Wow - a mega disaster in the making, page-15

Just for the fun of it, I thought I would check how Spotless is faring in terms of generating cash, since the company highlighted how it improved in 1H2017.

It doesn't read well, and DOW have got their work cut out earning a respectable return on their outlay.

Despite SPO management claiming that the company earned $58m in underlying free cash flow in 1H17, this is before interest and tax - as mentioned in the very small text. If you have gross debt of $900m, like SPO, you would think that interest expense is going to be a fairly important component in operating cashflow. And so it turns out.

For every $1 of revenue that SPO earned in 1H17, only 3.3 cents of cash was generated (before interest payments). But then, before the company could decide what to do with the meagre 3.3 cents of cash per $1 of revenue, 1.2 cents went straight out the door to the bank, leaving net free cash of only 2.1 cents per $1 of revenue.

In the 1H17 Presentation we read that "The dividend payment ratio is revised to 40- 60% to align Spotless with international and domestic peers". This comes across as very deceptive, I can't ever recall a company comparing their payout ratio to peers, let alone revising it accordingly (as opposed to conventional financial management of assessing the specific financial needs of their own business). But I guess if management can successfully deflect attention from the poor cash generation and large indebtedness of SPO then perhaps they (management) can live to fight another day, which is probably their main objective.