Is this post eligible for the R&D incentive?
Maybe just claim it and if it's rescinded put it down to timing differences?
I’m going to do a contents bit up here because there’s a few bits to this one. This is the analysis your DMP/WTC/PME ticket doesn’t get you! Cettire had 56 days to come up with their narrative and still soiled themselves in public, and this is mine in less than a day! You’re welcome!1
Did Cettire self report the $12m of false R&D incentive expenditure claims or was it the ATO?!
Cettire have for a long time claimed the ATO’s generous R&D tax incentive despite all evidence suggesting that the work wasn’t performed in Australia (Chinese Navy Seals!) as required, and that it probably wasn’t even genuine R&D. Questions on this very topic were sent to the company and the auditor prior to the AGM. Despite them refusing to answer them, it would appear that someone at one of the company, the auditor or the ATO was listening and the claim has been unwound.
To show this we need a bit of accounting wonkery, so if you work at WAM please go and change Geoff’s commode whilst we try to work this one through - just say “DEY TOK ARR FRNKNG” and he should wander off ranting at any passing people under the age of 50 for a couple of hours!
Until this earnings release, the Income Tax note to the accounts has been consistent in its format in explaining the difference between the actual tax paid and the income tax expense recorded - detailing the amount of the R&D incentive that was recorded as income in the accounts but was not taxable for the ATO.
However the 1H25 Income Tax note offered no such elucidation, referring only to “timing differences” and “under provision”:
Whilst a deferred tax asset was newly recorded for “in house software” of $3.57m. As far as this shows in the accounts, with the normal corporate tax rate at 30% this is $12m of prior expenditure that has been transferred from a credit to the tax account at 38.5% (the incentive rate) which is brought to bear in each period as “other income” to the deferred tax asset account which is a general ledger that is applied against realised tax liabilities as they occur.
This puts into relief the “under provision” from the prior year of $1.04m which is as close to 8.5% (the excess of the incentive over the corporation tax rate of 30%) as to make it pretty clear that the genesis of these “timing differences” is a realisation that the R&D tax incentive has been inappropriately claimed
So I’d kindly ask my audience of fine upstanding market participants if this is the level of disclosure they would expect from a listed company which has their poor illiterate illegitimate offspring’s hush money invested in it?
What’s that Skip? What’s $1m between entrepreneurs and the ATO? I hear you Skip, but you really do have the brain and ethics of a rodent! Even if we were to incorrectly fail to apply a discount to whatever the company says after this egregious reverse ferret on their taxes, there are other implications for the accounts that are also material. This can be seen in the Intangibles note where there is a brand new line for website work in progress, which was presumably intended up until this point to be dumped on the ATO as an R&D expenditure as in prior periods, but is now an “asset” which needs to be amortised.
This means that in future periods we’re going to see all of this opex capitalised and amortised, which will flow through to the lines the no-fun people look at below EBITDA, like EBIT, PBT and NPAT - since if you capitalise all of your expenses you can’t ignore D&A. And that is material.
No trading update, no excuses
At every half year and full year result since listing, and every quarter since October 2022 Cettire has provided an update on how it has traded in the following period to date, usually under a headline that included the words “rapid”, “profitable” and “growth”.
Today’s press release carried the headline “H1 FY25 RESULTS ASX ANNOUNCEMENT” which should have clued the regular observer that this time neither growth, profit nor speed were on the menu.
After Cettire’s deficient June 2024 trading update, the company received an instruction from the ASX requiring them to provide the metrics they had always provided until this point on the reasonable basis that if it was material information in the past, it was material information now and had to be released under listing rule 3.1.
