Problem with calculating price to earning ratio?

[McLovin]

So no real cash came in from the contributed equity, but the cash is there? Because they agreed that they've put in equity, they've put in cash?

What am I missing?

You're missing that if I agree to sell my factory worth $1m to XYZ Ltd in return for 1m shares worth $1 then I have contributed $1m in equity to XYZ Ltd. Equity can be any asset, not just cash.

VOC bought AMM and MTU. The takeover was done using shares. The value of the businesses acquired was the equity that was contributed in return for the shares.

 

[Klogg]

I must say, some of the posts in this thread are bordering comical.

Yea, not kissing azz tend to put people off.

It's not 'kissing azz', its paying respect to those that clearly know a lot more than most and willing to share their knowledge.

 

[galumay]

I must say, some of the posts in this thread are bordering comical.


It's not 'kissing azz', its paying respect to those that clearly know a lot more than most and willing to share their knowledge.

hear, hear.

 

[luutzu]

You're missing that if I agree to sell my factory worth $1m to XYZ Ltd in return for 1m shares worth $1 then I have contributed $1m in equity to XYZ Ltd. Equity can be any asset, not just cash.

VOC bought AMM and MTU. The takeover was done using shares. The value of the businesses acquired was the equity that was contributed in return for the shares.

Yea, I know how contributed equity can be "contributed" without cash changing hands. Kinda like when I start a company with my siblings, we "contributed" $1,000 for 1,000 shares but none of us put in the cash.

So maybe my little experience know how it's done.

But the $224m of Con.Eq "contributed" - with $96m from PEP and $128m from SCA - they are not for brand name or for plant and equipment or for anything tangible.

Why?

Because those tangibles were bought and paid for - at $113.3m plus $13.7m - in 2012.

BOught with the $125m pref.shares; and with the $275m in new debt they took out.

Further, SCA and PEP got back, in real cash, a further $235m in borrowings from related party in 2012.


So the $224m equity is just a made up number to fool those who haven't read the notes.

It is also a nice way to repay yourself $50m you've "contributed" - calling it return of capital. A special dividend I'm guessing.


Then with the $173m "contributed", you can further net your $17m net losses and bring it down to $165m of equity investment six months before the float.

So that $224m was made up because, one, it looks bad to have a negative freaking Con.Eq. number on the balance sheet. People tend not to buy stocks in companies with negative equity.

And two, it's so you could "repay" yourself $50m without looking like you just steal from the cookie jar without putting any real cash in.

 

[luutzu]

I must say, some of the posts in this thread are bordering comical.


It's not 'kissing azz', its paying respect to those that clearly know a lot more than most and willing to share their knowledge.

Did I call anyone name? I just say I don't bs with polite words and kissing azz to get along.


Yea man, I don't know anything about investing or financial statements. I mean, I only read up on it, see where it came from and what it means, then select what I find use, write the formula, adapt some new key measures, design my own financial statements, then code the bloody thing item by item.. .then chart, then write a few notes about its interpretation.

That's not enough. Can't know more than some one who simply know the definition of CFC, DCF and use it off the bat.


And ey, look at those smart monies owning some 60% of Asaleo. Must be real smart.

I mean, a bunch of financial engineers put in $125m, work their magic on a losing business whose parent company - with all its history and global experience - haven't managed to make profit... These PEP guys managed to turn things around, two years later came up to the smart money and say oi, this is an awesome company and you can have it $1billion. Put you're only allowed to buy up to 60% of it because SCA love this too much, believe in its future, and we care for the mom and pop investors so we'll need to give them some too.

The smart money, with their MBAs and fancy maths... wooo... give me give me.

pffttt...

 

[McLovin]

I must say, some of the posts in this thread are bordering comical.

I think it crossed the border long ago.

 

[luutzu]

I think it crossed the border long ago.

Wait, I'm a bit slow here so bear with me...

why am I haven't a clue and comical?

Because I can't read financial statements?


Have you guys even read and analyse Asaleo's financials?

