Smiths City have been munted and on the slippery slope to oblivion for a few years ....and it was patently clear that thevslope was getting steeper.
I have never been a holder not had any interest in being one. Just going into one of their stores always left me wondering why I bothered. I could could get some whiteware at non-competitive prices or maybe select from a small range of relatively outdated styled furniture. If that didn't suit then there was always the narrow range of camping and cycling gear. It always seemed odd and from days gone by to be honest.
Of course none of that is a defense for any destruction of shareholder wealth that may have occured.
I have never been a holder not had any interest in being one. Just going into one of their stores always left me wondering why I bothered. I could could get some whiteware at non-competitive prices or maybe select from a small range of relatively outdated styled furniture. If that didn't suit then there was always the narrow range of camping and cycling gear. It always seemed odd and from days gone by to be honest.
Of course none of that is a defense for any destruction of shareholder wealth that may have occured.
See another lot of ‘outdated’ stores being closed ....H&J Smith
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
From my analysis of SCY's actions over the past month, it appears to me that the Board have NOT tried very hard
and been more interested in divesting the whole business than protecting it and keeping things together in the listed company
Appointing Receivers so that the Sale can be shunted through pangs of a Board running from their responsibilities
If companies like KMD & SKT can easily do Cap Raises - then why did SCY's Board not do similar ?
Was not doing so in fact reckless behaviour on part of the Board of SCY contrary to their statements of
trying to preserve the business ? It further doesn't say much for a Board that obviously has now demonstated
that it had little interest in navigating a short period of choppy waters to the other side under their direction.
They had time to do a Cap Raise and the small number of issued shares would have facilitated a Cap Raise to more than
adequately provide sufficient boards to cover the Covid-19 gaping holes appearing in the floor.
What were they thinking in seeking to sell the crystal jewels at any price & wipe out all shareholder value ?
I tend to agree wholeheartedly with NZTX
Consider the following statements made, or authorised, by the directors:
The Board should foster constructive relationships with shareholders that encourage them to engage with the company. The company values its dialogue with institutional and private investors and is committed to giving all shareholders comprehensive timely and equal access to information about its activities. The Board aims to ensure that shareholders are informed of all information necessary to assess the Board’s performance. They do so through a communication strategy which includes: • Periodic and continuous disclosure to NZX; • Reporting of Half yearly and annual results and through the publication of the Annual Report; • The annual shareholders’ meeting and any other meetings called to obtain approval for Board actions as appropriate; and • The company’s website.
Given the way in which the sale of the company's assets was conducted without shareholder input or communication there was obviously a failure by directors to adhere to Principle 8. Also following the 18-May-20 sale announcement NZX regulators had to request further information from the directors over the sale due to non-compliance with section 129 of the Companies Act, hence the clarification issued late 20-May-20
Also from the 2019 Annual Report:
A provision for an onerous lease is recognised when the Group retains a lease obligation after vacating a property before the expiry of the lease term, or where the Group has determined that a location is unlikely to return an economic benefit in excess of the cost of the lease over its remaining term, having had regard for the desirability of the location for retail operations, the ability to sub lease, and the optimal trading prospects. As at 30 April 2019 two leases were considered onerous due to the Board decision to close the sites with a further two considered onerous due to continuing losses. Only one new lease was considered onerous for the year ended 30 April 2019.
If the above was accurate why were 7 stores considered unprofitable and closed instead of being sold to the new owner?
13-Dec-19 Media Release - Smiths City reports operational improvements. - Same store sales fell by 14.6% - Net losses before tax of $3.8 million, down from a net profit before tax (NPBT) of $0.6 million. $1.5 million of losses associated with the rationalisation to the company’s store footprint in Auckland.
If this is the directors’ idea of improvement I'd hate to see what they consider a really bad result. Also remember the board approved the purchase of the Auckland stores for $5.85 million in 2016.
30-Mar-20 Following discussions last Friday, Smiths City’s bank ASB has agreed to delay by fourweeks, the repayment of $1.5 million of the company’s $65 million Senior Secured Facility due for payment on Tuesday 31 March 2020. While Smiths City believes it has enough capital to cover its debts as they fall due, the company recognises the current capital structure is not sustainable given the outlook and the company must secure more funding. Smiths City is working with PWC to develop a strategy for addressing its capital structure. Smiths City is committed to keeping the market informed and will provide more information as it becomes available.”
18-May-20 Smiths City enters conditional agreement for sale of its retail and finance operations Smiths City (NZX.SCY) today announces it has negotiated a conditional agreement to sell Smiths City businesses in a transaction that values the assets at around $60 million. The transaction values the assets to be transferred to PolarCapital at around $60 million, however with the purchaser assuming some debt and other liabilities, the net amount expected to be received is $8 million.
