The meeting was interstate for me but I attended because I was...

The meeting was interstate for me but I attended because I was very keen at this stage to get a “feel” for the current Board and management. Unfortunately, my questions and notetaking at the AGM weren’t as sharp as I would have liked. Suffice to say, I arrived with a head thick from a cold, fuzzy from lack of sleep and spinning from learning of the CR @ .06 just minutes before entering the meeting. So huge thanks to poorinvestor and alhotcop9 for their accurate and detailed recording of proceedings. My account will focus on my observations, impressions and thoughts.

The AGM Vibe

I response to Krusty's question - the vibe of the meeting was quite sombre, but perhaps that was just my head! It was very orderly; there were no fireworks. Perhaps there were around twenty people in attendance and that included a few fund types and the company auditors. While there was frustration, annoyance and some cynicism evident in retail shareholder questions and comments, communications remained polite and mostly to the point.


Rights Issue and Retiring the Debt

Not surprisingly, the “rights issue” was the major focus of discussion. My notes written during the Chair’s address read “No choice other than CR”. I gained the same impression as alhotcop9 - that the timing of this CR has been forced by the auditors and ASX queries and that management would have preferred to handle things differently. This view would seem to be supported by Alexium’s response to the ASX’s query on 8 October as to what steps AJX had taken since the release of its Annual Report to obtain an unqualified opinion with regards to its future financial statements. The company’s 14 October reply states that the Board and management were and had been working towards obtaining an unqualified opinion in the future by executing  a capital management strategy to strengthen the statement of financial position of the Group prior to 31 December. I also noted Bob Brookins' mention that he and Jason Lewis had already been in Australia for close to two weeks doing a “roadshow”.

The Chair described the debt as a “millstone” weighing down the share price and deterring new investor interest. I noted one of the “fund types” present in the room nodding strongly in agreement at this observation. Reasons proposed by the Chair in support of retiring the debt were

• the debt has weighed on and will continue to weigh on the share price and deter new investment
• retiring the debt would save the company US$140k pm – or US$420k per quarter
• carrying the debt makes the accounts much more complex – too much so for a small company
• retiring the debt is strategically important to building the company going forward
• the Board believes that this is the fairest approach, under the circumstances, for all shareholders

Bob Brookins referred to retiring the debt as one more part of the “cleaning up the mess” process that has had to be undertaken. He mentioned that the debt was constantly raised as a deterrent by potential investors. He stated that the company has a fallback position with the current debt holders wrt the rights issue and has modeled varying scenarios. Also, the company has 3 months to place/deal with any shortfall. As already reported by other posters in attendance, Brookins stated that discussions had already been held with significant shareholders who were all supportive of the rights issue. Bob Brookins and related parties will be supporting the accompanying placement to the tune of $500,000.


The Chair

For some reason, I had low expectations for AJX’s Chair(wo)man, Rosheen Garnon. Not sure why…. possible wariness that selection to the Board might have been based on reasons of gender balance rather than competence and fit.

But I was impressed. Very impressed.

Garnon appeared calmly in control. I thought she was an excellent communicator, straight-shooting and free of the arrogance and barely-disguised contempt for small shareholders you sometimes see in Board members. She didn’t shy away from any difficult questions or criticisms; nor did she bite back in response. She appears to be fully aware of and comfortable with her corporate governance responsibilities.

My gut instinct leads me to trust her. I have formed the opinion that Rosheen Garnon will lead the Board competently, diligently and honestly and act in what she perceives to be the best interests of all shareholders. Please note, I don’t make statements like this lightly.


Products and Revenue

Bob Brookins reiterated that the company was still on track to EBITDA in this quarter.

Payment terms were said to be mainly 30 days, with some customers on 60 days.

Some sales lumpiness comes from a pattern of customers buying irregularly by the container load for shipping to China.

There are 8 competitors in the PCM in mattress textile (ticking) market, Alexium’s point of entry into the bedding market and the segment where it is most established. PCM in US mattress textiles is estimated to be a US$15m value market and Alexium currently has 35% market share. This particular application was said to bring in as little as $3 per mattress.

PCM in mattress foam is Alexium’s most recently-entered market. The first major launch of products featuring Alexicool in foam happened in July/August at the Summer Las Vegas Market and stock only began to hit stores this month. Assuming a major customer would be on 60 day terms, this may mean that revenue from this launch will only flow through beginning this quarter (my speculation). The company has said that a significant share of its expanded pipeline (the much discussed $45m pipeline) will feature in new product launches due at next January’s Las Vegas Market. I gain the impression that Alexicool in foam will be a major contributor. PCM in foam is estimated to be a US$35m addressable market and represents significantly higher revenue per mattress for Alexium than textiles alone.

Alexium’s strategy of working with the customer at product design stage, using analytics to customise the whole mattress to the customers’s requirements, was said to be opening up opportunities for incorporation of Alexicool in multiple parts of the mattress. In an example given by Brookins, Alexium has recently helped one customer with a design which incorporates Alexicool in five different parts of the mattress. For Alexium, this represents potential revenue of up to $75 per mattress.

The next bedding market opportunity for Alexium is Alexiflam NF in FR mattress foam socks. This initiative is independent of ICL and will be a key revenue earner for the company, imo. Detailed information on weight requirements provided by a major bedding company combined with updated market intelligence has led Alexium to estimate this as a $55m US market opportunity. Alexium’s NF in mattress sock solution is $6 cheaper per mattress than the incumbent fibreglass FR solution and also has safety advantages. According to Bob Brookins, even the ability to save one dollar per mattress holds sway with manufacturers.

So how far off is the NF in mattress sock launch? The presentation pencils in a launch prior to the end of this financial year. Personally, I would anticipate the company wanting to feature this product at the ISPA Expo in New Orleans next March (the international sleeping products industry trade show held every 2 years). Further enquiry suggests that it is “definitely possible” that launch may happen even earlier than that.

With respect to the Alexiflam NF agreement with ICL, the current plan is to accelerate getting to market by focusing initially on ICL as distributor while Alexium is responsible for manufacture. The only guidance on time to market is in the presentation – launch of NF into the European/Middle East/African workwear market is due to occur before the end of this financial year.


My Thoughts

Obviously, this is an uncertain and stressful time for both shareholders and the Board. I’d observe that it is also exceedingly frustrating, given the company seems to be so close to where it needs to be at. I certainly detected a high level of frustration in both Bob Brookins and Jason Lewis.

I understand the risks involved at this time and realise that some shareholders will opt to bail out completely. I also anticipate that the share price will drop to the CR price. It usually does.

I definitely won’t be selling any shares at this time. I do intend to buy more, but am not decided yet how many and exactly when. Another company in which I’m invested announced an even bigger CR today, so I’ve got that to consider as well. BTW, that particular company was reduced to a $10m raise @ .01c four years ago. I opted to take up my entitlement. Recently, it has traded as high as  @.07c.