'cause it take real genius to buy it once you do.

 

[Klogg]

Wait, I'm a bit slow here so bear with me...

why am I haven't a clue and comical?

Because I can't read financial statements?


Have you guys even read and analyse Asaleo's financials?

'cause it take real genius to buy it once you do.

I'm not saying you can't read financial statements. Just that Ves has given you the answer... Please re-read his post from earlier.

Not trying to offend.


On a separate note to the OP - I'm sure the above thread has given you an idea of at least one thing to look for in a company's financials, and how difficult it can be to translate at times.

 

[luutzu]

I'm not saying you can't read financial statements. Just that Ves has given you the answer... Please re-read his post from earlier.

Not trying to offend.


On a separate note to the OP - I'm sure the above thread has given you an idea of at least one thing to look for in a company's financials, and how difficult it can be to translate at times.

I've already replied to Ves' post.

That I've read the timeline of when PEP and SCA got together and what them two claim they've paid and borrowed and contributed must be within either the 2011 or the 2012 financial reports. Reason being that previous entities and discussion didn't begin until late 2011. So it cannot be earlier.


Have also responded to McLovin's point that the $224m contributed eq. weren't cash because it's for assets. That it's not for assets as the assets have been paid separately, for $113m.

So PEP and SCA just made up that contributed equity. No cash and no assets ever changed hands for those shares.

Not saying that that's illegal... companies have given out shares and options have been taken for nil consideration and it's still reported in Con.Eq.

But this $224m imaginary numbers are more sinister in that it allow PEP and SCA to pay themselves $50m - using debt financing but claimed to be "capital return"; it allow them to not show a negative equity in the balance sheet due to operating losses; and it permit the lenders some excuse to take their, what, $19m in fees to borrow some $275m in debt.

It's harder to get a $275m loan when your balance sheet show no equity.

anyway, Asaleo is a bad deal for investors any which way you slice it.

It's great for PEP, and great for SCA. And SCA will hang on to it forever because without Asaleo, they will lose market to sell their products in Austral/Pacific region. They're not hanging on because they have faith in the value of Asaleo like a normal investor wanting returns from Asaleo's earnings and dividends alone.


And here's another kicker... how will Coles and Woolies like Asaleo when it starts to sell its products to Aldi. If you were to run Coles or Woolies, will you play nice with someone who's getting in bed with your enemy?

 

[Klogg]

So PEP and SCA just made up that contributed equity. No cash and no assets ever changed hands for those shares.

Not saying that that's illegal... companies have given out shares and options have been taken for nil consideration and it's still reported in Con.Eq.

So from what I gather, you're arguing that the dilution of equity amongst a greater number of shares it the cause of concern. Yes, that's right, but don't forget the company got something in return for it.

And just because no cash exchanged, it doesn't necessarily mean it was a bad deal for existing shareholders. You'd just need to assess each one on its merits...
The VOC example McLovin gave is a great one. Because equity was issued for the M2 group, or AMM, does that make it a bad transaction for existing shareholders?

As for other factors relating to Asaleo, I'm not close enough to it to have a useful opinion.

 

[RandomInvestor]

Well incase you guys wanted my opinion on Asaleo Care, here it is lol:

Interesting company its total assets seem to be improving steadling, where as the total liabilities is more volatile from what I see but seems to be going down aswell(this is quick analysis not proper one btw) Though it's retained earnings are going down which seems to be going down rapidly every year. Though problems with companies like this is that they are missing data like total stock holder equity so what do I do in this case? Anyways... net income seems strange to it had a odd jump from 2014-2015, might be going up. Though there operating expense is quite high, I'm not sure if they can afford it considering the fact that their net income is so low compared to the operating expense.

Even total cash flow is 400k less than the operating expense this tells me the company has a hard time generating a profit, Alot of their data on the financial statements are volative making it less predictible in my opinion I personally think I would not own this company. But at the same time I might have no idea what I'm talking about lol.

