Investigators To Probe Vendors Rebates Booked As Profits At Dick Smith Before Products Were Sold
Dick Smith management are set to be questioned about a dodgy process of booking vendor rebates in an effort to inflate profits.
Last year ChannelNews broke the story that Dick Smith was “heavying” vendors and distributors to forward book channel dollars ahead of a June 19th deadline.
A letter, from Norton Rose Fulbright solicitors for Dick Smith receivers and bankers, claims that the company was buying stock based on the rebates it could book, rather than customer demand.
When ChannelNews was told about this process the then Marketing Director Neil Merola categorically denied that Dick Smith was “heavying” key retail partners to forward book what is known as Co Op dollars.
Merola who was known as “Mr Free Ticket” because of his habit of demanding free tickets to sporting and entertainment events from vendors claimed at the time “We don’t need to do that because we are growing”.
ChannelNews was told that Dick Smith CEO Nick Aboud was the architect behind the process and that buyers were instructed to “extract as much as they could” from key accounts.
Several distributors and vendors said that they refused to take part in the initiative which was designed to bolster profits ahead of the end of the financial year reporting”.
The normal process is that the rebates are only paid when a retailer has sold the stock.
Dick Smith is believed to have used the process to cover up weak in-store performance.
According to the letter the alleged behaviour began in at least July 2014 and was motivated by a “concern and focus” on meeting or exceeding the performance expectations set out in Dick Smith’s prospectus.
Dick Smith is also alleged to have private label suppliers withdraw invoices they had issued without rebates and reissue them with rebates and an equivalent increase in the cost of the stock, the AFR reports.
The AFR claims that the receivers also reportedly raised concerns that Dick Smith may have used sales to commercial customers to cover up poor like-for-like sales growth at stores.
The letter alleges that Dick Smith’s Hong Kong office was used to facilitate commercial sales and negotiate on “non-traditional” items such as suitcases, which included extra rebates.
The letter reveals that auditor Deloitte questioned Dick Smith’s use of rebates in September 2015, and by October, consultants has identified about $180 million of “problem inventory” that needed to be written down by $60 million.
ChannelNews understands that investigators want to question the former General Manager of the Hong Kong Office for International Sourcing at Dick Smith Electronics.
Tony Abdel-Ahad is believed to be a relative of former CEO Nick Aboud.
Abdel-Ahad, joined Dick Smith from Abu Dhabi based Mezzo Middle East two years ago which was prior to the Company being floated.
Mezzo is a Middle East furniture Company, prior to that he worked as a regional director for Asteco a Dubai based Middle East real estate Company.
He appears to have no prior electronics buying or consumer electronics or appliance expertise yet he was responsible for buying millions of dollars’ worth of stock for Dick Smith stores.
This is the same stock that failed to sell even when discounted by up to 70%.
Dick Smith announced the $60 million write-down a month later, leading to a 70 per cent crash in its share price.
The iconic retail chain owed more than $400 million to creditors, including about $140 million to National Australia Bank and HSBC, when it collapsed in January, just two years after its $520 million float.
Ten former Dick Smith directors and managers will face the NSW Supreme Court from September to be grilled by receiver Ferrier Hodgson on the collapse.
Administrator McGrathNicol’s report into the collapse is due out on Wednesday.