Dick Smith goes into administration

Discussion in 'Living Room' started by MTR, 5th Jan, 2016.

Join Australia's most dynamic and respected property investment community
  1. wogitalia

    wogitalia Well-Known Member

    Joined:
    28th Oct, 2015
    Posts:
    872
    Location:
    Perth
    There is actually another article linked in that article that was done around the time of the IPO, I didn't read it but I imagine it says similar things given they've linked it in support.

    Financial Statements are difficult to read, I'd say they're intentionally difficult to read with intent, the directors will hide a lot of important information in the notes to make it as convoluted and difficult to find as possible. I think it's kind of ridiculous that the accounting standards have essentially been designed at this point so that you pretty much need to be an accountant to actually read them and make any sense of them.
     
  2. Truly Exotic

    Truly Exotic Well-Known Member

    Joined:
    21st Aug, 2015
    Posts:
    1,032
    Location:
    16.4944° S, 151.7364° W
    Im not an expert in this field but what i learnt from an article linked to dse

    Simplified:

    The private equity company involved, decide the stock valued at 200m is now only worth 100m (malicious or not).

    Dick smith do a huge 30% off sale.
    So they sell 140m but on paper theyve made a 40m profit

    Also they increase cashflow by stopping ordering new stock which makes the books look better

    And the worse one ive heard is selling gift cards and deposits as much as possible at the large minute so when the company goes down . They dont have to honor it. Apparently they were pushing gift cards as late as boxing day with the promise of being honoured

    Rinse and repeat

    What a mess
     
    Ted Varrick likes this.
  3. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,091
    Location:
    Brisbane
    So we really live in a country where this is legal?
    You reckon in the fine print they said they're going to do this:
    Dick Smith disaster in five steps
     
  4. 158

    158 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,275
    Location:
    Brisbane, Qld
    Hindsight is a wonderful thing isn't it?

    pinkboy
     
  5. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,091
    Location:
    Brisbane
    Indeed.
    I'd be pretty angry if I bought shares.
    Probably enough to find one of the directors and let them know in person.
     
    158 likes this.
  6. jim1964

    jim1964 1941

    Joined:
    18th Jun, 2015
    Posts:
    1,298
    Location:
    Westcoster Strahan Tasmania
    Maybe the death of the gift card.I will think twice now before purchasing.
     
    datto, S.T and WattleIdo like this.
  7. Ted Varrick

    Ted Varrick Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    1,941
    Location:
    No Mans Land
    TE, you have pretty much nailed it.

    If this Dick Smith float isn't awarded with one of the best Pump'n'Dump Awards for this decade, then one could only imagine that a big fat prospectus full of photos of "our Jen" (Hawkins) to a bunch of Myer One members at $4.10 a share would have to be, arguably, a close second.

    And, whilst I don't want to go too far out on a limb, there are probably a large number of Spotless Group Holdings shareholders who have found recently that grabbing their (financially speaking, of course) ankles has turned out to be a less than ideal experience.

    Buying off a private equity seller, as demonstrated by a number of recent examples, just seems like monetary poison.

    And let's face it, if PE are selling, how could it possibly be such a bargain?

    And congrats to Matt Ryan for picking through the Dick Smith entrails in the Forager Funds article.

    What a great call.
     
  8. Blacky

    Blacky Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    2,066
    Location:
    Bali
    Lets not confuse 'legal' with 'right or wrong'. Morals and eithics are not the same as legal.

    Blacky
     
    Adele likes this.
  9. Speede

    Speede Well-Known Member

    Joined:
    26th Sep, 2015
    Posts:
    786
    Location:
    A wannabe Mexican
    Our Team
     
  10. Foxy Moron

    Foxy Moron Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    337
    Location:
    Copperhead Road
    I’m also loving that gutsy assessment from Matt Ryan where he opines how the boys from Anchorage Capital roll.
    For interests sake I perused the Dick Smith Holdings Limited Prospectus, to try and get my head around the money trail. On page 14 it clearly explains why the offer is being conducted, including to :
    “give Anchorage an opportunity to realise part of its investment in Dick Smith now that the major transformation initiatives have been implemented, given that Anchorage is a turnaround-focused private equity firm (Anchorage’s retention of a 20.0% holding of Shares reflects its support in continuing to deliver the benefits of the transformation program and Anchorage’s confidence in the Company’s forecast financial performance). In particular,the Offer raises capital to fund the acquisition of Dick Smith Sub Shares by the Company from Anchorage under the Sale Deed…”

    They openly admit the main use of the funds raised will go to Anchorage and so those funds would not be used as working capital in this ultra-competitive industry. Well how did they expect to bed down the celebrated turnaround program after they just ripped all the cash out of the business and ran the stock right down? It’s like me rocking down to the local caryard to buy a car, and I pay for it not with my own cash but the money I found in the glovebox. You beauty! Even rich folk love free stuff.

