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By Tom Winnifrith, The Sheriff of AIM | Friday 5 December 2014
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.
I was contacted yesterday by a senior management figure with the Quenron (QPP) group. We spoke at length and in part two of this series I will serve up a series of bombshells for you. But let’s start with a minor bombshell – the issue of when Quenron staff have and will get paid and of market abuse by Quindell.
Staff across the group were told in August that going forward payroll dates would be standardised. Prior to that staff in different units were paid on different days but all in the last week of the months. In September that changed with all staff being paid on the 6th of the following month. Of the 6th was a weekend staff were to be paid not beforehand as in most companies but the Monday after. Thus staff at Quindell will be paid for November this coming Monday.
The implication of this is that between £7 million and £10 million of cash which should have flowed out in the last week of September 2014 actually flowed out in the first week of October. There were only two payrolls in Q3. This of course means that when Quindell told investors that its net cash position as at September 30th was c£19.5 million and was broadly unchanged on the June 30th position it was misleading investors since it did not ‘fess up to the payroll switch.
Let us be explicitly clear that this is market abuse. The company had stated publicly that it would be cash neutral in Q3. On October 13 it claimed to have been cash generative operationally and to have maintained its net cash position but was able to make those claims ONLY because it bumped its September payroll into Q4 and it thus gave a misleading impression of how well it was doing. That Messrs Terry, Scott and Moorse sold shares after that with investors having been misled as to the rate of cashburn makes it all the worse.
There is another imponderable here. As at June 30th Quindell stated that it held £14 million shares as if in Treasury. Those were the shares it issued to itself when buying PT Healthcare. It holds additional shares in itself within Himex and Ingenie (which it issued to itself to buy those companies) but neglected to mention them. It was stated again on Friday that Quindell owns NO SHARES in Treasury. So one might ask the question: “during Q3 how much cash was realised by Quindell from dumping shares it owned in itself onto the market and did any of these trades occur in the closed period up to August 28?”
Quindell should make a clear statement on that latter point as a matter of urgency but what is now abundantly clear is that its Q3 trading statement did, by omission, mislead investors as to the rate of cashburn. That is market abuse and an open letter to the FCA and AIM regulation will follow.
My whistleblower has also confirmed that staff at Quindell have all been told that they will be paid for December on January 6th. Quindell must be about the only company in Britain that pays its staff after Christmas and this is a massive sign that it faces a cash crisis. It will of course also serve to inflate the year end net cash position, or rather hide the lack of it.
The far more damaging allegations from the whistleblower will follow later but first I must raise this case of market abuse with the regulators and leave you to ponder its implications.
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