1/24
Lots of continuing confusion it seems around the #HMI accounts and the company's core profitability.
For me, this is in part driven by a desire to focus on the revenues when the focus should be on the cash flows
Here's my long thread opinion.
$ = AUD only.
Lots of continuing confusion it seems around the #HMI accounts and the company's core profitability.
For me, this is in part driven by a desire to focus on the revenues when the focus should be on the cash flows
Here's my long thread opinion.
$ = AUD only.
https://twitter.com/BigBiteNow/status/1542520338914766848
2/
Firstly, it is important to appreciate that HMI wrote down AUD $600,000 in trade debtors on 31/12/21.
Also, "Some debtors are given industry standard longer payment terms which may cross over more than one accounting period," which helps create a difference between...
Firstly, it is important to appreciate that HMI wrote down AUD $600,000 in trade debtors on 31/12/21.
Also, "Some debtors are given industry standard longer payment terms which may cross over more than one accounting period," which helps create a difference between...
3/
sales and cash receipts in any given accounting period.
Note also that all trade debtors still fall within the current (within 12 months) trade and other receivables. The only non-current (more than 12 months) relates to recoverable taxes. So not direct sales related.
sales and cash receipts in any given accounting period.
Note also that all trade debtors still fall within the current (within 12 months) trade and other receivables. The only non-current (more than 12 months) relates to recoverable taxes. So not direct sales related.
4/
This demonstrates that HMI expect to collect all outstanding trade debtors whose "carrying value is assumed to approximate their fair value."
So carried actual sales value.
Therefore an easy and applicable method exists to calculate the sales price for each period.
This demonstrates that HMI expect to collect all outstanding trade debtors whose "carrying value is assumed to approximate their fair value."
So carried actual sales value.
Therefore an easy and applicable method exists to calculate the sales price for each period.
5/
That being cash receipts for the period + trade debtors at the end of the period - trade debtors at the end of the previous period.
For 2021, this would be $3,628,268 + $1,824,564 - $930,364 (YE 2020 trade debtors minus $600,817 write down)
= $4,522,468 / 85,030 tons
That being cash receipts for the period + trade debtors at the end of the period - trade debtors at the end of the previous period.
For 2021, this would be $3,628,268 + $1,824,564 - $930,364 (YE 2020 trade debtors minus $600,817 write down)
= $4,522,468 / 85,030 tons
6/
This equates to a price of AUD $53,20 per ton and signals that $1,824,564 (equivalent to c. 34,296 tons) will be collected in 2022.
If we then look at the quarterly sales run for 2021 we see the following,
H1 2021 = 26,726
Q3 2021 = 46,166
Q4 2021 = 22,984
This equates to a price of AUD $53,20 per ton and signals that $1,824,564 (equivalent to c. 34,296 tons) will be collected in 2022.
If we then look at the quarterly sales run for 2021 we see the following,
H1 2021 = 26,726
Q3 2021 = 46,166
Q4 2021 = 22,984
7/
34,296 tons reflects payment terms that run c. 4 months. Meaning most of Q4 receipts will likely be collected in the following accounting year.
As a comparison here now is 2020.
FY cash receipts of $2.71m against 54,115 tons of sales giving a sales price of $50.25 per ton.
34,296 tons reflects payment terms that run c. 4 months. Meaning most of Q4 receipts will likely be collected in the following accounting year.
As a comparison here now is 2020.
FY cash receipts of $2.71m against 54,115 tons of sales giving a sales price of $50.25 per ton.
8/
$930,364 of trade debtors (when write down removed) at the YE 2020 equates to c. 18,514 tons
2020 Sales Breakdown
H1 2020 9,859 (tons)
Q3 2020 = 27,577
Q4 2020 = 16,719
Again, this demonstrates (in simple terms) that Q4 sales (at least) would run into the following FY.
$930,364 of trade debtors (when write down removed) at the YE 2020 equates to c. 18,514 tons
2020 Sales Breakdown
H1 2020 9,859 (tons)
Q3 2020 = 27,577
Q4 2020 = 16,719
Again, this demonstrates (in simple terms) that Q4 sales (at least) would run into the following FY.