 

[luutzu]

So from what I gather, you're arguing that the dilution of equity amongst a greater number of shares it the cause of concern. Yes, that's right, but don't forget the company got something in return for it.

And just because no cash exchanged, it doesn't necessarily mean it was a bad deal for existing shareholders. You'd just need to assess each one on its merits...
The VOC example McLovin gave is a great one. Because equity was issued for the M2 group, or AMM, does that make it a bad transaction for existing shareholders?

As for other factors relating to Asaleo, I'm not close enough to it to have a useful opinion.

No.

The brand and whatever plants SCA sold to Asaleo was purchased separately for $113m.

So maybe what SCA put in to receive that 114m at $1 each + the fees etc isn't the plant and tangibles. It could be the rights for Asaleo to be solve distributor to sell SCA's stuff.

The 96m that PEP "contributed", it's not tangible either. It's their skills or whatever, who knows.

All PEP put in was $125m in cash, for 15% interest on the 125m pref.shares. Note this $125m is a loan, convertible to shares... it's not equity.


With that $125m in cash, and with the imaginary $224m in non-cash contributed equity shown on the balance sheet, they managed to borrow $275m from some bankers.

Use that to pay themselves $50m, and further repay - probably the both of them, as it's not clearly stated in the financials - pay $235m.

So PEP and SCA already took out $285m from Asaleo. Add about $10 to $20m in consultation fees - mainly to PEP, but also to SCA and that's an already nice return for 1 year's work.

Then there's the $125m pref. shares... the 15% coupon are compounded, and ends up to cost the new shareholders another $40m+ in interests.

At IPO, all the cash raised - ok, 97% of it - went to repay that $125m pref.shares; pay the coupon still owing; pay the banks their, from memory, $275m or more; pay management their some $32m in incentives; and pay for all the IPO costs - about $40m.

The new shareholders are left with about $20m in cash after all that. PEP walked away with over $500m; SCA get to own some 32% of a $1b company, and of course had already pocketed all them hundreds of millions and a willing distributor of their goods and brands.

----

Now, if a guy walk into your office and offer you this IPO, would you buy it?

A lot of smart monies did bought it. Because they can't, or didn't bother, to read and re-interpret what's in the financials.

 

[McLovin]

Have also responded to McLovin's point that the $224m contributed eq. weren't cash because it's for assets. That it's not for assets as the assets have been paid separately, for $113m.

So PEP and SCA just made up that contributed equity. No cash and no assets ever changed hands for those shares.

Not saying that that's illegal... companies have given out shares and options have been taken for nil consideration and it's still reported in Con.Eq.

You cannot create contributed equity out of thin air. Something has to be given in consideration. If a company gives away bonus shares (although that doesn't seem to happen anymore), number of shares on issue goes up, but equity stays the same. The ATO would take great interest in artificial contributed equity being used to fund return of capital. It would amount to a tax free dividend limited in amount only by the assets of the company.

In any event, looking at the transactions of that company when it was private is much of a muchness, DSH went bust because it had inventory problems. So what is it today that makes AHY the next DSH?

 

[luutzu]

Well incase you guys wanted my opinion on Asaleo Care, here it is lol:

Interesting company its total assets seem to be improving steadling, where as the total liabilities is more volatile from what I see but seems to be going down aswell(this is quick analysis not proper one btw) Though it's retained earnings are going down which seems to be going down rapidly every year. Though problems with companies like this is that they are missing data like total stock holder equity so what do I do in this case? Anyways... net income seems strange to it had a odd jump from 2014-2015, might be going up. Though there operating expense is quite high, I'm not sure if they can afford it considering the fact that their net income is so low compared to the operating expense.

Even total cash flow is 400k less than the operating expense this tells me the company has a hard time generating a profit, Alot of their data on the financial statements are volative making it less predictible in my opinion I personally think I would not own this company. But at the same time I might have no idea what I'm talking about lol.

Asaleo was making losses for at least the two years prior to PEP.

PEP managed to make it profitable in the second year. How did it do that when SCA and them operation managers whose business is tissues and tampons couldn't all these years?

