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Filthy Forty Walcom – surprise, surprise: the customer hasn’t paid yet. SELL!

By Nigel Somerville, the Deputy Sheriff of AIM | Tuesday 10 July 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

On 28th June ShareProphets AIM-China Filthy Forty play (one of only seven remaining) Walcom (WALG) announced it was having problems getting its biggest customer to pay – but it was ok because it expected to cough up by 10 July. Well, here we are and surprise, surprise……it still hasn’t ponied up the wonga. The company issued an RNS entitled “Customer Payment” (if that is not misleading, I don’t know what is!)

Further to the Company’s announcement on 28 June 2018 regarding the default on a payment owed to the Company of RMB 2 million (approximately £230,000) by the Company’s largest customer (the “Customer”), Walcom has not received the payment which was expected by today…..

Er, so perhaps they meant “Customer Non-payment” then?

….The Customer has informed the Company that the payment is being arranged and will be available by the end of next week at the latest.

Well it expected to settle the outstanding bill by today, so good luck with that.

A further RMB 4.66 million (approximately £530,000) is owed to the Company by the Customer, of which RMB 2.26 million (approximately £255,000) is now due for payment….

Er, this was the cash which just twelve days ago we were told that:

A further RMB 4.66 million (approximately £540,000) is owed to the Company by the Customer which has not yet fallen due for payment. There is currently no suggestion that there will be any delays with receipt of these monies

….and my response was No, but the cash hasn’t fallen due so why would there be. But clearly there should have been a question over it, because there was already money overdue. Well, now it seems that a further RMB 2.26 million is now overdue because:

 This payment has also not been received in accordance with the agreed terms of service. The remaining RMB 2.4 million will fall due between now and mid-September 2018.

Well those debts really are piling, up are they not? What’s the betting that the next lot doesn’t come in on time either?

Walcom is pretty direct about the consequences of all this:

As previously announced, the delay in receipt of the current payments, in conjunction with the challenging trading conditions seen in the first half of the financial year, has had a material adverse effect on the Company’s cash resources….

Right, so the company is almost out of cash…

If either one or both of the payments owed are not received within the next week, the Company’s working capital position will be significantly restrained.

For that, read “on the edge of insolvency”. At that point, one would imagine that the milkman will want cash on delivery and the ‘leccy will be via a pre-payment meter. Anyone else supplying the company will probably want those same terms. And worse:

If the full amount outstanding from the Customer is not received….

BY WHEN??????

…. the Company might, in the absence of obtaining alternative funds, be in a position where it is unable to settle its liabilities as and when they fall due. The Company is considering alternative financing arrangements, should any be considered necessary.

In other words, it would be insolvent – in the absence of “alternative financing arrangements”. The problem is that if I were running the company, I would surely have made a few trips to the bank or to my Broker so as to ensure the cash was available before having to ‘fess up to a customer not paying. The fact that this clearly has not happened (at least successfully) tells you everything you need to know.

Walcom tells us that:

The Company continues to reserve all rights against the Customer and is considering the possibility of having to take formal proceedings to recover the payment if it is not received next week. 

I wonder how long that will take, and whether the company will survive long enough to see the outcome of those proceedings, if they prove necessary, to get its cash.

I noted before that:

 One might also note that the FY17 Accounts show (Note 17c) receivables due of THB 14.2 million and RMB 6.3 million - not a million miles away from the RMB 6.66 million due from Walcom's biggest customer. However, we are not told when the overdue RMB 2 million was due for payment. One might have thought that having to wait until 10 July was not a long time: would the company have had to issue an RNS because it had to wait 12 days extra for payment? I fancy not - so when did the RMB 2 million become overdue? When is the other RMB 4.66 million due to be settled?

I might also note that the FY17 balance sheets shows current assets of HK$ 18.8 million - of which receivables stood at HK$ 12 million (up from HK$ 9 million at FY16). Meanwhile current liabilities sat at HK$ 8.8 million. If there is a question over the receivables (and it seems there is), are we looking at net current assets reversing from the stated PLUS HK$ 10 million to MINUS HK$ 2.2 million - and then take off six months' losses?

This has looked an accident waiting to happen for some time. Given that management has had to be explicit that the whole thing could implode, it seems that the accident is now upon us.

Bag of Walkers, anyone?

I fancy that if you haven’t booked your bag of crisps yet, you had better get on with it for this looks terminal.

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