• Log in
• Register free
• Subscribe
• Help
• Tour & Trial IC Advantage

• Share Tips
• Trading
• Companies
• Markets Data
• Columnists
  • Bear Bull
  • Chris Dillow
  • No Free Lunch
  • Simon Thompson
  • The Trader
  • Your Opinion
• Funds Data
• Covered Warrants
• Research Tools
• Investment guides
• Q and A
• Blog
• Video

Subscribe today

Celebrate our 150th anniversary with fantastic savings on a joint magazine and IC Advantage subscription.

Subscribe today and save £150

Shock and awe at Axeon

Created:

29 April 2009

Written by:

Alistair Blair

The story of Aim-quoted Axeon, a manufacturer of new technology batteries, is brimful of the highs and lows of equity investing. Two years ago, Axeon was a developer of smart batteries with £3m of sales. It was making losses, but growing and had some impressive prospective customers, whose high opinion of its products convinced investors to keep the company afloat. Its big achievement was to supply the battery for the Modec "zero emission" electric van venture put together by Jamie Borwick, a former chairman of taxi maker Manganese Bronze.

In mid 2007, Axeon announced an enormous acquisition, of Ristma, which sold £50m worth of batteries a year to Bosch and other power tool manufacturers. The idea was that Ristma's solid cash flow and distribution network would underwrite further development of the emerging Axeon range. Axeon financed the deal with a mixture of loans and new shares, with the loan coming from a hedge fund, Ironshield, which also took shares. The deal got off to a flying start. By December 2007, Modec had placed a two year order for £20m of batteries and enquiries for "road sweepers, city buses, city taxis, scooters, airport vehicles, urban delivery and motor sport applications" were arriving from all over Europe. More money was needed. Axeon raised £12m at 90p a share.

And then came the bad news. Apparently, last summer, Bosch's power drill sales went into sudden decline. In September, Axeon advised that instead of making a profit in the second half, it would make a small loss. But by December, further deterioration in power tools meant that the outturn for 2008 would now be "considerably below" management expectations. Reasonable to good news on the emerging smart batteries business was to no avail. Hamish Grant, chief executive and founder of the company ten years earlier, walked the plank. Overheads were slashed and 200 staff laid off.

The situation seemed bad but a long way from terminal. I have it on good authority that trading trends in the early part of this year were much less bleak than in the pre-Christmas period. Several well-informed investors, including two individuals previously closely involved with Ristma bought over seven per cent of the shares in December and January. One might deduce that, from long experience, they foresaw a recovery in the power drill market.

In January, Axeon said its 2008 results would show a loss of "less than £3m" on sales of £61m. Net debt stood at £6m, and a financial covenant had been breached, but Ironshield had granted a temporary waiver, which the company expected to be renewed. On 2nd April, Axeon reaffirmed Ironshield's "continued support" and said its full results would be out by the end of the month, alongside a formal conclusion over the continuation of the waiver.

With last December's shocks receding and the newsflow having stabilised, the shares perked up. They moved from 4p on 2nd April to 9p on Friday 17th and 249,000 shares changed hands at 12p on Monday 20th April.

A near run thing, then.

If only. I can tell you, because I have spoken to several people close to the company, that there was a lot of shock and awe at 1pm on the 20th, when Ironshield appointed Grant Thornton as administrators, on the grounds that the company was in breach of its loan covenant. And at around 2pm, Grant Thornton announced that it had sold the business to AG Holding, a new company specially set up for the purpose by Ironshield. Creditors would be unaffected, said the press release, but it concluded: "It is unlikely that the shareholders will make any recovery". Meanwhile, AG's press release crowed about Axeon's "promising and exciting future".

It is pretty rare for a quoted company to be forced into a surprise administration by its lenders. Typically, you'd expect at least a few weeks of toing and froing whilst the various lenders come to a decision and give the management a chance to find a buyer who will offer at least a few pence to the shareholders. But Ironshield was the sole lender and no-one disputes the legality of its actions. Nor their ruthlessness. Shareholders baffled by the sudden unconditional takeover of their company should note that the takeover rules fall into abeyance as soon as an administrator is appointed.

AG Holding was incorporated by Ironshield on 14th April. Between then and 20th April, over 2,500,000 Axeon shares changed hands. A new Insolvency Practice Ruling on pre-packed administrations came into effect in January to extend protection for creditors. Perhaps it needs an extra paragraph to cover shareholders.