We are back to accounting and cash profits with this debate. A company can pay a dividend when a statutory loss is reported, provided the cash result is positive. I'm not saying they should or if it is wise, just that they can.
What is more important is the message it sends. Lenders might trigger a clause to demand no dividend is paid, that would be more of a concern than if the company chose to suspend dividend for the period.
The dividend is likely to be in the region of $16m. It would hardly make a dent in the debt pile, what it would suggest is lenders have less faith in generating cash and therefore insist on suspend dividend until faith is restored.
If the company decide not to pay a dividend at 1HFY16, not enforced by lenders, that decision is less of an issue and might just indicate prudent cash management due to timing of cash.
The much bigger debate, I feel, is the extent of impairment, if there is to be one. After all, for Slater, goodwill is a proxy for perceived future cash flows discounted to present. We can deduce from the adjusted figure the company's confidence level for future earnings. If there is to be a large impairment (say $500m) our first reaction is to be very concerned our second reaction is to listen very closely to the explanation to see if we can find any justifiable reason and something that suggests where value will come from if it cannot be recorded as goodwill today.
My suspicions are that the lenders are focused solely on cash generation and other often quoted metrics are secondary. While a lenders first priority is to protect capital they are also in the business of earning a return; irrespective of normal debt/equity metrics if the lenders are convinced cash will be forthcoming, I guess they will want the loan to go full term to achieve their expected return.
Again, rather than the impact of impairment on a net asset perspective being an issue, it might well be the message it sends about likelihood of future cash generation that lenders are more interested in.
SGH Price at posting:
82.5¢ Sentiment: Buy Disclosure: Held