9/
There was a 5.87% uplift in the ave. sales price between 2020 and 2021.
This is compounded by the fact that the BRL/AUD was 13.7% stronger in 2021 which should have seen prices drop by c. $7 based on 200BRL per ton pricing.
This indicates a c. AUD $10 or 20% rise in prices
There was a 5.87% uplift in the ave. sales price between 2020 and 2021.
This is compounded by the fact that the BRL/AUD was 13.7% stronger in 2021 which should have seen prices drop by c. $7 based on 200BRL per ton pricing.
This indicates a c. AUD $10 or 20% rise in prices
9A/
between 2020 and 2021 (Be it that this exercise is about direction rather than exact calculations).
This is understandable given the fact that HMI reported that 2020 prices stayed in line with 2019.
All of which is very encouraging for the size of the price rises for 2022.
between 2020 and 2021 (Be it that this exercise is about direction rather than exact calculations).
This is understandable given the fact that HMI reported that 2020 prices stayed in line with 2019.
All of which is very encouraging for the size of the price rises for 2022.
10/
With these figures in our hands, it is possible to get a rough estimate on how 2022 should now pan out.
Sales to date are 117,589 tons which given the evidence should all be booked in 2022.
If so then at 2021 prices cash receipts should be
$6.26m + $1.824m (YTD).
With these figures in our hands, it is possible to get a rough estimate on how 2022 should now pan out.
Sales to date are 117,589 tons which given the evidence should all be booked in 2022.
If so then at 2021 prices cash receipts should be
$6.26m + $1.824m (YTD).
11/
The $1.824m being the current trade debtors from 2021.
This, therefore, equates to c. $8.1m in cash receipts YTD which should already give HMI significant positive cash flows for the year with the majority of Q3 still to be added.
The $1.824m being the current trade debtors from 2021.
This, therefore, equates to c. $8.1m in cash receipts YTD which should already give HMI significant positive cash flows for the year with the majority of Q3 still to be added.
12/
If Q3 (which has been the strongest quarter over the last two years) delivers the same result as 2021 (c. 46,166 tons) then the above data from 2020 and 2021 supports the argument that c. 30,000 tons will be booked in 2022.
This adds a further $1,596,000.
If Q3 (which has been the strongest quarter over the last two years) delivers the same result as 2021 (c. 46,166 tons) then the above data from 2020 and 2021 supports the argument that c. 30,000 tons will be booked in 2022.
This adds a further $1,596,000.
13/
Therefore, the total cash receipts for 2022 would be approximately $9.7m.
If Q4 then matched 2021 (22,984 tons) then we would see $2.08m in trade debtors at YE and due for payment during 2023.
So we have expanding profits with a bigger starting base for the following year.
Therefore, the total cash receipts for 2022 would be approximately $9.7m.
If Q4 then matched 2021 (22,984 tons) then we would see $2.08m in trade debtors at YE and due for payment during 2023.
So we have expanding profits with a bigger starting base for the following year.
14/
However, there are two more factors to allow for here.
The company has reported price rises in 2022.
At a 15% increase in prices, then 2022 cash receipts rise to $10.88m and trade debtors for FY 2023 increase to $2.39m.
Super healthy for an HMI with minimal trade payables.
However, there are two more factors to allow for here.
The company has reported price rises in 2022.
At a 15% increase in prices, then 2022 cash receipts rise to $10.88m and trade debtors for FY 2023 increase to $2.39m.
Super healthy for an HMI with minimal trade payables.
15/
In addition, we have the BRL/AUD.
To date in 2022, this has averaged 3.64BRL/AUD.
Based on the calculated average price of $53.20 for 2021 that alone lifts prices by c. 10% compared to 2021. Turning $53.20 into $58.50 before any other price rises even begin.
In addition, we have the BRL/AUD.
To date in 2022, this has averaged 3.64BRL/AUD.
Based on the calculated average price of $53.20 for 2021 that alone lifts prices by c. 10% compared to 2021. Turning $53.20 into $58.50 before any other price rises even begin.
