In my opinion, the company was very shaky without this capital raising.
It’seasy to blame Covid, but the share price had halved between October 2018 andJanuary 2020. Nothing to do with Covid.
It’snot what the company reports, but rather what isn’t said.
TheFY21 EBITDA of $48m was struck after receiving $77m of government grants. There was also the benefit of a write-down of inventory in FY20 of $32m which would have delivered a one-time improvement in GP in FY21 of the same amount.
Adjustingfor both these items shows that the underlying result for FY21 was a loss of$61m.
FY20reported an EBITDA loss of $45m after receiving $48m in governments grants. Behind that loss was the inventory write-down as above and a provision for lease obligations of $25m which was not required, and which was written back (outside EBITDA) in FY21. The underlying figure for comparison with FY21 was a loss of $36m.
There’sno doubt the capital raising is well-structured and that it will buy time with some very positive initiatives. Does the capital raising fix up the business? A year from now, ANZ will have stepped down by $10m and the Ezibuy consideration and debt reduction will have been paid out. Add in a year’s interest on the notes and the money raised has all but gone. (BTW: the notes have a face value of $32m, but the costs of the raising are $1.7m). So it all hinges on how much cash can be generated from trading in the next 12 months.
Thatvery much depends on the lockdowns ending in October, older customers coming outto shop and the company having the right products available. Management believes that this will happen, but they haven’t covered themselves in glory to date, with a bad press and significant penalty for selling substandard hand sanitiser, a mauling on TV regarding the treatment of suppliers and generally getting the business very close to the edge of the insolvency abyss.