    Support ? Lol. Appearances have been kept up just long enough for Anchorage to sell down their remaining 20% just nine months after the float, then run like hell from this steaming pile, with the chairman exiting the board a short time later. Mission accomplished. Next victim please.

    Illegal ? Perhaps not. Evil ? Absolutely. This story is only just unfolding in my view.
     
  11. jrc

    jrc Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    260
    Location:
    Regional NSW
    The statement of cash flows for 2015 shows they weren't making a positive operating cash flow from the oprating activities.
    It's certainly encouraging that Note 18 to the report says they manage their capital so they can continue as a going concern. Imagine what the situation would be if they didn't - they would be in administration and have receivers appointed.
    Still the first almost 40 pages of the report says how well they handle corporate governance - this must be a huge consolation to the unsecured creditors, employees and shareholders NOT.
    Interesting that there was a decline in the share price on 18 and 19 August the day the report was released and the next day and the number of shares sold on those 2 days was significantly greater than before and after.
     
    Last edited: 6th Jan, 2016
  12. jrc

    jrc Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    260
    Location:
    Regional NSW
    There have been a few insolvencies where the administrators honoured part value of gift cards - Angus & Robertson was one and a furniture shop was another.

    Of course the real value to a retailer on gift cards is they must expect a reasonable percentage will not be redeemed. I went inti Big W a couple ofdays before Christmas to get my daughter's present - a bike which was 50% off on sale. Big W were offering gift cards at 10% discount so. i purchased a card and saved another 10% off the initial price of the bike. It. only makes sense if they expect either a large percentage of gift cards to expire unused or only partialy used. I better epend that last 75 cents while it's on my mind.
     
  13. wogitalia

    wogitalia Well-Known Member

    Joined:
    28th Oct, 2015
    Posts:
    872
    Location:
    Perth
    They also work on the idea that getting someone into the store is likely to result in them buying multiple things. Take that Big W gift card, if you give it to someone and they go in to buy a bike, solid chance they're buying a helmet at the same time and then maybe grabbing that new Pixar movie when the kid nags them and perhaps a few chocolates at the counter on the way out.
     
    The Falcon likes this.
  14. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,091
    Location:
    Brisbane
    I have no comment on the moral aspect, just wondering if this is actually legal?
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    No direct laws against it as far as I am aware. But they could be caught up, the company and the directors personally, in various laws especially Australian Consumer Law for false and misleading advertising and statements. But what they wrote in the prospectus would have probably been all true at the time.

    Maybe there will be a class action in the future.
     
    MTR likes this.
  16. Blacky

    Blacky Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    2,066
    Location:
    Bali
    I havent looked at what they actually did (with the exception of this thread and a link or two), however, from what I have seen it was legal.

    For the most part they wrote down inventory values. This may be questioned as to how they ascertained a 'fair market value' but overall it will be hard to prove any wrong doing.
    Electronics actually have a faily short 'shelf life'. A product can be outdated within months. So basically they had obsolete stock on hand, wrote it off, had a sale and cleared out as much as they could.

    From the snippit of the prospectus above they seem to have been fairly blatant about their intentions. The later sale of the 20% may come into question (did they actually intend to sell this 20% at a later date, but ommited this point from the prospectus?).

    In short, provided the prospectus was accurate at the time, then yes it seems legal.
    Not to say it wont be questioned - but I would be suprised if any law suit finds wrong doing...and if they do the proponents will walk away with a slap on the wrist. The investors will be left with their broken dreams.

    Stripping a business prior to sale is very common practice. Most private business sales will offer 2-3 years of financial statements - and even if you ask will get excuces as to why more arent available. If I was buying a buness I would want 5years+. The older statements arent availble as they wont be painting a pretty picture.

    Blacky
     
  17. JDP1

    JDP1 Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    4,244
    Location:
    Brisbane
    yeah it seems legit- that's the game being played. Its high stakes, high risk, win/lose world of PE.
     
  18. charpj

    charpj Well-Known Member

    Joined:
    21st Sep, 2015
    Posts:
    83
    Location:
    Melbourne
    Would like to read the management representations around the inventory accounts. I agree fast moving stock, but were the assertions by management tested by external auditors. Perhaps not , the old tick and flick.
     
  19. Biz

    Biz Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,517
    Location:
    Investard county
    People crying over gift cards...

    I know of a particular property group who gave them a 300k fit out contribution a few days before they went under...
     
  20. Truly Exotic

    Truly Exotic Well-Known Member

    Joined:
    21st Aug, 2015
    Posts:
    1,032
    Location:
    16.4944° S, 151.7364° W
    personal comment but corporate fat cats disgust me
     

Buy Property Interstate WITHOUT Dropping $15k On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia