Electronics retailer Dick Smith has gone into receivership, with Ferrier Hodgson appointed to run the firm following a failure to secure adequate funding to support the business. Dick Smith employs around 3,300 people across 393 stores in Australia and New Zealand, leaving those jobs at risk if a buyer for the business cannot be found. The firm's management said sales and cash generation were below expectations in the key December trading period, continuing a poor run in the later part of 2015. Dick Smith said that, while confident in the long-term viability of the company, the directors were unable to secure support from the company's bankers to provide finance for restocking to see it through the next month to six weeks. That caused them to appoint McGrathNicol as administrators to run the firm while restructuring or sale options are explored. However, after the appointment of administrators, Dick Smith's lenders appointed receivers to run the firm and protect their financial interests. The receivers - James Stewart, Jim Sarantinos and Ryan Eagle from Ferrier Hodgson - say that Dick Smith stores will continue to operate as usual while they evaluate restructuring or selling the group, or parts of it. "Dick Smith is one of the best known brands associated with consumer electronics in Australia and New Zealand," Mr Stewart said in a statement. "We are immediately calling for expressions of interest for a sale of the business as a going concern." However, he also said that any outstanding gift vouchers held by customers will not be honoured and deposits will not be refunded. Instead, consumers in those situations will have to stand in line with other unsecured creditors of the company and may only get a small fraction of their money back. The first creditors' meeting will be held next Thursday, January 14, at the Wesley Centre in Sydney. The company had halted trade in its shares on Monday as the company sought to refinance its debt. They last traded on December 31, 2015 at 35.5 cents. Poor Christmas sales the final straw Shares in Dick Smith plunged 83 per cent over 2015, largely due to profit downgrades in October and November. In November, the retailer slashed the value of its inventories by $60 million, or some 20 per cent. An analyst at financial firm IG, Evan Lucas, said the company's cash flow problems have not improved since then. "Clearly their syndicate loan leads, being NAB and HSBC, saw the numbers and were not impressed with what they saw and called in their loan, which net debt sits around $40 million for Dick Smith," said Mr Lucas. "It's a very sad situation for shareholders, it obviously means they won't be able to get out of the company and they may only get cents back in the share." Even though Dick Smith management expressed confidence about the company's long-term prospects, Evan Lucas said a retailer that cannot make profits over the busy Christmas period would have left its banks highly sceptical. "That's just culminated in fears that post the Christmas sales, once things are back to normal - January, February, March - their cashflow, revenue problem is just going to continue and their ability to service their debt isn't there," he added. Dick Smith shares opened on the market at $2.20 when it was floated by private equity firm Anchorage Capital Partners in December 2013, valuing the company at $520 million. Anchorage bought the business from Woolworths for about $20 million in cash upfront just a year earlier - in total the private equity firm ended up paying around $115 million. Dick Smith Electronics was started by its namesake as a car radio installation business on Sydney's North Shore in 1968. Australian retail giant Woolworths took a majority stake in the business in 1980 and full ownership two years later as the electronics chain expanded nationally, before selling it to Anchorage in 2012. Dick Smith: What went wrong? Private equity group Anchorage Capital bought Dick Smith from Woolworths in 2012 for an initial payment of just $20m. Anchorage then "dressed the company up to look good for just one thing - to persuade people to buy shares," according to analysts from Forager Funds Management. Anchorage "wrote down the value of the inventory, took provisions for future onerous lease payments, wrote down the value of the plant and equipment and liquidated a lot of the inventory as quickly as they possibly could to throw off cash," according to Forager's Steve Johnson. The cash was then used by Anchorage to effectively make Dick Smith 'buy itself'. The writedowns inflated profits, a key factor in enticing investors into the company. For example: a stock item that may have been bought for $100 may have been in the books at $60 after the writedowns, which meant an extra $40 profit on every sale. The writedown of plant and equipment lowered depreciation charges, also boosting the bottom line. "But when they liquidated all that inventory to pay for the purchase price, they didn't replace it," according to Forager's Steve Johnson. "And the new owners of the business, since it's been listed on the stock market, have had to put in a lot more money to fund the increase in inventory." | Key points
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Dick Smith stores to close after receivers fail to find buyer; almost 3,000 jobs lost
The founder of Dick Smith electronics says greed caused the business' downfall, as stores across Australia and New Zealand prepare to close over the next eight weeks.
The company was forced to announce the closures after its receivers were unable to find a suitable buyer for the company.
The remaining 301 stores in Australia and 62 in New Zealand will close, resulting in the loss of 2,460 staff in Australia, and 430 in New Zealand.
In a statement to the Australian Securities Exchange, receivers Ferrier Hodgson said it was a disappointing outcome.
"While we received a significant number of expressions of interest from local and overseas parties, unfortunately the sale process has not resulted in any acceptable offers for the group as a whole or for Australia or New Zealand as standalone businesses," receiver James Stewart said.
"The offers were either significantly below liquidation values or highly conditional or both."
The receivers said all Australian employee entitlements would rank as priority and are expected to be paid in full.
Dick Smith founded the company nearly 50 years ago but sold it in the 1980s to Woolworths, who sold it to the private equity firm Achorage Capital Partners in 2012.
"When it was changed to a consumer electronics business it probably could remain viable with 100 shops," he said.
"But when you have the utter greed of modern capitalism, when they opened 300 shops, basically the writing was on the wall — it's going to go broke.
"It's this ridiculous formula we have that we have to have perpetual growth when it's impossible."
Mr Smith said he was angry and disappointed that it was closing — laying the blame at the feet of the owners.
"It was taken over by Anchorage Capital who paid $90 million for it which was probably what it was worth and then they floated it 18 months later for $500 million," he said.
"Now anyone would know that's impossible.
"The chickens come home to roost and now lots of people have lost money and lots of staff have lost jobs."
Dick Smith 'did not fit into retail landscape'
Forager Funds Management chief investment officer Steve Johnson told the ABC it was a terrible time for those who worked to turn the situation around.
"There was some hope, but when you go into receivership you have a matter of weeks to sell the business," he said.
"The longer this went on the more likely [you are] to see a liquidation rather than a sale."
He said there were offers from buyers but they were far below what the receivers thought they could get from liquidation.
Mr Johnson said the closure was an indication of the tough market, and that the brand did not belong.
"The Dick Smith business does not fit into the Australian retail landscape, it's been in decline for a long time," he said.
Mr Johnson said there were businesses going bust "all over the place" but because this was a recognised brand name, it gained more attention.
Last month the electronics retailer went into receivership after sales and cash generation were below expectations in the key December trading period.
Dick Smith said at the time the directors were unable to secure support from the company's bankers to provide finance for restocking to see it through the next month to six weeks.
That prompted them to appoint McGrathNicol as administrators to run the firm while restructuring or sale options were explored.
However, after the appointment of administrators, Dick Smith's lenders appointed receivers, Ferrier Hodgson, to run the firm and protect their financial interests.
Earlier this month the Fair Work Ombudsman launched an investigation after evidence emerged the failed chain might have underpaid its employees.
Ferrier Hodgson discovered the discrepancies, worth as much as $2 million.
Key points:
- Closures will result in loss of 2,460 staff in Australia, 430 in New Zealand
- Receivers did not receive any "acceptable" buyer offers
- Employee entitlements expected to be paid in full
What s the latest with Dick Smith
The shop in our local complex is still trading
My beloved brother just purchased a flat screen tv for me to watch dvd (for my coming birthday)
He has only bought the online shopping client list hasnt he?
The shops are still gonski