Kinovo Share Discussion Threads

[topvest] 02/6/2022 15:18

There will be no interest in buying this company, until the open-ended liabilities are capped, other than in administration. The DCB fiasco could well be a terminal event. 50:50 in my view.

[dyor2] 01/6/2022 17:43

Quazie12, no, I don’t think giving parent company guarantees to clients was the problem - it’s normal in the construction industry to be required do that. As previously discussed, the problem is with the terms of the subsequent disposal of DCB, which inexplicably was done without Kinovo being certain it would be released from the guarantees. Which seems an astonishing mistake for a supposedly experienced BoD to make, never mind their legal advisors. There seem to have been several other serious commercial mistakes with this disposal, and obviously there will have to be a full accounting for all that in due course. But for now the priority has to be sorting out the mess so it doesn’t drag the core Kinovo business down with it. The shares are now 9.5p offered, which values Kinovo at less than £6m. The core service business made an operating profit of over £4m last year, generated more than that in cash, and as at the end of April Kinovo held £0.4m in net cash. The DCB liabilities would have to be truly horrendous to crash the entire Group, but we’ll see…BTW other industry players like Sureserve and Mears must now be looking at this - annual recurring maintenance revenues of £50m+ on multi year contracts plus hard to find staff and synergy benefits must be interesting to them. But they’ll probably wait to see how the DCB debacle works out first?

[meijiman] 01/6/2022 11:45

The ceo here comes across as a complete fool. Whoever was responsible should be fired.
Zero credibility with work colleagues/industry peers/customers.

[quazie12] 01/6/2022 11:39

Morning dyor2Do you reckon that the exposure here to Kinovo arisises from giving collateral guarantees or warranties at the time they agreed the contracts with the then clients rather than screwing up with the sale contract of the subsidiary ?

[a2584728] 01/6/2022 08:45

The completion of these projects will be a fixed schedule of rates with no scope for increasing the rates. Labour is up and materials up substantially. Electrical equipment and mechanical materials will have increased by some 40% over the past 6 months alone. Difficult to see a positive way out for them.

[garyb01] 31/5/2022 23:11

There are provisions/clauses in some forms of contract that allows contractors to apply justifiable additional costs...

[dyor2] 31/5/2022 09:44

1Bond, yes the costs of completing these projects will have risen since they were originally priced, but perhaps not by as much as one might assume when listening to general inflation fears? The UK building cost index has risen from 179 two years ago to 193 now, a rise of 8%.The price of several key building raw materials has in fact fallen over the last twelve months - steel has fallen by 7%, copper by 7% and lumber by a massive 47%. I estimate the value of the remaining DCB projects which Kinovo might have to take back in house and complete is c. £17m at original contract value. An additional cost to Kinovo of £5m to complete these would represent cost inflation of c. 30%, which I see as very much a worst case, notwithstanding the disruption which must have been caused to the projects over the last few months. The projects shouldn’t be particularly complex, they’re for Housing Association homes which DCB was experienced in building, so I doubt they would have been seriously mispriced when tendered for. The key thing here for me is for Kinovo to now take back control (if it can) of these projects itself to complete them, no matter how bitter a pill that might be for the BoD to swallow, because if the end clients are left to find alternative contractors to complete them then costs could indeed spiral.

[1bond] 30/5/2022 18:58

Two thoughts, the projects will have a fixed construction price agreed agreed ages ago, so perhaps it's no longer viable to complete the projects. Costs of labour and raw materials will have increased substantially. Secondly, you assume Kinovo has the required funds to complete any projects.

[the bouf] 30/5/2022 17:20

dyor2 you have some fair points. If Kinovo decide that they go ahead and fund the finishing of these projects then it should end up in a much better place than if they abandon them as this could end up in unknown costs which could easily spiral. Remember Kinovo if they finish off the projects will get paid to finish them off so in essence Kinovo just need to cash flow the projects and hope that any losses will be minimal.

