His projections have AlcaLu holding a cash cushion of €1 billion (US$1.33 billion) by the end of 2014, but that would be down from €2.2 billion ($2.94 billion) at the end of 2012. The "cushion" refers to cash minus short-term capital expenditures (€1.2 billion -- or $1.67 billion -- per year) and money held up for things like AlcaLu's pension obligations ("restricted" cash totaling an estimated €1 billion per year).
Here's the rub: Revenue growth is looking slow for the near future, including only 1 percent growth for AlcaLu in Europe next year, Genovese estimates. By his model, that means AlcaLu won't have the margins it needs to generate cash next year -- operating margins will be only 4.4 percent, and AlcaLu needs 5 percent.
"We believe the company is likely to consider all options including spin-outs, divestitures and joint ventures as potential ways to improve margins and unlock value," Genovese writes.
Why this matters
AlcaLu is coming off a difficult 2011, and CEO Ben Verwaayen is taking heat from shareholders over liquidity concerns. But if Genovese is right, the company still has work to do in 2012.
Some evidence of cost-cutting is already surfacing. Speculation in the Indian media has AlcaLu ready to outsource a major chunk of IT to the tune of $1 billion. IBM Corp. (NYSE: IBM), Infosys Technologies Ltd. (Nasdaq: INFY) and Tech Mahindra Ltd. are listed as probable bidders.
The latest on AlcaLu's situation:
- AlcaLu Chairman: We Back Ben!
- Euronews: Shareholders Turn On AlcaLu CEO
- AlcaLu CFO: We're 'P*ssed'
- AlcaLu's Spare Limb
— Craig Matsumoto, West Coast Editor, Light Reading