RE:From June 24 Scotia Report - Alan RidgewayScruggs.... Thanks for the Scotia report... Very positive , now we just need the noise to pass , and CXR will execute.
quote=Scruggstyle]The UK voted to leave the EU yesterday and the GBPUSD exchange rate has fallen materially overnight from ~1.48 yesterday (as high as ~1.50 last night) to ~1.37 this morning. In addition, the EURUSD rate has fallen from ~1.14 to ~1.11. We have updated our model to account for the exchange rate moves and provide sensitivity analysis (see Exhibit 1) on the impact of changing exchange rates on our revenue, EBITDA, and Adj. Cash Flow (incl. earnouts) estimates.
In 2016, the impact of the depreciation of the pound and euro is expected to be limited. Dropping our FX rate estimates for GBPUSD from 1.44 to 1.37 and our EURUSD from 1.14 to 1.11 results in 2016 revenue and EBITDA estimates falling from $962 million to $950 million and $605 million to $598 million. Looking at adj. cash flow (incl. earnouts), CXR's cash position actually benefits from the move in rates as the Cinven payment is denominated in pounds and is such a large component of the company's cash requirements this year. Our adj. cash flow (incl. earnouts) forecast increases from $9 million to $19 million. In 2017 the impact of the depreciated currency is also limited. Our revenue estimate falls from $1.03 billion to $1.01 billion, our EBITDA estimate falls from $658 million to $642 million and our adj. cash flow estimate falls from $383 million to $371 million ($6.94/share).
From an operational perspective, we do not expect the leave vote to have a material impact on CXR's operations. Our understanding is that it will likely take two to four years before the UK could actually leave the EU and even at that point we would not expect there to be any impact on the company's ability to utilize contract manufacturers on mainland Europe or its ability to import/export drugs into the UK or countries in Europe.
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