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Tuesday, October 24 2017 @ 05:38 AM AST

T&TEC debt to NGC is 75% of its receivables

Key excerpts from a Caricris report released last week though dated September 29, 2017:

* In 2016, NGC recorded an improvement in Group Profit After Tax (PAT) by 28.5% to TT $720 million from TT $561 million in the prior year, notwithstanding a reduction in revenue during the period (Table 1). The reduction in revenue in 2016 was as a result of lower energy prices. To cushion the impact of the fall in revenue, NGC implemented several operational cost cutting initiatives3, which contributed to a 70.7% decline in operating expenses in 2016. This led to an improvement in the Company’s operating profit by 22.5% to TT $1.3 billion in 2016 from TT $1.1 billion in the prior year. Also contributing to the higher operating profit was an increase in its other operating revenue in the year by 5.4% to TT $480 million.

* Operating expenses in both 2016 and 2015 included impairment charges (non-cash), of the order of TT $202.5 million and TT $2.4 billion respectively. If these charges are excluded for comparison of core operating performance, profit would have declined by 55.9% and PAT would have fallen by 69%to approximately TT $923.2 million in 2016. NGC showed improved financial performance for the 1st three months of 2017, with the Company reporting a 493.1% improvement in PAT relative to the corresponding period in 2016 (Table 2). The improved profitability for the period resulted from a combination of higher revenue earned and lower operating expenses as the Company continued its cost cutting drive. Revenue growth was largely due to an uptick in commodity prices during the period, and this drove a 443.6% rise in operating profits to TT $470.2 million. CariCRIS is of the view that NGC’s improved financial performance in Q1 2017 should continue through the financial year, buoyed by the improved gas supply and assuming successful negotiation of the terms and conditions of its supply contracts, some of which are subject to monthly negotiations.
- - - [NOTE: The lower impairment charges in 2016 relative to 2015 was as a result of 1) a reduced charge on the discontinued Beetham Waste Water Reuse Project and 2) lower than expected crude oil prices in 2016]


* Notwithstanding the Company’s good liquidity, CariCRIS is concerned about NGC’s account receivables in days which rose to 174 in 2016 from 91 in 2015. The increased receivables in days was somewhat tempered by a lengthening of NGC’s days payable to 116 and low inventory in days of 9, but still resulted in an increased cash conversion cycle of 67 days in 2016 from 13 days the previous year. The increase in receivables in days was driven by NGC’s largest customer, the stated–owned Trinidad and Tobago Electricity Commission (T&TEC), which accounted for 75% of its receivables over 90 days. NGC’s management has indicated that they are currently working with T&TEC and the GoRTT to recoup outstanding receivables in the short to medium term. Additionally, new terms and conditions are being formulated for future gas sales to T&TEC in order to prevent a recurrence of this high build-up of receivables.

* NGC’s 1st quarter management accounts for 2017 relative to the corresponding period in 2016 showed improved debt protection metrics. The improvement was driven by higher ammonia and methanol prices which contributed to increased earnings for the Company and resulted in stronger operating cash flow and free cash flow. Management has indicated that there are no plans for new debt in 2017 and with the increased earnings and operating cash flow that we expect for NGC in 2017, the Company’s debt protection metrics should strengthen further.

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