Disgruntled Veritas Investments shareholders fired a salvo of questions over poor performance and the tanking share price for the group, which includes the Mad Butcher, Nosh, and Better Bar Company brands, at today's annual meeting in Auckland.
Veritas has said it is on track to meet 2017 guidance after first quarter trading, with revenue expected to be lower than last year at between $50m and $55m and underlying net profit in the range of $3m to $3.6m. In August it reported a full-year loss of $4.6m, compared with a $3.3m profit the prior year.
John Hawkins, chairman of the New Zealand Shareholders Association, questioned whether Veritas was simply at the mercy of its bankers, given its high debt levels, and expressed concern that 66 per cent of its assets were intangible and would have no value if the company was no longer able to keep on as a going concern.
He accused the board of "glossing over" a lot of serious issues.
Chairman Tim Cook, who was re-elected today despite some shareholder criticism, said the company enjoyed a "strong relationship" with its banker, ANZ. It made a deal in September to reschedule and reduce the group's debt repayments. The deal includes the board preparing a plan to address its capital structure by the end of February and it can now only issue dividends with the bank's approval.
Auckland-based Veritas had current liabilities at the end of the June 2016 financial year of $21.4m against assets of $6.8m. It has to repay $16.5m in debt within the next year and a further $16.7m beyond that.
Cook said as a shareholder who had bought into the company at the time of the initial public offering at $1.30 a share and with the share price now trading at 20 cents per share, no-one was more motivated than himself and chief executive Michael Moreton to turn around the company's performance.
The strategy to restore profitability included finding a new point of difference for the Mad Butcher stores, seven of which had closed, with beef prices up 28 per cent over the past two years and intensified competition from supermarkets. Cook said the board was looking at offshore meat retailing trends, given it could no longer compete on price. It was also re-franchising four company-owned stores.
With the Nosh food supermarkets, the board is relying on selling eight company-owned stores to franchisees, who Cook said historically perform better than employees in lifting sales. When asked why good franchisees would be attracted to the poorly performing brand, Cook said they were offering the franchises at a significantly discounted price to attract the right people.
With the Better Bar Company, the only division that is performing well, three loss-making bars in Hamilton were sold and the remaining eight were trading profitably. Cook said it was making some investment in redeveloping existing sites to lift revenue and profitability and was open to acquiring more bars, though he didn't say where the funding for that would come from.
One shareholder questioned the board on why auditor PwC had qualified its opinion of the listed company's full-year accounts after saying the Nosh investment was carried at $4.6m in the consolidated statement of financial position but was unable to obtain sufficient evidence to support that valuation.
Cook said the board "couldn't agree on the number" with PwC, and was confident of achieving the key assumptions of cumulative sales growth of 15 per cent over three years and a gross margin improvement of 3.5 per cent over the same period.
Richard Flower, who told the meeting he was regrettably a shareholder, questioned the legal advice the board had received over its 50 per cent in Kiwi Pacific Foods, which supplied meat patties for Burger King outlets and will be wound up by the end of March next year. Veritas has made a $1.6m loss on that investment after Antares Restaurant Group decided to source the meat more cheaply elsewhere.
Cook said the board had relied on legal advice from two law firms that Antares couldn't do that under the contract but an independent arbitrator had ruled it could.
"After burning $250,000" on legal fees fighting the case, Cook said the board decided it wasn't prudent to burn another $250,000 taking it to appeal.