Ann: ERM Power announces LGC Fulfilment Plan for 2016, page-43

What concerns me about EPW is that they have raised $244.7m in equity from the public markets issuing some 115m shares to investors - this is IPO and period subsequent. This equity has essentially been applied to paying down debt with Debt to Equity falling from 150+% to 55% over the period since IPO. All good.

And mgt tell a story of revenue and market share growth and new markets in the US. Mgt suggest all the customer surveys are great. Again it all sounds good.

But the underlying business has deteriorated - gross margin has gone from 7.6% at IPO to 3% at the most recent period with the EBIT going from 5.6% to less than 2% margin, again over the same period and net income available for common equity shows a halving from approx 3%. And the return picture is no better with ROA falling from 4.8% to 2.9%, ROC falling from 6.7% to 4.8% and ROE falling from 21.5% to 9.1% over the period from FY12 to the most recent period (we can forgive the declining ROE based on deleveraging but not the ROA and ROC).

So how does a company repeatedly raise equity to pay down debt when the underlying performance of the business as evidenced by a declining margin structure at the gross EBIT and net level and declining returns at ROA, ROC and ROE level?

The answer to that is - grow dividend three fold in cents per share by jacking up payout ratios from 24 to 78%...so is the picture a good picture? I don't think so.