Member Info for WolfofWarks

Dan - EBITDA is the best metric for measuring how much cash is being generated from the core operations of the business. So how much cash we make from selling fashion without taking into account non-cash costs and costs and revenues relating to financing.

It doesn’t take into account working capital and other assets within the business that can be used to fund cap ex. This was why I pulled you up originally.

If you’re going to try and point me out at least be right.

You’re so myopic in your view I think you need to take a step back and take another look.

“There has been a big investment in stock by the Boohoo Group according to you. So what happens if this big investment in stock hasn't sold???”
It might not have sold, we might just be at our new stock level needed to support the new brands.

If you owned a shop and it held £200k worth of stock and you decided to open another identical shop in a different location you would need to inject an extra £200k into the business just to maintain adequate stock levels.

You’re operating cash is now down £200k, by your reasoning this must mean sales are down.

PP - you cannot conclude that sales are down just because operating cash is down. We need to see the detail in the balance sheet. We need to know all the working capital balances like stock, debtors, creditors, etc, which is why I made the point about drawing conclusions from the trading update based on heavily summarised information.

It’s also why I used the actual cash flows in the statutory accounts for my analysis.

“I've probably got a much higher risk appetite than you”

So why the constant unease?

The USA seem to be two weeks behind us re the omicron affect.

One thing worth looking at this week is that there’s quite a big tax advantage for US holders to realise and write off losses before NYE.

Chuz - I don’t think you’ve got the stomach for all this. If it’s causing that much anguish then maybe find yourself a decent safe dividend stock. Rio Tinto is quite cheap at the moment and I believe BT is widely though of as being undervalued!

“Boohoo have spent a fortune since their update on 14 January 2021. The acquisitions of Debenhams was £50m, the others about £10m, the office block was £73m so that's £123m they have £70m net cash as of 16 December 2021 which is £203m and they had £345m net cash in the trading update of 14 January 2021. That's £142m spent in the past year on marketing, infrastructure, supply chain costs, returns, etc.”

PP - this is nonsensical. You talk as if the business has only costs and no receipts. You have no idea at the moment of how much working capital is in the business. We know there has been a big investment in stock which should cycle through to cash. You don’t know the level of trade debtors and creditors. We also have an untapped credit facility.

As I keep telling Dan there are also many levers that can be pulled in terms of assets in the business that can easily generate working capital if needed. The fact we have invested so much money in the last 18 months without having to borrow is testament to Boohoo because we were in such a strong position thanks to the cash stack. Cash has been turned into assets within the business which can drive growth going forward - you talk like all the cash has been sunk which is far from the truth.

FWiW you can’t actually carry about a decent analysis on the trading update presentation as they only offer up summary data and do not contain the detail. For example items like shares buy backs and the raise were lobbed in other cash flow along with items like operating leases and employee share schemes.

I could actually break it out even further and more comprehensively but I thought it would be overkill and you’d really need to be an accountant or have quite a sophisticated financial knowledge to understand what it means.

PP - I’ve simply gone to the most logical place to access the data - the statutory accounts for 2021 (mar 20 to feb 21) and then the H1 21 interims (mar 21 to aug 21). These are the most complete factual pieces of information we have. They also show where the money has been spent for all the capital intensive costs which have occurred going back much longer than Jan-21.

My figures include the fund raise and the PLT acquisition. I haven’t massaged anything just lifted them of off the stat accounts which you can easily tie back if you like.

I doubt your average BH customer is worrying about soaring energy bills.

We’ve got to let something in Pluto go otherwise if everyone else felt the same there would be nothing to IPO.

So if you look at the capex spending over the last 18 months and look to the future I don't think it's going to be an annual £175m like Dan is suggesting. Unless some new brands come up worth purchasing or we go crazy on new NDCs. Lets face it though which high street brands are left?

Right I've been a bit bored today so I've actually been through the last 18 months cash flow statements and got the answer here:

Cash at end of FY 2020 - £240.6m
Cash at end of H1 2022 - £98.4m
Difference - £142.2m

Made up of:

Operating Cash Inflow - £(253.7)m
Capital Expenditure - £221.5m
Acquisitions - £235.3m
Tax Paid - £37.7m
Other Cash flows - £47.7m
Share Proceeds - £(204.9)m
Purchase of Own Shares - £58.6m

During this period the trading cash inflow is also after increasing stock by £155.8m.

So where has the cash gone - it's been re-invested for future growth

Notable costs:
London Office £72m
Infrastructure & Automation (H1 2022) - £79m
Acquisition of new brands - £73.4m
Acquisition of non-controlling interest in PLT - £161.9m

‘EBITDA is considered your cash earnings. It’s this number that pays your capex’

Dan - that’s not even close to being true. You’re so myopic in your view you seem to be blind to the many levers that can be pulled. So far BH have been sitting in a cash stack but that’s now been invested in acquiring the new brands and the London office. Personally I wouldn’t have bought the office as it’s tied up too much capital which could be much better used serving the operations. However it’s a good strong asset which strengthens our balance sheet and therefore our borrowing base if we want to go out to potential lenders. It’s also an asset which is going up in value, whereas money sitting in the bank is doing nothing.

Dan I don’t believe you’re assumption on £175M annually is anywhere correct. Yes next year will be high, last year was exceptionally high due to acquisitions and the associate drag on op ex as well as cap ex.

I listened to the analysts call and I don’t recall any mention of £175m annually. They have plenty of levers to pull to fund continued expansion without burning through cash.

I work for a group that’s in its third phase of our NDC. You can lease a lot of the robotics and there are plenty of providers.

The tone of the call was very much one of short term pressures and your forecasts seem to extrapolate those out far into the future.

Kallu - lots of brick and mortar stores were open yesterday.

Seems they didn’t all go for the CSR platitude …

Dan they are n9t going to spend £150m on capex every year though right. We’ve bought Debenhams, Arcadia brands, etc, as well as an office suite for £75m in London. Yes we’ve got the US warehouse but the cost of that is unlikely to fall within one year plus is doesn’t have to paid entirely in cash, neither does the improvements to automation and efficiency.

Last trading update had covid costs, which should decrease, as well as all the short term headwinds around inflation, freight, etc.

Kallu - are you seriously suggesting that next’s move online wasn’t a smart move? What would have become of them if they hadn’t? They maintained their sales thanks to online during the pandemic. That’s despite taking a massive hit on office clothing and occasion wear.

They are the flagship UK retailer.

The problem with ABF is it’s tied to two over businesses, almost like investing in a mini fund. Primark on its own it’s probably an investable proposition but you need all three to be motoring along in once for it to make serious gains, which is reflected in the historic share price.