Member Info for Hexam

"Does anybody seriously think that if the medium term overall margin objective for Debenhams was 2% any Ii would have bought into it."

Well, we now know the marketplace only keeps around 11% of GMV before ANY expenses and the latest reported overall margin (net income as %GMV) was less than 1%. So a target of 2% looks quite challenging to me, but doable and probably a bit more though your 20% is clearly impossible.

We still await any plan, credible or otherwise, from the current BOD. What we have is a series of reactions so far and the start of a business review. Where that leads who knows?

In the meantime Frasers have 28.5% of the shares so just 1.5% short of a mandatory bid but I just can't see them doing that. What they actually do next though will probably have the greatest impact on the sp in the short term as any recovery, or 'credible plan' from the BOD of how to get there, seems some way off at the moment.

"when it was 6.3p last week was it the next best thing?"

No, it was overvalued then and it is still overvalued now.

...just for completeness there is actually one very big difference for Capita between its Net Cash Flow and its Free Cash Flow and that is the impact from the disposal of businesses like Capita One.

For example at the half-year the FCF was minus £44.6m

In addition though there was a £60.4m positive impact on cash from business disposals. (There was also a £0.2m net outflow from other minor things).

The total 'Net Cash Flow' was therefore -£44.6m plus £60.4m less £0.2m = +£15.6m

In other words the FCF measures the net cash flow of the ongoing business whilst the total Net Cash Flow includes everything else which for Capita is mainly the impact of any business disposals which have been significant over the last few years. Without these the 'FCF' and total 'Net Cash Flow' would be virtually the same.

Terry - as I said what I am really talking about is NET cash flow i.e. Cash Flow In minus Cash Flow out - which is effectively FCF in Capita's case so we are actually AGREEING but have just each given a label that the other has misunderstood (and probably bored everybody else in the process).

FCF contains nearly all the elements of NET Cash Flow. If you do include everything then as I said the difference between Net Cash Flow and Profit is just timing (that's just how the accounting works). However, if it makes it easier I will just refer to FCF now as if it does include everything anyway and avoid the confusion!

Even if that is the case Alex I still wouldn't be surprised if he started arguing with himself.

Terry - I think we have both been loose with our definitions.

What you are describing is total cash flows i.e. all the money going in and out. This does indeed fit with the definition you give but when you put a number on it is always expressed as the difference (I've never seen the two added together hence my confusion). I should have been clearer though and said NET cash flow.

So what I have been talking about is net cash flow which is total cash in minus total cash out (before of course any new cash injections, dividends, loans or loan repayments). For Capita this is effectively the same as "Free Cash Flow" plus a few odds and sods. So we've been talking about very different things but giving them the same name! Apologies for my part in the confusion!!

“when it is you who does not understand the difference between CF and FCF.”

I’d like to know what you think the answer to that is too. What is the difference?

Actually I think I see where the misunderstanding is. You seem to saying cash flow increases if the company writes more business as more money comes in and more money goes out. But cash flow really is the money in MINUS the money out so if the business is unprofitable the cash flow from it will be negative probably immediately but certainly over time.

So the confusion is simply you are defining cash flow as the total movements in cash not the difference which is what I am talking about and is how it appears in the accounts.

So yes, turnover, revenue and TOTAL money in and out are much less important than the profit or cash flows they generate where cash flow is money in less money out.

So when you say ‘cash flow’ now I will read turnover or simply the level of business and not cash flow as it accounted for. Sorted 👍

“Bfd, you're still trying to argue with factual information, it's comical.”

It’s just what he does - even with SCB now it seems. Just Jeremy left I think that he hasn’t gone to war with. Remember Bfd is always right - even when he is factually wrong!

Over the long run total cash flow = total profits - that’s just a fact of accounting like it or not.

Cash flow does equal, as investopedia says, money in less money out. But so does profit - the only difference is WHEN that money in and money out is recognised.

For cash it is when money is actually received or paid out. For profit that timing may differ depending on what the item is. Sometimes only by days but sometimes by years (as with capex vs depreciation).

I don’t know why you are drawing such a distinction between FCF and overall cash flow. For most companies they are virtually the same thing (before things like equity raises, dividends and movements in loans and I would not include these as ‘cash flow’ anyway for this purpose).

You seem to equating cash flow more with sales and revenue even though they are only one side of the equation (as per your investopedia quote).

Profits come from all cash flow (excluding new money injected into the business or taken out) not just FCF.

“Turnover is vanity profit is sanity.”

Agreed but cash flow is not turnover - it is profit but just with different timing.