22-May-20 Rather than putting the sale of the assets toPolar Capital to a shareholder vote, Directors sought to appoint receivers for the following reasons: • Smiths City’s shareholders’ approval was the only condition outstanding. • Smiths City’s ordinary shares will retain no value following the sale . • Further delay risked jeopardising the completion of the sale and a reduction in the amount available to secured and unsecured creditors. The business cannot function without the confidence of suppliers and customers. • A receivership would ensure the timely and orderly transition of the assets to Polar Capital, protect their value and the jobs of the approximately 350 people expected to transition to the new owners with the sale. • The Board considered an insolvency process was inevitable. If shareholders rejected the transaction, the Board would have requested that Receivers be appointed as the financial position of the company was not sustainable. In the knowledge that shareholder value was extinguished, the Board’s duty became to preserve as much value as possible for creditors. The appointment of Receivers today was necessary to fulfil that duty. Unfortunately, the proceeds of the sale, combined with the value of residual assets, will not sufficiently cover the Group’s liabilities to unsecured creditors (in particular under leases that are not being transferred). Consequently, the Board advised the market earlier this week that the sale would likely result in the loss of all shareholder value in theCompany.
Well no the sale obviously doesn't value the assets at $60 million if only $8 million is received from the sale. 2019 Audited Annual Report listed NTA as 77 cents per share. There are 52,688,153 shares on issue which equates to a total net asset value of $40.5 million. Are we meant to believe the absolute best the directors could get for $40 million worth of assets was $8 million and they agreed to keep more than $8 million of liabilities as well?
Why was the sale not put to the shareholders to vote upon as required by section 129 of the Companies Act?
My thoughts are the directors knew the deal would not standup to scrutiny and they wouldn't be able to explain how $42 million in equity had been destroyed under their watch. Inviting the bank to put the company into receivership was a coward's way of avoiding facing the shareholders as how on earth did they plan to sell the deal "Hey shareholders vote for this deal we have put together that will totally wipe out your capital and cause creditors to lose money as well?"
Sky TV showed how a successful capital raise can be done as did Kathmandu.
The directors job wasn't to ensure a timely transition of assets to Polar Capital, nor to ensure value is protected for Polar Capital. The directors had a duty of care to the shareholders and creditors. Disposing of the assets for below market value while retaining debt in the shell of the company is hardly preserving value for shareholders or creditors.
"The Board considered an insolvency process was inevitable" Why was the recently introduced Business Debt Hibernation and Safe Harbour regime not used to allow the company to trade its way into a better situation or is this an admission that the company has been trading while insolvent all along?
Last edited by CD_CHCH; 26-05-2020 at 06:42 PM.
Reason: Tidy up formatting
Leopards and spots -History repeating itself - they were devious in the aftermath of the '87 crash, especially in their shafting of staff they had inherited from takeover of Smith & Brown.
Has anyone considered approaching the NZSA for some input into this and see if they can agitate on behalf of retail investors. Something needs to be done about events like this to stop this sort of behaviour being perpetuated.
The only point I would point out is that you wrote the following "The directors had a duty of care to the shareholders and creditors". Under NZ companies law the shareholders do not really have many rights as far as directors duties go. The only real duty that directors have is to the company itself and the creditors. Not to the shareholders. So in their minds, directors probably think they have fulfilled their duties admirably.
The only page in the financials worth looking at is the Cash Flow Statement ....and the reconciliation to profit is always interesting. All the other stuff is superfluous ...hard to fudge cash flows.
From their Cashflows over recent years you can see why they are essentially broke now.... some would say blindingly obvious
No wonder the big shareholders or others wanted to put more cash in.
“ At the top of every bubble, everyone is convinced it's not yet a bubble.”
Has anyone considered approaching the NZSA for some input into this and see if they can agitate on behalf of retail investors. Something needs to be done about events like this to stop this sort of behaviour being perpetuated.
The only point I would point out is that you wrote the following "The directors had a duty of care to the shareholders and creditors". Under NZ companies law the shareholders do not really have many rights as far as directors duties go. The only real duty that directors have is to the company itself and the creditors. Not to the shareholders. So in their minds, directors probably think they have fulfilled their duties admirably.
I'm not a member of the NZSA but hopefully someone who is has approached them to see if they will seek some answers.
You make a valid point that the directors in their own minds probably think they have fulfilled their duties admirably, however I'm sure none of the shareholders who stand to lose their capital nor the many creditors who will end up out of pocket will agree.
I wonder if the director's statement from 30th March 2020 'Smiths City believes it has enough capital to cover its debts as they fall due' will be examined in detail.
I can only imagine what the staff who were made redundant only to see their jobs advertised a few days later, and the staff who ended up with reduced hours and pay think of the mismanagement of the company.
While there has been a massive destruction of capital, and financial cost for both shareholders and creditors let us never forget the impact this has had, and will still be having, upon the lives of the staff and their families.
Originally Posted by winner69
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