1 answer

5. According to Emeco’s 2019 Annual Report, what is one benefit of the large cash flow...

Question:

Increasing free cash flow and reduction in leverage On the back of the strong profitability in the year, we generated operati5. According to Emeco’s 2019 Annual Report, what is one benefit of the large cash flow that Emeco produced in 2019? (1 mark)

Increasing free cash flow and reduction in leverage On the back of the strong profitability in the year, we generated operating free cash flow of $90.1m (pre-growth capex of $85.1 million) which enabled debt repayment and investment in strategic growth assets for future earnings. Notwithstanding this investment, our strong earnings and cash flow reduced net debt / operating EBITDA to below 2.0x at the end of FY19 (from 2.6x in FY18) - a significant milestone in Emeco's deleveraging strategy. We expect the pace of deleveraging to accelerate in FY20 with a greater earnings base combined with the strong operating free cash flow we are now generating. Emeco is committed to further reducing its gross debt, refinancing the notes on notably improved terms in the future and, subsequently, reaching its goal to be able to pay a dividend to shareholders.

Answers

The benefit we can see here is that by increasing the cash flow the company will be able to pay off its debt, and then can save the interest they were paying on the dept, and further utilize it to pay dividends later.

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