Following the finalisation of the FY15 audited account, FIIG Research met with SCT Logistics’ CFO Michael Fiteni to discuss the financial results and obtain a general update on the business
SCT bondholder website access
The secure website is now available for bondholders to access. To obtain access, bondholders need to email investors@sctlogistics.com.au, and upon verification they will receive a login ID and password.
General business update
- September quarter performance has been positive with actual volumes ahead of plan, supported by the re-signing of the Fosters (CUB) contract which occurred earlier in the year and the maturing SAP (IT system) integration. SCT are seeing volumes returning to the consistent levels prior to the drop-off in volumes experienced over FY14-15
- In relation to existing customer contracts:
- Regarding Woolworths, a proposal has been put forward by SCT for a contract extension. This is being worked through at present and is likely to be finalised in the coming weeks
- Mars, which has a 33-year relationship with SCT, has renewed a new 12 month contract that commences 1 November 2015
- On 18 September 2015, the SCT Group sold its fuel wholesaling and distribution business, and accordingly any associated working capital facilities and securities between the two entities have now ceased. As a result the total available amount of working capital facilities supported by SCT has reduced from $16m to $8.6m. SCT has further confirmed that the sale generated excess cash of which $9m was deposited in SCT and is reflected in the unaudited September quarter cash position (refer to results below)
- Regarding the below rail contract with Brookfield Rail for access to the WA rail network, SCT has agreed to an interim 6-month contract extension on the below rail access to mid-2016 pending the outcome of the Brookfield offer for the takeover of Asciano. The existing below rail contract pricing has been retained for the 6 month extension. SCT continues to see no material issues arising and terms not amending too far from the current contract agreement when the Brookfield below rail contract is renegotiated mid next year
- While the proposed Brookfield takeover of Asciano remains live and is under review by the Australian Competition and Consumer Commission (ACCC), it is looking less likely that the takeover will eventuate in its current proposed form given the concerns raised by the ACCC and the recent Qube acquisition of a blocking stake in Asciano
Audited FY15 and unaudited 1Q16 result
The table below shows the company’s audited FY15 and unaudited first quarter results. While quarterly financial information is not required under the bond documentation, the company has provided the first quarter result to demonstrate the improvement in financial performance in the first quarter versus FY15.
Overall, SCT’s audited FY15 result is broadly consistent with the estimates provided at the time of the new issue research report. SCT’s first quarter result for the 2016 financial is positive and also broadly in line with management forecasts.
SCT Logistics: Audited FY15 result and (unaudited) 1Q16 result (A$m)
| Audited FY15 result | September 2015 quarter | 12 months to September 2015 |
| Adjusted EBITDA* | 35.2 | 9.8 | 38.4 |
| NPAT | -15.5 | 1.5 | -9.6 |
| Interest expense | 11.0 | 2.6 | 10.7 |
| | | |
| Secured Equipment Debt | 54.4 | 54.2 | 54.2 |
| Overdraft | 9.9 | 1.1 | 1.1 |
| Bonds | 85.0 | 85.0 | 85.0 |
| Less: cash | 0.1 | 13.1 | 13.1 |
| Total Debt | 149.2 | 127.2 | 127.2 |
Total Debt excluding
temporary overdraft | 141.2 | 127.2 | 127.2 |
| | | |
| Credit Metrics | | | |
| Total debt / EBITDA | 4.0x | n/a | 3.3x |
| Secured debt / EBITDA | 1.6x | n/a | 1.2x |
| Interest Cover Ratio | 3.2x | n/a | 3.6x |
Source: SCT, FIIG Securities
*Adjusted EBITDA adjusts for agreed one-off EBITDA uplift amounts for FY15 ($2.8m) and 1H15 ($0.6m) and transaction costs associated with the NOTE issue
Note: Audited FY15 ratios exclude $8m temporary increase in overdraft facility which was full repaid in July
The final FY15 adjusted EBITDA position of $35.3m was slightly above the original estimate of $34.4m. The net debt / EBITDA ratio was in line the original FY15 estimate provided in the research report (4.0x versus 4.0x in the new issue research report), while the interest cover ratio (EBITDA / interest expense) ratio of 3.2x was slightly above with the estimated 3.0x ratio.
Total debt was slightly higher than estimated as at 30 June 2015 due to a temporary, short term $8m increase to SCT’s overdraft facility. SCT has confirmed that the temporary increase in the overdraft facility: a) was required to meet a GST obligation relating to the payout of the existing equipment leases and; b) occurred shortly before issuance of the FIIG bond. SCT received confirmation from the ATO and its tax adviser that the payment of GST would be fully refunded in the July month and as such they did not consider the temporary increase to the overdraft to be material given it was effectively ‘cash-backed’ from the proceeds of the corresponding GST refund to be received shortly after payment. For the purposes of the FY15 ratio calculations we have therefore excluded this $8m temporary overdraft facility because it was fully repaid in July from the subsequent GST refund.
The 1Q16 result shows good improvement relative to FY15, reflecting the normalisation of financial results post SAP integration which was forecast by the company at the time of bond issue, and a pick-up in volumes which started to emerge in July 2015.
The higher cash balance at the September quarter reflects the $9m in cash proceeds received by SCT from the sale of its related refuelling business. We understand from SCT that the additional cash will remain for the interim; however over the next 12 months it will most likely fund a strategic rail terminal which the property trusts are building for SCT.