Silverdell Share Discussion Threads

[kimboy2] 05/7/2013 09:21

Sounds to me as though they may have a case against their legal advisors then.

[erb2008] 05/7/2013 09:17

Correct - The winding up order was processed as the court had not been informed that all the suppliers had been paid and noone was present to inform the court otherwise.

I am not convinced with regards to the information relating to HSBC - albeit BGee certainly has some good knowledge of events.

[kimboy2] 05/7/2013 09:09

Does that mean the winding up order went through because no one attended court and administrators were put in because of this, or did HSBC decide to put administrators in because of some reason related to the winding up petition ?

[erb2008] 05/7/2013 09:03

Because all parties were paid and their (SID/Kitsons) representatives had informed the court of this - there was no need to attend - it was a non issue had been dealt with and put to bed.

[kimboy2] 05/7/2013 09:01

Yes but why didn't they attend ?

[erb2008] 05/7/2013 09:00

KB - because as BGee said SID/Kitson and or their representatives did not respond to the offer to withdraw and the court was therefore not aware that the suppliers had been paid.

[kimboy2] 05/7/2013 08:53

I am still unclear on this sequence of events which people seem to have knowledge of. Why did the winding up order proceed if these people were paid ?

IMV there is no doubt that a refinancing is in the offing and I suspect that individuals from these boards are already insiders.

I also think that there is value in SID with or without Kitsons. The part in administration contributed a third of the profit in 2012.

[rat attack] 05/7/2013 08:29

Joe Say - the winding up order has not crystalised this position, it is HSBC. Clearly there is either a clause in the loan docs that give them the right to call the debt on an order, or they were advised about the order and took fright and called the debt under one of the many catch all clauses. Either way, it is highly unlikely that this would have been undertaken without some dialogue with management and the opportunity to remedy the position. There is no point in others talking about debentures because very little will be caught in this situation: there is unlikely to be any freehold, wip and stock of limited value and debtors, well they will just walk using any excuse to avoid payment. As far as I can see shareholders will be left with the rump of the Group as these are not in liquidation, but what value can be attributed to this? Best we can hope for is somewhere between zero and a takeover deal at a negligible price for the rump on any relisting, but that is more wishful thinking and hope on my part!!

[erb2008] 05/7/2013 08:26

OK BGee fair enough.

1.The supplier that issued the winding up order was paid before the hearing - agreed.
2.Because the winding up order had been issued there is a window for other suppliers to "piggy back" the order which some did - not many and not alot of money - they were paid also prior to the hearing.
3.Kitson/Silverdell did not respond to the offer and or did not attend the hearing - agreed.
3.It was HSBC - don't know however SID/Kitson were not present at the hearing
4.Funding - don't agree in relation to Kitson - Kitsons were cash +ve at the time of the hearing.

[briangeeee] 05/7/2013 08:14

ERB2008 - Your post is difficult to read in places, but I'd make the following points, which are to the best of my understanding or interpretation:

1. Kitsons were not wound-up because the court said they hadn't paid a supplier.

2. Kitsons Environmental Europe paid their supplier prior to the winding-up hearing. The supplier's solicitors offered to withdraw their petition, but Silverdell/Kitsons did not respond to the offer to withdraw.

3. It was their Bank (HSBC), who held a debenture over all the assets of various companies, that placed Kitsons Group into Administration, after requesting he the hearing was adjourned.

4. We don't know they weren't looking for additional funding. In fact, we know they were, it just wasn't known to be equity funding they were seeking primarily.

[erb2008] 05/7/2013 08:10

Roger - good post - think you might be correct.

[joe say] 05/7/2013 08:08

Roger - that is bang on

Except you also have to remember that notice is given of these actions and the company therefore has had time to address - it is also not the first point of contact in the debt dispute so only the most inane management would let that one through

Then you also have to look at how a defendant can respond - even after a wind up petition is served the company has ample opportunity to set aside and deal with - the fact thay haven't is both astounding and deeply worrying

FWIW i still think there has to be some sort of fraud/misstatement at the root of this one

[briangeeee] 05/7/2013 08:02

CR, I agree entirely.

The benefit of meeting management comes mainly from having done your homework beforehand, and being ready to ask the awkward questions. Without that, the good conmen (not speaking about SID here) will slip through and will be well received. Boros10 is one who's willing to and capable of good preparation. I'm as guilty as others of sometimes not doing the preparation necessary, and Silverdell was a good example.

[roger-lawson] 05/7/2013 08:02

Yes a good post from Boros10. I also attended one of those presentations and chose not to invest in SID because of the low margins, very poor return on capital, questions on cash flow, etc.

Here's a bit of information on wind-up petitions. I do recall many years ago that a public company I worked for in a senior management position received notice of a wind-up petition from one of our suppliers. It was not that the company could not pay, it was just that they had been so slow in doing so that the petitoner thought this was a good tactic apparently to ensure prompt payment (and via a relatively low cost legal process). And they got it of course. So it is not necessarily meaningful about the financial position of the target, but in this case it might be.

[erb2008] 05/7/2013 07:58

What is not true BGee

[rat attack] 05/7/2013 07:55

Boros10 - one of the best posts I have ever read on a thread!

[cockneyrebel] 05/7/2013 07:51

Boros10 - fabulous post imo. The revelation about their free-cash flow seems to have appeared at that meeting and the point at which the shares started to tank.

