8 March 2019

New CEO for Smiles Inclusive Limited
Mike Timoney Steps Down

Toby McCormack who was Chief Financial Officer of Australian Agricultural Company Limited for two years prior to April last year has been appointed CEO following heavier than expected losses and what are describe as a string of operational problems (Australian Financial Review 8th March 2019).  Reportedly, Australian Securities Exchange (ASX), questioned the timing of the profit downgrade on 28th February.  It has long been the case that companies with problems tend to sneak out their result at the close of the normal half yearly reporting season hoping to fly under the radar.

Smiles Inclusive Limited has responded to the ASX saying that as an acquirer of a large number of dental practices, “its earnings are subject to a number of sensitivities and risks with which do not impact on most other ASX’s listed entities”.  This writer can think of lots of companies in diverse industries which have to deal with all manner of risks and sensitivities.

It made a loss of $1.59 million in the six months to 31 December 2018.

Dentists will recall that Synstrat were sceptical about its pre IPO offer document and subsequent events and did not believe that it would achieve its results as set out in in its proforma accounts prior to its listing on the stock market.

Mr McCormack is reported as working closely with the group’s main banker, National Australia Bank.  An independent review is being conducted to ensure that Smiles Inclusive Limited complies with banking covenants.

The original CEO Mike Timoney stepped down on the 28th February 2019 and Chief Financial Officer, Paul Innes resigned in December.  It is likely that the change of CEO was forced on the group by the National Australia Bank.  Normally bankers in this situation do not want to work with people that they regard as having been central to the problem.

Our view is that potential investors must wait until at least its first full year audited accounts are released which will be in about September 2019.  It is likely that Smiles Inclusive Limited may not be allowed to buy more dental practices until it has demonstrated an ability to conduct itself profitably.  Basically, it is heavily under the influence of its bankers.

I am reminded of Warren Buffett’s wisdom that if you appoint a new manager to a poorly performing business, it is usually the business which emerges with its reputation intact.

Best Wishes to all Dentists,

GRAHAM MIDDLETON

Prepared by Synstrat Management Pty Ltd for clients of the Synstrat Group.

Synstrat Management Pty Ltd is the holder of Australian Financial Services

Licence number 227169.

 The Synstrat Group consists of two companies, Synstrat Accounting Pty Ltd and Synstrat Management Pty Ltd.  The two companies are owned in parallel by the Synstrat partners who are directors of both companies.

Disclaimer

The information contained herein is of a general nature and no specific action should be taken without individual advice.  Speak with Synstrat staff as appropriate.