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Good evening all,

My draft notes from the conference should anyone want to read them. Also, thank you Dan for taking the minutes this morning.

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Conservative guidance for P4 shows slower growth rates of 10% - 15%, however strong actual trading in early in Jan '21, so should exceed £1.7b/£1.8b FY revenue forecast

Close to finalising the international warehouse which is likely to be in the US

Stellar growth performance in US of 52%, standout PLT, which identifies a huge growth opportunity for us given the difficulties in the quarter as a result of the US elections

Increased marketing across all geographical areas to maximise the opportunity of a captive audience during lockdowns
Acquisitions should fit; 1) Geography, 2) Demographic or 3) Category and they are weak in beauty, sports and only have one Menswear Brand

Acquisitions; any brand acquired needs to go on the global path and they not looking for one brand which is just in the UK
Burnley warehouse has 17m units capacity and the Wellingborough warehouse will be smaller at 5m units with limited capex requirements of £5m

Marketing costs for FY '22 to be more evenly spread between H1 and H2 compared to FY '21

A 10% EBITDA margin (which they could decrease if they lower discretionary spend) allows them to continue to invest, in say marketing, to overachieve again their revenue targets

Karen Miller is going to exceed the FY online sales of the previous owner and they gauge this as a successful acquisition
Lockdowns reduce returns compared to normal return rates of 28% compared to low 20%s during lockdown
Correlation between average selling prices and return rates and therefore Boohoo's % is lower than their peers

Moving more of their manufacturing overseas which will see lower costs

Moving to ethical suppliers has not resulted in additional costs

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The biggest risk is the change in environment when the vaccine is rolled out because consumers could return to the high street (the CFO stated this happened when lockdown restrictions eased), and this would have an impact on growth rates and subsequently the achievability of the 10% EBITDA margin. They will provide more guidance when they have more information in the next quarter.

10% EBITDA margin maintained because increased freight costs were broadly offset by savings in lower return rates.

BREXIT costs up to £9m pa going forward.

Acquisitions in H1 were loss making therefore a drag on GP margin but still in the very early stages of their evolution

Hi All,

I can only think "planned gross margin investment" are the costs associated with shifting more manufacturing overseas which results in a higher gross margin because it's cheaper than producing in the UK given that everything is outsourced. I'm fully behind this strategy because they have stated before that manufacturing in the UK is more expensive than other countries.

Also, as per the 2020 Annual Report, distribution costs sit below Gross Profit and therefore it can't relate to improvements here because it does not impact Gross Margin.

Hi All,

I can only think "planned gross margin investment" are the costs associated can only mean shifting more manufacturing overseas which results in a higher gross margin because it's cheaper than producing in the UK given that everything is outsourced. I'm fully behind this strategy if that

Question for all

"The Group continues to expect to deliver adjusted EBITDA margin for the year at around 10% despite COVID-19 related headwinds for distribution costs, planned gross margin investment and accelerated discretionary customer acquisition spend"

What does "planned gross margin investment" mean?

Also, is "customer acquisition spend" increased marketing expenditure?

Thanks

Good morning all,

I've updated my model with the Q3 actuals and my forecast EBITDA for the FY '21 has decreased from £207m to £185m.

UK growth Q3 vs Q2 (adjusted for 4 months in Q3) has decreased from 35% to 11% which is lower than I expected given it is a peak trading period because of Christmas. US growth Q3 vs Q2 has held up quite well decreasing from 20% to 17% and overall growth Q3 vs Q2 has decreased from 22% to 13%.

The results are very good but I was expecting something a little better, however this share is still a good long term hold.

Hi,

Very helpful data so thank you.

I've updated my forecasts based on the data provided and FY '21 EBITDA is still coming in at circa £194m which is ahead management's forecast of £163m (circa 20% increase).

I don't think that would be negative to the current share price because a market cap of 20 x EBITDA based on FY '21 numbers is not particularly high.

Hi Dan,

The equity story is for BH to lead the fashion e-commerce market globally through a combination of acquisitions and organic growth using its expertise in marketing and social media.