And why is it struggling now? Can't just be Coles and Woolies going to war.

The new investment in new plants and machineries... some may call that fixing the dam machine before it get overheated and burn the factory down... that's not an investment.


Another question is... if Asaleo is so cheap and valuable at current prices - same level as at IPO - then why did the managers and SCA flogged it off two years ago for the same price?

It's not like Asaleo is swimming in cash. So where's the money from to buy the shares at practically the same price they sold at? For the new machineries? For better looking EPS and maybe market price control?

 

[luutzu]

You cannot create contributed equity out of thin air. Something has to be given in consideration. If a company gives away bonus shares (although that doesn't seem to happen anymore), number of shares on issue goes up, but equity stays the same. The ATO would take great interest in artificial contributed equity being used to fund return of capital. It would amount to a tax free dividend limited in amount only by the assets of the company.

In any event, looking at the transactions of that company when it was private is much of a muchness, DSH went bust because it had inventory problems. So what is it today that makes AHY the next DSH?

I did examined the timelines of when PEP and SCA got together, and could not work out where and what they do for that $224m equity. It's not in cash, it's not in transfer of tangible assets, and it's not in prior years because I do not remember reading them having had any history and ownership before 2011. In the 2011 report, there's nothing there to support their claims.

Also couldn't work out where they borrowed $235m from "related parties" that they have to return it - with zero interest.

I couldn't see the borrowed cash going in, but it certainly went out.

So maybe it's just me, or maybe they're lying. As an investor, I'd rather believe myself, even if I'm wrong.

-----

Why is AHY the next DSH?

It's a weak argument because I haven't bothered to analyse the 2014 and 2015 financials in detail to make the case.

But I have scanned thru them, and they do not look good.

Inventory level are also high - it's explained away as new factory and machinery disruption; cash flow not good; margin was poor and growth in most of its segments non-existence. The only bright spot for growth was its continence business.

It hasn't made much cash so where does it get the dole to pay dividends and fund the share buybacks?

It's facing tough times with Woolies and Coles, but are going to now sell to Aldi. That's not a smart strategic move. Coles and woollies will not allow Asaleo to be able to sell to Aldi at a low price and still survive.


So yea, could put it down to weak conjectures and guesswork. but I'd rather that than doing forensic accounting from figures management I don't trust are providing.

 

[Ves]

So maybe what SCA put in to receive that 114m at $1 each + the fees etc isn't the plant and tangibles. It could be the rights for Asaleo to be solve distributor to sell SCA's stuff.

The 96m that PEP "contributed", it's not tangible either. It's their skills or whatever, who knows.

All PEP put in was $125m in cash, for 15% interest on the 125m pref.shares. Note this $125m is a loan, convertible to shares... it's not equity.

Are you saying the Business Combinations figures in the Notes to the 2011 and 2012 financial statements are wrong?

In particular Note 24. Business Combinations in the 2012 financial statements (http://www.asx.com.au/asxpdf/20140626/pdf/42qgggjf3gs73l.pdf) explains what happened fairly well. It's on page 24 of the linked PDF.

It appears you are getting confused because PEP and SCA set up a new company PEPSCA Pty Ltd, which is in effect a 50/50 joint venture. This company was later renamed to Asaleo Care Limited.

In the month or two prior to the formation of PEPSCA Pty Ltd, PEP paid an amount to SCA to gain a share of ownership in SCA's Aus/NZ operations. See here: http://www.pep.com.au/media/4983/2011-11-04PEPannouncementonSCAHA-4.11.11.pdf and here http://www.sca.com/en/media/press-r...-in-australasia-with-pacific-equity-partners/

Because SCA is a multi-national company it obviously has a lot of subsidiaries that it uses to operate in different jurisdictions.

If a new company (PEPSCA) was not set up to combine the various subsidiaries it'd a bloody mess and a nightmare for the new investor (PEP) to keep track of it and tidy it up for the eventual IPO.

