Let’s take a look at FY23 Results to understand what the...

Let’s take a look at FY23 Results to understand what the picture is for cashflow and why the business is about to have an absolute surge in revenue and free cash flow in a few months’ time. A valuation north of $1.50 per share is built on the substantial free cashflow that will be delivered by the SWM business in FY25.

The accrual and payment dates for most corporate tax exist as two separate dates. This is the same for investors when dealing with capital gains tax. You may accrue a CGT liability when you sell shares on the 1st July that you have made a taxable gain on however that tax may not be payable until its payment date which could be well over a year later which is when your accountant is required to lodge your yearly tax return. This is just one example of the many different ways that corporate tax can be ‘lumpy’ across financial years however as an investor this does not mean that the business pays a greater amount of tax than the standard 30% corporate tax rate.

As stated on page 16 of the FY23 Annual Report https://sevenwestmedia.com.au/assets/Uploads/Final-2023-Annual-Report.pdf

‘Tax payments for the year of $85.6m have increased on the back of the final tax payment for FY22 and monthly tax instalments paid in FY23. The prior year tax cash flows relate to tax instalments only paid in H2 of FY22.

Excluding tax payments, net operating cash inflows of $163.0 million, were down 13.2% on the prior year due to movements in working capital. Working capital during the year was impacted by the revenue declines experienced and the Group continued to invest in its programming line-up.’

As show in the SWM ‘Cashflow before temporary and capital items’ metric (Page 10 of 2023 Full Year Results- Investor Presentation https://sevenwestmedia.com.au/assets/pdfs/3-Presentation-of-Year-End-Results.pdf the SWM business actually generated $155m in Cashflow before temporary and capital Items. This equates to approx. 10 cents of cashflow per share in FY23 based on the current share count and at 10 cents per share is still much lower than the cashflow that will be generated in FY25.

$59m in tax balancing payments is not extra tax for FY23 and cannot be accounted as such for the purpose of cashflow calculations.

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