Agree too re your comments on Mello - I pointed out the TMF style and the way it lures new/naïve investors into believing that for some reason these 'superior, knowledgeable investors have checked it out so there's no need to dig the dirt yourself. Again, I'm not saying that's intentional but that's what it does imo. Meeting and talking to directors doesn't give you the bad stuff directors want you to know. I think you have a clinical approach to balance sheets and your meeting with them was obviously worthwhile but for the rest of us it's an opportunity for directors to spin imo.

CR

[briangeeee] 05/7/2013 07:51

ERB2008 - That's not true.

[erb2008] 05/7/2013 07:41

Guys you are missing the point - Kitsons were wound up because the court said they hadn't paid a supplier - does not mean they did not have the funds to pay the supplier or infact that they did not pay the supplier - they were not put down but the Banks HMRC etc - nor had they been looking for additional funding.

[dasv] 05/7/2013 07:29

Boros10 - great post. If what you say about FCF is true then why the company acquire EDS - a business which is highly capital intensive?

---

I should also note there have been various turn-around stories in the past where Buffett's quote does not apply - e.g. Apple, Amazon, even Thomas Cook?

[boros10] 04/7/2013 22:56

I was a SID shareholder for a short time last year but decided to sell after meeting the management team at Mello Central in June 2012. I was particularly annoyed by management's assertion that they operated in niche markets with high barriers to entry when the business was clearly only capable of delivering low single digit operating margins. I also disliked managements' use of EBITDA as its preferred measure of probability given the Company's need to spend significant sums on plant and machinery each year.

I generally try to avoid the pitfalls of value investing by borrowing from the quality investor's toolkit. I try and steer clear of low margin, cash consuming, low return on capital businesses operating in highly competitive markets. As a contracting business SID has many if not all of these features.

I was also concerned about the acquisition of EDS which I believed involved significant execution risks given its size relative to the rest of the business (although it would appear the current problems have largely been in the UK legacy business which might of itself indicate that management was overstretched).

More recently I heard Sean Nutley the CEO give a brilliant presentation at Mello in Beckenham. I was tempted to buy but in the end I was not prepared to ignore the one-off exceptional charges, challenging trading conditions in the UK and the pressure on working capital as reported in the two trading updates in March and April 2013.

A few weeks ago I went to a presentation given by management to a large group of private investors at FinnCap following the release of the half year results and the Edison report which hinted the Company might need to raise additional working capital to support business growth.

A lot of the discussion centred on whether SID could grow without raising new capital. Sean argued the business could grow by as much as 15% without the need for more cash. Given the poor working capital characteristics of this business I was surprised he thought he could squeeze out so much growth without more money.

I asked a question about capital expenditure (CAPEX) which had been incurred and was on the balance sheet but did not appear in the "cash flow from investing activities" section of the cash flow statement. It would appear the Company has been netting off most of its CAPEX against the movement in finance leases in the "cash flow from financing activities" section of the cash flow statement.

Why does it matter? Well it has the effect of flattering Free Cash Flow (FCF) a very important metric which Sean Nutley referred to a number of times in his presentation to reassure those present of the Company's cash generating prowess.

In the six months to March 31st, 2013 CAPEX is showing at just £278k in the cash flow statement. In reality the Company spent around £4.5m funded largely by finance leases. The same happened in 2012, CAPEX is shown at just £544k but the Company actually spent close to £3.4m.

The Company added £6.5m in new borrowings between the year-end and the half yearly report; however the cash flow statement shows new bank loans of only £2.5m and a repayment of £450k.

This accounting approach has masked the Company negative FCF. Based on my calculations in the six months ended March 31st 2013 FCF was approx. -£3.5m and in the year ended September 2012 FCF was approx. -£3.3 (2011:-£1.7m).

I am not sure if this accounting treatment is IFRS compliant but I have checked Stagecoach's accounts (it uses finance leases to buy most of its buses) but it does not appear to net off its CAPEX funded by finance leases in the cash flow statement.

Given the events of the last couple of days I have to wonder whether the Company has been playing fast and loose with some of its covenants (including the cash flow ones) and this may have been a contributory factor in HSBC taking action.

Interestingly, a private investor using a competitor website to ADVFN beginning with letter "S" and ending with the letters "DIA" might have been able to spot trouble early on. According to this superior competitor to ADVFN, the Company scores a very low Piotroski F score, of just 2. This low rating is attributed to the Company's declining ability to pay short-term debt, trade without raising more funds from shareholders and its reduced pricing power.

It may be too early to draw lessons about SID but it has not stopped some people looking to scapegoat Mello, the private investor group who arrange meeting on an ad-hoc basis with small cap management teams. The central argument appears to be that meeting managers is at best a waste of time and at worst leads to private investors being duped by unscrupulous directors.

The statistics show otherwise. Companies which have presented at either Mello Beckenham or Mello Central are up on average 40% year on year over the last five years and this includes the bad ones which most of those attending the meetings are likely to have avoided. True, there have been some staggering outperformers including LOQ and Judges Scientific but it would seem that meeting and questioning management is usually effective and is an important part of a value investor's tool kit in the small cap arena.

However, we should all be mindful of Warren Buffett's very apt quote, "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact".

[hastings] 04/7/2013 22:16

Pre pack, hopefully not for holders.

I still wonder whether a placing was already on the cards and the falling share price and other issues conspired against it.
Certainly,the price appeared to be telling a story, which did not tally with the version supplied from the board. If this isn't a complete stitch up, there will surely be a deeply dicounted dicounted placing plus an open offer.

[pj 1] 04/7/2013 21:55

Its looking to me that the Financial Director had a different agenda and differing Results to those posted and communicated

History does repeat itself :-((