 

[luutzu]

Are you saying the Business Combinations figures in the Notes to the 2011 and 2012 financial statements are wrong?

In particular Note 24. Business Combinations in the 2012 financial statements (http://www.asx.com.au/asxpdf/20140626/pdf/42qgggjf3gs73l.pdf) explains what happened fairly well. It's on page 24 of the linked PDF.

It appears you are getting confused because PEP and SCA set up a new company PEPSCA Pty Ltd, which is in effect a 50/50 joint venture. This company was later renamed to Asaleo Care Limited.

In the month or two prior to the formation of PEPSCA Pty Ltd, PEP paid an amount to SCA to gain a share of ownership in SCA's Aus/NZ operations. See here: http://www.pep.com.au/media/4983/2011-11-04PEPannouncementonSCAHA-4.11.11.pdf and here http://www.sca.com/en/media/press-r...-in-australasia-with-pacific-equity-partners/

Because SCA is a multi-national company it obviously has a lot of subsidiaries that it uses to operate in different jurisdictions.

If a new company (PEPSCA) was not set up to combine the various subsidiaries it'd a bloody mess and a nightmare for the new investor (PEP) to keep track of it and tidy it up for the eventual IPO.

Not that confusing.

 

[Ves]

Not that confusing.

Did you also look at page 52 in the Report you linked that page from (2013 Annual Report)?

There is a break-down of assets, both tangible and intangible, that were acquired as part of the various transactions for the formation of the Joint Venture.

 

[luutzu]

Did you also look at page 52 in the Report you linked that page from (2013 Annual Report)?

There is a break-down of assets, both tangible and intangible, that were acquired as part of the various transactions for the formation of the Joint Venture.

Yes I have and honestly it's meant to confuse people.

It make it appear that PEP already own SCAHH ($95.876m) and SCA owns SCAHAPL ($253.72m). So that would explain them both contributing equity through those two companies, combined it into what eventually became Asaleo.

But that's not true.

1. Those transaction occurred/finalised on 4th Jan 2012.
2. PEP only engaged in talks with SCA in late 2011 - in November. i.e. PEP does not already own anything from SCAHH or any toilet paper business they're combining.


If you look at note 23, p.45, on Contributed Equity. Note the 96m shares (and $96m) PEP contributed was 2 days before the transaction with SCAHH and SCAHAPL and all that assets and book value breakdown at note 30.

Further, the 114m shares to SCA for $128m contributed equity is for acquisition of the ANZ Brands from parent entity of SCA - note 23(b).(a).

So the two sub companies totalling $349m detailed at note 30... at best that is the $325m borrowings they repaid in cash in 2012. But more likely PEP only agrees to pay $125m for them as noted in note 30(b), p.53. After cash, they only paid $113m.


So my take is PEP only ever put in $125m into a shell company, acquire all the assets from SCA for $125m (net cash so $113m); make up all the other bs and they both take back $50m as "capital return", then that $325m "loan repayment"... all done with that initial $125m pref.shares plus the debt.

At IPO, that $125m pref. shares were repaid; the $44m coupon were repaid; the debt to bankers were repaid, the purchase of shares own by PEP etc. etc. were all paid and the new shareholders own a company with $20m in cash from the $360m or whatever that they raised from new share issue.


This is the same deal Anchorage pulled on DickSmith. Difference is Anchorage actually put up a net of $8m of its own cash... PEP simply lent its $125m for 15% and take some $500m home on top too.

Remember too that the current board and directors are the same crew that ran the show, brought it to market and pay themselves some $32m - one third of which they cashed out at IPO and at least the CEO cashed out half of what's left soon after IPO.

Now they want to buy the company back at practically the same price?

So if investors are lucky, SCA will try its best to keep Asaleo alive and ticking along. If unlucky, the share price could crash and SCA can privatise it for cheap. SCA will win either way. It's a matter of what will not upset enough shareholders to start suing.

 

[galumay]

My eyes are bleeding. Thats 5 minutes of my life I will never get back.