Telecom Plus And Camkids – Creative Accounting And Pay Issues

13th Aug '15 by ShareSoc

5 comments 8665 reads

Telecom Plus (LON:TEP)

Telecom Plus held their AGM yesterday (12/8/2015). The company provides a complete range of utility services – gas, electricity, broadband, fixed line and mobile phones via a “club” concept promoted by a network of self-employed (mainly part-time) distributors. They offer competitive pricing and an efficient operation (I am one of their customers as well as being a shareholder). The share price of this company has gone from near 800p up to well over 1800p and back down to below 800p over the last three years. This was driven by over-enthusiasm by investors followed by disillusionment when forecasts were adjusted down and the accounts restated due to energy debtor write downs. So there were clearly one or two concerned shareholders in the audience.

One said that the new CFO comes in and ceases the “creative accounting” that inflated past profits to which Mr Wigoder, the Chairman, said he categorically denied there had been any creative accounting. It was a relatively small amount which had not been increasing year on year as a proportion of revenue. But he accepted that “we got it wrong”. He said it was not a problem that was unique to the company and there was no basis to question debtors they had on the balance sheet. The shareholder responded that the profit reported was not a true profit. They should have looked at this issue each year.

Michael Pavia, Chair of the Audit Committee, also spoke on this subject. He said it was one of the most difficult matters they dealt with, and not just in this year but also in previous years (implying the directors were aware of possible issues therein before the new CFO arrived). But they now have a new CFO and new auditors, he said.

Shareholder Gerald Roberts asked what proportion of the shortfall was paid by the main gas distributors and what by the retailers – the answer given was all to the latter. Mr Roberts said that may be good for his National Grid shares which got a laugh. Mr Wigoder says nobody really knows where the losses occur.

[Comments on this issue: I have seen worse accounting write-downs and the explanations given were reasonable. I don’t believe there was any deliberate creative or false accounting taking place. The company has taken vigorous steps to counter criticism by changing the CFO and the auditors. The underlying…

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99figaro

14th Aug '15

Regarding Camkids, I suspect the stock buyback is because the 'distributors' are connected to the Directors of Camkids in some way and this is therefore a fantastic way of the Directors removing the last bit of value from the company. No doubt the Distributors will pay 'consultancy' charges or similar, back to people connected with Camkids so everyone is happy (apart from the poor investors who lost money).

Another Chinese debacle and whilst I agree savvy investors know to avoid these companies, many new investors may not. I have already requested that Stockopedia show each companies main geographical area of operation to highlight these Frauds (Country of incorporation doesn't help as some are listed in the Channel Isles etc.).

Roger Lawson

Just to point out that there was an error in the above blog post which we already corrected in the ShareSoc Blog. The position is even worse. The first paragraph on Camkids should have read:
On the 10th August this Chinese AIM listed manufacturer/distributor of children’s clothes made a most peculiar announcement. They have terminated three of their distributors, but the really odd thing is that they are not only buying back stock from them (for RMB285 million) but also paying other compensation totalling RMB70 million. Plus they are repurchasing another RMB80 million of stock from other distributors. This is likely to wipe out most of their cash holdings and the profits for the year will also mainly disappear as the announcement indicates there will only be “a small operating profit for the year ending 31 December 2015”. The share price has collapsed further when it was already on a downwards trajectory leaving the market cap at only about £4m. The prospects for this company now appear bleak and these events totally undermine the credibility of the management.

Paul Scott

15th Aug '15

Hi Roger,

Interesting article, thanks.

There's not a shred of doubt now that Camkids (LON:CAMK) has been a fraudulent promotion from Day 1.
As I pointed out in my SCVR on 11 Aug 2015, the latest RNS manages to disappear the entire cash pile, so I was a bit confused when I first read your article, but the correction above now makes sense.

AIM is a minefield, as you know. Therefore in my view, whenever foreign companies appear on AIM, they should be treated with great suspicion, at least until they have an established track record of paying decent dividends for several years. Care is needed with this, because both Naibu and Camkids tried to fool UK investors by paying small dividends, and promising larger ones in future. This was clearly a device to trigger a re-rating of the shares so that the Chinese con-men could bank a bigger profit from further share sales into the market.

I've saved a lot of money by avoiding almost all overseas companies listed on AIM. As Mark Slater says, there's usually something wrong with them. With that in mind, I'm perplexed by your blindspot over Globo (LON:GBO) where there have been numerous red flags which you've chosen to ignore, or explain away.

Bottom line - investors should not take the accounts, nor the statements of Directors, at face value. As we've seen with the Chinese frauds, it's easy to get fraudulent accounts signed off by clueless auditors (I used to work as an auditor, and the review work is really quite limited. A clever FD can easily by-pass the audit checks to over-state profits).

Equally, overseas Directors can lie through their teeth to British investors, since there's no personal risk involved - nothing will happen when the company eventually fails & de-lists, with all the money gone. Investors just shrug their shoulders and put it down to experience, whilst the overseas fraudsters have got the money & are laughing all the way to the bank.

Regards, Paul.

Well Paul I agree with you on most of this, but as regards Globo the key point I was making in the blog post was that it is very difficult to form a view on the credibility of the key directors and the accounts they produce if you cannot easily talk to them. That is possible at both Globo and Telecom Plus, but certainly was not in Camkids. Likewise most foreign companies make it difficult by holding their AGMs overseas (Globo holds them in London of course). I certainly take a very dim view of most foreign companies listed on AIM for that reason, and the auditors they may be using also tends to create doubts. Globo has always had good and reasonable explanations in answers to the questions raised, as does Telecom Plus. Camkids does not, particularly after the latest announcement. That's the big difference. But one could question the accounts of Camkids well before that. For example why was it so profitable when it was surely operating in a sector with few barriers to entry and large competitors? The fact they had an Executive Chairman with more than 50% of the shares. The fact that the company was registered in Jersey. The peculiar way the board operated. All raised doubts. I could go on at length but I learned enough in a short presentation to decide I would not touch it with a bargepole however cheap it appeared to be. But the jury is still out on Globo so far as I am concerned, although I am not wild about their current debt raising.

Yup, good points Roger.

P.

Telecom Plus and Camkids – Creative Accounting and Pay Issues

Telecom Plus (LON:TEP)

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