The Cashflow to Net Debt graph from the presentation is very...

The Cashflow to Net Debt graph from the presentation is very important if you ask me.

Basically this graph is showing you why net debt grew in FY17 and if they will be able to fund the ASC project. Some people are saying it’s a no brainer and it’s definitely going ahead but their cashflow tells a different story.




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All figures from above graph:

If we start at EBITDA of $366m (FY17)
+ $23m Advance customer payments
- $41m Subscriber costs
- $43m other
- $103m working capital
- $31m interest payments
- $30m income tax payments
- $219m capex
-$61m dividends
= -$139m in cash flow.

We exclude acquisitions and proceeds from issue of shares as this is one off items.

*** Aadd back dividends since they will not be paying anymore then FY17 cashflow = -139m + $61m = -$78m

Expected FY18 EBITDA = $390 (high forecasted value). Then improvement in cashflow from FY17 to FY18 will be $390m - $366m = $24m.

Hence, FY18 cashflow could be -$78m + $24m = -$54m

So technically speaking, Vocus does not have sustainable cash flow in FY17 to fund ASC. I believe this is why they have delayed it to FY19. It is ‘theoretically’ possible to fund the ASC but unlikely from cashflow. Working capital would need to improve dramatically. If they could tighten up on accounts receivable and provide an influx of $50m in working cap then the cashflow be -$4m. They could also get some further advance customer payments. However, neither of these seem really likely. This still doesn’t give them enough head room to fund the ASC. This is why they are looking to sell assets as per comment in investor presentation:

“The Board will undertake a strategic review and consider optionsfor divestment of these non-core assets to strengthen the Company’s balance sheet position to fund the core activities of the Group. The Company will update the market on the outcome of this review and the specifics of any proposed asset sale process, at or before the AGM on 24 October 2017”.

One of two things will happen: either a capital raise to fund the ASC project or sale of non-core assets to fund it.