Dicksmith Holding Ltd: Major Retailer Of Consumer Electronics In Australia And New Zealand

Strategic Growth Initiatives

Question:

Write a report on “Dicksmith Holding Ltd is one of the major retailers of consumer electronics based in Australia”.
 

Dicksmith Holding Ltd is one of the major retailers of consumer electronics based in Australia. The company aims at assisting its customers to achieve the most from technology at right value.  The five strategic growth initiatives by the company has lead to tremendous growth during the year. These strategies resulted in 393 stores in Australia and New Zealand, with a hope to open 15 to 20 stores annually. In 2015 the company opened 13 stores and closed 7 stores, the company shall continue to look after its store base as the performance dictates. The company aims at aims at sustaining the old Dicksmith customers and also targeting the younger demographic. The private label strategy helps the company have diversified market for the products. Also, the online business platform seems to perform well with the help of 210 stores acting as distributors. The retail sales include over 8% of the online sales, which is expected to grow further to 10% in the coming year (Dicksmith, 2015). Further restructuring of the company’s support office and Australian supply chain has resulted in a substantial change in cost structure. The company has a brand appeal amongst its customers and the market which sells a huge range of products.

Having a cordial link with all the suppliers has also benefitted the company and such benefit shall also continue in the long term. In October 2013 was launched the unique concept of MOVE under which the customers were provided with latest technology with fashion, which has still been running successful. The latest tech from the world’s biggest brands has helped the company to achieve and attract a large customer base. With the introduction of the new banner MOVE by Dick Smith, the company commenced its consumer electronics operations at Sydney international airports duty free location in February 2015 (Dicksmith, 2015). In the current year company achieved a significant increase in market share of computers, televisions & fitness equipments. Also the company earned market leadership in the fitness category, which has been one of the most growing categories of the current year. Dick Smith aims to continue its quality of performance and customer satisfaction in the coming years, also increased commercial operations, and strong growth opportunities.

The director report contains details of the all important matters & events occurred, including the financial performance of the company in current year. It also include data pertaining to meetings, non-compliance, dividends, etc. As per the current report there were held nine of directors meeting, three meetings of remuneration and nomination committee and four meetings of audit and finance committee during the current year.

The company is a leading retailer of consumer goods having 393 stores in Australia and New Zealand which generated about $1.32billion revenue in the current year, compared to revenue of $ 1.23 billion in the last year, i.e., an increase of approximately 7.31% was witnessed. The net assets of the company were marked to be $ 169.1 million as compared to $ 166.9 million in the previous year, current assets showed a significant increase of $54.1 million due to increase in inventory levels in the company the current year. The directors continue the dividend policy of company and intent to pay out 60-70 % of the company’s net profit after tax. The interim dividend paid during the current year was 7.0 cents and the final dividend declared is 5.0 cents, which amounts to 65% payout ratio.

Private Label Strategy and Online Business

The board has expanded the role of remuneration committee to remuneration and nomination committee in the current year. Earlier the role of nomination committee was played by the board, but due to increased operations a separate committee was required for the performing the functions of the same.  The basic functions of the newly formed committee shall be appointment, removal, remuneration of directors and other key managerial persons in the company.

The company has also entered into contracts of indemnity, insurance and access with each director, which gives them the right to access the books and records of the company for a period of seven years after the directors ceases to hold his office and also, the company obtained the insurance of the directors for the period of their office and for a period of upto seven years after they cease to hold office (Crane & Matten, 2010). All these deeds were entered into by the company taking into consideration the provision of various laws and there provisions.  

The principles of corporate governance ensure that DickSmith Holding Ltd operates ethically and adheres to all the regulations. An authorization has been adopted by the company in this regard. The authorization is even termed as the charter that sheds light on the functions of the board, delegation of power, etc. Moreover, the shareholders interest has been provided adequate emphasis by the Board and the principles of corporate governance has provided a strong stability (Dicksmith Corporate Governance, 2015). The annual report has a defined section of corporate governance that describes the conduct of duties of executives, directors and other employees that leads to a strong transparency (Cogan, 2009). The establishment of audit committee strikes that the company adheres to the principles of corporate governance and has set up the mandatory committee. The committee consists of members and maximum are independent members. The corporate governance principles of the company lead to a high level of transparency and even stress on the ethics and moral of the company. The introduction of risk management team is another achievement that indicates the potent of the framework (Goergen, 2012). 

1. Current ratio

The current ratio is mainly concerned with projection of liquidity. From the current ratio it can be ascertained whether the company is in a position to meet the obligations. The ideal ratio should be 2:1 that indicates for every $2 of current liability there will be $1 of current assets (Gibson, 2012). In the case of DickSmith a decline in the current assets has been seen. This is due to increment in the current liabilities.

Current ratio		2014	2015
Current asset		335906	389979
Current Liabilities		266807	316527
Current ratio =current asset/ current liabilities		1.258985	1.232056

2. Quick Ratio

The quick ratio provides a better answer to the concept of liquidity and hence, a better indicator than the current ratio. It has been noticed that the quick ratio declined marginally and is nowhere near to the base ratio of 1:1 (Gibson, 2012). Hence, there is a liquidity problem for the company and needs to be settled because obligations are more.

Quick ratio	2014	2015
Quick Asset		82092	96935
Current liabilities		266807	316527
Quick ratio =quick assets/ current liabilities		0.307683	0.306246

3. Receivables turnover

The receivable turnover indicates that the collection of the receivables is done 5 times a year and there is little variation in both the years. However, it is high time for the management to have a strong receivable turnover so that proper rollover of tax can be done.

Receivable turnover	2014	2015
Net credit sales	1227604	1319670
Average inventory	253814	273429
Receivable turnover = net credit sales/ average inventory	4.836628	4.826372

Financial Performance

4. Inventory Turnover

This ratio indicates the number of times the inventory is sold in a year. When it comes to DickSmith it can be said that the inventory turnover is 4 times and without any change in both the years (Williams, 2012). Going by the normal functioning, the company must improve on it to have a better cash collection and smooth flow of inventory.

Inventory turnover	2014	2015
cost of goods sold	919602	992828
Average inventory	253814	273429
Inventory turnover ratio = cost of goods sold/average inventory	3.623133	3.631027

5. Profit Margin

This ratio indicates the profitability of the company and is a strong indicator while assessment of the company is done. The profit margin has enhanced, however it is on the lower side and DickSmith must try to enhance the margin by raising the revenue (Williams, 2012).

Net Profit Margin	2014	2015
Net Profit	19826	37905
Revenue	1227604	1319670
NP Margin =-  Net profit/revenue *100	1.615016	2.872309

6. Cash return on sales

The cash ratio has shown an advancement indicating the efficiency of the company. But, the ratio is on the lower side. This represents that the EBIT of the company has improved and hence, the management should look forward to better this ratio (Petersen & Plenborg, 2012).

Cash return on sales	2014	2015
EBIT	28681	53379
Revenue	1227604	1319670
Cash return on sales = EBIT/ revenue	0.023363	0.040449

7. Gross Profit margin

This ratio is referred as net profit to sales and represents the sale that is left after cost of goods sold has been met. The GP margin has fallen marginally indicating that the cost of goods sold has not been managed in an efficient manner (Parrino et. al, 2012).

GP margin	2014	2015
Gross Profit	308002	326842
Revenue	1227604	1319670
GP margin = gross profit/revenue *100	25.08969	24.76695

8. Expense ratio

The expense ratio of DickSmith has declined indicating that the company has a command over sales. An expense ratio indicates the component of sales pertains to individual or group. A lower expense ratio projects higher profitability and a higher one mean lower profitability.

Expense ratio	2014	2015
Selling expense	22710	6811
Net sales	1227604	1319670
Expense ratio = selling expense / net sales	1.849945	0.516114

9. Asset turnover ratio

The asset turnover ratio projects the manner in which the management has managed the company’s assets. A higher ratio is beneficial for the company (Parrino et. al, 2012). However, in the case of Dicksmith the ratio has fallen meaning the assets were not utilized in a proper manner.

Asset turnover ratio	2014	2015
Sales	1227604	1319670
Total assets	451171	508521
Asset turnover ratio = sales/ Total assets	2.720928	2.595114

10. Return on Assets

This ratio is a projector of the efficiency in which the assets are utilized. The ratio is low for the company indicating that the utilization of the assets could not be done.

Return on assets	2014	2015
Net income	19826	37905
Avg total Assets	451171	479846
Return on assets = net income/ Avg total Assets	0.043943	0.078994

11. Return on Equity (ROE)

ROE is a great indicator of the way in which the equity has been used to generate returns. The ratio has enhanced thereby projecting a good utilization of the equity component. However, ratio is low for the company (Horngren, 2013).

Return on equity	2014	2015
Net income	19826	37905
shareholder equity	166940	169147
Return on equity = net income/  shareholder equity	0.118761	0.224095

12. Earnings per share

EPS can be described as the profit component that is provided to the outstanding common stock. When EPS is high it projects a better scenario than a low one (Horngren, 2013). In the case of DickSmith the ratio has fallen and hence, not a good indicator.

