Keeping it simple: Each year, there is an increase at Christmas...

Keeping it simple:

Each year, there is an increase at Christmas of trade creditors, which are then progressively repaid by the borrowing facility, classified as non-current. In essence, the two trade liability accounts are working together, when the trade creditors increase, the company is banking the cash and cash balances increase, when the trade creditors decrease, the company has drawn on the facility to repay them back down.

Inclusive of the non-current trade finance loans, the company runs an in-substance net current liability position as a consequence each financial year end, which has fluctuated over time eg. 30 June 2017 it was $23m, at 30 June 2016 it was $30m, 30 June 2016 it was $16m etc. Nothing unusual here for creditors to fund a net current liability position for a retailer given lack of trade receivables, allowing daily direct cashflow to be generated from sales.

As store closures are executed on, stock needs reduce - see stock at 31 December 2017 v 31 December 2016, suspect also impacted by better buying decisions, along with a combination of supplier deal pricing arrangements, greater move to direct sourcing etc.

Therefore, to analyse properly suggest you:
1. Look at the net current liability number on a net basis over time and between balance dates inclusive of the trade loans classified as non-current
2. Understand the funding structure and timing of conversion EBITDA into cash for a retailer
3. Consider the net cash usage expected for the next six months (already done for you - EBITDA for the six months, less capex, less store closure costs )
4. Develop a view on the forecast stock on hand need at 30 June 2018, particularly as stores continue to reduce in number (partially offset by increasing trade sales to City Chic US perhaps),

in final view so that you:

5. Reconcile the expected net balance of cash and external debt at 30 June 2018 compared (net debt) compared to the $22m facility limit from the net cash balance at 31 December 2017.

Have a crack at it over the weekend!