And yet even despite this prior slap on the wrist, the company did not provide a trading update detailing its actual sales growth (or otherwise) nor its EBITDA profitability (or otherwise) as it has at every prior result - presumably on the basis that this information was material information. Or was it only material when it was a positive number?
we haven't um we haven't pro.. um provided guidance um and I don't know that um this is the right forum to do so. though. But what what I think is um what I think just to provide us some more colour on on the outlook language that we have provided is um we we have seen some variability month-to-month. So um I'm not sure that um providing a precise data point um at this stage um it would be directionally appropriate for people to think about what to expect for the half. I mean we're certainly a Um, we're a growth business at at heart. We are very early in our penetration of a very significant global opportunity. And so I think it's reasonable um for you as an analyst and for for all of the investors who are interested in Cettire um to be um you know that that for us as a management team, we're very focused on continuing to grow as quickly as we can and doing so in a way where we preserve profit and we remain self-funding. So that's our focus. Um and you know with that as our focus I would certainly hope that we're we're talking about good growth figures this year.
-Tim Hume, 1H25 earnings call
Given the CFO’s propensity for circumlocution, this can only be interpreted as “Q3 to date is down, down, sales are down 👇👇 and we don’t want the market to see that and write down their numbers and make our share price go down. And we might not be a growth business any more, but we’re a growth business at HEART 🫶”
Sure Timmy, you tell yourself what you need to.
Surely another instruction from the ASX to provide the same details as it always has is on its way to Cettire after this public self-soiling.
Julian makes a good point!!
So if they do put a 25% tariff on Europeans, what does that actually mean at the at the retail price in the US? Presumably it's not put on the final prices it’s on the input cost. So what what's your sort of feel of what it actually does to the retail price?
-Juliaaaaan
I think like it's very very early to speculate um what can or won't happen here, but I think just as a said earlier bear in mind that all the biggest players in the market are shipping cross border uh including the brands themselves. So whatever whatever is done will however uh you know we choose to adapt will likely be the same way that the rest of the market has to adapt and it's um it would be an even playing field.
-Timmy
No, I understand that but - that means given there are so many markups along the chain from factory at what level do they apply the 25% tariff that if that's the one they go with? It’s not of the landed cost in America is it?
-Juliaaaaan
I don't think they've specified yet Julian right um so um it will ultimately be um so when goods cross the border right? Whether it's an individual parcel or a um or a a large um or a large um container, if you will, right? Um ultimately the um if there's a a duty or a tariff, it would be um applied to the value of the goods that are crossing the border. Um in terms of where the cost ultimately lands, whether it's the consumer who pays for that, or some intermediate step in the supply chain or the OEM. I think um you know it's too early to call on that. There's a lot of moving parts here and um and as we've seen in the last few weeks in the US, right? You know, um rules are made and then unmade um in fairly short um order because it's there's some degree of complexity here. So I think that this will be an ongoing topic for for some time. But to Dean's point, um whether it's a brand or um or um a third party inventory holder or an online platform, um everyone will be subject to the same rules and will be um will be um uh dealing with the same complexity and ultimately how it all falls out I think will be in part by um in part driven by what any rule changes are right, but also driven by how the various participate participants um in the food chain react and and they're both um at the moment unknowns.
-Timmy
By way of translation - Julian said the quiet bit out loud and Timmy soiled himself again. If a brand ships its goods into the US, then it will pay import duties on the value of goods as they cross the border. LVMH, Kering and Prada have GP margins of 70-80%, which means they would pay import duties on 20-30% of the selling price, so in Julian’s example the impost would be around 6% for goods sold directly to consumers or imported to the US in bulk and then sold from there to the retailer.
In contrast, since the last transaction before Cettire’s products enter the US is the retail transaction, they would be paying 25% on the full whack, giving a 19% pricing advantage to those who operated a domestic inventory + retail vs a dropshipping model - a similar advantage to that which de minimis grants Cettire! A removal of both would deliver a double whammy that would kill Cettire stone dead - as Julian should have worked out by now, but probably won’t publish. Even the sniff of a $16m ticket would incentivise an aussie broker to do far worse…
Warranting further study
The US is sub 50% of revs and not growing - what is? It’s not China.
Where is the cash coming from and when will Cettire pay its bills on time?
Sales up, refund rate up, refund payables… down? Are they extracting the micturition?
Cyclical or structural update, cause and effect edition
Toodles.
Not you Regal, I know you’re watching and bizarrely self-unaware
I tried to make these links but substack wins this round
I know! I look forward to the day when Julian admits I was right all along.