Alexon Share Discussion Threads

[fiftha] 11/7/2011 20:36

That was David Jones, Simon 42.

The issue on stock that I raised above is on that which is over a year old. But the more recent stock also has an issue. Last year's turnover fell by 11.5%. Adjusting stock for the 'old' element there was no change in its carrying value. In other words, stockturn has deteriorated by 11.5%. This is equivalent to a little over £3m at cost.

This might be the result of timing, but trade receivables fell by 9%, similar to turnover, so I think it more likely that this represents unsold stock. This could be because management was looking for spring/summer stockturn to improve (unlikely, given the environment and the risk of being unable to pass on higher prices because of cotton going through the roof), but as sales have been negative in H1 this hasn't sold (like-for-like sales are up 0.9%, but total sales are negative because there are fewer outlets). More likely it is unsold autumn/winter stock merchandise.

If this had been cleared, it would have resulted in a hit to gross margin in 2010/11, which has probably been deferred to 2011/12. At the same time, there is all that really old stuff to clear.

Given that sutumn/winter inventory was probably piling up, it makes the decision to value the really old stock at a much more favourable percentage than the prior year even more strange.

[simon42] 11/7/2011 14:18

I remember reading a book about the recovery of 'Next' from bankruptcy back to the giant it is today written by the retired MD who went on to be chairman (cant remember his name).
I was surprised to read in the book that he had a whole load of redundant stock which should have been valued at a significantly lower valuation but he didn't revaule the stock because it kept the bank off his back. He actually claimed the overvaluation of stock saved the company for a period of time.
This was some time ago now but it does happen. Not saying its happened here.

[joe say] 11/7/2011 13:22

I'd agree (and was only tesaing !)

[hillwalker2005] 11/7/2011 13:19

Will concede that one - when I looked at the statements I only looked at the company rather than group statement which had opening and closing balance as nil. Inventory itself isnt on the cash flow statement but write down would be.

Still stand by my original statement though - I dont believe the books have been 'fiddled' and therefore to accuse the company of fraud is a pretty low blow imo.

Just to be clear I hold no stock in Alexon, never have done and never will. Think the company is in pretty dire straights tbh and wouldnt touch the stock with a barge pole and ten pairs of gloves on.

[joe say] 11/7/2011 12:28

hillwalker - it does though (and I think you know it)

[hillwalker2005] 11/7/2011 11:41

and one further thought - only had a quick flick through the accounts but the stock is obviously on the balance sheet and not the income statement, so the valuation of stock has no bearing on whether a profit or loss is declared.

My final word on the matter, I promise!

[hillwalker2005] 11/7/2011 11:19

Having re-read your post I think you are saying that no outside expertise in terms of the stock valuation - this is my point the outside expertise are the auditors, otherwise there is no point in auditing! When the auditors dont have the ability to do in house then they will contract it out.

[hillwalker2005] 11/7/2011 11:13

...
I have no interest in defending auditors - personally cant stand them. But what you wrote in your first post was wrong and there is little I can add to that.

[fiftha] 11/7/2011 10:56

So, no outside expertise as you had previously suggested, just defending auditors generally.

As it says, the stock is over a year old. Any valuation here is total guesswork and so should err on the side of caution, and they've gone the other way. That's my point.

[hillwalker2005] 11/7/2011 10:15

My experience is as an accountant (and therefore trained as an auditor myself alebit not in practice) where I deal with auditors regularly. I'll admit that the company I work for has far more complex assets that Alexon - some £100bn. However the auditors will go out on site to a) make sure they exist, b) that the measurements tie in with what is held on the database and c) the valuation method. The auditor would not just take mgmt figures on assets as being correct.

You would not expect mention of outside expertise in the annual report unless the company had commissioned it themselves. If the auditor had commissioned a valuation then it would not be mentioned in the annual report. To be honest I doubt any outside valuation would be made by the auditor anyway, as most large audit firms would have retail specialists.

The figures you mention I dont see any issue in itself - the big if depends upon age of the stock, value of stock being carried forward from an earlier year that has already been written down, potential future discounts etc. All i'm saying is that there are a number of variables so its not possible to make the assertion that they have done this purely to generate a paper profit. Neither of us have the information.

[fiftha] 11/7/2011 09:47

I'd like to know with what experience you speak hillwalker.

Outside experts? I don't think so in this situation. It's a judgement, and I think it's suspicious.

