Kleenmaid Directors’ Andrew and Bradley Young have outlined their reasons for the businesses collapse in the recent administrator’s report, obviously unsatisfied with their answers, Deloitte also issued its reasoning.
According to the detailed report, the Young brothers attributed the collapse of Kleenmaid on three main reasons:
– Decline in retail sales in company-owned stores from September 2008 to March 2009.
– Decline in the value of the Australian dollar against the Euro and the US dollar.
– Failure to transition company-owned stores to independently owned franchises.
All of these were ultimately accounted for as ramifications of the global financial crisis.
But this response is very confusing seeing as Deloitte has confirmed that the company has been in the red for at least two years, well before the crisis hit the global economy.
In response to this statement, Deloitte issued its own reasons for the Group’s failure:
– Lack of transparency in the Orchard Group’s (original business run through Orchard KM) profitability due to overstatement of revenue through inappropriate revenue recognition policies.
– High cash burn due to ongoing losses in company-owned retail stores.
– Reduced sales in EDIS in the nine months to 31 March 2009 and foreign exchange losses sustained on overseas stock purchases and the effect of foreign exchange on gross margins.
– Significant cost structure of the Group.
– Costly and complex corporate structure and poor strategic management and direction.
As reported earlier on Current.com.au, Deloitte have come out claiming the Group has been trading whilst insolvent since at least 2007. The administrators went further claiming that they noticed Kleenmaid experienced cash flow problems from as early as 2004, when repayment arrangements were negotiated.
Despite the fact that Deloitte did not openly disregard the comments attributed from the Young brothers, it seems that their comments can’t be taken seriously as all of their reasons for the collapse are disproved throughout the report.