Trucking firm Scott’s was operating at a loss due to ‘challenging trading conditions’

There were concerns about the financial viability of now failed trucking firm Scott’s Refrigerated Logistics as far back as mid-2021, documents reveal.

There were concerns about the financial viability of Scott’s Refrigerated Logistics as far back as mid-2021 with the company’s financial report at the time saying its survival would rely on a combination of support from shareholders and financiers as well as cost reductions and revenue increases.

The company was also hit with problems upgrading its Transport Management System, causing “an adverse effect on operations for eight weeks’’, while flooding on Australia’s east coast in early 2022 also impacted the firm.

Receivers KordaMentha are currently undertaking an urgent sales process for Scott’s, which was placed in administration by its owner Anchorage Capital Partners on Monday, before, it is understood, one of its debt holders, Gordon Brothers, brought in KordaMentha as receivers.

The quantum of debt owed by Scott’s, which was bought from ASX-listed car dealer AP Eagers in mid-2020 for an estimated $75m, is unclear at this stage.

The company is Australia’s largest cold chain logistics operator, employing about 1500 staff plus subcontractors and has 24 cold storage warehouses across all mainland states.

It is understood supermarkets are engaged closely in the process to keep stock flowing.

Scott’s most recent financial report, lodged in December last year and covering the 16 month period to the end of June 2021, shows the company turned over more than $542m during that time, making a loss of $7.3m

The report includes a “going concern” statement, which is required when a board recognises a risk to a company’s ongoing ability to pay its debts.

Scott’s trucks help supply hundreds of supermarkets around the country. Picture: NCA NewsWire/Tertius Pickard

The report says that the cash position of the company at the end of June 2021 and recent trading conditions, “have resulted in some risk as to the future cash flow of the consolidated entity being dependent on a combination of the following solutions’’.

The solutions were a combination of one or all of: additional borrowings from shareholders to meet short term working capital requirements; cost reductions and revenue increases through the company’s turnaround program, and; continued availability of funding from shareholders and external finance providers.

“Notwithstanding the confidence of the directors, if the combined effect of the above solutions should not be wholly successful there is a material uncertainty that may cast doubt on the consolidated entity’s ability to continue as a going concern,’’ the report says.

The report says the net current liabilities owed by Scott’s came in at $37.16m while its net assets were $27.7m, with a deficiency in net assets a key measure in assessing a company’s solvency.

The report also shows the company tapped shareholders and lenders again after challenging conditions due to the pandemic and operational disruptions “resulted in net operating cash outflows since 30 June 2021 and a reliance on borrowings from shareholders to meet short-term working capital requirements’’.

“In February 2022 the shareholders provided additional funding by way of a loan facility of $15m of which $14m has been drawn down,’’ the report says.

“The shareholders provided an additional loan of $12m in July 2022 which has been fully drawn down.”

A $47.3m loan facility was repaid in August the report says, however the company then took out a $70m asset-backed loan facility “which was utilised to repay debt and fund working capital requirements in August 2022’’.

It is understood this $70m was extended by Gordon Brothers.

A current debt figure is yet to be released by the receivers or administrators.

KordaMentha’s Scott Langdon said on Monday an “orderly sales process” for ScottsRL would begin immediately.

“We anticipate a high level of interest in this business and its assets, given its significance in the cold chain supply system in Australia,” he said.

“We are seeking support from all customers to give the business the best chance of being sold to a new long-term owner.”

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Meanwhile the Transport Workers Union on Tuesday said transport companies were the victims of the “untrammelled commercial power’’ of retailers, which forced them to operate with “razor thin margins”.

TWU national secretary Michael Kaine said on Tuesday the union was working with KordaMentha to ensure Scott’s 1500 employees were prioritised throughout the administration of the company.

Mr Kaine said transport firms were operating in a “broken market’’.

“This is another tragedy of the untrammelled commercial power at the top of transport supply chains,’’ Mr Kaine said.

“Retailers are reaping the gains from razor-thin margins while operators and drivers collapse under the strain.

“The TWU is working with KordaMentha to ensure workers are prioritised in what we hope will be a sale to a responsible buyer.

“Sadly for our union, almost a decade of a government which preferred a bystander approach of ‘leave it to the market’ has meant that we are experienced in ensuring workers are prioritised through an administration process, such as that of Virgin Australia in 2020.

“We urgently need reform in transport to ensure wealthy clients at the top of supply chains are accountable for fair, safe and sustainable transport operations for the freight of their goods.’’

The union said retailers were generating “booming profits’’, singling out discount chain Aldi - which is a client of Scott’s - saying it had an estimated profit margin of 8.4 per cent, “far higher than Australia’s other supermarkets’’

An Aldi Australia spokesperson refuted the TWU’s claims.

“Statements made by the TWU with regard to our business results and our supplier relationships are categorically untrue, baseless and damaging,’’ the spokesperson said.

“We refute this commentary from the TWU in its entirety.

“The supermarket supply chains rely on many interdependent partnerships, and despite the challenges presented with this news, we are working with our suppliers and logistics partners to minimise impact to ALDI customers.”

The union said transport was in the top 10 sectors for company insolvencies.

A spokesman for Coles said this week: “We’re aware of the challenges being faced by one of our transport providers and we are working hard to provide support and minimise the impact this might have on customers and product suppliers.”

Sources close to Scott’s say the company has battled floods, Covid lockdowns and major electricity and fuel price increases, prompting the voluntary administration, despite good progress with the company’s turnaround, since being bought by Anchorage.

Adelaide company Railroad Transport, which employed more than 100 people across South Australia, Western Australia, Victoria and New South Wales, failed in mid-2021 with debts of more than $2m.

That company had been in operation for more than six decades.