Asa a result of queries I decided to dig deeper...
Debt goes from $22.360 million to $12.71 million so it drops by $9.650 Million and then cash on hand increases by $2.75 million, so the financial improvement is $ 12.40 million but they only raised $6.2 million. There is also $316K increase in Trade and other receivables.
This can all be verified by the fact that accumulated losses drop by $7.005 million. Which must be the debt reduction which is taxable income effectively. So as equity increases by $5.724 million then the costs to affect all of this must be just under $500k - that's not bad considering all the moving parts...
Effectively Westpac won't be providing a finance facility but will still be the transactional banker. They will be using
The interest rate on the $12.5 million loan is 7% - but it does have a little sting in that that is net of withholding tax. The withholding tax on interest is 10% although there have been a number of rumours about a double tax agreement between Australia and Hong Kong being considered. Should this not occur the real interest would be 7.7% - but TTI can repay the principal after 1 year.
So what does this all mean? Well, interest is running at virtually double the current cost of $770k on the $12.5 so there is around an $800k saving as we stand.
It also does not take into account that given the funding we have right now we cannot offset our cash against a facility.
So essentially the future can be seen as such:
Trade out the first year with this complex facility that saves us still $800 k - hopefully, our directors have covered the exchange rate forward...
At the 12 month point, we can decide a lower facility or roll it into a facility here.
The metrics on the balance sheet are completely changed - even if Mr Market hasn't noticed it in all the noise out there.
Based on the half year.
1. The EPS would have increased to around 0.4c ( add $400K to profit - on interest savings. That is impacted then by the increase in shares. so that there would be around 480 million in issue. That suggested an eps of 0.5c annually if you double the half-year - a 10 PE would get you 5c and a 12 PE 6c.
2. Positive cash flow would have increased to around $1,2 million.
3. The market cap would rise to around $16 million and net debt is around $8 million - that's a healthy ratio from one that before this restructure was unsustainable - in my opinion.
4. On an accounting basis, the equity after accounting for losses jumps to $21.5 million as a result of capital raised and debt forgiveness. So the market cap is under the NAV.
5. Some would take out the goodwill and intangibles but in this case, it relates to products and product development so I am loath to do that as its no different to capitalised development costs in many industries.
So from my understanding the documents this plan will have a very positive impact on the company.
I do hope it doesn't stop there. I think there needs to be a review of all assets and a valuation done to make the assets sweat a bit harder. Now that the debt has been resolved management should be able to focus on the business itself instead of managing the overdraft.
It will take a very disciplined approach to make sure that the cash at the bank doesn't get dissipated by way of the release valve having been applied now everything needed becomes urgent. Much like when you buy a house suddenly the taps open on your tight wallet. I was involved in many turnarounds and the hardest thing to do was not to spend money without seeing a real benefit. We want to have the same discipline they have had for the past 4 halves on the next 4 halves. We need to generate $2,4 million in cash for the next year and then another until we can see net debt below $6 million and positively quarterly cash flows.
TTI Price at posting:
3.3¢ Sentiment: None Disclosure: Held
