Aero Inventory Share Discussion Threads

[iomhere] 13/11/2009 12:20

And what about the non-exec directors. Don't they usually pay visits to get to know what's going on and what the company is about? Let's wait and see.

[evaluate] 13/11/2009 11:54

IOMhere,

If an inventory management business with £500m in stock on its books has NEVER had an inventory management system that worked, then I'd say Deloittes have done a pretty poor job of even covering their back.

If they don't get sued, I'll be amazed - and asking KPMG (if it's their decision) why not?

[iomhere] 13/11/2009 11:45

See what I mean about the know-alls.

[ggekk0] 13/11/2009 11:38

From what I'm hearing Deloitte & Touche appear grossly negligent in their duties as auditors acting on behalf of the shareholders. Legal action must surely be taken against them, I suppose we wll know the full extent of their incompetence when the 2008 full year accounts are finally released.

[kramch] 13/11/2009 11:29

This guy's obviously very bitter, but in my experience it's all quite believable.
What is unbelievable is that the auditors couldn't see it, (were there any analysts visits?)
I try to visit companies & talk to employees, didn't think I needed to here, BIG mistake! K.

[iomhere] 13/11/2009 11:15

It looks mental to me. Here's somebody who has the whole market to choose from yet buys the one company he knows is total rubbish and then leaves. If it wasn't good enough to work for why would he want to own part of it?

[milesn] 13/11/2009 10:50

Spotted this on the iii board. Looks interesting...





I'm a simple ex-employee without much investing experience who got who got caught in the hype of AI whilst ignoring all the warning signs while I was working there. Based on what I know, I personally believe all AI Directors should go to jail.

I brought shares months before leaving the company. Soon I started receiving warning signs.

PROFITABILITY
*AI sold parts to customers at prices listed (RRP) by the OEM. However AI did not have access to wholesale prices or significant discount. So I didn't quite understand how AI makes profits to pay its overheads and significant supply chain cost. Especially when AI has to pay premium prices for parts that a AOG risk to ensure customers get critical parts, this is often at 5 to 10x the listed price from OEMs (plus expensive priority airfreight).
INEFFICIENCY
*Its inventory software worked half the time. I believe it was a simple customised Access database. No kidding. It wasted employee's productivity due to massive lag per click.
*The Parts Central Software contained massive bugs. This is most likely the SOURCE OF THE PROBLEM. When accepting a new client, there were major issues inputting the correct qty of inventory in the system. The transferring of stock caused major issues keeping track of quantity.
*Every single employees hated the software and were a major cause for high turnover of employees. Me included.
*High turnover of staff. I estimate at AI office I work, in 12 months I've worked there, AI replaced close to 90% of its people. All managers were turnovered including HR, procurement and a couple of financial managers.
CASHFLOW
*Rumours proved true: The biggest warning I ever received was a rumour that the directors are on a mission to cook the books so they can sell it sells at premium. Greed made me ignore this warning
*Soon after leaving the company, I heard AI was having difficulties paying suppliers such as Boeing for the parts it brought. In fact, when 2007/2008 financial approached, account payables were instructed to withhold payments in order to make the financial records look more attractive. I thought I better sell soon. But when I read the fraudulent reports and the offer of an impressive dividend, it made me rethink about selling and so I held them instead. This was the biggest mistake of my life.
CONCLUSION:
The warning signs were everywhere, just ask any employee. Negligently using the widely known flawed Parts Central system, dubiously following a unprofitably business model while practising unethical pre-financial reporting behaviour during auditing period makes its directors in my opinion all liable for fraudulent and reckless behaviour.
BTW: 90% of employees (expect a skeleton warehouse staff) at my previous office were made redundant. Looks like turnover is still high

[iomhere] 13/11/2009 10:08

It may be tedious and certainly requires patience but wait for the administrators' report (an interim, at least, within 8 weeks of appointment). Perhaps then you'll have a better idea of who, what and whom.

[evaluate] 13/11/2009 09:58

Which is why they need to be sued to high heaven when it goes wrong kramch.

If they aren't scared of getting sued, then the desire to please the client by agreeing with everything they say is overpowering.

Only fear of angry shareholders can keep them honest.

Fetch the ducking stools!

[milacs] 13/11/2009 09:21

I disagree masurenguy.

I will never again risk my money in AIM shares.