Earnings per share	2014	2015
	0.16	0.08

13. Payout ratio

This ratio enables to provide an answer of how much money the company is giving back. It enhanced in the year 2015 that signifies a strong situation (Guerard, 2013).

Payout ratio	2014	2015
DPS	0.08	0.08
EPS	0.16	0.08
Payout ratio =DPS/EPS	0.5	1

14. Debt to Total Asset ratio

Debt to total asset ratio	Total Liabilities	3,39,374	0.6674
Total Assets	5,08,521

Debt to total asset ratio is an indicator of financial leverage. It helps us to determine what part of total assets is financed by debt, liabilities, etc. For Dick smith, we see that 66.74% of total assets are financed by outside liabilities, that is, the ratio is less than 1, which indicates that bulk of the assets is funded from equity (Guerard, 2013). This is good for the company as it has low risk and burden to pay back debts.

Corporate Governance Principles

15. Times interest earned ratio

Times interest earned ratio ore popularly known as interest coverage ratio is a tool which helps to calculate the company’s ability to pay its debts. Higher the ratio, better it is (Brigs, 2013). Here, in the case of Dick smith we see that the interest coverage ratio is 13.98 times, which shows good financial stability of the company and its ability to pay back its debt.

16. Cash Debt Coverage Ratio 

The cash debt coverage ratio helps us to determine the solvency of the company.  This ratio determines operating cash flow per dollar of total liabilities (Brigs, 2013). For the given company we see that the cash debt coverage ratio is negative 0.013 times, it means that the company has insufficient operating cash flows to pay back its liabilities. But negative ratio not always determines low financial stability. The operating cash flows is affected by various factors that are not under the control of entity. 

The evidence of optimism can be providing through various report and discussion that are present. As a matter of fact, DickSmith has been hailed as the biggest equity component till date. This can be aptly meet by the condition that a small amount of $10m was transformed into $520m in a couple of year. The concept of private equity can be dealt as an important matter and DickSmith remained a forerunner. The transformation into such a huge number indicates the potent of the company. The company has maintained a smooth and a cordial relationship with the users that indicates the interest of the shareholder are never compromised. It even provides a reflection of the efforts that has been undertaken by the company (Lemke, 2014).  

Conclusion

From the above discussion and the report, it is clear that corporate governance is the need of the hour and is a catalyst for the smooth running of the company. A company can ensure operations when it follows the corporate governance principles. DickSmith attained a strong result and this happened after a year of its listing on the ASX. However, in the current scenario, the ratio do not project a strong condition and therefore, it is not feasible to invest in the company. The company is facing liquidity issues, receivables and inventory turnover needs to be enhanced, profit margin needs to be pushed up. Therefore, the management must find ways to enhance the working and considering this it will be better not to invest in the company currently. It entered in to a receivership because funds were inadequate to meet the situation of the business. In 2015, both the cash and sales were a big flop leading to immense issues.  

References

Brigs, A.  (2013). Financial reporting & analysis. Mason, Ohio: South-Western.

Cogan, D. (2009). Corporate Governance and Climate Change: Making the Connexion, Oxford University Press.

Crane, A., & Matten, D. (2010). Business Ethics: Managing Corporate Citizenship and Sustainability in the age of globalization. New York: Oxford University press

Dicksmith Corporate Governance. (2015). Dicksmith Holdings 2015. Retrieved May 21, 2016, 

Dicksmith. (2015). Dicksmith profile. Retrieved May 9, 2016, 

Fernando, A.C. (2009). Corporate Governance Policies and Principles, Oxford University Press

Gibson, C. (2012). Financial statement analysis. Mason, Ohio: South-Western.

Goergen , M. (2012). International Corporate Governance, Prentice Hall.

Guerard, J. (2013). Introduction to financial forecasting in investment analysis. New York, NY: Springer.

Horngren, C. (2013) Financial accounting. Frenchs Forest, N.S.W: Pearson Australia Group.

Lemke, L. (2014). Regulation of Investment Advisers. Oxford University Press.

Lubatkin, M.H. (2007). One more time: What is a realistic theory of corporate governance? Journal of Organizational Behaviour, 28, 59-67

Macey, J. (2008). Corporate Governance: Promises Kept, Promises Broken, California, Columbia and Princeton

Parrino, R., Kidwell, D. and Bates, T. (2012).  Fundamentals of corporate finance. Hoboken, NJ: Wiley

Petersen, C., & Plenborg, T. (2012). Financial statement analysis. Harlow, England: Financial Times/Prentice Hall.

Peterson Drake, P., & Fabozzi, F. (2012). Analysis of financial statements. Hoboken, N.J.: Wiley.

Williams, J. (2012). Financial accounting. New York: McGraw-Hill/Irwin.