Hi Nick, I agree with Mike. There is no way by which capitalised...

Hi Nick,
I agree with Mike. There is no way by which capitalised interest can be taken to the BS without it also then walking through the P&L. CF may not be impacted as there is no actual cash movement involved. It is then what they do with the capitalised amount as to whether it is ultimately repaid (will try to do), forgiven (doubtful) or converted (to equity).

Any future recap therefore is incumbent on getting the AU debt facilities down. Presently, the amount involved is ~$120m (Dec31). With operating cash being decidedly -ve at the 1/2 way mark (-$31.5m), it is likely that this will continue in H2. Some however might point to the -$30.7m in OPCF relating to discontinued operations, but if so, they they will have to similarly adjust out the discontinued contributions to customer receipts and payments.

The most therefore that can be said is that with AR of $70m, AP of $57m, recurring expenses if $101m (ex-non cash, payouts to former owners, etc), further restructuring /exits to be done and revenue for the Half of $96m, plus WIP of $116m (as current - out to 12 months), OPCF in H2 could be as high as 2/3 the H18 position and still -ve in H19 and -ve to break even for 2H19. It all very much depends therefore on the timing /conversion rate of the PIL matters (as after all, this is what they will soon be left with). To get ahead however, they really need to get past their AU EBITDA being -$8.7m in H18. Presently though this remains a struggle.

EBITDA is often considered a proxy for operating cash. So, until such time as EBITDA can turn +ve (and significantly do), I really do not see them generating meaningful net /free cash in order to pay off the debt.

They have circa 5 years to do so (assuming a late Dec17 starting point). So, to get there, they need to generate free cash of >$24m per annum going forward. Slip this by just one year (as is very likely for at least the next 12 months) or cause for more drawdowns to be made and this becomes $30m+. The business however simply cannot presently generate $30m in free cash (or in recurrent EBITDA). To do so, they will need a margin of between 20-25% (assuming future AU revenue of $140m+which is where I think that it will get to, ex-GEL).

On a repayment /reduction basis therefore, the best that I think that they will get to is 1/2 the H18 balance (so circa $60m, assuming no further drawdowns or capitalising if interest etc). Otherwise, I reckon that it could be another 1/3 higher than this due to peaking pressure over the next 12 months.

On this basis, a future recap without refinancing support will likely have got be priced at a discount to market, not a premium. So therefore, I would see them refinancing /supporting finance in order to max out their exit returns.

Operating /recurring performance will not get them there, but dome reduction plus continued support will likely support a maximum possible exit result. So, still a lot more trouble to be had in paradise.