Receivership out of the blue

Dick Smith has lost the support of its bankers. Photo by Gregor Richardson.
Dick Smith has lost the support of its bankers. Photo by Gregor Richardson.
Dick Smith staff in New Zealand appeared to have been caught unawares as their employer went into receivership yesterday citing lack of support from its banking syndicate.

Staff approached were shocked to learn the news and were concerned about their future, their pay and their entitlements.

The electronics retail store visited by the Otago Daily Times showed signs of depleted stock and customers early in the afternoon.

Attempts to reach company officials to ask about the options for the New Zealand stores were not successful yesterday.

In a statement, chairman Rob Murray said sales and cash generation in December were below management expectations, continuing a trend experienced in the second quarter of the current financial year.

The company explored alternative funding but the directors formed the view any success in obtaining it would not have been timely enough to support short-term funding requirements and allow the company to order required inventory during the next four to six weeks.

The directors were confident of the long-term viability of the company but had been unsuccessful in obtaining the necessary support of its banking syndicate.

"Without this support, there is no option other than to appoint a voluntary administrator.''

The appointment of a voluntary administrator was the best way to protect the interests of shareholders, creditors, employees, suppliers and other stakeholders, Mr Murray said.

The company's lead bankers, NAB and HSBC, appointed James Stewart from Ferrier Hodgson as receiver.

McGrathNichol had been appointed to act as voluntary administrator.

The board would work with the administrator to try to allow the company to continue as a going concern.

The receivers of Dick Smith Holdings want to sell the consumer electronics chain as a going concern and say it will be business as usual while they consider restructuring and realisation options.

Mr Stewart said in a statement it was too early to clearly identify the primary causes of the company's current financial position and the reasons for its decline but said the business had become cash-constrained in recent times.

"We are immediately calling for expressions of interest for a sale of the business as a going concern.''

The New Zealand business was profitable and it was expected to be attractive to potential buyers.

The retailer would be completely business as usual in receivership, although Mr Stewart said outstanding gift vouchers would not be honoured and deposits would not be refunded.

"Affected customers will become unsecured creditors of the group,'' he said.

The retailer recently embarked on a highly criticised fire-sale strategy, banking on strong Christmas sales to turn around its precarious financial position and take pressure off its struggling management team led by Nicholas Abboud, The Australian newspaper reported.

Mr Abboud had originally forecast earnings of up to $A48 million ($NZ51.1 million) for the financial year, before that was reduced to between $37 million and $43 million, and later ditched altogether.

Dick Smith's share price closed at A35.5c when it last traded on December 31.

The company floated in late 2013 at $A2.20 a share but fell to as low as A20c at the height of investor concern last month.

Traditional rivals JB Hi-Fi and Harvey Norman also suffered share-price slumps but staged a recovery late last year.

Rivals are likely to benefit from Dick Smith's demise.

The company was started in 1968 by Australian entrepreneur Dick Smith, who later sold out to listed Woolworths.

Private equity firm Anchorage Capital Partners bought Dick Smith from Woolworths in 2012 in a deal with a reported value of about $A115 million, before selling down in 2013 in an initial public offering valuing the company at $A520.3 million.

Anchorage sold its remaining 20% in September 2014 for about $A2.22 a share.

"There's going to be disruption but in the end, there's going to be consolidation in the industry because none are making money,'' Forsyth Barr head of private wealth research Rob Mercer said.

"They are all struggling to make an appropriate return. It has been a crowded marketplace for a long time. Any slashing of prices pre and post-Christmas - that will eat margins.''

Forsyth Barr did not cover Dick Smith but Mr Mercer said one issue for the company would be maintaining the confidence of suppliers who, in happier times, might extend credit for up to 50 days.

That was where the banks were important to give some assurances.

New Zealand was a "particularly tough'' market for electronic retailers.

 


At a glance

• Dick Smith, the consumer electronics retail chain, operates 393 stores in Australia and New Zealand.

• The retailer has gone into receivership and appointed an administrator after saying its bankers had withdrawn their support.

• Staff in New Zealand caught unawares by the receivership, despite the company shares being in a trading halt in Australia.

• Gift vouchers will not be honoured.

• Receivership seen as first step in industry consolidation.


 

 

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