Auditors qualify opinion of Veritas accounts on value of Nosh food markets

Tuesday 20th September 2016

The auditors of Veritas Investments, the NZX-listed owner of the Mad Butcher franchise and Nosh Food Market outlets, have qualified their opinion on its financial accounts for the year ended June 30.

PwC says Veritas's investment in the Nosh food supermarkets is carried at $4.6 million in the consolidated statement of financial position, but, "we were unable to obtain sufficient appropriate audit evidence to support the carrying amount of that operating unit."

Veritas's directors justified the figure saying the group has prepared a discounted cash flow to identify the value of Nosh as a franchise model and, "this shows a recoverable amount in excess of the carrying value at June 30, 2016." The key assumptions used include cumulative growth in sales of 15 percent over three years and cumulative gross margin improvement of 3.5 percent over the same period.

The directors added that while the board had adopted reasonable assumptions in preparing the model, "Nosh faces uncertain market conditions that make it difficult to predict future profitability. It is possible that changes in these assumptions would cause the carrying value to exceed the recoverable value."

The company spent $335,615 on audit fees in the year, a figure which included an extra $108,965 related to "understanding and analysis of historical and projected financial information, as well as the group's improvement plans." The audit fee for 2015 was $157,500.

In its unaudited results published last month, the Auckland-based company described the performance of the Nosh food market as "disappointing." There are eight stores in the gourmet food chain, six in Auckland, one in Matakana and one in Mount Maunganui but full-year earnings before interest, tax, depreciation and amortisation were a loss of $1.88 million, widening from $1.19 million the previous year.

Veritas told investors it was making a substantial effort to "focus on gross margins, stock levels and operational improvements to bring the business back to profitability." In April, the company announced plans to franchise the existing stores and is currently working through a short-list of potential operators.

The unaudited results also revealed that directors had had to weigh up whether the business was still a going concern. Veritas agreed on a deal with its banker, ANZ New Zealand, to reduce its debt repayments and reschedule its debt on Sept. 9. The audited accounts published on Sept. 20, show Veritas directors can now only issue dividends with the approval of ANZ.

The directors have also agreed to prepare a plan to "address the group's capital structure" by Feb. 28, 2017.

Veritas shares were unchanged at 21 cents and have fallen 56 percent this year.

BusinessDesk.co.nz

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