Ann: Half Yearly Report and Accounts, page-25

@neoteric

Having read the report & presentation a couple of times and also listened to the conference call, I actually have a different understanding about the upcoming final FY2019 dividend policy than you.

Please let me know if I miss anything, but I don't recall seeing anything in the report/presentation that indicates that the board is planning to limit the total dividend payout ratio for FY2019 to 80%.

The 80% payout ratio mentioned was only referring to the current interim dividend.

Historically, due to the seasonality in its business, NCK has always been earning more in H1 than in H2. This combined with its policy of paying higher final dividend than interim dividend, means that H1 dividend payout ratio is usualy approximately 55% of H1 profit. On the other hand, final dividend payout ratio is usually in the range of 90% to 110% of H2 profit.

Now, consider the following factors:
- NCK is only planning to open another 2 stores in H2 FY2019, therefore my estimate for capex in H2 is approximately $1.0m (excluding any possible property purchase)
- NCK's operating cashflow will still be strong in H2. Historically, H2 operating cashflows are a lot stronger than H1. I don't see any reasons why this trend shouldn't continue.
- The 4 stores opened in the first half of FY2019, will start contributing profit in five months of H2 2019.
- NCK's franking credit is still substantial even after this massive increase in interim FY2019 dividend.
- NCK wants to preempt Labor's taxation law changes in franking credit.

Considering the above factors, I believe that there is a possibility of NCK paying as high as $0.30 final dividend in H2 2019.

If NCK indeed pays $0.30 final dividend, then the total for FY2019 is $0.55 fully franked.

This represents a total payment of $44.55m.

If NCK can maintain 8% profit growth that it achieved in H1, in the second half of this financial year, then full year profit for FY2019 is approximately $44.2m. This represents 100% payout ratio.

NCK has no problem of paying out 100% of its profit as dividends. Its ability to open new stores in the future will not be affected at all. Management has indicated that it plans to open a further 6 stores in FY2020. This will only require capex of $3-4m.

Due to its strong cash generation ability, even at 100% payout ratio in FY2019, NCK's cash balance will most likely stay at around the same level as end of FY2018, i.e. around $36-$38m.

In any case, this increase in payout ratio is most likely going to be temporary in nature. I don't expect management to continue paying out 100% of profit in the future.