Home > Breaking News > Dick Smith LIVE: Abboud Admits Dick Smith Deferred Payments To Creditors, Paid Dividends Instead

Dick Smith LIVE: Abboud Admits Dick Smith Deferred Payments To Creditors, Paid Dividends Instead

Ex Dick Smith CEO Nick Abboud has admitted in court to pushing back payments to suppliers in order to pay dividends in 2015.

The NSW Supreme Court hearing saw notes from a 27 April 2015 directors meeting, kept by David Cooke, which Abboud said he did not recall. Barristers said that in order to pay April dividends, the company did not pay creditors; Abboud said that though the payments were pushed out, the suppliers were paid, and the dividend was not materially prejudiced. He admitted that in order to pay the dividend, he caused the company to defer these payments.

Abboud yesterday admitted to having suppliers inflate the price of private label stock to claim O&A rebates.

In the hearing, Abboud was asked if the practice at Dick Smith was to have the suppliers of Dick Smith and Move-branded house products hike the unit price and then rebate back the difference as O&A, to which he responded in the affirmative.

Barristers confronted Abboud with accusations that this meant the prices and rebates were “wholly artificial” – meaning Dick Smith never paid any additional price for the stock, and the suppliers never paid any money back to Dick Smith – which he denied. According to Abboud, the rebates were booked to marketing, including fixturing, in-store space, and advertising, which he said enabled the company to sell more stock and the supplier to ship more.

The hearing continues today at https://epiq.events.corrivium.live/dick-smith, with Abboud returning to the dock.

Abboud this morning was shown an email from Chris Borg regarding orders from Tianjin Zhengfa, a private label supplier, and again admitted to booking orders for house branded stock to claim O&A rebates on inflated prices.

In another email regarding Tianjin, a 60% price inflation was noted as being made under Abboud’s instruction.

Abboud again claimed big investments into marketing, including catalogues and online. He denied being aware of the specific percentage of the price inflation, but said he did know that uplifts were occurring on some Tianjin stock.

The court was shown an email from senior business analyst Tomer Bar-Ami (who Abboud several times yesterday referred to as “Barmy Ami”) regarding a $1.7 million over-spend on stock in addition to $15 million he had released.

In a December 2014 email, Abboud directed Rodney Orrock and head of marketing Neil Merola to obtain $2 million in O&A rebates over the following week. He told the court he could not remember what the plan was to obtain them, but noted that it was over the busy Christmas period and that marketing and promotions needed support. Barristers pointed out that marketing for December had already been booked at the time of the email.

In a January 2015 email from Michael Potts in the wake of the Martin Place siege, stock was noted as closing at $96 million higher than forecast in October 2014.

Abboud denied he was aware of a connection between buying to obtain O&A and overstocking at that time. He pointed out that the Lindt Cafe siege caused a large drop in sales over December of 2014.

Barristers pointed out that peak debt was projected at $140m in February and March 2015, another problem for the company. Abboud said this was only an assumption, which was not borne out. He admitted that Dick Smith did not have facilities for $140m in debt, and said there was a period that Westpac was supporting the company.

Another problem, said barristers, was that DSE was overstocked in a number of categories at that time, including all categories in Home Solutions, which were overstocked at more than 100%.

Abboud acknowledged the overstock, but said there were public holidays over the four-week period described on which there was no trading. He also said there was a decline in digital camera phones due to improved smartphone cameras, among other items. He also said those categories were less than 7-8 per cent of overall stock at the time and that Dick Smith could manage it.

“You’re going to have some wins and some areas where they weren’t successful,” he said.

Barristers pointed out that Dick Smith did trade on public holidays and that Christmas was its busiest period, to which Abboud responded that public holiday trading was limited.

Another email from January painted a picture of a company struggling financially, said barristers, with creditors unable to be paid and expenditures needing to be cut in the second half of FY15.

Abboud said that these creditors were later paid, and the company turned a profit that year.

An email from Chris Borg discussed forecast gaps in O&A and ad subs on private label stock. Abboud insisted that private label made up 33% of Dick Smith’s profits in FY15, with none of that coming from the uplift.

An email from Michael Potts to Abboud discussed people in the company focusing on the short term over the long term, which barristers put to Abboud referred to buying stock for O&A rebates. He denied this.

In an email from Rod Orrock to Abboud in January 2015, Orrock said the focus at the time was “get the O&A and everything else is second to that”.

Barristers grilled Abboud, saying company targets outside of O&A at the time were not properly managed. Abboud disputed that buyers and merchandisers were focused on O&A to the detriment of everything else, saying Dick Smith was a catalogue business that involved a lot of planning and needed funding from suppliers. He said that O&A was about marketing and promotion to drive customers into stores.

Abboud said policy was that O&A, including marketing and promotional support, was parallel to sales.

The court was then shown an email from Potts regarding O&A forecasts for the second half of 2015.

Abboud was asked about issues with creditors, including Samsung, which refused to extend payment terms and put the company on supply hold in January 2015. Abboud said that global suppliers such as Samsung have policies to put supply on hold when payments are missed, and resume them when payments are made. Samsung was among the company’s top five suppliers, Abboud confirmed.

He was also grilled about an HSBC meeting seeking financing in February 2015, at which he allegedly spoke about the company’s success without mentioning issues such as overstock, Samsung putting the company on hold, and the private label uplift. He said he did not recall any discussion about creditors or rebates.

