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Dick Smith Management Probed Over 12 Years Supply Of Batteries

Despite having 141 days of private label stock in their warehouses, Dick Smith management simply kept on ordering new stock such as batteries to the the extent that they ended up with 12 years supply when the Company collapsed,, the New South Wales Supreme Court heard today.

The revelations came out during a public examination into the demise of fallen electronics retailer Dick Smith.

Jeremy Giles SC, acting for the company and receivers quizzed former Dick Smith company secretary and head of investor relations, David Cooke, was among the first to appear in court.

Private label stock has been a bone of contention in the failure of Dick Smith after it was revealed that a relative of Nick Abboud the former CEO of Dick Smith was heading up the company’s procurement office in Hong Kong.

ChannelNews understands that investigators have attempted to probe the financial records of several Chinese manufacturers who were suppliers to Dick Smith.

Late last year ChannelNews revealed that Dick Smith had three years supply of house brand batteries in stock.Dick-Smith-AA_1 dick-smith-nimh-rechargeable_1

AAP reported that Mr Cooke was asked about Dick Smith store network expansion between July and December 2014, with a financial report from that time suggesting same-store sales had fallen 7 per cent compared with the previous year. “What were you told as to why new stores were being opened?” Mr Giles asked. “That there were attractive locations for new stores,” Mr Cooke replied. “Anything else?” Mr Giles put to the witness.

“Not that I can recollect.” Mr Cooke was also quizzed about inventory levels in October 2015, when the company had 141 months “cover” in stocks of private labelled AA batteries, and 131 months worth of AAA batteries.

The court heard Mr Cooke asked the company’s chief executive, chief finance officer and the head of its private label about the overstocked products, and was told it was tied to a marketing drive in the lead up to Christmas. Mr Cooke was also asked about an ASX announcement from February 2015 on the company’s first-half results, which said its balance sheet remained strong and “inventory was tightly managed throughout the half”.

Asked to clarify what he meant in writing the statement, Mr Cooke replied, “That inventory was very well controlled during the half”.

Asked if the statement accorded with his own view, Mr Cooke told the court, “Based on discussions with others, yes”.

What is set to be revealed from this hearing is that Dick Smith management tried to hide a litany of strategic management blunders. Issues such as the payment for goods and what appears to be the rorting of the rebate system with suppliers set to be probed about rebate transactions.

Questions are also set to be raised is the way that Dick Smith paid for goods for example there is evidence that management at the company acquired goods from the supplier at 98¢ and then sold the same goods back to the supplier at 78¢, then buy it back again at 78¢ or even 77¢?

What is already starting to appear is evidence that Dick Smith management suffer from lapses of memory.

As the first of the Dick Smith managers in the witness box, it was up to Cooke to spearhead the defence – although he was frustratingly short on detailed recounting of board and management meetings.

For example, Cooke was asked about the number and substance of meetings he attended with one of its bank lenders, HSBC, in the last half of 2015.

The only meeting in which he was able to recount much detail was one that involved a lunch at which HSBC’s views on the economy were the only item on the agenda. Nothing much could he recall on other meetings that dealt with Dick Smith’s cash flow and trading conditions.

However, he did remember that rebates, and in particular “over and above” rebates, were a focus of management, but rather than seeing them as an accounting problem they were considered part of an improvement program.

He was also aware of rising inventory levels but maintained it was necessary because the group was opening new stores and increasing the stocks of private label goods coming from China that had longer lead times.

In answer to why Dick Smith was opening stores when its same-store sales were falling, he said the reason he was given was it was finding more attractive locations.

Mr Cooke is among the first of 10 former senior executives and board members of Dick Smith Holdings to appear at the examination.

Former non-executive director Lorna Raine is the next to give evidence. Ex-chief executive Nicholas Abboud, former director William Wavish and former chairman Philip Cave are also expected to appear, as receivers try to find out why the firm collapsed.