During the year Holcim Philippines (HLCM) availed 5.3 Billion Pesos short-term loans. However, as of the end of the third quarter of 2020, HLCM’s balance sheet would only show a short-term loan of 0.9 Billion Pesos. This could be so because HLCM is fast paying its short-term borrowing.
As to how HLCM is able to whittle down the short-term debt to just 0.9 Billion from a loan availment of 5.3 Billion Pesos is quite baffling. That is a repayment of 4.4 Billion Pesos. According to its 9M20 results, HLCM was able to generate cash from operations of only 2.2 Billion Pesos and its cash balance dipped by only 0.5 Billion from the start of the year. What is more baffling is HLCM’s total assets as of end of 9M20 contracted by 2.1 Billion as compared to its total assets as of end of 2019.
At the start of the year HLCM had a short-term loan of 3.9 Billion but then it borrowed additional 5.3 Billion Pesos. That would be a total of 9.2 Billion Pesos. However, according to its financial statements it paid short-term debts of 7.1 Billion Pesos. That would have resulted in a balance of short-term debt of 2.1 Billion Pesos as of the end of 9M/3Q20. HLCM’s end of 9M20 balance sheet showed short-term debt at only 0.9 Billion Pesos. It didn’t tie up, the analysis could be wrong, but it is strange.
According to HLCM, the group’s financial position remained healthy with a stable cash position. It further said that the group’s liquidity position remains strong as evidenced by higher cash balance.
Cash balance at the end of 9M20 of HLCM is at 2.4 Billion Pesos. However, if you look at the trade and other payables of HLCM as of the end of 9M20 it is at 10.1 Billion Pesos. The trade and other payables of HLCM is even bigger than the entire current assets of HLCM as of the end of 9M20 which stood at only 9.4 Billion Pesos. If you liquidate the receivables and inventories and pool it with the cash it won’t be enough to pay the trade and other payables of 10.1 Billion Pesos. Trade and other payables didn’t move significantly from the start of the year to the end of 9M20. It was 10.3 Billion Pesos at the start of the year and at the end of 9M20 it is at 10.1 Billion Pesos.
While trade and other payables remained relatively steady at 10 Billion level, HLCM’s current assets are shrinking by 1.5 Billion Pesos. So where did those assets go? It showed that short-terms loans are shrinking. Did it mean that HLCM was settling first the loans before the credits of the supplier? It appears so. It is now appearing that HLCM is relying on credit from suppliers and partners.
At the start of the year, it had 3.9 Billion Pesos of current loans payable but at the end of 9M20 it had only 0.9 Billion of current loans payable. It is a decline of 3 Billion Pesos. If they had paid that 3 Billion Pesos, where did they get that money when they just generated 2.2 Billion of cash from operations? From that cash from operations, they spent 0.7 Billion Pesos for property, plant, and equipment. If they had used their existing cash their cash balance would have dipped further but it stayed at 2.5 Billion Pesos. For us it doesn’t add up.
When a company is profitable it grows its balance sheet. The balance sheet only shrinks if you de-lever or pay debts. In the case of HLCM, HLCM earned profits but its balance sheet shrunk. Sure, they lowered down the current loans payable by 3 Billion Pesos to just 0.9 Billion Pesos from 3.9 Billion Pesos. But where did the money used to pay the debt come from when they had generated cash from operations of only 2.2 Billion Pesos and their existing cash from the start of the year dipped by only 0.5 Billion Pesos.
The analysis could be wrong, but it always pays to wait for the auditors.
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Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent viewpoint. Accuretti Systems Inc. in day-to-day trading may have owned, or is considering buying or disposing, the shares of the companies mentioned in this commentary.