The court was shown board papers from a January 2015 meeting, and Abboud was asked if he at the time was aware of projected peak debt in April and May of that year; he said he did not recall. He also said he did not remember if there was any discussion at the meeting about the company pushing out creditors or exceeding its overdraft limit, or about inventory levels.

The minutes from a February meeting showed no mention of payables, inventory levels, creditors, or facility with Westpac; they also did not mention the Samsung stock hold. Abboud had supported a resolution to pay a dividend of seven cents per share – a total of $16.5 million – which he said was based on information in the board papers, despite the issues with paying creditors, inventory overstock, and stock holds.

He said he was confident in the dividends despite these issues, as there were plans to deal with them: Dick Smith bought less stock than the previous year and ran clearance programs, as well as drove sales, to reduce excess inventory.

The court heard that Abboud implemented a policy involving obtaining 11% average O&A and ad sub on all orders, which he said was to drive support and marketing for products.

He denied that the overstock issues were related to this O&A policy, pointing to private label issues, the Australian dollar, and a sales fallout in December-January 2015.

The court saw a graph outlining Dick Smith’s FY15 rolling forecast cash projection, which exceeded its expected $135 million facility at several points.

Synnex was one supplier named as having an issue with pushed out payments at the beginning of 2015. Emails from Samsung distributor Roadhound in March 2015 were scathing, with Roadhound’s Ben Sharma placing DSE on supply hold saying Roadhound – at the time Dick Smith’s only source of Samsung phones – “is not here to fund the DSE business”.

In a subsequent email to Rodney Orrock, Abboud described Sharma as a “goose”, which Abboud told the court was because he had been rude and unprofessional. Barristers put to Abboud that he was described as a “goose” for “having the temerity to demand to be paid on time”, which Abboud denied. Abboud also asked Orrock if it was possible to go direct to Samsung for product without having to deal with Roadhound. He told the court Roadhound became a top supplier relationship in 2016.

The court saw an email from private label director Mario Cocciolone regarding the private label price inflation.

Abboud admitted that a revenue increase from the private label uplift was included in the FY15 projections.

The court saw an email from March 2015 in which Michael Potts and Abboud discussed the facility from Westpac.

Abboud was at the time on a trip to Japan with high-performing sales people. Potts in the email said Dean O’Neill was attempting to manage the Westpac credit department and “didn’t want to spook them” by saying the company needed finance urgently. Abboud said he was confident at the time in Dick Smith’s relationship with Westpac, and that the email caused him no concern at all.

Abboud claimed he did not recall if he knew Dick Smith was exceeding its facility limit on and off during March 2015. The court saw records from a March board meeting saying Dick Smith inventory was close to $358 million, which Abboud told barristers had not concerned him.

He said he could not recall the facility limit of Dick Smith at the time, and that he did not reconsider paying the dividend.

In an April 2015 email, Abboud directed staff including Rod Orrock and Chris Borg to obtain extended terms from suppliers. The suppliers were to be paid June 29, near the end of the financial year. The court asked why business practice was to pay after the month ended. Abboud said he could not recall.

Abboud said he did not reconsider paying dividends despite the company’s troubles including not paying creditors on time.

The court saw a presentation given by Abboud and Michael Potts to NAB staff in 2015, in which the growth of the business was discussed. Abboud told NAB of the goal to grow private label to 15% of sales, but did not mention the private label uplift.

Barristers asked whether Abboud spoke about topics such as difficulty paying creditors and overstock, to which he responded that he stuck to his notes. He was asked whether he elaborated on his points, to which he said he could not recall but it was a short meeting. He also said he did not remember what Potts said at the meeting, but that NAB was “very keen” to get the Dick Smith business.

In June 2015, Abboud released $12 million extra OTB, as seen in an email from Chris Borg.

Abboud said it was connected to tax time and EOFY promotions. Barristers said OTB had been reduced to $55m because it was all the company could afford, but Abboud said the business had headroom of about $40 million, which he was immediately accused of “making up”. The company obtained 20% O&A on this OTB, which Abboud again said was for marketing support.

In a June 2015 email exchange between Tomer Bar-Ami and Abboud, the CEO instructed Bar-Ami for a “big push” on O&A, which Bar-Ami said would be “THE focus” on everyone’s mind.

Abboud told the court Dick Smith was competing on marketing spend with Harvey Norman and Officeworks for the June tax time period, and wanted lots of supplier support for EOFY sales.

The court saw an email from Chris Borg in July 2015, which detailed a total overstock of $42 million at the time across a number of categories. In particular, Home was overstocked by 337.7 per cent.

Despite this, the court heard that high demand categories such as TVs were understocked. Barristers said this was because the company could not afford to stock high-demand SKUs, which Abboud refuted; they also suggested that buyers were still buying to obtain O&A instead of sales, but Abboud insisted this was not correct, saying buyer planning around advertising support was important.

In an August 2015 email, Abboud asked Orrock for “urgent help” as the forecasting accuracy was out by around five per cent per week in sales and gross profit.

According to the email, this forecasting impacted the purchases to the extent that overstock was again an issue in July of that year. Cash flow was also impacted, Abboud confirmed, which led suppliers to be paid late.

In another email from Borg to merchandise planners, Borg said the company would have limited receipts in September due to overspend in August.

According to Abboud, this was because of forecasting errors. He said he did not remember if the company had pushed out suppliers in August.

The hearing continues tomorrow at https://epiq.events.corrivium.live/dick-smith, with Abboud to return to the dock.

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