Dick Smith gift vouchers won't be honoured after electronics store goes into receivership

Dick Smith Gift Card The electronics chain went into receivership today , leaving customers querying whether their cards will be honoured Photo suplied to the New Zealand Herald

• Electronics chain has been put into receivership
• Shares have been in free-fall since public offering
• Company failed in latest bid for bank support
• Gift vouchers won't be honoured
• Duco Events says Dick Smith NRL Auckland Nines will go ahead as scheduled
• of Dick Smith

Dick Smith gift vouchers have become worthless pieces of plastic following the appointment of receivers to the embattled electronics retailer today.

Receiver James Stewart, of Ferrier Hodgson, said vouchers could not be honoured and deposits would not be refunded due to the financial circumstances of the company.

"Affected customers will become unsecured creditors of the group."

The total value of outstanding gift vouchers has not been released.

Stewart said Dick Smith would continue to trade while the receivers look to restructure and sell the business.

"We are immediately calling for expressions of interest for a sale of the business as a going concern," he said, adding that Dick Smith employees would continue to be paid by the receivers.

He said the retailer's New Zealand business was profitable and expected to be attractive to potential buyers.

Dick Smith has been put into receivership two years after being taken public by Anchorage Capital Partners. photo / Getty Images

It was too early to clearly identify the primary causes of Dick Smith's financial predicament, Stewart said.

Dick Smith's pre-Christmas fire sale, which saw prices slashed by up to 80 per cent in some stores, failed to save the electronics seller.

The retailer, which operates 62 stores in New Zealand and employs 3300 staff on both sides of the Tasman, has also appointed McGrathNicol as voluntary administrator.

Dick Smith chairman Rob Murray said sales and cash generation in December had fallen below management expectations.

"The company explored alternate funding, however the directors formed the view that any success in obtaining alternative funding would not have been sufficiently timely to support short-term funding requirements and allow the company to order inventory during the next four to six weeks," Murray said.

"Whilst confident on the long-term viability of the company, the directors have been unsuccessful in obtaining the necessary support of its banking syndicate to see it through this period."

He said Dick Smith intended to work with McGrathNicol to "explore all options" to allow the company to continue as a going concern.

"The board believes the appointment of a Voluntary Administrator at this time is the best way to protect the interests of shareholders, creditors, employees, suppliers and other stakeholders," Murray said.

Consumer NZ chief executive Sue Chetwin said Dick Smith had struggled in the ultra-competitive electronics retail sector.

"It looks like they've been struggling for quite some time," she said. "Their shops didn't seem to be as well stocked as the other electronics stores - it looked like the writing had been on the wall for a wee while."

Throughout New Zealand and Australia the chain has 393 stores and was put into receivership two years after being taken public by buyout firm Anchorage Capital Partners.

The stock last traded at 35.5 Australian cents on the ASX, having tumbled 84 per cent from the A$2.20-a-share Anchorage set for its initial public offering two years ago.

Anchorage sold its remaining 20 per cent last September. Anchorage bought Dick Smith from Woolworths in 2012, in a deal reportedly valued at about A$115 million, before selling down in 2013 in an IPO that valued the company at A$520.3 million.

The appointment of Jim Sarantinos, Ryan Eagle and James Stewart of Ferrier Hodgson as external administrators comes after Dick Smith shares were halted on the ASX yesterday pending an announcement on its funding position and debt financing covenants. That followed a A$60 million impairment against inventory, flagged on November 30 with the possibility of more charges, which meant the retailer couldn't affirm its profit guidance.

The retailer brought in external consultants after disappointing trading in October and November, and was under way with "significant marketing activity" to stimulate sales ahead of Christmas, the company said in November. At the time, managing director Nick Abboud said Dick Smith would maintain "flexibility on gross margin to reduce inventory and improve our debt position", a signal that more discounting is likely.

It cut prices in the run-up to Christmas to clear inventory, having struggled to compete against more profitable rivals such as JB Hi-Fi and Harvey Norman.

Dick Smith lifted sales by 7.5 per cent to A$1.3 billion in 2015, although gross margin shrank to 24.8 per cent from 25.1 per cent, while profit fell about 10 per cent, including one-time items, to A$37.9 million.

The organisers of the Dick Smith NRL Nines rugby league tournament to be held at Eden Park next month say the event will go ahead as scheduled.

However, Martin Snedden, the chief executive of Duco Events - who have run the tournament since its inception two years ago - say his company are still owed money by the Australasian electronics company.

- Additional reporting Christopher Adams