The long tale behind Allphones’ descent into administration

The long tale behind Allphones’ descent into administration

A new report by Allphones Group's administrators reveals the major factors behind the group’s demise, and a fresh glimmer of hope for creditors

Throughout 2015, concerted efforts were made by management to generate new business sufficient to replace the Virgin Mobile revenues. A further 10 Vodafone branded stores were opened and the Philippines business expanded to 70 stores.

In December 2015, new management contracts were entered into by ARMS to manage ‘store within a store’ operations in eight Costco locations as well as managing the point of sale and inventory in 10 Huawei kiosks. A trial agreement to operate a “store within a store” in a number of Woolworths supermarkets was also signed.

In May 2015, the takeover of Glentel by a joint venture between BCE and Rogers, two large Canadian mobile networks, was completed.

According to the report, the partners in the Philippines business used the change of control provisions in the contract to terminate the operational involvement of Allphones by year end.

An agreement was subsequently signed to allow the remaining partners to use the Allphones brand, paying branding fees of $3 million over the following three years.

In April 2016, ownership of the Allphones Group group was acquired by Canada’s Skidmore. A new CEO and several new members of the executive team were subsequently appointed, and efforts were directed at turning around the loss-making Allphones Retail business, with the objective of making the group’s pre-tax earnings break-even by the end of that year.

As such, a number of new kiosks were opened, replacing stores that were operating with old fit-outs.

A new three-year branded stores agreement was signed between Allphones Group and Samsung in February 2016. Samsung planned to expand its retail footprint by opening up to 28 kiosks in Westfield shopping centres around the country. But although the new Samsung agreement increased revenue, it put significant pressure on working capital due to high stock balances and slow debtor recoveries, the administrators said.

In September 2016, the Costco contract was terminated due to continued operating losses, according to the administrators. Huawei also changed its approach to retail marketing at the time, closing its kiosks in the fourth quarter. Discussions were held with Vodafone to convert a number of Allphones stores to Vodafone branded stores.

In November 2016, Deloitte Financial Advisory was engaged to provide advice and forecasts on potential turnaround strategies.

Although revenues had increased during the year, a break-even operating result had not been achieved due to several factors: the failure of Samsung Note 7 handset, leading to two recalls, and the delayed availability of iPhone 7 to Allphones and Vodafone branded stores.

Also contributing to the Allphone Group’s troubles was its inability to reach an agreement with Vodafone on the conversion of Allphones stores to Vodafone branded stores and the financial collapse of the Philippines company using the Allphones brand, leading to non-payment of the branding fee.

In December 2016 and January 2017, Deloitte presented two turnaround strategies that would have required shareholder funding of up to $9.9 million. Both strategies had a high level of execution risk and would have required shareholder funding for an extended period.

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