Dick Smith CFO knew of ‘over-reliance’ on rebates

Dick Smith’s CFO knew the chain had an over-reliance on supplier rebates, public examination has revealed.

The chief financial officer of the failed Dick Smith retail chain knew the company had an “over-reliance” on cash rebates from its suppliers, the receiver’s key accusation against management, it has been revealed at a public examination.

The NSW Supreme Court public examination into the failed retailer was read an email from September last year in which Michael Potts said that reliance led to “wrong purchasing” decisions.

In the email Mr Potts said Dick Smith had: “Over-reliance on ... rebates leading to wrong purchasing and pricing decisions”.

When pressed on whether this situation could have led to incorrect profitability figures he responded: “Not materially, but perhaps.”

Big retailers regularly strike rebate agreements with suppliers whereby the retailer is paid by the supplier to conduct advertising and engage in other marketing incentives.

That size of the rebate depends on the amount of stock purchased and suppliers typically give retailers rebates of about 3 per cent to spend on marketing.

Dick Smith receivers Ferrier Hodgson have alleged the chain’s management and directors used rebates to improperly inflate the group’s financial position by maximising rebates, effectively

“borrowing” profit from future periods.

The public examination also heard Mr Potts had sent an email discussing the “pros and cons” of changing the way Dick Smith recorded rebates in its accounting.

Former Dick Smith chief executive Nick Abboud, who has not spoken publicly since the retailer’s collapse earlier this year, is expected to take the stand later this afternoon.