DSH (ASX) Ann: Trading Halt

Originally posted by pipebuilder ↑

In The Australian newspaper: Dick Smith was viable, Anchorage insists.(can't reproduce here,,paywall)

In an interview with Phillip Cave, he said among others, Anchorage sold the company to shareholders with no debt. (That's incorrect) He also said every one of Move stores were profitable. (I find that hard to believe)

On page 60 of the IPO Prospectus (Section 5: Financial Information. the proforma balance has cash $13m and non-current borrowings of $26.5m. That's NET DEBT of $13.5m. Anyone can leave cash on the table, just increase borrowings (which it did). (On page 4, Key offer statistics: Market cap is $520.3m, Enterprise Value is $533.8m, the difference which is net debt is $13.5m)

How the cash and IPO proceeds was spent upon IPO?

Section 2 page 15 of IPO Prospectus states the company DSH Sub-Holding (formed to acquire Dick Smith Electronics (DSE)) did have cash of $46.5m prior to IPO. Add that to $344.5m (IPO proceeds from public investors), New borrowings of $27.2m, the total cash at IPO is $418.3m.

Immediately upon IPO, the sum of $418.1m was used in the following manner: $358.1m paid via sale of IPO shares to the then shareholders (Anchorage, LMA (Nick AB), Baden (Bill Wavish) + other management), cash payment of $15.0m - termed adjustment to price paid for DSH Sub-Shares which was paid to that same mob of shareholders, $21.2m - cost of IPO, $24.0m final payment to Woolworths & $2.1m misc costs items - leaving $13.0m cash in DSH.

The troubling points whilst disclosed are i) cash payment of $15m being Adjusted consideration (on what grounds?) to Anchorage, Nick AB and Bill W + mgt and ii) Public investors actually help Anchorage pay the final instalment of $24m to Woolworths.

I must have walked past a MOVE store in Burwood NSW @ Westfield 50x during lunch and I've yet to see a customer paying for goods. Check that out, Phil.

Expand

That's what it said in the Prospectus but look at the 1H14 accounts. $4m of debt was drawn down but fully repaid by balance date. Also note the working capital position in these account (debtors + inventory - creditors) - it equates to $7k per store, basically got stripped out with all the additional IPO costs etc.

That being said having run down the inventory there should't have been any slow moving / obsolete stock left. My guess when looking through the FY15 accounts is management made a conscious decision in FY15 to buy inventory earlier to get a higher GM% (through cheaper prices, rebates, better FX rates) however left less flexibility to acquire stock more likely to sell (but for lower GM%) closer to Christmas. Having tied up a lot of cash in stock that couldn't sell meant it had to be discounted below cost to move it (hence the inventory write-down) and need to borrow to get stock customers wanted.