Cash flow for Capita is the same pretty much as FCF.

And if they win a new contract cash flow is not suddenly bumped up - if anything it may worsen immediately even if the contract is profitable.

If it was just down to PIs I think Ashley would win a landslide but it depends on whether BOO have enough institutions on their side. I think they might well do so perhaps a narrow victory against Lennon and a bigger one against Ashley himself?

""Cashflow... it's critical to any business "

No it is PROFITS, mush easier to win non profitable contracts, increase cashflow and loss money."

It's actually both. In fact cashflow is exactly the same as profit eventually - it is just the timing that differs. Also if they win non-profitable contracts then that is more likely to hit cash flow in the short-term unless they get large upfront payments to more than offset any initial costs of getting the contract on board and supporting it. It will certainly hit cash in the longer term.

If anything I would argue cash is more important as you can't survive if you run out of that (and can't get more). With profit things are a lot more flexible.

The split of staff numbers does look odd but I think it just because only those employees working solely for the subsidiaries are allocated to them whilst all the head office/overhead employees are just dumped in BOOHOO.COM. The costs of those employees will be allocated in same way to all the companies though the relative expenses and profits do suggest they get off lightly with BOOHOO.COM retaining a lot so that the other companies look better (either by design or not).

In any event there is always a lot of wriggle room in how overheads are allocated internally between companies and personally I wouldn't read too much into the profits of the individual entities and instead focus more on the overall numbers which cannot be manipulated (in that way at least)!

"Mystified how with £140m cost savings already made, £25m from data leak finished, £30m from pension costs finished we are still losing money"

Culley - The larger than expected drop in revenue, the redundancy costs, the adverse movement in working capital that they mention and the fact that those cost savings won't impact a full year for 2024 are all contributory factors but like you I'm a bit surprised the situation remains quite so bad.

I just hope the full £250m saving that they are now aiming for doesn't just get swallowed up in offsetting the things above and any other bad news that comes along.

"What's not to like?"

Well the revenue (as you mention) which is down 8% on an adjusted basis and most likely around 15% on an unadjusted basis (once the business exits are included).

But the bigger thing 'not to like' is the cash flow which not only have they missed their target for (again) but they say FCF is going to be negative again for 2025 (only now turning positive at the end of the year). You claim "Capita is generating enough cash from operations to cover its debts as well as have excess funds for other purposes such as investment into technology and AI." This is simply not true.

The negative FCF means that, by definition, it does not generate enough cash to cover its interest payments, capex and lease payments. That shortfall is predicted to be up to £140m this year. Yes, they have a low net debt to EBITDA ratio but that is only because they have sold off a lot of the family silver but that cupboard is now pretty bare. After the sale of Capita One they were actually in a net cash position. This has turned to net debt again as a result of the poor cash flow and with another negative year coming up it will get worse before it gets better.

There were some good bits in the update (like the increased expense savings) but, however you dress it up, overall the update was a bit of a car crash and the market has reacted accordingly.

“Hexam maybe you know how to ask the questions better than me. Please ask IR and see what they say”

Tbh I’m not sure what you’re trying to ask?

“Hexam if I expect to receive revenue in 2024 from a business but I sell it in 2024 unexpectedly, I lose the revenue from that business that would have accrued if not from an early sale - at least for the part of a year.”

Indeed they lose that revenue but my point is that this loss is on top of the 8% revenue drop they describe as this is on ‘adjusted revenue’ which means the business exits are excluded from both the 2023 revenue and the 2024 revenue.

In other words they have lost 8% on last year’s adjusted revenue of around £2.6bn PLUS whatever the loss is from business exits like capita one.

Or put another way the loss in total reported revenue (which was about £2.8bn) is much higher than 8% (around 15% I’d estimate).

As I said though, business exits cannot be a reason for missing revenue by 3%. They do not form part of the 8% drop (they are in addition to it) and besides the only new business exit I can think of is Capita One and that only had £54m revenue for a full year.

“Everyone I going to Finish commentating on this Stock until we reach 20p plus”

Good - that means we will never hear from you again.

Must admit Trisor that I don’t I’m understand the reason they gave you if they are talking about revenue. Revenue is booked when it is expected/due not when it is actually received - and business exits aren’t part of the 8% anyway - they are on top of it.

I assume they are referring to the miss in cash flow then. This makes sense as the deferred revenue will hit that as will the loss of Capita One (as it will have contributed to the guidance figure but is now excluded). So the reasons sound plausible but like you I think it would have been better had this been signalled earlier.