Smiles Inclusive has three weeks to cough up $12m to NAB

For at least 14 months struggling Gold Coast-based company Smiles Inclusive (ASX: SIL) has barely put a dent into a $19 million debt to National Australia Bank (NAB), despite capital raisings and asset sales. 

Now the dental practice network, having burned around $7 million in cash in FY20, is expected to pay back more than $12 million of that amount by 11 September.

The outstanding debt to NAB includes a temporary $330,750 JobKeeper facility.

In a release yesterday, Smiles Inclusive said it was pleased to announce it had agreed to finalise the banking relationship with NAB under a formal release deed.

NAB agreed to release and discharge Smiles from liability under its various banking facilities on receipt of the $12 million and a $347,658 credit card facility by 11 September, and the JobKeeper facility within two business days of the company receiving ATO funds for September.

The company explains the deal was reached as part of a recapitalisation plan, and it noted various sales and consolidations had been reached but without providing dollar figures.

Smiles confirmed it had sold its Miranda and Yarram practices and the proceeds were used to reduce the NAB loan on 13 July and 12 August respectively - both payments prior to the 14 August when the balance stood at $19.29 million.

The company has also restructured its dentures and mobile divisions, resulting in the consolidation of 15 tenancies as part of a portfolio simplification and operational effectiveness plan.

Smiles Inclusive chief executive officer Michelle Aquilina explained the company was in advanced discussions with a professional underwriter to raise capital for the company, with a target completion date by the end of September 2020.

"We remain focused on our goals to manage our core business efficiently and effectively to maximise shareholder value," she said.

"The results to date have demonstrated the efforts, commitment and professionalism from our people during these challenging times and I am sincerely thankful to them."

The group also clarified that its long-awaited audited first half results - whose delay is the cause of a long-running suspension from trading - are just around the corner. 

"The Company expects the audit review of the interim financial statements for the half-year ended 31 December 2019 to be completed by no later than 31 August 2020," Smiles Inclusive said.

"The full year audit work for the year ended 30 June 2020 is in progress and the Company expects to have this finalised shortly in the near future.

"The Company will also be lodging Appendix 4C cash flow statements monthly and looks forward to providing the regular cash flow updates going forward."

ASX raised concerns over lodging of Aquilina's appointment

Yesterday's announcements come almost a week after Smiles' response last Friday to an ASX query regarding why formal documentation regarding Michelle Aquilina's CEO appointment was lodged almost four months late.

While Smiles Inclusive had reported on Aquilina's appointment in April following the departure of former CEO Tony McCormack, it lodged the Appendix 3X with more details on 11 August.

"As the Notice indicated that Ms Aquilina was appointed on 9 April 2020, it appears that the Notice should have been lodged with ASX by 20 April 2020," the ASX said in its query.

"As the Notice was lodged on 11 August 2020, it appears that SIL may have breached listing rules 3.19A and/or 3.19B.

"It also appears that Ms Aquilina may have breached section 205G of the Corporations Act 2001 (Cth)."

In its response, Smiles explained the late lodgement was an administrative oversight as the company was in the midst of managing the COVID-19 crisis.

"The lodgement of the Appendix 3X under Listing Rule 3.19A.1 was a requirement that was inadvertently overlooked at the time of the appointment of Ms Aquilina as CEO and Managing Director," the company said.

The company's filing also included information on Aquilina's remuneration of $360,000, which is 26 per cent more than her predecessor McCormack who was on $285,000. 

In order to ensure compliance with listing rules, Smiles noted it had an external consultant in place who provides company secretarial services to the company. The group has been without a CFO since mid-May, but in a letter to shareholders yesterday chairman David Usasz said the company was in the final stages of appointing one.

Usasz added the proposed EGM to replace all of Smiles' existing directors represented an unnecessary distraction and cost for the company.

"A change of directors at this time would be disruptive, if not disastrous," he said.

"The call comes at a time when the Directors and management are leading a major turnaround in the operational and financial performance of the company to ensure a sustainable future and enhance shareholder value."

"The Requisitioning Shareholders have nominated Dr Joao Camacho, Dr Philip Makepeace and Dr Arthur Walsh as their proposed replacement directors of the company."

He noted this latest call for an EGM came only 14 months after the last EGM requisitioned by some of the current party.

"At that EGM, Dr Camacho failed in his bid to be elected to the Board. Subsequently, Dr Camacho and others sought to requisition a second EGM to consider the same resolutions that failed at the first EGM," Usasz said.

"In effect, this latest call for an EGM is the third time that Dr Camacho has sought to remove the Directors and to be elected to the Board.

"Dr Camacho, Dr Makepeace and Dr Walsh have never been directors of a publicly listed healthcare company. They and the Requisitioning Shareholders have not put forward any plan to improve the Company's balance sheet or any plan for turning around the performance of the business to create sustainable growth.

"Dr Camacho, Dr Makepeace and Dr Walsh terminated their facilities and services engagement with the Company some months ago and no longer work with the Company."

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