For cahoodle20 Dec 2020 12:06
Hi cahoodle,
" Turnover is vanity, profit is sanity and cash is reality', look at Beforegolf's simple example from each perspective.
(1) Turnover : SYME targets solid companies, where a turnover metric might be 4 x pa.Let's stick -for this exercise - at the £10m 'true sale' figure, I'll come back to this. Normal sales are to end-customers, the sales to SPC are incremental.
On this basis, "MCL" has to report 4 x £10m sales to end customers + say, 3x £10m 'true sales' to the SPC.
Would you agree that , crudely speaking, reported, auditable turnover YoY will have gone from £40m to £70m ? If not, why not ? If it has, do you agree that MCL's profit margins will , seemingly, take a hit : same £2m net profit, despite a 75% increase in 'turnover' ? If not, why not ?
(2) Profit : Leaving aside the 'denominator' issue above, what's the effect of the SYME IM model on margins. The Prospectus (p 48 business risk mitigation) says :
.." in all inventory monetisation transactions, 15 per cent. of the consideration paid to the customer is held back to provide a buffer against any losses;
..inventory is acquired at a cost which is usually approximately 15 per cent. lower than market value; "
Meanwhile (p 38) , SYME takes its management fee annually upfront :
.."the customer receives the proceeds of the inventory sale net of an annual transaction charge (usually 6-8 per cent. depending on the risk of the customer that is determined by Supply@ME’s proprietary inventory risk model); "
Crudely, this appears to suggest that for £ 10m 'worth ' of inventory, SPC will offer £ 8.5m, keep hold of £1.5m as retention/security margin, ie net £7m , then deduct £600-800K as management fee, leaving "MCL" with net monetisation proceeds of £ 6.2 to £6.4 million, which could be used to pay down conventional bank borrowings or do extra business.
That seems pretty expensive money and a lot of palaver to little effect : 'robbing Peter to pay Paul' comes to mind.
Things get even more problematic if you take at face value the subsequent claim that "MCL" gets 100% of inventory value + VAT, which I can see would be attractive to prospective customers.
That would make a complete nonsense of the security/risk mitigation steps originally proposed [SPC would seemingly have an outlay of £12m agst inventory 'worth' £ 10m ?] Maybe that's why AZ had to arrange a rushed alternative security margin via the pledged shareloans, he said as much in the 30/7 Proactive explanation ?
(3) As to cashflow, whatever the amount that MCL gets, under either scenario, it'll have to pay VAT on its 'true sale' to HMRC at some point (quarterly ?). Of course, it'll be able to claim back/offset against input VAT, but on this 3- 4 x incremental turnover scenario, there's a lot more scope for timing mismatches and cashflow screw-ups, it seems to me.
These are basic issues that SYME must have addressed in a 'selling document' somewhere, no ? Or have 900 + companies just signed up on AZ'
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