[dyor2] 30/5/2022 17:00

GS99, The people who would sue Kinovo are the clients (mostly Housing Associations) who entered into building contracts with DCB. At the time they entered into those contracts DCB was a subsidiary of Kinovo, and Kinovo gave parent company guarantees to the end clients that if DCB became insolvent and couldn’t complete the contracts then Kinovo itself would indemnify the clients against loss. That’s a common practice in the construction industry. I don’t think there’s much doubt Kinovo has a liability here, the question we’re debating is how much is the potential liability? My guess is a maximum liability of c. £5m if Kinovo can take back the projects concerned and complete them itself, others think the figure could be much higher. FWIW my estimate isn’t completely plucked out of thin air, and I’ve done some detailed investigation into it, but of course I could be very wrong! I don’t think that from a legal point of view Kinovo can hide behind DCB to avoid its guarantee obligations, and anyway its reputation in the Housing Association and Local Authority housing market would suffer badly if it tried that. Nevertheless I bought more shares in Kinovo last week, because if my guess of a maximum £5m liability is right I think that’s affordable by Kinovo and the shares would then look very cheap. But I think the one certainty we can all have in a very uncertain situation is that the current 10p share price won’t be where it ends up when all the facts are known! Either Kinovo is bust as the bears fear, in which case they could be worthless, or the liability is manageable and Kinovo survives, in which case the shares are likely to be a lot higher than now. It’s a binary bet, but personally I like the odds. Time will tell….

[qs99] 30/5/2022 15:41

I just don't see how, if there is little or no cash, how administration works in the end. Insolvency won't have cash either so who sues Kino?

Reputationally Kino could hide behind new owners....?

[kinwah] 29/5/2022 22:21

Insolvent liquidation is normally the last stage in the process when there is no business left to save. DCB must have done some work which it is waiting to be paid for. The administrator therefore has a job to do to assess all the various claims and counterclaims. Generally the only companies which go into immediate insolvent liquidation are those which are either massively bust or are riddled with criminal activity, neither of which should be the case here.

[dyor2] 29/5/2022 11:02

QS99, I'm not an expert in insolvency, but from what I've read it seems administration for DCB is potentially better for Kino than DCB's immediate insolvent liquidation, because administration gives a breathing space for the administrator to work with all parties to find a better outcome for DCB's creditors than immediately closing DCB down and selling off all its remaining assets. The administrators will revert to insolvent liquidation if there's no better alternative, but I'm hoping Kinovo are using this breathing space to negotiate a deal with the administrators and the end clients where Kino take on enough DCB staff and other assets for KINO to complete the building contracts themselves. That would be costly for Kino, but probably a lot less costly than the DCB clients being forced to seek alternative contractors and recover their costs from Kino under the parent company guarantees. I think it would also be much better for Kino's reputation with the end clients, because they'd be seen to be trying to get the contracts completed rather than walking away, and that's important for their core maintenance business. But if anybody here is more expert in this sort of situation I'm happy to be corrected! Maybe I'm reading too much into the difference between administration and insolvent liquidation?

[qs99] 29/5/2022 08:27

DYor2, why is insolvency not a potential route? THanks mate, no hurry for a response ,it is a weekend after all!

[wigwammer] 27/5/2022 11:29

Hi.. again another newbie, and excuse my ignorance. So if say £5-7m were owed by KINO in settlement, they do not have the resources immediately to pay it. Would the outcome not therefore be, to pay off any additional amount beyond the £3.7m in instalments? In other words, KINO may lose 1-2 years of profit, but not go under. Any outcome where KINO goes into admin helps nobody - not the claimants, not kino shareholders, not hsbc.

[dyor2] 27/5/2022 11:24

I agree that the administrators can’t unilaterally release Kino from the PGs, and also that Kino’s least worst option now is to work with the administrators and the end clients to get the building projects back up and running and completed. It’s not just a question of the legalities, it’s also a reputational issue - the end clients are Housing Associations who are also clients of Kino’s core maintenance business. The end clients may or may not have already given Kino notice under the PGs (it depends on the definition of insolvency in the building contracts), but I doubt they will have yet decided to appoint alternative contractors to complete the projects, because it will be difficult for them to seize the building sites, work in progress and records whilst the administrators are in charge. So I think intense discussions will be underway between Kino, the administrators and the end clients with a view to getting the projects back under way and completed. I agree that the administrators sole interest is to protect DCB creditors, not to protect Kino or the end clients, but it’s complicated because Kino is probably also the largest DCB creditor (to the tune of £3.7m). I think it’s helpful that DCB is (for now) in administration rather than insolvent liquidation because that facilitates discussions and negotiations to find a way forward. But they haven’t got long, because the projects are on hold and the administrators can’t pay DCB staff or subcontractors without agreeing a way forward. If they can’t come to such a deal, the administrators will put DCB into insolvent liquidation, which would be worse for Kino. So it’s strongly in Kino’s interests to try and reach a deal. That would certainly involve Kino providing further funding to get the projects completed. The question is, how much? One possible way of getting the contracts back up and running would be for Kino to provide a working capital facility to the administrators (as they did with the original DCB disposal, the difference this time being that with the administrators in charge they would have more confidence in the proper use of the facility). Or Kino could take back control and ownership of the DCB business and complete the contracts itself. Either way, they’ll look incredibly stupid, but the immediate cash funding requirements to get the projects back under way would probably be manageable. So, If I were in Kino’s place I’d bite the bullet, take back control of DCB, and fund the projects to completion. If that requires a fund raising to give their bankers and auditors comfort, I’d use the convertible preference share mechanism I suggested in an earlier post. But I’m just speculating from the outside!