They are on AIM for a reason!!

M

[randolph and mortimer] 13/11/2009 08:36

Any company on the Edison list should also be sold.

Why do merchant bank people think they can cut it as industrialists? The answer is they never can.

[evaluate] 13/11/2009 08:30

I also agree Masurenguy,

This has not been a failure of regulation.

It's been a failure of management & auditors to ensure adequate inventory controls in an inventoy business.

I'm sure FTSE stocks don't need better inventory management systems than AIM stocks.

The fact that Deloitte's were paid $800K & didn't do this frankly beggars belief.

I hope they have some very lumpy professional indemnity insurance - but will KMPG go for the throat (as they should) or will the old boy network kick in?

[davidosh] 13/11/2009 06:00

Totally agree Masurenguy. My best investments have often been solidly run AIM listed companies where they receive little coverage and so present opportunity for investors.

It is too early to know what exactly has caused the problem at AI whether it be fraud, incompetence or another issue but you simply cannot write off every other AIM company or investment just because this has happened. It should certainly sharpen up investors to be mindful of some of the issues and warning signals though.

For those interested we shall be discussing this company at our regular Mello event on Monday evening and a legal expert will be coming along to advise on 'next steps' for shareholders such as Action groups, assessing blame and the possibility of legal recourse, compensation and class actions etc etc.

[masurenguy] 12/11/2009 23:24

There are always some rotten eggs in any basket but to try and classify this as representative of AIM listed companies in general is absurd. Yes, there are greater risks in a less regulated market but also greater opportunities too. Investors in NR, HBOS & RBS will have lost big time over the past 2 years but you wouldn't just write off the main market on the strength of that !

[rat attack] 12/11/2009 22:49

Dont know if this has been posted before, but this is Investors Champion assessment:

Even by AIM's somewhat looser standards of corporate governance yesterday's
announcement of the appointment of administrators to Aero Inventory plc, coming
only 42 days after the Group announced an intention to move to the main market, is surely outrageous!

Aero Inventory reassured the market on 30th September 2009 stating that they had
'commenced preparation for a move from AIM to the main market .......and in light of these preparations, (it) would be releasing its Annual Results for the twelve months ended 30th June 2009 on 28th October 2009.' A move to the main market suggesting to everyone that all was well!

On 26th October 2009 the Group announced that in the course of preparations to a move to the main market, new systems had been introduced to reconcile and value inventory (what were the other systems like?) and that these systems raised certain issues regarding the valuation of a parcel of inventory acquired in
the 2008 financial year. The Directors believed that these would have a material impact on the 2008 audited accounts and the 2009 accounts.

As an inventory specialist it was surely safe to assume that the Group's auditors had previously rigorously assessed the systems! It was reassuring to also learn that 'whatever the outcome, the directors believe there will be
no impact on either the physical amount of inventory held or upon the Group's cash flows' and that 'the issues raised are not believed to be a result of either fraud or theft.' So it was simply a matter of management incompetence
and system failures?

As a result the Company was unable to deliver to its bank lenders the 2009 audited accounts within the time permitted in the Group's bank facility agreements and accordingly was in breach of a non-financial covenant. The shares
were suspended from trading on AIM.

On 3rd November 2009 the company issued a further statement with news that the stock valuation issue was broader than first thought involving the accounting book value of stock but also in some instances physical quantities. The
positions of Rupert Lewin (Chief Executive), Hugh Bevan (Finance Director) and Martin Dodge (Chief Operating Officer) were being reviewed! One day later on 4th November, Hugh Bevan resigned.

On 11th November 2009 came the announcement that the Group's banks were not
prepared to provide additional short term funding to enable it to continue to trade and as the Group had failed to secure other forms of short term funding administrators were appointed.

- City conned?
Edison Investment Research, a highly regarded sponsored research house, released its last research note on 19th May 2009 commenting that in its view 'long-term funding for future growth is becoming assured and concluding that 'the risk/reward balance is poorly reflected in the current share price' and that their Discounted Cash Flow implied value of up to £6.75!

We believe that Edison remained under contract to produce research for Aero Inventory up to the present which makes it all the more surprising that they haven't issued a note since 19th May 2009. Prior to this date they issued regular notes; March 2009, February 2009, October 2008, September 2008. We understand that the management of Aero Inventory were unwilling to offer comment to support Edison's research several months prior to 26th October 2009, perhaps suggesting that management were well aware of the problems for some considerable
time.

