The colourful characters and history of struggling Gold Coast dental group Smiles Inclusive Ltd
A boardroom battle for control of Gold Coast dental roll-up Smiles Inclusive is shaping up as one serious corporate fight. How did it get to this point? The Bulletin has traced the company’s history from its founders’ roots in England.
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NEXT month’s boardroom battle for control of Gold Coast dental roll-up Smiles Inclusive is shaping up as one serious corporate fight.
The infighting combined with poor results have combined to reduce the market size of Smiles to that of a micro-cap, with the company worth just $8.98 million at the close of trade yesterday.
That is far short of the $60 million value the company had after it listed in April last year.
Ousted CEO Mike Timoney, who remains a director, has teamed up with former chairman David Herlihy to take on current chair David Usasz and executive director Tracy Penn.
Accusations of skulduggery and misconduct, by both sides, have flown like confetti while investors have suffered from a bad case of toothache. How did it get to this point? The Bulletin has traced the history of Smiles Inclusive back to when Mr Timoney arrived on the Gold Coast from England.
FROM BARTERCARD UK TO GOLD COAST DENTISTRY
Before leaving the grey skies of Staines, England, and heading to the sunny shores of Australia, Mr Timoney headed up the Bartercard operation in the UK.
According to friend and Bartercard co-founder Andrew Federowsky, Mr Timoney sought out the Gold Coast-based trade exchange system from England.
“He was a proactive operator, he contacted us,” he said yesterday.
“He and his business partner Nicholas Tammik ended up buying the Bartercard licence for the UK.”
Mr Ferderowsky sold the licence to Mr Timoney and Mr Tammik in 1996.
He said they successfully grew the Bartercard business in the UK for seven years up until 2003.
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“He (Mr Timoney) was a good driver,” he said.
“At the time we were selling memberships rather than subscriptions, you have to be sales focused to run that.”
Mr Timoney and Mr Tammik sold the Bartercard UK operation back to the founders in 2003 and Mr Timoney immigrated to Australia where he started a dental practice with his now ex-wife Sharon Timoney.
On his LinkedIn profile, Mr Timoney cites the Bartercard experience as being similar to the business plan for Totally Teeth, which he would later set up on the Gold Coast.
STUART ROBERT’S SMILES INVESTMENT
DENTAL DEJA VU
The Smiles Inclusive saga has a familiar ring to people involved in the former Southport-based Dental Partners. After emigrating from England, Mr Timoney and the then Mrs Timoney set up a Totally Teeth clinic in Southport in 2005.
Mr Timoney told the Bulletin in 2011 that he saw an opportunity to make a mark in the industry.
“My wife is a dentist and when we were still in the UK, I was always talking to her about how the business could be run better and listening to her explain the challenges,’’ he said.
“When we moved to Australia (in 2004), she took me up on my offer to get involved.’’
Within three years Totally Teeth had more than 30,000 patients, turnover of $3 million and employed nine full-time dentists.
Mr Timoney then founded dental consolidation group Dental Partners with colleague David Garofalo. The idea was buy practices from clinicians and take on an administrative role while leaving the dentists to look after their patients.
By 2011 Dental Partners had grown from an initial portfolio of nine practices to 53 practices, including seven on the Gold Coast.
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The following year Abano Healthcare, which in 2008 had bought 70 per cent of Dental Partners for $14.04 million, bought full control of the business.
Mr Timoney stayed on as CEO with an annual package worth $384,852, but in January, 2013 he was called to a board meeting and sacked.
He ended up suing Dental Partners, alleging misleading and deceptive conduct by the Dental Partners’ chairman and Abano managing director Alan Clarke.
“One minute I was working there and next minute I had virtually evaporated from the business,” he said in 2014.
“My litigation at least presents the facts in public so that my 1000 staff can form their own opinions about my dismissal.”
Mr Timoney also alleged a consultant employed to carry out a performance review was not independent and that Mr Clarke was a shareholder in the consultancy.
Mr Timoney’s case was dismissed in 2016.
ALL SMILES AT LISTING
In early 2017 Mr Timoney, who had previously tried and failed to float Dental Partners, had another crack at listing a dental consolidation group.
He engaged Lynda Woods, of Morgans, and Anne-Maree Keane, of KPMG, from his previous effort in 2007 to assist with the process.
Mr Timoney told the Bulletin last year it was a marathon effort listing Smiles, which started trading in April last year.
“When I ran the marathon (in London) you concentrate on the next kilometre, you don’t think, I’ve got 42 more of these to do, you say, I’ll get from 30 to 31, and 31 to 32, let’s not go too fast because you will blow yourself up but don’t go too slow either,” he said.
“That is a good analogy for doing an IPO, you have just have to get in the stride, but don’t disillusion yourself with the workload in front of you.”
The listing effort took a total of 392 days and was set up similar to Dental Partners, with dentists selling their clinics but continuing to run the practices and remaining investors.
Morgans, which was underwriter for the float, picking up $1.75 million in fees, and KPMG as well as Talbot Sayer and Smiles executives, came together to author the 120-page prospectus document.