[kinwah] 27/5/2022 00:18

DDT great post! As you point out there are two elements to Kinovo's liabilities. I was focusing on the first stage which is Kinovo's liability to the defunct DCB to provide working capital to complete the projects. The administrator would have a claim against Kinovo if it has breached the terms of the agreement. This needs to be negotiated and settled. Then there are the further claims under the pcgs from the clients who are left with half-finished projects. It is very difficult to work out an accurate figure but the experience from the collapse of Carillion is that costs multiply when you are trying to finish someone else's project. Once clients start giving notice claiming under the pcgs then things could get very bad for Kinovo. In any case all Kinovo can do now is to work with the DCB administrator to limit the damage as much as possible.

[the bouf] 26/5/2022 22:57

The Client base is affordable housing. The PCG's will be 100% solid. Kinovo should be doing all it can to get this business up and running again and finish the projects, however it maybe too late. If they don't the liabilities will be huge due to the massive hike in build costs to finish the projects.

[ddt sprite] 26/5/2022 22:08

dyor2, You may well be right about the enforceability of the PCGs, I hope you are right, although I suspect that they will have been written by property and construction lawyers who are paid to ensure that they are enforceable.

It is more that likely that the clients of DCB will have promptly invoked the insolvency clause within the contract which terminates the contract on the basis that DCB have failed to fulfil their responsibilities therein.

The Administrator will have the right to offer a solution to the clients to complete the jobs that protect DCB (not Kino). This may include offering an alternative contractor to complete the works on their behalf however the client is under no obligation to accept that offer/recommendation. I still fail to see how the administrators actions are able to work in the interests of Kinovo in these circumstances. Again, I hope you are right and I am wrong.

Assuming you are right, that makes Kino £13.7m the wrong side of what they presented to the market upon the sale of DCB in January (£5m for sale + £3.7m cash paid + the £5m you think they are liable for). I still think the liabilities can stretch much further than your proposed £5m......again I hope you are right.

Again, I ask the question about how Bullen and his board are still in their rolls.

[dyor2] 26/5/2022 18:35

ddt sprite, interesting post. But Kinovo’s RNS two days ago said “Kinovo is in discussions with the joint Administrators of DCB in relation to the construction projects that are subject to the parent company guarantee by Kinovo.” So I guess that means Kinovo, amongst other issues, are now discussing with the Administrators whether Kinovo can/should help the Administrators complete the building contracts, and the terms on which they might do that. At this stage, that would be a discussion between Kinovo, the Administrators, and the end clients, no? The outcome will partly depend on how strong the Parental Guarantees are, and the state of the underlying building projects, and none of us knows that yet. But it’s worth noting that, if it comes to it, enforcing Parental guarantees is not necessarily a simple matter - it depends, for example, whether the guarantees were given under deed or a simple guarantee, and whether contract variations have invalidated guarantees. It’s impossible to know from the outside what the parental guarantee liability to Kinovo might be, but FWIW I’m still betting/guessing that on less than £20m of outstanding contracts it won’t be much more than £5m worst case. Could be wrong, we’ll see!

[george stobart] 26/5/2022 15:21

My ex girlfriend's uncle says this will go bust soon. He works for big city office and knows things well

[ddt sprite] 26/5/2022 14:47

Im new to posting on here but I've followed this feed for many months.
There seems to be a suggestion here that Kinovo need to be negotiating with the administrators of DCB to limit their liabilities.

