Veritas Investments will book after-tax losses of between $2.2 million and $2.6m on the sale of its upmarket Nosh supermarkets in its annual accounts, which it anticipates will bolster underlying earnings for the year, having returned to the black in the first half. The shares gained.
The Auckland-based food and beverage investor completed the sale of its Nosh franchise to Gosh Holding on February 24, with the net proceeds going towards repaying bank debt, which was sitting at $30.5m as at December 31. The $3.98m sale included about $1m of stock, and let Veritas exit what's been a problematic investment since buying the supermarket business in 2014. Veritas valued Nosh's assets at $7m with $2.6m of liabilities at the December 31 balance date.
The sale doesn't show up in Veritas's first-half accounts, released today, which show the company posted a profit of $1.2m, or 2.78 cents per share, in the six months ended December 31, turning around a loss of $4.8m, or 11.12 cents, a year earlier. The 2015 accounts were weighed down by a series of impairment charges and other write-offs.
Revenue dropped 17 per cent to $15.9m due to the closure of underperforming Mad Butcher stores and the sale of three bars in Hamilton, with the more profitability operations helping lift earnings before interest, tax, depreciation and amortisation 11 per cent to $4.6m. The shares rose 11 per cent to 30 cents, the highest level since September last year.
Veritas said the latest interim accounts "showed the benefits from the actions we undertook in 2016 to improve the profits and cashflows," and the company expects annual ebitda to be between $7.9m and $8.5m compared to a previous forecast of $7.4m to $8m. The slimmed down business is expected to generate revenue of $26m to $31m, down from a previous range of $50m to $55m.
The sale of the Nosh business was part of an agreement with lender ANZ Bank New Zealand, which also wanted a capital and strategic plan delivered by today and plans concerning two of Veritas's company-owned Mad Butcher stores. The bank will conduct an interim review of Veritas by the end of March, which will include an independent review of the capital and strategic plan.
Veritas's interest expense shrank to $863,000 in the half from $902,000 a year earlier, even as the effective interest rate rose to 5.46 per cent from 4.83 per cent, with bank borrowings falling to $30.5m from $35.3m as at December 31, 2015. The company's bank debt matures in November this year.
The company's Mad Butcher franchise, which consists of 29 franchised stores and three company-owned stores, increased earnings 11 per cent to $2.1m even as revenue dropped 39 per cent to $3.9m. Veritas said it is focusing on "ensuring profitability within each store and we are working closely with franchisees to support and maximise their performance".
The Better Bar Company beat Veritas's target in the period, with ebitda rising 16 per cent to $3.1m while revenue slipped 5.5 per cent to $12m.
The board didn't declare an interim dividend.