Veritas to franchise Nosh stores, copying Mad Butcher strategy

Wednesday 6th April 2016

Veritas Investments, which took first-half impairments against the value of some businesses and is planning to renegotiate its debt facilities, plans to use a franchise model for its Nosh Food Market stores, the same strategy it uses for its Mad Butcher outlets.

Veritas has eight existing Nosh stores, including two already operating as franchises. If successful, the franchise blueprint could be used to open new Nosh stores in other parts of New Zealand, the Auckland-based company said in a statement.

“The franchising of Nosh stores has always been part of our vision since we acquired the business 18 months ago," said chairman Tim Cook. "After a comprehensive review and restructure of operations we are now well positioned to roll out the franchise model for the existing Nosh stores.”

In February, Veritas posted a first-half loss of $4.8 million, reflecting impairment charges and other write-offs totalling $5.3 million against the Kiwi Pacific Foods joint venture now being wound down, unprofitable company-owned Mad Butcher stores, a loss on the sale of its underperforming Hamilton bars and other costs. Cook said in the first-half report that while Nosh had achieved profitability for the month of December, "it failed to achieve budget in the preceding two months" and "significant efforts" were being made to improve its gross margin.

Veritas acquired Nosh in September 2014 for about $1.3 million and has since recorded gains on acquisition in its income statements of about $1 million. Nosh revenue fell 32 percent to about $12.5 million in its latest half, for a loss on an earnings before interest, tax, depreciation and amortisation basis of about $1 million. As at Dec. 31, Nosh assets were valued at $7.3 million, up from $5.7 million a year earlier.

Cook declined to give details of likely franchise terms or the targets it would need to achieve. The offer is being made through a business broking firm. He said Nosh couldn't be compared to the Mad Butcher, which required the holder to be a qualified butcher while the food stores were "more generalist".

While Veritas stayed within its banking covenants during the first half, its current liabilities were "significantly in excess" of its current assets and the board planned to renegotiate its facilities with its main bank, ANZ Bank New Zealand, the first-half report said. Current terms included "a pretty aggressive repayment schedule" which the company wants to revisit, Cook told BusinessDesk.

Veritas shares rose 8.7 percent to 25 cents, valuing the company at $10.8 million, and have dropped 74 percent in the past 12 months.

Veritas has engaged PricewaterhouseCoopers to review all of its operations. It has been looking for a chief executive, a new position, although that has been put on hold pending the review. The company appointed John Hames chief financial officer in March.

Veritas was formed in December 2011 through a reverse sharemarket listing with the aim of acquiring high-quality New Zealand retail and consumer businesses. It said it sought established businesses with strong, sustainable cash flows and considerable future growth opportunities. It bought the Mad Butcher franchisor business in May 2013, took a half share in Kiwi Pacific Foods in December 2013, acquired Nosh Food Market in September 2014 and The Better Bar Co in November that year.

The company took on bank debt to fund the Nosh and Better Bar acquisitions and had total borrowings of $35.3 million at the end of the first half, of which $15.9 million of bank debt comes due in the coming year.

(BusinessDesk)

BusinessDesk.co.nz

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