The companies comprising the Allphones Group were hit hard by the Samsung Galaxy Note 7 debacle, iPhone 7 delays, and multiple contract terminations in the lead up to the withdrawal of funding that saw the businesses enter administration in February.
Mobile phone retailer, Allphones, went into voluntary administration in February, with at least 18 of its stores around the country closing up shop due to “insufficient funding”, resulting in more than 60 redundancies.
A new report by the companies’ administrators, Philip Carter, Daniel Walley and Mark Robinson of PPB Advisory, reveals the major contributing factors behind the group’s demise, and a fresh glimmer of hope for some creditors, in the form of a multimillion-dollar cash injection by owner, Skidmore Retail Group.
Following initial investigations, the administrators said they concur with the companies’ directors’ stated reasons for the collapse, which was blamed on the loss of customers and key contracts, excessive cost structure, poor economic conditions and the withdrawal of shareholder support – the latter of which proved to the be the final nail in the coffin, according to the report, which is dated 27 March.
“The companies were operating in difficult commercial circumstances from 2014 due to the loss of major customers and they were unable to trade out of their poor financial position despite attempts to alter their business model,” the report, which runs to more than 200 pages, stated.
“If it were not for the cash injections from [former owner] Glentel and Skidmore, the companies would have been considered insolvent from 2014.
“Traditional balance sheet tests…suggest that the companies were insolvent from 2014. However, from a cash flow perspective, the companies’ solvency was maintained by virtue of the funding they were receiving from the shareholders (Glentel and then Skidmore),” it said.
As such, it is the administrators’ opinion, on the basis of the support provided by the shareholders and the regular receipt of funding, that the companies were solvent until Skidmore withdrew its financial support on the (Canadian) weekend of 4 -5 February 2017.
The administrators’ investigations indicate that from financial year 2014 onwards, the companies were reliant on their shareholders for funding and, during this period, a total of $38.9 million was provided by their shareholders to support significant losses.
At the beginning of the 2014 financial year, the Allphones Group operated 134 Allphones stores across Australia and the Philippines, and managed 45 Virgin Mobile branded stores, as well as two Samsung Experience Stores. Throughout that year, sales revenue averaged over $9 million per month and pre-tax earnings (EBITDA) losses averaged $500,000.
According to the administrators, in April 2014, Optus, as the owner of Virgin Mobile in Australia, cancelled its contract with Allphones Group company, ARMS, to manage the Virgin Mobile branded stores.
The cancellation came into play by the end of October 2014. The Virgin Mobile stores generated sales revenue of $63 million in 2014, contributing $8.9 million to the group’s EBITDA against a total EBITDA loss of $5.5 million.
By the end of 2014, a new five-year dealer agreement had been signed with Vodafone and a five-year management agreement to manage Vodafone branded stores by ARMS was also signed. By year end, four Vodafone branded sites were operational, according to the report.