TMFMayn made an interesting post on TMF (http://is.gd/EtE0zx), looking at the cash generation and debt of SID (Silverdell). I’ve taken a look at more recent figures than his.
In the finals reported in Dec 2012, SID reported net cash flow of (negative) -323k. In Nov 2011, it reported net cashflow of -832k. If you go back to Nov 2010, positive net cash flow of 923k was reported.
TMFMayn looked at cash generated from operations, which is fair enough, but I’m choosing to look at net cash flow. After all, interest and taxation have to be paid, you can’t avoid it.
So what we see is a company that has negative net cash flow for the last two years, clearly a situation that cannot continue indefinitely. In the interims reported on 5 Jun 2013, the company reported net cash flow of 515k, and net debt of £15.77m. Whilst it’s good to see that the net cash flow is positive, the level looks very low in relation to the size of the net debt.
Looking at current liabilities in relation to revenues at comparable interim stages also shows deteriorating ratios.
We appear to have a situation where the net cash flows from SID’s operations are not sufficient to service its debt. This puts the whole “winding up orders for seemingly trivial amounts” theory in a whole different light. Putting this in context, the notion that SID failed to pay bills due an administrative oversight looks wrong.
It appears that the company’s cashflow problems are far deeper than most had supposed, including me. I suspect that, short of a cash call to give the company a more balanced capital structure, the banks will not be willing to extend any more credit. But then, I’m not a credit analyst.
I note that SID has a Piotroski score of 3, pointing to a broad deterioration in the financial ratios of the company.
I note that capital expenditure has, for a number of years, been only a fraction of their depreciation charges. If I assume that the depreciation charges are realistic, this would seem to imply that their fixed assets are deteriorating at a far faster rate that they are willing to replace them.
One last point. On 8 March 2103, SID released an RNS stating: “The Company released Mr. McGee from his undertaking not to dispose of Ordinary Shares, as announced on 30 May 2012, to undertake this sale in order to satisfy institutional demand.” There seems to be more to this than meets the eye.
Investing. It’s not easy, is it?