Dick Smith in receivership

  • 05/01/2016
Dick Smith in receivership

Lenders have taken charge of Dick Smith, one of Australia's best known electronics retailers, after the company failed to secure a funds injection.

A syndicate of its lenders, including National Australia Bank and HSBC, on Tuesday appointed Ferrier Hodgson as receivers and managers over the company, with the aim of salvaging value from the struggling business.

"We are immediately calling for expressions of interest for a sale of the business as a going concern," Ferrier Hodgson partner James Stewart said, adding that it would be business as usual for the retailer in the meantime.

Dick Smith operates a chain of 393 stores across New Zealand and Australia, with around 3300 employees.

Mr Stewart said while workers would continue to be paid, customers would not be able to use Dick Smith gift vouchers or receive refunds for deposits made on goods.

The swift demise for the business comes just two years after private equity firm Anchorage Capital Partners floated the company on the Australian share market at $2.20 a share, valuing it at $520 million.

Anchorage acquired the business from retail giant Woolworths in 2012, paying $94 million.

Dick Smith was last valued at $84 million, ahead of its trading halt on Tuesday which followed the battering its shares received after an extended spell of weak sales in recent months.

"The suspension from trading marks a very sorry end for investors," CMC Markets' chief strategist Michael McCarthy said.

The retailer first warned in October its full year profit could fall as much as 15 percent, as it stepped up discounting and advertising to boost sales.

However, the sales slump continued into November, resulting in the company dumping its profit forecast a few weeks later.

The retailer was forced to launch a firesale in early December to clear unwanted stock that cost it about $60 million in writedowns, and had pinned hopes on the crucial Christmas holiday period sales.

However, the weak trend from previous months continued in December, with worse-than-expected sales.

The business has long been under pressure, given the competitive market it operates in and the threat from online retailers, Morningstar retail analyst Daniel Mueller said.

"Given the operating difficulties they are having, and the categories they are present in, it's hard to see a turnaround in the business."

In a statement, the company says it explored "alternative funding", but the directors believed achieving that "would not have been sufficiently timely to support the short-term funding requirements to allow the company to order required inventory during the next four to six weeks".

The owners, however, were "confident" about the long-term viability of the company though weren't able to get enough financial support to make it that far.

"The directors are of the view that without this support, there is no option other than to appoint a voluntary administrator."

They believe the option will protect interests of shareholders, creditors, employees, suppliers and other stakeholders.

McGrathNicol has been appointed voluntary administrator.

The troubled company's Australian shares were placed in a trading halt yesterday, ahead of an expected announcement this morning.

Founder Dick Smith hasn't owned shares in the business since he sold it to Woolworths in 1982.

Dick Smith has been struggling to compete with rivals JB Hi-fi and Harvey Norman and faced fierce criticism for its fire sale strategy over Christmas.

The company has 393 stores in Australia and New Zealand, and the move comes two years after being taken public by buyout firm Anchorage Capital Partners.

The appointment of Jim Sarantinos, Ryan Eagle and James Stewart of Ferrier Hodgson as external administrators comes after Dick Smith shares were halted on the ASX on Monday pending an announcement on its funding position and debt financing covenants.

That followed a $A60m impairment against inventory, flagged on November 30 with the possibility of more charges, which meant the retailer couldn't affirm its profit guidance.

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.

Dick Smith lifted sales by 7.5 per cent to $A1.3 billion in 2015, although gross margin shrank to 24.8 per cent from 25.1 per cent, while profit fell about 10 per cent, including one-time items, to $A37.9m.

It is unclear at this stage how the decision will affect New Zealand stores.

3 News / NZN