Dick Smith enters voluntary administration

McGrathNicol appointed administrator, receivers seek buyer for troubled retailer.

Dick Smith chief Nick Abboud

Dick Smith has entered voluntary administration, with disappointing December sales and a lack of short-term funding giving it “no option” but to appoint an administrator.

McGrathNicol will act as administrator, while Ferrier Hodgson partners James Stewart, Jim Sarantinos and Ryan Eagle have been appointed as receivers by Dick Smith’s lenders.

Mr Stewart said it was too early to clearly identify the primary causes of the company’s current financial position and the reasons for its decline other than saying the business had become cash constrained in recent times.

He said it would be “business as usual” for the troubled retailer’s 393 stores while receivers look at the restructuring and realisation opportunities for the group.

“We are immediately calling for expressions of interest for a sale of the business as a going concern,” Mr Stewart said.

The New Zealand business is profitable and would be attractive to potential buyers, he said.

While employees will continue to be paid by the receivers, outstanding gift vouchers would not be honoured and deposits could not be refunded.

In a statement to the Australian Securities exchange, Dick Smith said lower-than-expected sales and cash generation in December continued a trend experienced during the second quarter of 2016.

The company explored alternate funding options, but said even if successful these would not have given it enough time to support short-term funding requirements and allow it to order required inventory in the coming month.

“While confident on the long-term viability of the company, the directors have been unsuccessful in obtaining the necessary support of its banking syndicate to see it through this period.

“The directors are of the view that without this support, there is no option other than to appoint a voluntary administrator,” Dick Smith said.

The board and senior management will work with administrator McGrathNicol “to explore all options to allow the company to continue as a going concern”.

Dick Smith said it believed the decision was the best way to protect the interests of shareholders, creditors, employees, suppliers and other stakeholders.

The news comes after shareholders were hit with two profit warnings from the retailer in the months leading up to Christmas, including $60 million in inventory write-offs.

Dick Smith shares slumped 82 per cent in 2015 and last traded at 36c. This compares with the $2.20 a share investors paid when private equity firm Anchorage Capital Partners floated the company two years ago for $520 million.

The retailer’s shares have been suspended from the ASX.

McGrathNicol has been appointed as administrator.

Lower-than-expected sales and cash generation in December continued a trend experienced during the second quarter of 2016, the troubled retailer said in a statement issued to the Australian Securities Exchange.

The company explored alternate funding, but even if successful it would not have given it enough time to support short-term funding requirements and allow it to order required inventory during the next four to six weeks, it said.

“While confident on the long-term viability of the company, the directors have been unsuccessful in obtaining the necessary support of its banking syndicate to see it through this period.

“The directors are of the view that without this support, there is no option other than to appoint a voluntary administrator,” Dick Smith said.

The board and senior management will work with McGrathNicol “to explore all options to allow the company to continue as a going concern”.

Dick Smith said it believed the appointment of a voluntary administrator was the best way to protect the interests of shareholders, creditors, employees, suppliers and other stakeholders.