Smiles told to justify ASX listing

Coast dental group Smiles Inclusive has been forced to justify its ongoing listing on the Australian Stock Exchange after the bourse issued its second query in less than a fortnight and its third for the year to the struggling company.

The Burleigh-based group, which has faced multiple legal battles, challenges to its board make-up and repeated public attacks by current and former shareholders, is struggling with cash flow and reported an $18.9 million loss for the past financial year.

Fresh questions about the company’s financial position were raised last week after dentist commission payments were late.

Responding late on Wednesday to a query from the ASX issued on Monday, Smiles defended its unaudited fullyear financial reports and said it remained capable of meeting its liabilities to staff and others.

The ASX fired off nine questions asking for clarification of Smiles’ reported positive earnings for July; a breakdown of the company’s cash and cash equivalents; whether it had followed ongoing disclosure requirements; if it was considering further capital raising and whether an auditor had confirmed its reported writedowns of $13.7 million for the financial year.

The exchange also asked Smiles to explain why it should allow its listing to continue.

“The Company considers that its financial condition is sufficient to warrant continued listing on ASX,” Smiles responded.

“As a business in turnaround mode, the 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.

“As disclosed on several occasions, implementation of the turnaround plan is in its early stages, with performance improvements expected to be realised over the next 12 months.”

The company said its auditor had not yet formed a view on the reported impairment, but that it remained an “ongoing and productive” discussion.

“The amount of the impairment charge incurred by the business as at 30 June 2019 is a product of the poor decisions of previous management which are in the process of being unwound and reset with appropriate commercially focused arrangements,” it said.

“The expectations are that these arrangements will substantially improve operational performance of the Company and shareholder value.

“Accordingly, management do not consider that the most recent cash flows of the business, and any valuation of the entity as a result of those cash flows, are necessarily representative of the likely future performance of the business and its corresponding value.”

It said it expected negative cash flows to continue despite “improvements in cash flows over the medium to long term”.

Smiles said it was “actively considering all funding avenues open to it, including debt and equity” and was in “productive discussions with its primary lenders” to meet its working capital requirements.

The company was issued an ASX query on September 5, in the wake of its poor financial result, asking it to explain why the expected impairments had not been disclosed to the market sooner.

In March, Smiles was forced to defend its disclosure practices when the ASX sent it a series of questions about an earnings downgrade which sent its stock tumbling and forced it into a trading halt.

THE COMPANY CONSIDERS THAT ITS FINANCIAL CONDITION IS SUFFICIENT TO WARRANT CONTINUED LISTING ON ASX SMILES INCLUSIVE