It’s not a new practice by any means, but it’s worth just touching on how working capital has been used to massage leverage figures, particularly relevant when marketing a new deal.

Iceland marketed its February deal on 4.0x of leverage with figures based on January LTMs - which included a £103m cash inflow from an increase in accounts payables for the quarter.

The ~£70m net inflow from trade working capital for the three months to January 1, 2021 - historically an outflow period - is expected to unwind during the final quarter of FY21, partly due to the reversal of build-up in trade creditors as some payments were unusually deferred until the first week of January, given the timing of New Year’s bank holiday. This is in addition to the usual unwind of trade creditors with suppliers normally requiring payment in February.

We also note this is by far the busiest period for the company, with December sales elevated around two times a normal month, so it’s likely that the company was at peak cash when they marketed the deal, and thus lowest net leverage.