MAXWELL (5189) - Maxwells Mysterious Marketing (4)

I wrote before (here, here and here) about Maxwell's puzzling decision to spend a huge amount of money on billboards with zero impact, for instance:

The company increased its marketing spending by a factor 39 (!) compared to the preceding year, but revenue was down 38%, while gross margin went from 24% to a pathetic 6%.

It all doesn't make any sense whatsoever.

It would be good if the auditor would demand a list of the locations (GPS coordinates) of all 390 billboards and would check a few of them randomly if they exist and if they really feature Maxwell's advertisements.

It seems that the auditor has indeed tried to do that, Maxwell announced today:

.... that the Board has been presented with the Report dated 19 July 2016 by Ferrier Hodgson MH Sdn Bhd (“FHMH”).

Some snippets:

In view of the above, questions arise on the commercial and financial justification for incurring those advertisement costs of RM64.62 million (RMB92.40 million) when the MIHB Group was at the same time trying to down-size its involvement in the retailing business. (Section 4.3.2).

A search on the Six Advertising Contractors (similar to the companies searches made in the Companies Commission of Malaysia) was carried out and it was revealed that two (2) out of the Six Advertising Contractors were not in existence whilst one (1) had already ceased operations.

Numerous requests were made to the MIHB Group’s management for assistance to arrange for meetings with the said Six Advertising Contractors. MIHB Group’s management had represented to FHMH that since the last 10% of the contract sum has not been paid to the Six Advertising Contractors, the relationship between the Six Advertising Contractors and the MIHB Group has gone sour. It was unlikely that the Six Advertising Contractors would be agreeable to a meeting with FHMH.

According to the contracts with the Six Advertising Contractors, 390 billboards were to be erected in cities across the PRC for a one year period from 1 March 2015 to 29 February 2016.

2. Since FHMH's appointment on 21 December 2015, we have not been able to visit any of these 390 sites as the billboards have been dismantled in October 2015 for non-payment of the remaining 10% of the consideration.

The management’s reason for not paying the remaining 10% was that the advertising activities were not positively contributing to the sales of MXCL, notwithstanding the non-payment is a breach of MXCL's contractual obligations.

On 27 January 2016, TSS by way of emails forwarded 53 JPEG files which purportedly show images of billboards of the relevant products being advertised by city only. There is no reference to any streets or buildings numbers or exact locations of same.

5. We had further conducted examination on the JPEG files particularly with respect to the properties and details of each of the JPEG files which suggests that
the JPEG files have been created under Adobe Photoshop program.

What a mess!

For those who are counting on some form of justice to be done in China for the Malaysian shareholders of Maxwell: good luck with that.

The share price since it's IPO:

MAXWELL (5189) - Maxwells Mysterious Marketing (4)