Here's my take on the conference call and Q3 report:
1. Overall, the new CEO has made good progress on what he said he would do, namely: focus on profitability and cash flow. Operating costs are down $20 mill from Q2. As a result, EBITDA increased to $45 mill versus $9 mill in Q2. Cash flow from operations was positive $38.6 mill compared to negative $22.5 mill in Q2.
2. The cash flow was used to reduce bank debt, and since Dec 2000, debt has been reduced from about Cdn$99 mill to presently Cdn$55 mill. I get the impression from the conference call that Geac will be paying off the existing loan syndicate ($US) and changing to a new banker (hopefully Canadian). CEO said that this arrangement will be completed in Q4.
3. As for the "strategic review processing" for selling all or part of the company, no new comments were given by the CEO other than saying it's taking longer than expected. Meantime, management is running the business as if it was an "independent" business. He answered to an analyst question on "growth" after the streamlining, that he would see growth from "acquisitions". I get the feeling that the strategic review process is undertaken by a board committee, the CEO has little say over the process, and sounds like management would prefer that the company not be sold or broken up (common sense that if you're in management you wouldn't want to give up your jobs). As a shareholder, we wouldn't want the company sold for peanuts, or under duress. My guess is that the outcome of the strategic review report would be "carry on" with the re-structuring until the full price of the assets can be realized.
4. The balance sheet has been cleaned and goodwill reduced from $444 mill last quarter to $188 million. Writing off the $215 million of goodwill (maily from JBA acqusition)is a good move. Gives new management a clean slate to work from, and is necessary if all or part of the subsidiaries were sold off.
5. I wasn't impressed with the delay in the release of the Q3 report to analysts in time for them to review and ask questions in the conference call. Again, management has bungled public relations and caused credibility perceptions issues. It would serve shareholders well to email them to pay attention to public relation issues, and to release quarterly reports, news on debt negotiations etc. EARLY! Email your comments, questions to:
Michel Gelinas
m.gelinas@geac.com
In summary: profitability and cash flows have improved in Q3 versus Q2. Revenue is flat due to sector issues, and the bungled JBA acquisition. JBA is breakeven, and management focusing on making it profitable.
My take on stock price: downside risk minimal from today's price, however, the banking arrangement has to be finalized before the stock can take off. |
