A minority group of shareholders in ASX-listed Quickflix [ASX: QFX] want to remove the board of the streaming and on-demand video supplier, after losing confidence in the company over years of underperformance, a brush with insolvency, and a plunging share price.
Quickflix investors with about 5.8 percent of the voting rights are seeking a general meeting to vote out the company's existing board, made up of chairman and chief executive Stephen Langsford, Simon Hodge and David Sanders, and install their own directors to implement a plan put together by US-based turnaround specialist Tournament Field. The shareholders include Guaranty Finance Investors, Custodial Services Ltd, Robin Fox and David Cannon.
Auckland-based Cannon, who has been a Quickflix shareholder for about two years, told BusinessDesk the shareholders only needed 5 percent support to force a meeting where the resolutions can be voted on, but that he anticipates wider support to replace the board.
"Their (the Quickflix board) plan is just to raise capital and hope for the best that someone will partner with them to help them out, but nobody's interested," Cannon said.
He said he was initially attracted to Quickflix's streaming video proposition and the backing it had from US pay-TV operator Home Box Office. Still, last year he complained to the ASX about the way the company disclosed subscription information and what he saw as its slow updates on distribution and funding arrangements.
"HBO exited the board, and there are now just three people on the board - I think they're completely out of options," Cannon said.
If the activist shareholders succeed, they would elect a turnaround team to the board made up of former Thorn EMI Films chief Gary Dartnall, Tournament Field founder Matthew Joynes, former Shine Group chief financial officer Malcolm Reeve and US investment banker Ethan Gilmore.
Last month, Cottesloe, West Australia-based Quickflix told the ASX it had been asked to convene a general meeting, but that the request didn't meet the 5 percent threshold and didn't constitute a notice under the Corporations Act.
In an email to BusinessDesk, Quickflix company secretary Sharon Hunter referred to the February announcement and said "it is not the company's policy to comment on speculation regarding the statements you have noted below in relation to this purported notice."
Quickflix widened its loss to A$4.23 million in the six months ended Dec. 31, from A$3.41 million a year earlier, as revenue fell 12 percent and paying customer numbers shrank 10 percent. It had a cash inflow of A$619,000 and noted a A$901,000 tax refund. The company raised A$5.1 million, leaving it with cash on hand of A$5.17 million as at Dec. 31.
The first-half accounts were tagged by auditor Grant Thornton, which said there was a material uncertainty as to whether Quickflix could continue as a going concern, citing an A$4.9 million deficiency in net assets, the loss in the period and operational cash flow.
The company's shares recently traded at 0.9 Australian cents apiece, valuing the company at A$10.4 million. The stock has plunged 93 percent over the past two years, a period that included a three-week trading suspension in 2012 as Quickflix mulled funding options in the face of potential insolvency.
This week, Cashel Capital Partners, a fund operated by Cashel House, announced a 7 percent holding in Quickflix, up from a 5 percent stake it noted last month, according to substantial shareholder notices to the ASX.
Tournament Field's Joynes said in an email that Quickflix can only break even by eliminating customer churn, which he says it can do by rewarding customer loyalty.
"It could be at breakeven now if management actually knew what they were doing," he said.
Tournament Field was engaged by Quickflix's senior convertible debt holder to pursue options if the company fell over, and to determine whether it could be turned around before an insolvency event, according to an executive summary of its turnaround plan.
"Tournament Field proposes to make critical changes to the business and operating plan for Quickflix to enable it to become the dominant full service digital streaming home entertainment company of Australia and New Zealand," the document said. "We propose transforming the company into a technology company at its core."
It sees the main challenge as keeping 110,000 customers and converting them to digital streaming, before eventually building that to 1 million customers to achieve a dominant position in Australasia and parts of Asia.
The main solutions put forward in the plan are to provide existing DVD customers with a free set-top box for digital streaming provided they extend their subscriptions for 12 months, entering into co-promotion deals with local partners in the hotel, airline, sporting or broadcast industries before closing the DVD business, and restructuring content arrangements.
It also aims to secure A$10 million of new debt funding and A$5 million in equity to pay for customer acquisitions and cover operating costs over the next two years.
The end goal would be for Quickflix to achieve annual revenue in excess of A$150 million within five years, with a minimum operating margin of 20 percent.