Charles Stanley, the private client stockbroker and small cap specialist, recently issued a research note with a 'Strong Buy' recommendation and formerly had the stock as one of its top picks for 2009. Numis, anotherhighly reputable small cap specialist and joint broker to the Company also had Aero Inventory
as a 'Buy' as recently as October 2009.

- Beware the gong!
In 2008 Aero received the "Best use of Aim" award and in June 2008 rejected an approach from Bridgepoint, the private equity group, at a price believed to be around 720p a share.

- Inventory specialists?
The interim results at 31st December 2008 revealed net assets with a value of US$311m. Non current assets were principally Goodwill and current assets totalling US$883m included stock with a value of US$752m. However, this
included the stocks sold in February 2009 to Air Canada for approximately US$100m. If this transaction had been allowed for the stock value
would have been similar to that reported at the end of the previous financial year, being US$690m.

Net bank debt at 31st December 2008 was US$467.1 million (compared to US$392.2 million at 30th June 2008). On 10th February Aero also raised approximately £11.9m, before expenses, through a placing of 4,762,680 shares at a price
of 250p per share.

The final results revealed that inventory with a 'carrying value' of US$573m had been pledged as security for the Group's loan facilties. The Company had a committed US$500 million facility in place which does not expire until February 2013.

It is easy to identify that the clear risk of the business centred around the value of 'inventory' which the Group managed on behalf of some of
the world's largest airlines.

- Blue chip advisers will attract scrutiny
Prospective and actual shareholders could also be reassured by the quality of the Group's advisers and shareholder register. JP Morgan Cazenove was the Group's nomad and joint broker with Numis Securities. These advisers were formerly happy to provide their email addresses in the RNS announcements –
they were absent from the more recent announcements!

Group auditors are Deloittes who were paid aggregate fees of US$800,000 in 2008. It would be interesting to discover how they performed their stock check!
Shareholders include hedge fund group Lansdowne Partners (c16%), HSBC (c5%),
Gartmore (c5%) and AXA Framlington (c3.75%).

- Going concern
We also learn that Aero Inventory only recently took out a 10 year lease on a 72,089 sq ft warehouse at a rent of £6.25/sq ft.

- Blame it on the bankers again!
Rupert Lewin, Group Chief Executive, a former corporate broker for merchant bank Robert Fleming, was paid US$1.62m in 2008 and US$1.1m in 2007. Hugh Bevan, Finance Director and another former Flemings man received US$625,000 in 2008 and US$713,000 in 2007. The Executive Directors in aggregate received US$5.3m in 2008 and US$3.6m in 2007. Group pre-tax profit was US$73m in 2008.

The focus of blame will clearly be on the Directors but the Group's auditors and nomad will surely be under scrutiny.

With Ernst &Young having been drafted in to conduct a forensic review and KPMG now appointed administrators shareholders should also be concerned that professional fees will now absorb yet more of 'their' cash

[brando69] 12/11/2009 22:31

wasn't this stock beloved by Evil Knievel?

[kramch] 12/11/2009 22:28

R & M you are right, this has serious ramifications for the AIM market. Many of us regarded this as a pretty safe investment and as such had more in it than was, in retrospect, prudent.

I have today been looking back at what tell tail signs there were:
results; an improbably high profit on turnover (15%) for a "stocking" company, and forecast higher profits - in the worst recession the airline industry has known;
directors with inflated salaries but seemingly not investing their own cash;
press articles identifying specific areas of concern (Investors Chronicle, stock control, May 09).
I don't understand how the audit partner did not seen red flashing lights here!

The LSE needs to be careful AIM does not get a reputation as a cosy club for mediocre management and acquiescent advisers, and as a game of Russian roulette for investors. K.

[dibbs] 12/11/2009 20:43

What did they attach you to then Stallone? Pity it wasn't a..... probably best I don't complete the sentence! Whatever they attached you to obviously made you bitter.

[stallone10] 12/11/2009 20:27

i've got no symphathy for shareholdrrs i used to hold this stock but sold out over 5 years ago as i realised they were funding dividends through placings. A massive ponzi scheme i even said so on either advfn or iii website.
People attached me but i was right in the end.