Forecast forward EBITDA earnings of circa £200m and at a P/E ratio of 20.

We are not privy to the details but let’s say Topshop generate 20% of their revenue online which equates to circa £160m and assume the same EBITDA margin of 10% as BH, this results in an EBITDA of £16m. The maximum you’d be willing to pay is £320m otherwise it is no longer value accretive.

The cash held on the balance sheet earns nothing, so let’s invest it, therefore buying Topshop you increase the Group value by £320m which is 8% and translates into a share price £3.46.

There are also further upsides because BH is currently trading at discount to peers because of governance issues.
Personally, I don’t think we will get Topshop because; 1) there are many interested parties and 2) there will be political pressure to maintain as main jobs as possible which can only be done by keeping the physical stores open.

Thanks for concurring.

The key is whether they have over achieved market expectations, e.g. greater than 32%.

We shall see...

Hi Glenn,

I had the exact same thought.

Mgt stated that revenues would increaee up to 32%, at the end of September, therefore by definition you must have record sales...

You're missing the point.

They will be buying the customer database as well which results in cross selling.

Good morning all and my thoughts

Income FY ’20 = £1,235m
Income FY ’21 F/C = £1,630m (based on 32% growth as per latest mgt forecast)
EBITDA FY ’21 F/C = £163m (based on 10% EBITDA margin as per latest mgt forecast)
H1 ’21 Revenue = £817m

Q1 vs Q2; 35% income growth in UK and 20% in the US, Europe and rest of world had zero growth.

EBITDA FY ’21 F/C of £163m seems far too low because mgt are predicting that revenue will be flat in H2 ’21 compared to H1. If I roll forward the growth from Q2 to the rest of the year, we would end up with an income forecast for FY ’21 of £2,071m x 10% = EBITDA of £207m.

Market cap today of £3,690m equates to a P/E of 18 which feels very low for a growth company.

Other qualitative views; 1) I work in finance and we went through an audit tender process last month to move from a top 4 firm to a second tier company to save cost. The whole process took about 3 months. 2) I bought the company because of the genius of Mahmud Kamani and I would sell if were to leave. He would simply set-up a Boohoo mark 2 and this time round he would have significant capital behind him. 3) Personally, I do not think they should proceed with the factory because manufacturing is not a strategic focus and they should continue to outsource but with better governance and oversight.

Hi,

Full Report from QC in the link below

https://www.boohooplc.com/sites/boohoo-corp/files/final-report-open-version-24.9.2020.pdf

Hi all,

I've looked everywhere for the full report which I imagine is going to be a big document.

Can someone send a link?

Thanks

Hi nyforever,

Agreed, things are much more positive as reducing our share in TA to 19% was absolutely the right thing to do in order to preserve shareholder value. However, I would add that Echo Energy is loss making because of SG&A and interest costs and it is likely that a rights issue of some sorts will be forth coming.

As per the AGM notice; they are requesting approval to issue up to circa 154m shares to new investors and additional circa 154m shares to existing shares from a total share base of circa 457m. I would hope that they would keep any share raises and warrants to an absolute minimum.

Things do look a lot brighter than a few weeks ago and the big unknown is how valuable Bolivia is......

Good morning,

Yes, it's a fixed and floating charge over the assets of Echo Energy plc and is likely be a loan/overdraft to be used to cover the day to day running costs. In my opinion, it does imply that Echo's normalised working capital is negative and it will be interesting to see my how big the loss is when we see the results this week.

London

Good morning all,

This board has been understandably quiet in recent weeks, therefore I thought I'd share my views on what will happen in the next 12 months.

The potential equity raise is currently a hot topic and I'd like to clarify a few points;
1) MH states that "we do not currently have sufficient funds to deliver a FULL exploration program...in part a reflection of the potential we see in the asset in the sense that we expect to have a number of promising drill locations." I read this as they can drill at least one well with existing resources.
2) "Post a successful seismic....we would EXPECT to attract a number of potential funding partners". The use of the word "expect" is quite signifcant from a person I think likes to under promise and over deliver which is quite different to the previous CEO and would reduce or eliminate the amount required through equity.
3) Bolivian asset...."early monetisation through a farm down/sale for example. A "quick win" by this route holds clear attractions". This is additional funding, If our neighbours are successful.

