Oliver's finally releases first half results with ballooning losses, $10m in impairments

Oliver's finally releases first half results with ballooning losses, $10m in impairments

At a time when most ASX listed companies are tidying up shop ahead of the end of the financial year, healthy fast food chain Oliver’s Real Food (ASX: OLI) has at last released results for the last six months of the past calendar year, yesterday releasing its long-awaited 1H22 results after the market closed.

The financial report, which OLI says was delayed due to the company changing auditors at the end of FY21, details a company struggling to rebound from COVID-19 impacts despite the implementation of a major restructure.

OLI’s losses ballooned in the half by 319.5 per cent to $12.6 million, deepening from $3 million in 1H21, driven mostly by $10 million in impairments from the closure of four Victorian stores and a discount rate applied to stores in Queensland and New South Wales.

The company also detailed how its cash flow remains under “extreme pressure”, relieved only by the support of lender-shareholders Gelba and Michael & Suzanne Gregg who have provided Oliver's with a new line of credit to the tune of $2 million.

The company, which remains suspended from trading on the ASX, yesterday apologised to shareholders for the “significant delay” in releasing its December half report.

“The board apologises for the significant delay in reporting these results,” said Oliver’s, which saw its founder depart for the second time in three years last March.

“There is an explanation as to why this was necessary. OLI changed its auditors following the conclusion of the FY2021 full year audit.

“The half-year to 31 December 2021 is therefore the first interim report we have presented that has been reviewed by our new auditors.”

The company’s auditors, Grant Thornton, yesterday said the combination of factors including the company’s losses and impairments “indicate a material uncertainty which may cast significant doubt as to whether the consolidated entity will continue as a going concern”.

However, the Grant Thornton report goes on to state a number of factors mean the company will be able to continue as a going concern.

These include the easing of COVID-19 restrictions leading to more consistent trading, the support of the company’s lenders, the closure of unprofitable stores, the implementation of a restructuring plan, and the planned upgrades of existing stores.

“The plan has the backing of our two lenders Gelba Pty Ltd and Michael and Suzanne Gregg, however such growth will require substantial capital and a fund raising is expected to be carried out during 2023FY,” notes Oliver’s.

“Based on the above, the directors have prepared the financial statements on a going concern basis.”

Ultimately, Oliver’s attributed its survival to the implementation of a restructure which commenced in July 2021 and saw it through “COVID, border closures, lockdowns, fires and floods”.

“We have survived all of these, some occurring concurrently,” Oliver’s said.

“The main reason for our survival has been the significant restructure, which we have discussed at length in prior announcements, which comprised a major change at the operational level.

“It is the board’s view that the Company would not have survived had this restructure not been executed.”

That restructure followed a six-month review of the company, prompting it outsource delivery to a third-party logistics company and enter a partnership with convenience retailer and petrol station operator EG Group.

That EG Group partnership got Oliver’s products stocked in a number of convenience retail outlets. In the six months to 31 December, Oliver’s opened 39 ‘Oliver’s Food To Go’ (OFTG) locations with EG, bringing the total number of outlets to 189.

The fast food operator’s board also mentioned yesterday that it expected OLI stores to bounce back to pre-COVID sales levels following the implementation of the restructure. While that occurred at stores in QLD and NSW, the same cannot be said for its Victorian footprint which remains at a “frustrating” 58 per cent of pre-COVID levels - “a trading pattern which has been resistant to all corrective attempts by management and has therefore continued to concern the board”.

“As a direct result, and after weeks of close monitoring and analysis, the Board resolved a need to close 4 VIC stores immediately,” OLI said.

“The remaining VIC stores are under careful and constant review, and discussions are on-going with the landlords. Unless there is an immediate improvement in sales and/or rent reduction the board may well have no option, but to close more stores.”

Following a review of all company-owned stores, OLI uncovered "a number of inherent structural issues with some stores, in that the rentals as a percentage of the turnover, now diminished due to COVID and unlikely to recover to pre-COVID levels, were way beyond industry standards".

"As a result, management commenced discussions with the relevant landlords to either reduce rentals or find another solution, as continuing to bleed money from these stores was not an acceptable outcome."

As such, OLI says it has quit the lease at its Chinderah, NSW location, and has come to an arrangement with the landlord of four VIC-based stores whereby the landlord has found a possible replacement tenant as of 1 July 2022.

A $6 million impairment reflecting the 100 per cent total carrying value of the entire Victorian network was recognised in the half as a result, in addition to a further $4 million impairment reflecting non-Victorian stores being subject to a higher discount rate than previously applied and a “more conservative forecast’.

“The impact of this on our half year results is substantial,” OLI said.

This $10 million impairment compares to the company’s pre-suspension market capitalisation of approximately $21 million.

Oliver’s also announced its EBITDAI was $203,600 in the half, down from $329,800 in the prior corresponding period. Revenue also fell by 41 per cent to $7.2 million - “attributed largely to the impact of COVID-19 and state border closures during the half year”.

Gross margin for the half was 54 per cent compared to 56 per cent for the same period last year, due to a write off of food going out of date both at stores and warehouses during COVID-19 shutdowns in both NSW and VIC.

The company has $714,000 in cash and cash equivalents at the balance sheet date.

Oliver’s also went out of its way to detail events that took place after 31 December, noting the impact of severe flooding in SE Queensland and NSW, resulting in several OLI stores becoming inaccessible and others being flooded.

“Yet another blow to travellers and holidaymakers, in what is traditionally Oliver’s most robust trading period in its most robust area (NSW),” OLI said.

“The impact on our revenues and profits was immediate and devastating, arriving just as OLI was showing signs of recovery from COVID.”

Nonetheless, Oliver’s has described the results as “encouraging, especially when you consider that the company has not just survived through what has been probably the most challenging trading environment for hospitality businesses”.

Looking forward, OLI says the board has requested management to enhance the existing restructure plan to make the business cash flow positive by FY23.

This plan involves upgrading stores and equipment, and develop a “high street” test store that will be located in metropolitan Sydney.

“If the store is successful then up to 20 stores will be rolled out in the next two years,” OLI said.

“The plan has the backing of our two lenders Gelba Pty Ltd and Michael and Suzanne Gregg, who have agreed to support the business.

“Such growth will require substantial capital and a fund raising is expected to be carried out during 2023FY.”

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