Post by
Longboarder on Jul 13, 2016 6:38pm
Brexit thoughts
I had a read of their PR regarding Brexit. As a summary: Revenue - 43% GBP, 39% USD, 18% Other (looks to be primarily European currencies). Debt - 21% GBP, 81% USD.
Looking at the numbers CXR is clearly exposed to fx risk given the dropping pound. Short term, the dropping pound will reduce CXR's EBITDA from what has been guided, and this will not look great from a reporting perspective. However, other than that I see fx risk as more of a long term risk. As stated in the PR, they can use GBP cash flow in 2016 to pay the Cinven earn out and service GBP debt. Should the pound stay low they can use all available GBP cash flow to pay off the GBP denominated debt and make interest payments. In the PR they also stated that during 2016, USD cash flow will be sufficient to service USD debt. I think it's a good sign that 39% of their revenue can service 81% of their debt, especially considering USD cash flow should increase Q2Q. Also, keep in mind they had significant blance of cash at Q1, should USD cash flows not cover interest payments. As the 18% of their revenues in other currencies looks to be mostly be from European countries, revenues can be converted to USD if the currencies remain strong compared to the USD, and can be used to make USD principal payments or other USD obligations. If these currencies drop with the pound, revenues can be converted to GBP to hammer away at the GBP debt.
So IMO, short term, the dropping pound will not be a problem for CXR other than from a reporting perspective. Although Lattice's point about AMCO expenses being in EURO's may put pressure on margins. Should the pound stay low for the next year or two, my hope is that CXR will pay off most of its GBP debt and never have to realize any fx loses from converting pounds to USD. However if the pound remains low after GBP debt is paid off, CXR will have no choice but to either hoard GBP cash or convert it to USD and realize an fx gain. Also it is important to note that as long as the pound remains low, any tuck in aqqqusitions are pretty much out of the question (unless they are made in GBP) as CXR will likley not have USD cash reserves to make such an aqqusition, debt is maxed, and share price is in the dumps. To do so they would have to use convert GBP cash to USD and realize the loss.
Sorry for the long post, let me know your thoughts on the impact of a dropping pound.
Comment by
sunshine7 on Jul 13, 2016 7:01pm
right on. Of course when the GBP debts are paid, there will be more cf to apply to USD debt, even though not as efficiently as yesterday and debt to earnings is lower.
Comment by
richmanpoorman on Jul 13, 2016 7:12pm
Perhaps Cxr can delist from Nasdaq and just trade on the TSX. They can report in Canadian currency......
Comment by
puma1 on Jul 14, 2016 6:49am
refinancing the UK debt at this time and converting to US would trigger out a pretty healthy real gain on settlement. Both RBC and Scotia had debt $ impacts but if I remember, Scotia's was more detailed. Anyway, always risky to walk from the hedge they have in their structure, but it would clear out 10% plus of their UK debt.
Comment by
MirrorWorldMan on Jul 14, 2016 8:42am
I understand what you are saying, that's true for in line products. The launch Mode of new molecules however takes a little higher expenses. The first 6-9 months are usually critical with drugs and more promotion and commercializations costs etc is required. Once the top line revenue from those drugs are achieved the momentum will carry forward.