The Australian Stock Exchange (ASX) has asked embattled dental care group Smiles Inclusive (ASX: SIL) if it should be listed, and the company's response raises more questions than it provides answers.
Smiles chairman David Usasz notes the Gold Coast company only had $323,344 in cash as at the end of 13 September.
This compares to $1.6 million at the end of June and implies the company has been burning cash to the tune of around $130,000 a week
Yet the company claims that in June, representing four of those 10 weeks, it recorded an EBITDA of $36,019. That of course does not include depreciation or tax expense, so it is possible the statutory figure will still be in the red.
Usasz claims current cash flows are not reflective of management's expected cash flows for "the period leading to and following the time the turnaround is complete".
"While every effort is being made to improve performance as soon as possible, the Company expects its cash flows to fluctuate, particularly when taking into consideration the ordinary and seasonal business cycle," Usasz said in a response to the ASX yesterday afternoon.
"The Company expects improvements in cash flows over the medium to long term, though the likelihood of negative operating cash flows for the time being remains relatively high."
It has also now been more than two weeks since Smiles released its unaudited results including an unexpected impairment loss of $13.7 million, which Usasz told the ASX only came to the board's attention sometime between the market close and 7pm on 30 August.
Some joint venture partners believe the impairment may be much larger, but Usasz noted yesterday the audit still hadn't been completed.
"The auditor has not yet formed a view as to the quantum of the impairment recognised by the Company for FY19," Usasz said in the late afternoon response yesterday.
"The Company remains in discussions with the auditor, which are ongoing and productive."
In response to speculation surrounding plans for a second capital raising, Usasz said Smiles was exploring all funding avenues open to it, including debt and equity.
"The Company is in productive discussions with its primary lenders to ensure it continues to meet its immediate working capital requirements," he said.
"The Company continues to actively consider all options available to it as an ASX listed entity, and remains confident it would be successful should it elect to raise further funds via equity capital markets."
Usasz said the group expected to continue its operations and meet its business objectives "on the basis that it continues to have the support of its primary lenders, stakeholders and that it is seeing positive tangible change within the business as a result of the implementation of its turnaround plan".
There have also been reports recently of joint venture partners (JVP) not being paid, which one Brisbane-based JVP had been accompanied by "dog ate my homework" excuses Smiles directors when under pressure from staff.
"The Company confirms that payments to staff were made on time in its most recent payroll run, and there were no employee arrears as at 10 September 2019," Usasz said in response to the ASX.
With regards to this comment, it should be noted that the JVPs who have complained about payment issues are not technically staff.
"The Company continues to manage its relationships with creditors (including independent contractors) and expects to have sufficient cash to meet its current liabilities to staff and other creditors for the month of September 2019," Usasz said.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
Business News Australia