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There is a common mistake that is being made here. The belief that directors purchased their shares at a higher price than the current share price. They didn't. Their actual cost will have been extremely low. The deemed cost that was part of the initial share transaction was just that - a deemed cost, not a real cash cost. See the prospectus on the syme website.
With AZ's tweet it almost sounds like he is moving into supply chain finance rather than inventory finance. (Look it up on Google - otherwise known as reverse factoring). It's quite different to inventory financing. It allows small companies to get benefit of their larger customer's higher credit rating. It's a model that works. But it's a competitive market. And it doesn't give much comfort that he really knows what he's doing.
It's a valid question.
@weathergeek, for someone who was helping give newbies lessons on the importance of reading an RNS very carefully just a week or so ago you now seem to be pretty happy to not focus on the precise words.
Why can't this company ever put out a clear RNS? Why don't they just refer to the precise identity of their customers?
@gary6812. Don't take spotifys response too personally. Some on this site are more reasonable than others. Although a surprising number do seem to think that everything is a conspiracy. And most don't like me much - or anyone else that has a view which is not the same as their own. If you do invest in this it will at least be exciting - even though I suspect you will lose it. But certainly don't invest any more than you can easily afford to lose. In this or any other unproven business that is pre-revenue.
@gary6812. I'll try and stick to the facts.
Downsides:
No material revenues (last interim accounts)
Unproven business plan
Loss of £224m in last interim accounts
Complex ownership structure
Very complex business plan
No support provided for accounting that it has identified as a key risk in its prospectus
No material assets
Very little cash or current assets (per last interim accounts)
AZ has tweeted ludicrous ramping articles that are now acknowledged as fakes
On a positive note if it can get away a financing and securitization it may start to generate revenues.
Oh - and market cap is currently around £160m.
Good luck!
@extrader. Agreed. The comparisons some are making to companies like Facebook and Amazon are just ridiculous. There is no natural monopoly here. Similar financing arrangements such as invoice discounting or reverse factoring were all at one point designed by one company. And these schemes actually worked! But other finance companies just quickly copied them. And now they are offered by all.
@extrader @weathergeek. Yes - derecognition will happen on any "true sale". The client company will derecognise the inventory and recognise revenue. However under ifrs15 that can only happen on transfer of control. Transfer of legal title is only one indicator of many when assessing transfer of control - see paragraph 38.
This is a big risk to the model and was identified in the prospectus. It's a complex specialised area - which is why AZ should release any accounting opinion that he has.
AZ has refused to do so. Reputable companies will be very wary of this. They will want to do their own thorough due diligence. I think many will conclude that transfer of control has not occurred. They will not be able to recognise the sale to stock company. And this becomes like any other form of inventory financing - i.e debt.
@slippytoad. If I buy a house with a mortgage I can do what I want with that house. I can use it, I can sell it., I can knock it down. It's a real purchase and the party I have bought it from will record a sale. In SYME's model the stock company purchases (legally) the inventory - but does not take possession, and cannot use or resell the inventory. It just waits for the client company to "digitally" repurchase. You see the difference? With the house the buyer takes control. With the inventory the stock company does not. It is not a true sale from the client company. Simples.
@weathergeek - why don't you ask AZ for the accounting analysis which underpins the 'true sale' model? Or ask him which big4 audit firm (and office) provided the accounting opinion that supports this? It should be an easy thing for him to clarify - on a risk that he identified in his own prospectus.
@apunter2. IFRS is a global accounting standard. However there are some differences in how these standards are sometimes applied and enforced. Especially in more complex scenarios. Certain countries are recognised as having more robust accounting practices - even though there should be consistency in how this global framework is applied and enforced. This does not impact just accounting standards - it's in all walks of life.
@cahoodle. This accounting issue is actually identified as a risk on page 18 of the company prospectus - you can check for yourself. I suspect this is why they have since started to work on the self funding model. They are much more likely to be able to convince a smaller number of clients through this route that really need the financing and will worry about the accounting later - especially if these clients are based in Italy or the Middle East where accounting practices, and enforcement of them, are 'softer'.
@cahoodle. It's the "stock company" not syme that is the "buyer". But if the client company has the inventory in its possession and the right and expectation to buy it back then the auditor will likely conclude that control has not transferred (IMO). The stock company can't even sell the inventory during this period - see bottom bullet on page 38 of the prospectus!
I think the big problem is still the accounting for the sales. Given that the client companies will have the legal right and expectation to buy back the inventory and this inventory is still on their premises I can't see how they can record a sale. The accounting standard ifrs15 is a control based model and control has not transferred. It's all smoke and mirrors. A reputable client is going to want to do robust due diligence on this and their auditor is going to raise all kinds of challenges.
@apunter2. Thanks. Good post. Looking at the 10 September RNS I can see what you mean. For example they state "syme is keen to complete the signing of binding contracts with regard to client companies forming part of the securitization portfolio by end of September". I.e they don't say they will. Just that they are keen to do so. Therefore they can't be held to anything. As you say the devil is in the detail.
@havoc3582. I accept that this measure is of limited significance. But don't forget that this company does not have any revenues and has an unproven business model. It is all hope value in a new business idea and a very small team.
So AZ takes the time to respond to individual investors questions from this BB but does not manage his own Twitter account? How many people do you think this guy has working for him? Not very many - and for your sake I hope they are working on his business plan and not managing his Twitter account.