16/
Meaning YTD cash receipts (see post 10 above) should already be running at $9.75m. Be it that with the payments lag into Q3 this won't be fully witnessed until the FY 2022 accounts are available. But that doesn't mean it's not there.
Meaning YTD cash receipts (see post 10 above) should already be running at $9.75m. Be it that with the payments lag into Q3 this won't be fully witnessed until the FY 2022 accounts are available. But that doesn't mean it's not there.
17/
Additionally, the weaker BRL exchange rate will also reduce Brazilian-based cost of sales and any other Admin costs (e.g. advertising) which should further enhance the net cash inflows in 2022.
Establishing costs is a tad bit trickier and is perhaps for another thread but...
Additionally, the weaker BRL exchange rate will also reduce Brazilian-based cost of sales and any other Admin costs (e.g. advertising) which should further enhance the net cash inflows in 2022.
Establishing costs is a tad bit trickier and is perhaps for another thread but...
18/
the approach should be the same meaning that the actual figures shown aren't reflective of the headline sales figure but actual concluded sales which are influenced by the sales concluded in the latter part of the previous year and perhaps any one off longer term contracts.
the approach should be the same meaning that the actual figures shown aren't reflective of the headline sales figure but actual concluded sales which are influenced by the sales concluded in the latter part of the previous year and perhaps any one off longer term contracts.
19/
The reality is that HMI needs to be judged on cash flows based on the fact that a very steep growth path has skewed the numbers up until 2021.
This is because payment terms push sales agreed later in the year into the following FY. So trade debtor sums need to be respected.
The reality is that HMI needs to be judged on cash flows based on the fact that a very steep growth path has skewed the numbers up until 2021.
This is because payment terms push sales agreed later in the year into the following FY. So trade debtor sums need to be respected.
20/
Under such a scenario larger sales years such as 2021 and 2022 take time to funnel through to the bottom line.
2022 is the first year whereby the majority of sales (63% based on H1 117,589 tons vs projected 186,000 FY) should be made in the first half of the year.
Under such a scenario larger sales years such as 2021 and 2022 take time to funnel through to the bottom line.
2022 is the first year whereby the majority of sales (63% based on H1 117,589 tons vs projected 186,000 FY) should be made in the first half of the year.
21/
This allows for far greater cash collection and has the added boost of being backed by really meaningful trade receipts from the previous year.
2023 may have a similar uplift if the last c. 4 months of 2022 deliver markedly higher sales compared to 2021.
This allows for far greater cash collection and has the added boost of being backed by really meaningful trade receipts from the previous year.
2023 may have a similar uplift if the last c. 4 months of 2022 deliver markedly higher sales compared to 2021.
22/
A long and perhaps complicated thread that perhaps needs several reads to be truly understood.
For the record, I am not stating that my figures are 100% accurate. This is more about understanding the way business flows through HMI.
A long and perhaps complicated thread that perhaps needs several reads to be truly understood.
For the record, I am not stating that my figures are 100% accurate. This is more about understanding the way business flows through HMI.
23/
What I have demonstrated to myself with this exercise is that HMI is set to start throwing off significant positive cash flows this year.
Yes, I would like to see admin costs lower and have asked questions around this for the investor call.
What I have demonstrated to myself with this exercise is that HMI is set to start throwing off significant positive cash flows this year.
Yes, I would like to see admin costs lower and have asked questions around this for the investor call.
24/
But even at its current standing, the cash flow should still be very strong based on an H2 2022 that need only match Q3 2021 to be realised.
After that, it becomes about building up cash flows for 2023.
I believe there's a big misread on this one by the market/sentiment.
But even at its current standing, the cash flow should still be very strong based on an H2 2022 that need only match Q3 2021 to be realised.
After that, it becomes about building up cash flows for 2023.
I believe there's a big misread on this one by the market/sentiment.
By this, I of course mean #HMI expects to collect all outstanding trade debtors whose "carrying value is assumed to approximate their fair value." in the current 12-month FY period.
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