Oliver's Real Food (ASX: OLI) expects to achieve annual cost savings of $4 million from a corporate restructuring announced today following a six-month review to make the company profitable after years of financial woes.
With a renewed board and an extra $5 million in funds from a recent placement backed by institutional investors, the company will now be divided into two core businesses - Oliver's Real Food involving stores and franchises, and the retail convenience business Oliver's Food to Go.
The board and management expect cost savings from having a centralised food preparation facility in Brisbane for the Oliver's Real Food business, with delivery outsourced to a third-party logistics company with a national footprint to reach all of the company's outlets.
In contrast, the convenience retail business relating to the partnership with EG Group will involve third-party manufacturing and distribution for the range of Oliver's products under a royalty payment model, effective by the end of April 2021. This will shift the operation from a fixed to variable cost set-up.
Oliver's highlights the group has considerable opportunity as a unique brand in the convenience food channel, based on strong customer loyalty, the strength of the EG relationship, and the historical profitability of many owned stores before the impact of the 2019-20 bushfires and COVID-19.
The company says the current operating model has not proven resilient enough to manage profitably through the events of recent years, which have severely tested the retail and tourism sectors to which Oliver's is exposed.
"It is plausible that without the impact of the bush fires and COVID-19, the company's original plan could have been executed successfully," the company says.
"Despite this, new management still believe that the plan was overly complex for a company of Oliver's size and would hold back profitability if allowed to continue."
OLI expects one-off costs of around $900,000 to implement today's announced changes.
"Now having spent some months analysing the business model with my team and considering various options, I am confident this restructure plan which seeks to simplify the business model is the best way forward for the company," says CEO Tammie Phillips.
"After implementation, the company's financial performance will quickly improve. Our budget projections currently show that the company can be profitable in FY2022.
"Further, the new simplified operating model will allow us to turn our attention to revenue growth and execute our customer-oriented growth strategy plan."
The board emphasises its belief the restructured business model provides a clear path to profitability.
"Tammie Phillips (CEO) and Rob Ross-Edwards (CFO) are experienced executives with the appropriate skill set to implement the restructure and to focus on growth opportunities," the board says.
"Oliver's purpose is to provide healthy, tasty, natural fast food for people on the go. We are proud of the 24-store network developed by the Company's founder, Jason Gunn, and look forward to growing our continuing strong relationship with EG in the years ahead."Never miss a news update, subscribe here. Follow us on LinkedIn, Instagram and Twitter.
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