Receiver wants to sell Dick Smith as a going concern

UPDATE: Says NZ unit profitable but gift vouchers, deposits won't be honoured | NBR visits a Dick Smith outlet.

See also: The agony and the agony: Dick Smith's journey from private equity plaything to IPO

UPDATE: The receivers of Dick Smith Holdings want to sell the consumer electronics chain with 393 stores in Australia and New Zealand as a going concern and say it will be business as usual while they consider restructuring and realisation options.

"We are immediately calling for expressions of interest for a sale of the business as a going concern," receiver James Stewart says in a statement.

The New Zealand division of the business was profitable "and expected it would be attractive to potential buyers," Mr Stewart says.

The retailer won't be completely business as usual in receivership as Mr Stewart said outstanding gift vouchers won't be honoured and deposits won't be refunded, he says.

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

Dick Smith's DSE (NZ) unit posted a profit of about $1.4 million in the 12 months ended June 28, down from about $3.7 million a year earlier. Sales fell to $179 million from $199 million.

EARLIER: Dick Smith Holdings, the consumer electronics chain with 393 stores in Australia and New Zealand, has been been placed in voluntary administration and receivership two years after being taken public by buyout firm Anchorage Capital Partners.

Its shares, which have been in a trading halt Monday, were immediately suspended from the ASX.

The immediate cause of the receiversip was Christmas sales that saw banks refuse to participate in the proposed debt restructure, leaving no money to buy stock. But deeper problems over debt, inventory stripping, accounting and valuation stem from its time under private equity ownership and IPO.

The appointment of McGrathNicol as voluntary administration and Jim Sarantinos, Ryan Eagle and James Stewart of Ferrier Hodgson as receivers comes after Dick Smith shares were halted on the ASX yesterday pending an announcement on its funding position and debt financing covenants. That followed a A$60 million impairment against inventory, flagged on Nov. 30 with the possibility of more charges, which meant the retailer couldn't affirm its profit guidance.

The administration is described in an ASX filing as voluntary, but The Australian reports it was lead banks NAB and HSBC who called in the receivers.

"Directors formed the view that any success in obtaining alternative funding would not have been sufficiently timely to support short-term funding requirements and allow the company to order required inventory during the next four to six weeks," chairman Rob Murray said in a statement to the ASX.

The stock last traded at 35.5 Australian cents on the ASX, having tumbled 84 percent from the A$2.20-a-share Anchorage set for its initial public offering two years ago. It bought Dick Smith from Woolworths in 2012, in a deal reportedly valued at about A$115 million, before selling down in 2013 in an IPO that valued the company at A$520.3 million. Anchorage sold its remaining 20 percent in September 2014 for about A$2.22 a share.

An Auckland Dick Smith store visited by NBR about an hour after the receivership announcement was open. Staff were clustered behind the counter, anxiously scanning news sites on their phones. One said, "We've been told nothing. I don't know anything beyond what I've read on the Herald." (If she read NBR, she would have at least been forewarned.) They did not know if the chain would try to trade its way out of receivership. They were also worried whether their next pay would come through.

As with any liquidation, customers' vouchers, deposits, extended warranties and laybys are under threat. Dick Smith has yet to make any announcement on those fronts.

A statement byMr Murray says December sales were disappointing. He was confident in the long-term viability of the company, but it could not put together new banking arrangements to meet its short-term debt repayment requirements.

The retailer brought in external consultants after disappointing trading in October and November, and was underway with "significant marketing activity" to stimulate sales ahead of Christmas, the company said in November. At the time, managing director Nick Abboud said Dick Smith would maintain "flexibility on gross margin to reduce inventory and improve our debt position," a signal that more discounting is likely.

It cut prices in the run-up to Christmas to clear inventory, having struggled to compete against more profitable rivals such as JB Hi-Fi and Harvey Norman.

Dick Smith lifted sales by 7.5 percent to A$1.3 billion in 2015, although gross margin shrank to 24.8 percent from 25.1 percent, while profit fell about 10 percent, including one-time items, to A$37.9 million.


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