By Martin Vedris
SYDNEY: Strathfield shareholders voted overwhelmingly this morning in favour of purchasing the Clear Equipment Group, with the company’s chairman, John Fries declaring it would double the business and offset a cash flow issue with the existing Strathfield model.
According to the Strathfield chairman, John Fries, though, it means doubling the existing Strathfield business.
“It is a huge new step effectively it doubles our size but even more importantly it gives us a stability of income and cash flow because as a retailer … we have a couple of lumps in the year, one being Christmas time,” Fries told Current.com.au today.
“It gives us tremendous economies of scale and … a $5 million interest-free loan and a lot of other financing.”
In addition to $2.1 million in Clear Equipment Group inventory already acquired by Strathfield, Fries said the business also opens up new business opportunities for both sides.
“It is a very complementary business because at present Clear works from call centres and this gives them 80 direct distribution outlets and probably more than half of our stores do a lot of business with small and medium businesses which is Clear Equipment Group’s main business strategy, so it gives them an additional outlet capacity.”
Fries expects that the whole will be greater than the sum of the parts.
“If we look at the two separate audited numbers last year, our audited revenues were about $165 million, give or take a million, and theirs were around about the $120 million size … putting the synergies together it should much more than double the revenue and certainly Clear sell on much enhanced margins, so it will be a big profit-driver for our shareholders.
The existing business model of a free gift with a mobile purchase for Strahfield consumers is a drain on the company’s cash flow. The business needs to buy the giveaway stock, which ties the cash up and Strathfield only gets the cash back once the telephone company rebates for customer sign ups come in, often many months later. Fries said that the Clear acquisition should also alleviate some of this cash flow squeeze.
“Certainly the Clear business requires far less holding of stock and cash flow,” Fries said. “But when you put the two together it gives us a far better stock turnover … and improves the overall consolidated margin very significantly.”
Earlier this year Strathfield also announced its intentions to purchase the m8 Telecom business, of which Strathfield director, Warwick Mirzikinian, is a major shareholder. However Fries said the board decided to concentrate on the Clear purchase first and that the group had not ruled out purchasing m8 Telecom in future.
“Warwick was happy to put it aside for the time being until we go the Clear one together,” Fries said.