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Then there was a two-week long roadshow in major Australasian cities.
Smiles raised $35 million in the initial public offering and floated with an issue price of $1 and a portfolio of 52 practices. The IPO was several times oversubscribed with strong interest from retail and institutional investors.
The share price hit a high $1.16 before poor results saw the price crash plummet to just a small percentage of its worth at the float. The Bulletin contacted Morgans for comment but was told executive director Phillip Lee was away and not available for comment.
ROTTEN RESULTS
The first half-year results for the newly-minted Smiles was a disaster, with the company reporting an after-tax loss of $1.59 million on practice revenue of $16.1 million.
Smiles blamed a number of reasons for the loss, including the nondisclosure of a court case by one of the vendors that sold to the dental group. This referred to the $7 million acquisition of a mobile dental surgery business in April last year. The business was called Smiles on Site and was run by Jeremias Olivier. Smiles claimed at the time of purchase it did not know about a court case involving the illegal X-rays in 2014 and 2015. Smiles on Site was fined $198,000 by a NSW court over nine counts of employees taking X-rays of schoolchildren’s mouths without holding a radiation licence. The business was temporarily closed as a result. As if that wasn’t bad enough, Smiles also took a hit from the unexpected deaths of two key people in the business including a Sydney dentist. Other factors cited included delays in physical and key branding, poor rostering systems and integration costs.
EXECUTIVE EXTRACTION
Mr Timoney was asked to stand aside from the CEO role after the poor first-half result. It was the second time he had been asked to leave the top job following his ousting from Dental Partners in 2013. Mr Timoney was quoted in a statement saying the company was distracted by the deaths of the two staff and the legal proceedings against Smiles on Site.
“The impact of a number of significant events over the past six months drew management attention away from ensuring that key processes and systems were firmly bedded down,” he said in an ASX statement.
“We are however now fully committed to this and to continuing the organic growth initiatives previously outlined and executing additional operational efficiencies.”
Chairman David Herlihy left his role within a week and was replaced by David Usasz.
SHARE PRICE DRILLED
The assurances from Mr Timoney and newly-installed COO Tony McCormack (now CEO) did little to stop the share price crashing. On March 1, the morning after the results announcement, the share price shed more than 50 per cent of its value, wiping $8.69 million off the market capitalisation. Prior to that the stock had already lost a massive chunk of its value and stood at just 28.5¢. It began its long descent to the (near) bottom in October last year following a first-quarter trading update, which showed cashflow below expectations. Smiles also referenced the legal case and the death of the Sydney dentist.
FERRARI FIESTAS
Mr Timoney is being sued by Smiles for allegedly engaging his wife to provide swanky cocktail parties at Ferrari dealerships and overcharging as much as 30 per cent.
The events billed to Smiles included $29,270.80 for dinner and cocktail events at a Ferrari dealership in Brisbane on May 23 and 24 last year that cost $29,270 and $26,249 for another cocktail party at a Ferrari dealership in Melbourne on June 28.
The total cost billed to Smiles between March and June last year was $167,630.
Mr Timoney is also accused by the company of receiving more than $79,000 in company funds, which included close to $40,000 for trips to the US and Europe, that the company says were not incurred as part of “proper Smiles business”.
Mr Timoney denies the allegations and says the mark-ups on hospitality services were normal practice and the trips were for personal reasons conducted under a salary-sacrifice arrangement.
The new board of Smiles is suing Mr Timoney, Mr Herlihy, Pink Diamond Events Pty Ltd, linked to Mr Timoney’s wife, Romania-born Ildi Redak, and Investment Centre Pty Ltd, which is controlled by Mr Timoney.
Smiles is seeking compensation and restitution from the parties for what it alleges was serious misconduct and breaches of law by Mr Timoney.
BOARDROOM BATTLE
The ousted CEO launched a mutiny to wrest back control of the flailing company he founded, combining his shareholdings with David Herlihy, who had resigned as chairman of the Burleigh Heads-based company two days earlier.
The pair pledged to call an extraordinary general meeting to extract new chairman David Usasz and Tracey Penn from the board and fill the gap with paediatric dentist and SIL shareholder John Camacho.
A millionaire motorcyclist joined the fray in the form of major shareholder Lev Mizikovsky, founder of Brisbane-based homebuilding outfit Tamawood.
Mr Mizikovsky and co-agitator John Hamilton stepped forward with two new resolutions for the meeting, aimed at removing Mr Timoney and Mr Herlihy from the board.
Team Timoney mounted a second campaign to oust the board, adding director Peter Evans and calling for a second EGM to get the job done.
In a third notice this week, another resolution was added, calling for anyone else Smiles appoints as a director to be added to their hit list for extraction.
The company responded by terminating Mr Timoney’s employment. In the same announcement, Smiles delivered the sobering news it had revised guidance for the financial year for the second time — flagging a loss of “at least $4 million”, compared to an initial profit forecast of $2.3 million.
The meeting to consider all the resolutions will be held on May 22.
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