be a brief surge in outgoings as they implemented their cost cutting measures, office closures and redundancies.

But if that reflects their current level of operational performance, then at the very least any cash receipts from NIHL cases will first have to be offset against this cash burn before being counted as being available to pay down debt.

From Jan 2016 to June 2017 that is 18 months X $20m = $360m cash burn they will need to cover, to get to breakeven.

On that basis the NIHL receipts had better start coming in quick, but they are already spoken for unless they get their costs down quickly

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Interesting post Tambourine, especially about SGH being fully drawn ..
This formed part of the announcement on 2nd May.

The Company has, however, agreed to certain amendments to the Facility with lenders including:  Simplification and reset of financial covenants to provide ongoing prudent headroom  Increased frequency of reporting to lenders  Facilities are now structured as term loans  Semi-annual debt amortisation from June 2017  Not to declare or pay any dividends

As per first amendment indicates a reset to provide ongoing prudent headroom , which is interesting as why would the banks keep throwing good money after bad , if SGH was to continue to be cash flow negative. This drama is complicate to say the least.