Veritas slashes profit guidance by 19% as Nosh stalls   29 May 2015

Veritas slashes annual profit guidance by 19% as Nosh turnaround struggles

By Suze Metherell

May 29 (BusinessDesk) - Veritas Investments, the food and beverage investor, has slashed its full year profit guidance 19 percent, blaming a slower than expected turnaround in its gourmet supermarket chain, Nosh Food Market, and tighter drink-driving legislation weighing on its Better Bar Company unit.

The Auckland-based company, which also owns the Mad Butcher franchise, now expects profit to be $4.3 million in the 12 months ending June 30, down from the $5.3 million it forecast in February, which itself was a downgrade from its November expectation of between $5.3 million and $5.8 million, and unchanged from the $4.3 million it reported last year.

Veritas has been on the acquisition trail since its formation from a shell company in December 2011. It bought the Mad Butcher chain in May 2013, half of the meat patty supplier Kiwi Pacific Foods in December 2013 and the Nosh gourmet-supermarket chain in September. It bought the Better Bar pub chain last November for $31.2 million in cash and shares.

The company blamed its two most recent acquisitions, Nosh and BBC, for the profit downgrade. Nosh is in the middle of a business turnaround, which Veritas said was "progressing well, although is behind schedule" and as a result will record a loss this year, with a breakeven position pushed to the second quarter of the 2016 financial year.

Its BBC unit was suffering from tighter drink-driving legislation, Veritas said. It expected lower-alcohol offerings and improved food would counter the downturn.

Its Kiwi Pacific Food unit had traded strongly and was above targets. The Mad Butcher business earnings were in line with expectations, with its Mini Mad Butcher pop up store in Mosgiel a success, Veritas said. There were currently four stores for sale, waiting for new franchisees to purchase them.

The Massey, Glenfield, Rotorua and Kapiti Mad Butcher stores have all been placed into liquidation so far this year, and all but Rotorua have been taken back into Veritas ownership. Last month Veritas was forced to defend the liquidations, saying it was "simply a coincidence of timing".

The Glenfield store is in its second liquidation since late 2013, while the Mount Roskill and Henderson stores were also tipped into liquidation during 2014.

BusinessDesk was contacted by a several former Mad Butcher franchisees last month, who said some stores struggled with Veritas's cost structure in a competitive meat market. According to Veritas’s March 2013 prospectus Mad Butcher expected income from its supplier rebates to rise 52 percent to $5.03 million in 2014 from the previous year, while its carcass income would increase 11 percent to $26.36 million.

Michael Morton, who sold the meat chain to Veritas in May 2013, having acquired it from founder and original ‘Mad Butcher’ Peter Leitch in 2007, is chief executive of the Mad Butcher business and personally owns two franchise outlets. Last month he said that rebate fees, which franchisees pay to Mad Butcher for the meat, had "risen less than 1.5 percent in the past 10 years.”

Last month two more franchises were up for sale on Trade Me – the Manukau store had an asking price of $90,000 and the Napier franchise had been offered at a “price reduced” $295,000 or nearest offer. Both listings have since expired. Both owners declined to comment on why they were selling the businesses. According to the Westpac Directory of Franchising, Mad Butcher franchises require investment of between $350,000 and $450,000.

There are currently 40 Mad Butcher stores across New Zealand, of which 35 are operated by franchisees, according to the Veritas website.

Veritas shares dropped 3.8 percent in opening trading to 77 cents and have declined 36 percent since the start of the year.

(BusinessDesk)

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