"A long way to go": Oliver's on the expansion path again as recovery presses on

Within a month of its reinstatement to the ASX after a two year absence from trading due to financial reporting concerns from the market operator, the Oliver's Real Food (ASX: OLI) leadership appears emboldened by a cash flow turnaround and have signed a deal to grow the company's footprint.

Following a 12-month period of consolidation with eight store closures, mostly in Victoria except for one in Chinderah south of Tweed Heads, Oliver's has announced a heads of agreement to secure two quick service retail (QSR) outlets that will operate within Ampol (ASX: ALD) service stations at Pheasants Nest, NSW.

Located on either side of the Hume Highway 100km south of Sydney, the stores will be located within food court areas and have drive-thru capability. The service stations are currently under construction, but Oliver's expects the stores to be operational during the September quarter.

"This marks a significant step for the company as we focus on growing our business," says Oliver's CEO Natalie Sharpe.

"The Hume Highway south of Sydney is one of the busiest in the country, and we have high expectations, for revenue and contribution to the company's future profitability."

The company's monthly cashflow report for February shows a $166,000 net increase in cash from operating activities, which compares to just $43,000 for the same month in 2022.

Oliver's chairman Martin Green, who was part of a bloc of investors that ousted founder and former chairman Jason Gunn from the board in March 2021, tells Business News Australia there has been a substantial difference recently versus the previous summer period.

"All the work we’ve done is starting to show through in the performance and the numbers. There’s a long way to go but we’re delighted with where we’re at," Green explains.

"All of our stores are performing stronger than where they were even 12 months ago, but certainly our Victorian network is responding quite well at the moment from where it was; that we think is maybe more [because] of the Victorian lockdown and the implications that had on the Victorian population. They were a bit slower to get out and about.

"Our core stores, particularly those north of Sydney, are doing very, very well."

He says it wasn't specifically on the company's radar to secure new store sites, but Oliver's didn't want to pass up the opportunity that arose at Pheasants Nest.

"Since March last year eight stores have been closed, and those stores were challenging - having closed them we're now a much leaner business, and as the numbers are showing, we’re generating some good profits when we have our good months, and cash," he says.

"We’re now able to consolidate what we’ve done, and the announcement today about the stores just south of Pheasant’s Nest are a sign of where we’re at as a company.

"We are of the view that we are looking at where we might be able to go, but as we’ve said also in our public statements, we’re going to do it with a lot of due consideration and make sure we get the right sites that meet our financial criteria."

He attributes the improvement in performance partly to switching from an in-house model to utilising third parties for distribution and a number of other services.

"That was our first step to simplifying the business. That was a very important start, but I think in the last 12 months we probably worked very hard at identifying the stores that were best suited for us and are best likely to generate positive returns," Green notes.

"We have announced in the past some new equipment that's gone into certain stores - we think that we got to improve on those things. It's obviously been a difficult time to invest, and now we've now got some capacity to do that."

With the half-yearly results release that came before Oliver's reinstatement to quotation, the company flagged that it was considering rolling out 20 stores over the next two years in Sydney, Melbourne and Brisbane, although that would need to be preceded by store upgrades across the existing 16-store network and a "high street" test store in the NSW capital.

Less than a week later, Oliver's released a clarification that such an expansion would require a substantial capital raising.

"The clarification was based on interpretation of reading that particular note in the accounts, so we felt it was best to clarify that the any raising of capital was not going to happen in the current financial year, which was what could have been interpreted in the note," Green says.

"It remains part of our view as one option to grow, but again our determination is to find sites, no matter where they may be, that first of all fit our financial model and that will be the determining factor as to what we do and when we do it."

Green does not think the financial reporting problems of the past two years could reappear in the near future. 

"No, I don’t believe that those things will happen again," he says.

"I think you could take comfort from the fact our first half results were released two weeks before the due date, and they received a very good audit outcome considering where we’re at, and the ASX took on board that report.

"It's been a difficult two years for the company, but as a team I’ve been delighted to be working hard with the operational team and the board to turn things around and to get relisted – that was an important focus of ours and for all of our shareholders."

OLI shares rose 21.05 per cent today on the store agreement news to 2.3cps, but this is still much lower than the 6cps mark where they were before the March 2021 suspension from trading.