Following on from the quotes Regal gave Livewire markets, there are a couple of things that require scrutiny - this will get a bit wonky so apologies in advance.
Regal claim here that the Cettire’s accounts receivable balance “simply reflects money due for input VAT or GST credits” whilst maintaining that this balance has been consistent over at least two time periods. As far as I can tell neither of these claims bear even the slightest scrutiny.
NEGATIVE (geddit)
Regal also play up Cettire’s negative working capital model, so let’s first understand what that means. When Cettire sell a product, the customer pays the merchant scheme who then pay across the money to Cettire in short order, meaning Cettire really shouldn’t have any receivables from their customers.
Indeed before their float in December 2020, accounts receivable were negligible in terms of sales before steadily increasing to a high of 18 days sales in 2H 2023, then dropping back to 10 days - hardly stable, not even relatively. Leaving aside that we should be comparing an input cost to COGS not sales we get this evolution:
The FY2019 accounts show zero accounts receivable, which is totally inconsistent with Regal’s explanation that this line in the accounts represents input VAT - Cettire were selling product and should therefore have had input VAT to reclaim if they were selling out of their Italian suppliers.
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The next part of Cettire’s model that contributes to the large negative working capital balance. Once the order has been received and paid for the order is sent to the supplier who then fulfills the order. The only suppliers we know about are in Italy which means that if they are shipping inside the EU, the VAT isn’t reclaimable. If they are shipping outside the EU then they don’t charge VAT on the sale and reclaim the input VAT themselves. The input VAT should never touch Cettire’s accounts - and even if for some reason it did it should be proportional to sales, which it isn’t.
Where the cash comes from
Some time later, Cettire then pays its suppliers. Comparing trade accounts payable (excluding other payables) to COGS, this appears to have settled around the mid 40s days payable.
So Cettire receives cash up front but doesn’t pay suppliers until about 6 weeks later meaning that cash sits on the balance sheet during that period.
The company’s returns policy says that returns have to be made within a 14 day window - so any returns should be processed well before the supplier is paid, which should therefore not result in a receivable.
Let’s consult the horse
During the FY2023 conference call, the company said the increase in receivables was due to payment terms changing with new suppliers:
It’s still very much unclear what has resulted in receivables from a supplier and the company have twice failed to explain in any detail. At the 2024 half year:
Again, it’s unclear why increased sales should result in any receivables from suppliers at all.
The company’s accounts are unhelpful in this regard as under “Trade and other receivables” all of the receivables are classified as “other” rather than trade.
This is particularly difficult to square with the company’s comments that this was money due from suppliers - so presumably trade receivables. What suppliers would fit into the “other” category? Any theories please do let me know in the usual places. I’m wondering about card payment schemes?