(13-02-2014, 07:34 PM)dydx Wrote: [ -> ] (13-02-2014, 03:24 PM)Clement Wrote: [ -> ]When looking at fcf for Tiong Woon, one must note the heavy use of finance leases in place of capex which is not shown on the cashflow statements. This is why despite the cash flow statements showing net repayment of loans, the borrowings seem to increase.
Do you mean operating leases instead, as my understanding is that in accordance with current local accounting standards/practices, finance leases have to be captured as part of usual on-balance sheet borrowings.
If you refer to Note 1(b)(ii) entitled "Aggregate amount of group's borrowings and debt securities" and the accompanying Sub-Note entitled "Details of any collateral" in p4 of the latest 2Q result announcement…..
http://infopub.sgx.com/FileOpen/TWCH_2QR...eID=274277 [2Q result announcement]
, you will notice that all of Tiong Woon's borrowings repayable after 1 year ($58.273m), and a major portion ($27.909m) of the borrowings repayable in 1 year or lees, or on demand, comprised secured borrowings related to hire purchases and term loans which are collaterised against certain PPE (property, plant, and equipment). So quite clearly, Tiong Woon does not finance its purchases of new equipment or its existing fleet of equipment by way of finance leases. You will also notice that total borrowings balance stood at $98.215m as at 31Dec13, which is slightly lower than the total balance of $101.956m as at 30Jun13. This is despite Tiong Woon having invested $11.861m in new PPE in 1H (1Q and 2Q), and another $3.762m in a new subsidiary in 1Q, as shown in the Cash-flow Statement in p5.
The Cash-flow Statement in p5 also showed that Tiong Woon did not take on any new borrowings in 3Q. Instead, the group had applied the whole of the $11.3m sales proceeds from the disposal of 2 subsidiaries, and a portion of its net cash generated from operating activities ($11.545m), to retire/prepay a total of $19.148m in borrowings, including $5.358m in hire purchases (reflected as "finance lease liabilities").
I tend to believe that Tiong Woon is properly and conservatively financed.
Hi,
I think the last full year figures better illustrate what i am getting at.
From the 2013 annual report, we find that net PPE increased by 17m for the year despite.
1) depreciation of 29m for the year
2)disposals of PPE amounting to 9m in book value. (Proceeds of 13.6m less gain of 4.5m.)
3) Reclassification to PPE held for sale in current assets of 10m in book value. (Note to PPE)
For this to happen, the company must have spent 65m on PPE.
From note 22 in the AR, the company had 65m in additions in 2013, of which only 14m was disclosed as capex in the cash flow statements. To find the remaining, we can look at the increase in borrowings from 88m to 102m despite a net repayment of 35m reported in the CFS.
Now based on this, the traditional FCF (Cash flow from operations - working capital investments - net capex from cash flow statements) will over estimate actual free cash flow as net capex is under estimated.
Tiong Woon almost certainly did use hire purchases in 1h14 to finance new Ppe. Net increase in Ppe was 8.6m after depreciation of 14.3m and disposal of Ppe with nbv of 3m. Assuming none of the changes were due to the subsidiary disposal, that means additions was around 26m and not 11.8m as on the cfs. Similarly, the company reported net debt repayment of 21m and yet borrowings decreased by only 4m.
Using 20.2m for net capex and 1h14 figures, a very basic approximation yields fcff of -6.7m not including the disposal proceeds from the subsidiary or the additional investment in a subsidiary.
"There are two kinds of businesses: The first earns 12%, and you can take it out at the end of the year. The second earns 12%, but all the excess cash must be reinvested — there's never any cash. It reminds me of the guy who looks at all of his equipment and says, "There's all of my profit." We hate that kind of business." - Charlie Munger at the 2003 Berkshire Hathaway Shareholder Meeting