My predicitions for the next year, which I've written so I can see how accurate or completely wrong I'll be;
1) Q3 Sale of Bolivian asset
2) Q3 Farm out of a share in TA as a result of the seismic data findings
3) Q3 A small equity raise to ensure Echo are sufficiently funded for at least 12 months
4) Q4 TA drilling commences

Malkis - In my experience it's usual for a small company (£19m market cap) to have a MD rather than a CEO and this fits into the strategy of lowering SG&A costs because of the failure of EMS-1001 and move towards an oil exploration company. I expect he will promoted to CEO if we have a successful TA drilling campaign.

Finally, does anyone know the current holdings in the company. The latest data I can find is as follows;

Pegasus Alternative Fund Ltd.= 27m shares (6%)
Brandon Hill Capital Limited = 22m shares (5%)
Greenberry = 40m shares (8%)
Total shares = 478m shares

The above only totals 19% which shows we must have a high percentage of minority shareholders and we would need to approval from a majority of them to issue additional equity ? I haven't seen the Memorandum of Association so don't what levels of approval are required to authorise a share placing.

Food for thought for everyone and enjoy the rest of your weekend.

London

Hi Jobbinscl,

The RNS stated that the seismic had begun in the middle of December '18 and Sarah Dees said it would take 4 months in the last Q&A session, therefore best guess is sometime in April '19. I thought it was all but happy to be corrected.

Good morning all,

I've finally had time to fully digest all the Q&A responses and imo key forward looking points are;
1) Seismic to take circa 4 months (subject to weather conditions), say by the end of April '19 but we don't know how long the "locations" will take to identify, however these are "very cheap wells which are quick to drill" and first drilling expected late this year. MH states that they "are not fully funded for a full exploration delivering campaign" which implies they could fund at least one drill through existing resources.
2) in discussing optimising cash-flows, MH refers to the Bolivia asset and this will be sold (imo rather than a farm out) if there is third party interest ("a quick win by this route holds clear attractions"). The results from Repsol are due in May '19 which is the same time Echo will submit plans the Bolivian authorities. Is it possible to estimate a value for a potential sale, $5m, $10m or greater?
3) WO's typically have a 12 month payback and looks like they will proceed at some point once they've clarified the "impact of water injection".
4) MH won't rule out an equity raise because the TA drilling should enhance shareholder value but he does state that "we would expect to attract a number of funding parties....post a successful seismic campaign"

If MH is reading this (which he probably won't be given the bearish tone of the board), selling either the Bolivian asset or selling a stake in TA is far more preferable than another equity raise.

Good morning all,

I don't like correcting other posters but they didn't say last resort.

They stated that alternatives to an equity raise could be a farm out, once we receive the Tapi Aike seismic results, or there could a sale of the Bolivian assets. For oil experts out there, are these alternatives credible and likely?

Ironically, the continued drop in the share price makes it harder for Echo to run a rights issue because other options become better value in comparison.

Hi,

I only had one question to ask.

Are there plans for an equity raise later in year to fully fund the Tapi Aike drills because the current low share price would not make this appealing to existing shareholders?

We have been clear that we do not currently have sufficient funds to deliver a full exploration program based on what we hope to discover following a successful seismic campaign. This is in part a reflection of the potential we see in the asset in the sense that we expect to have a number of promising potential drill locations. There are a number of possibilities for funding this drilling including potentially farming down the asset. Post a successful seismic campaign and once we have determined that there are indeed multiple exciting drill prospects we will have clearly demonstrated additional value has been created in the asset. We would expect to attract a number of potential funding partners at this point. Given our commitment to delivering our expected work program it would be prudent for us to maintain as much financial flexibility as possible. Whilst very mindful of shareholder dilution if compelling opportunities present themselves to add to this financial flexibility, in whatever form that takes, including potentially equity, we will give them serious consideration.