ASX drills Smiles Inclusive on shock $19 million loss announcement

ASX drills Smiles Inclusive on shock $19 million loss announcement

Late on Friday 30th August Smiles Inclusive (ASX: SIL) announced its disastrous FY19 results.

Of particular note was its loss of $18.9 million during the financial year; a result that took the market by surprise.

Now, the ASX has questioned Smiles over whether this significant loss was something the company should have alerted shareholders about before last Friday.

In a letter to Smiles, the ASX asks whether the company considers the $19 million loss "information which is material to the price or value of SIL's securities within the meaning of listing rule 3.1".

The dental company says no, it was not material. It rests its case on the fact that the company formally withdrew all guidance on 24 April 2019.

Additionally, Smiles says "the market would have been aware that impairment of goodwill was a possibility. This is supported by the fact that share price and volume did not move materially following the announcement."

That is certainly not the case for one of Smiles' joint venture partners Dr Arthur Walsh.

Last week he said Friday's result was "far worse than any of us imagined and contrary to prior Company guidance".

"We estimate the Company is still losing $600k a month, every month, contrary to the misleading words of the Company," he says.

"Furthermore, it is no coincidence these disastrous results were released late on a Friday evening after everybody had gone home."

Dr John Camacho of Perth and Dr Arthur Walsh of Brisbane are two JVPs who have spoken against Smiles Inclusive's management. Camacho himself was part of an attempted board coup that failed in May.

Walsh has previously alleged he and Camacho's positions as dentists with the group were openly threatened if they continued to speak out publicly.

Prior to the $19 million loss announcement, Smiles had released a number of figures expected to be achieved by the end of the financial year.

First, in February 2019, the company expected to report a statutory loss of between $0.5 million and $1 million for FY19. This was following the announcement of its half year results.

On April 24 the company announced that it would withdraw FY19 guidance because of uncertainty within the company. At the time the group expected to post a statutory loss of "at least" $4 million.

Which brings us to the group's FY19 results; the shock $19 million loss alongside underlying losses of $4.5 million. According to Smiles' report, the $19 million is largely due to a $13.7 million impairment of assets.

Revenue however grew significantly during the period by 405 per cent to $30.6 million.

The company blamed an unsuccessful integration of the business, a breakdown of relationships with joint venture partners (JVP) which led to a low level of engagement, and operational issues within the mobile division which led to its temporary closure for its poor results.

The result came days after Smiles partners had raised questions about the company solvency alleging high operational costs while most of the cash on hand came from a recent capital raising.

As at 30 June Smiles had cash of $1.6 million and drawn debt of $24 million, while its goodwill after impairment losses was at just over $49 million.

"We continue to assert that Smiles is trading while insolvent. Dentists and other unsecured creditors remain at risk," says Camacho.

"The unaudited numbers make no sense whatsoever. Smiles is losing serious money, but management still has goodwill on the balance sheet at $50m. We continue to seek a meeting with KPMG, Smiles auditor."

Shares in Smiles are down 1.41 per cent to $0.07 per share at 10.36am AEST.

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