Here's what's in the accounts:

"The Group periodically assesses the recoverable amount of finished goods inventories in respect of product in excess of a year old.
Following this assessment the carrying value of inventory with an initial cost of £2,561,000 (2010: £1,293,000) has been reduced
by £845,000 (2010: £899,000) and is therefore carried at £1,716,000 (2010: £394,000) being fair value less costs to sell."

If they had used external expertise, why not say so? And why should I trust them more than commone sense?

In 2010, £1.3m was written down to £0.4m, or 70%. In 2011, stock over a year old of £2.6m was written down to £1.7m, or 35%. So we've got twice the stock and half the rate of write-down.

That looks to be the wrong way round, don't you think?

[hillwalker2005] 11/7/2011 09:11

sorry fifth but you are not correct. Although I agree that mgmt would obviously decide upon the valuation, it would be up to auditors to challenge this, using outside expertise as necessary. As I said before, if anything turns a potential loss into a profit then the auditors would take a closer look at such valuations as they are material by nature.

I'm not doubting that it may have been over valued with hindsight, all i'm saying is at the point when the valuation was made there was clearly nothing wrong with the policy taken.

[fiftha] 11/7/2011 08:48

The valuation of aged stock is entirely at the directors' discretion. All the auditors can do is ask the directors whether that is their valuation. Auditors can't be expected to value stock.

In my view, it is odd to have more old stock but to value it a smaller discount, which is what happened. If you've got more, it is logical to have a bigger discount don't you think?

[hillwalker2005] 11/7/2011 07:39

If they fiddled the stock value to turn a loss into a profit then are you suggesting the auditors are in collusion? Even turning a £1 loss into £1 profit would be material by nature so the auditors would have given stock values special attention.

No position held.

[fiftha] 08/7/2011 21:24

Chrisgail

They raised £18m I think just a year ago, and it has all gone. The re-fits to date haven't delivered much have they?

And the interest charge isn't the problem.

They fiddled the stock value to declare a profit last year, and the banks want their money back.

They will only go for a swap if they get a very large slice of the company. Why settle for less?

2p?

[cockneyrebel] 07/7/2011 21:19

Bought a tiny few of these on the last hot statement, now the cold one lol.

Got shot first thing - they need a fundraising too imo. Will there be the appetite for it with Jane Norman going bust and these finding it so hard going?

CR

[chrisgail] 07/7/2011 21:10

FifthA I think you are a little overly pessimistic, a 1 for 2 rights issue at 3.5p could rise £2.5KK if the Bank took some shares for debt, another £2KK. We could have a profitable group with enough cash to refurbish sites and trade its way out of the recession very nicely. No reason for present holders to 'diluted out of sight'.

[fiftha] 07/7/2011 17:03

Outsize

M&S is everyone's biggest rival because their market share is twice anyone else's. N Brown (JD Williams), or Evans, are the biggest specialist rivals.

But that really is irrelevant for the share price. In reality the business lost money last year and although forecasts have beeen cut today brokers are still expecting profit to move positively even though total sales are down and margins are also down.

Hence the debt for equity swap, or whatever financial reconstruction they come up with, which will result in existing shareholders being diluted out of sight.

So how cliley can say the drop is overdone is beyond me (unless he has bailed).

[outsizeclothes.com] 07/7/2011 12:07

Ann Harvey will sell better online than on the high street. I'd think that it will make headway against some of the N Brown labels like Ambrose Wilson if they concentrate their marketing efforts there. I don't count M&S as their biggest rival.

[hillwalker2005] 07/7/2011 08:48

Last paragraph is the key - new share offering likely or loan for equity. Obviously the drop in the share price will be linked to this as the terms of any dilution are not known.

Cant see any real rush to buy into Alexon now. Short term pain for long term gain I guess...

[cliley454] 07/7/2011 08:44

The drop is overdone imho, share price should recover over the next few days.

[bobcomins2] 07/7/2011 08:28

AGM and Interim Management Statement RNS out

[fiftha] 05/7/2011 09:40

I think most of the closures are Ann Harvey, and I wouldn't be at all surprised if they closed the chain. It has no role now that Marks is doing bigger sizes better.

By the way, have a look at the accounts and see how much the stock was over-valued at year end. It's the only way they could get to a profit.

In my view this is in proper trouble.
DYOR

[hillwalker2005] 04/7/2011 11:21

Funny how Chinese Wispers go round - obviously not bust but must relate to the flagship store!

[bobcomins2] 04/7/2011 11:10

Yes it is the Ann Harvey store - shuts 31st July 2011