Kinovo hold PCGs with the clients who have employed DCB to complete the projects in question. DCB have entered administration and as such the employers who have PCGs with Kinovo will seek their own losses/expenses on those contracts direct with Kinovo and not the administrators of DCB. As such the administrators of DCB have no control over the PCGs that are in place and as such negotiation with the administrators will not change the situation at all.

Unfortunately the Clients/employers will, without exception, seek to recover all losses and costs above the contract sums directly from Kinovo. This will include the costs to engage others to complete the works, LADs, legal fees, their own costs etc. It is likely that any newly engaged contractor employed to complete the works will be expensive as they are taking on the risk of the unknown of what has been left over by the outgoing contractor, not to mention the material and labour inflation that the industry has experienced since the projects were originally awarded.

The misleading of investors over the details of the sale of DCB is inexcusable and how David Bullen and his team are still in their positions is beyond me. I fully suspect that they will be paid off and removed from the business as soon as the major investors believe the time is right, this will mean that the only people who will do well out of this is the very people who have caused the problems we are discussing. Look at the shares that they have awarded themselves over the last couple of years whilst they ran DCB into the position it was that they needed to dispose of it to limit losses.

The belief that the PCGs would be transferred to MCG after the sale (mentioned in a recent Kino announcement)is ridiculous as this would and could only be done with the full permission of the clients/employers of each individual project/PCG. Bearing in mind that MCG was only set up a matter of months before the sale and it has no assets or value, no client/employer would ever consider accepting a transfer that would render their ability to call on the PCG worthless.

Naivety / incompetence or worse by the Kinovo board, I do not know.

My question would be: Where is the link between Kinovo & MCG? How did they come to buy the company when it wasn't actually put up for sale.

I would also question the underlying performance of the rest of the group bearing in mind the same people are producing the figures that led everyone to believe that the sale of DCB was worth circa £5m to Kino. Look at the credit ratings of the other companies in the group. This is not as healthy as they are making out.

[qs99] 25/5/2022 14:51

fair play to you dyor2 and good post

I have also bought some more, but haven't got your Cajones and gone in smaller fry! I think this should be manageable as well, but is not for widows and orphans. I think KINO management will "do a deal" as you say and cap liabilities. Business should then be rated a lot higher than today's price IMO

Let's see, interesting this was down 30% today at one point, your buys have helped but it has been marched back up slowly, so I just sense MMs feel the same as you do! Let's see....

GLA
Cheers
QS99

[dyor2] 25/5/2022 12:43

Call me stupid, but FWIW I was the buyer of 100,000 at 10p this morning, and another 100,000 at 11.5p yesterday. No reason beyond the analysis I’ve already posted.

BTW I don’t think the Kino BoD are crooks, or I wouldn’t be buying the shares - they’ve certainly been v naive in the terms of the DCB disposal (to put it mildly!), and they’ve had a salutary wake up call. It’s no doubt fascinating to speculate about who is really behind the DCB buyer, and what their motives were/are, but that doesn’t really matter for now. What matters to me is the cash position, and Kino seem to have capped the working capital cash outflow at the £3.7m already advanced, so the remaining unknown is how much the Parent Company project guarantees might cost Kino. They have some leverage with the DCB administrators, because it’s likely their £3.7m working capital advance is the largest DCB creditor. If they were to agree to write that off it would substantially improve the position of other DCB creditors. I’ve got no special info, and am just guessing the guarantee liability will be a manageable figure. But with a valuable underlying business and Kino priced to go bust, I think the risk/reward looks good here (presumably Tipacs 2 agree, and they seem to have paid c.18p). Time will tell whether it’s me that’s being naive…..

Also, HonestWorker - I’ve been interested to read your posts because you seem to be a major subcontractor to DCB and an honest guy, and I can well understand how angry you must feel at the DCB debacle, but have you considered that the real villains here might be whoever is behind MCG (the DCB buyer)? Kino advanced DCB £3.7m to fund working capital needs subsequent to the sale in January, which doesn’t sound like the behaviour of someone trying to “crash” the business. £3.7m working capital requirements in 3 months on £20m of building projects is a lot of money! Presumably it hasn’t been used to pay you? If not, where’s it gone? If you’re able to post again, I’d be interested to know whether all work on the projects has now stopped, and whether the administrators are giving you any steers on how much, if anything, you might recover on what you’re owed? Would be fascinated in anything you can tell us!