VIL - Veritas Investments Limited

[Beagle]

http://www.nzherald.co.nz/nz/news/ar...ectid=11391015

Opps I missed this posted above. As I posted in late December I expected there would be a material effect and its quite clear there has been.
One thing that getting to know Eliot well, (former boat partner) taught me was that margins in the hospitality business are much finer than you would think after factoring in ALL the costs, (not talking about gross margins here). From memory his net profit before tax was only 8% of turnover, excl his owner salary. He once quipped a 10% drop in his weekly turnover of $50K is all it takes for him to go backwards after drawing his usual reasonably modest owners drawings. Interesting that VIL bought the bar business a few days before the new alcohol limits came into effect using mostly bank debt. Hmmm... I hope they got it dirt cheap. The other thing is several owners have told me that alcohol is where the real money is in cafe's and restaurants so if you take away say 10-15% of the high margin part of the business that would be a serious worry. If I was a shareholder that Herald article would really worry me.

[bunter]

Elsewhere I think Noodles said BBC was on a price:EBITDA ratio of 6.5. It came with $3m of debt IIRC.
This was from a meeting - couldn't find the 6.5 figure in the NZX announcements.

Likewise, no idea how much Nosh was / is losing but prepared to bet it WAS losing money.
Actually - why didn't Veritas tell its shareholders how much Nosh was losing - afraid we couldn't handle the truth?!

Again IIRC I think the Nosh urchase and working cap needs were funded by a $5m loan.
One thing Veritas seems to be good at is getting money out of banks.

Management will be key to deciding if this is the start of a glorious retail company that will dominate the NZ retail landscape for decades to come - or not.

I read a piece on one of the guys (Michael Morton) a year or so ago and on the strength of that one article thought he sounded like a good businessman.

Does anyone have better-grounded opinions?
Who's running things - is it Mark Darrow?

[Beagle]

Thanks, I'll be interested to follow this one for a while to see if they can prove that these acquisitions are EPS accretive.

[noodles]

http://www.nzherald.co.nz/nz/news/ar...ectid=11391015

Opps I missed this posted above. As I posted in late December I expected there would be a material effect and its quite clear there has been.
One thing that getting to know Eliot well, (former boat partner) taught me was that margins in the hospitality business are much finer than you would think after factoring in ALL the costs, (not talking about gross margins here). From memory his net profit before tax was only 8% of turnover, excl his owner salary. He once quipped a 10% drop in his weekly turnover of $50K is all it takes for him to go backwards after drawing his usual reasonably modest owners drawings. Interesting that VIL bought the bar business a few days before the new alcohol limits came into effect using mostly bank debt. Hmmm... I hope they got it dirt cheap. The other thing is several owners have told me that alcohol is where the real money is in cafe's and restaurants so if you take away say 10-15% of the high margin part of the business that would be a serious worry. If I was a shareholder that Herald article would really worry me.

Not all is bad in the hospitality industry
http://tvnz.co.nz/business-news/hosp...sector-6224205

However, we have had a great summer. Full year results may give us the best picture and the impact of the driving laws.

Roger, I take all your points. Thanks for keeping us well informed.

[noodles]

There should be some good discussion at "The Cav" (a veritas owned bar) for the Auckland sharetrader meeting
http://www.sharetrader.co.nz/showthr...l=1#post528404

[KiwiGekko]

He once quipped a 10% drop in his weekly turnover of $50K is all it takes for him to go backwards after drawing his usual reasonably modest owners drawings. Interesting that VIL bought the bar business a few days before the new alcohol limits came into effect using mostly bank debt. Hmmm... I hope they got it dirt cheap. The other thing is several owners have told me that alcohol is where the real money is in cafe's and restaurants so if you take away say 10-15% of the high margin part of the business that would be a serious worry. If I was a shareholder that Herald article would really worry me.

Yup. This article concerned me (which is why I posted it a few weeks back) and I wasn't aware of the short time difference between VIL buying BBC and the new drink driving laws coming into effect. Thanks for that observation, Roger.

Without sounding like a broken record - the article is not just speaking about the industry as a whole, but about O'Hagan's - so not only is this law affecting bars, but you have a direct quote on its effect on one of the BBC bars.

Noodles has done his homework so has factored these risks in but it is worth mentioning, especially given how long VIL has owned this part of their business that the results might disappoint.

I will continue to watch (and comment) with interest, but personally would not invest in this stock as it stands.

[KiwiGekko]

There should be some good discussion at "The Cav" (a veritas owned bar) for the Auckland sharetrader meeting
http://www.sharetrader.co.nz/showthr...l=1#post528404

Yes, gutted I can't make it. Hopefully you all buy plenty of beers to help make up the shortfall from the new drink driving laws eh?

[Beagle]

There should be some good discussion at "The Cav" (a veritas owned bar) for the Auckland sharetrader meeting
http://www.sharetrader.co.nz/showthr...l=1#post528404

Yep, sorry mate I jumped the gun a bit, couldn't resist

[bunter]

Bailed out of this (with difficulty - thin market) for a small profit. Felt uneasy about the management (did more research), size and liquidity, and the BBC / Nosh acquisitions.

[bryndlefly]

sooo..... announcing a "solid half year result" results in the shareprice dropping 7%. My brain hurts.

HALFYR: VIL: Veritas announces solid half year result

VIL
26/02/2015 08:49
HALFYR
PRICE SENSITIVE
REL: 0849 HRS Veritas Investments Limited

HALFYR: VIL: Veritas announces solid half year result

NZX release
26 February 2015

Veritas announces solid half year result, confirms 70% dividend.

Highlights

- Half year revenue increase of 89 per cent.
- NPAT of $1.7m for the half year after acquisition costs.
- Full 70 per cent interim dividend declared at 2.7cents per share.
- Nosh Food Markets business (Nosh) acquired and turnaround plan being
implemented.
- Nosh General Manager, Rod de Vries appointed.
- The Better Bar Company group business (BBC) acquired. Some risk resulting
from legislative changes.
- 40th Mad Butcher store opened in Nelson.
- Mad Butcher operating to plan despite supply and price pressures.
- Kiwi Pacific Foods operating above target.

Veritas Investments Limited (NZX:VIL) announces an unaudited net profit after
tax (NPAT) of $1.7m for the six months ended 31 December 2014. The result
includes one-off net costs of acquiring both the Nosh and BBC businesses.

Revenue of $27.4m for the six month period was an increase of 89 per cent
from the previous year ($14.5m) boosted by the addition of Nosh in September
2014 and BBC in late November 2014.

Business Trading

Mad Butcher
The Mad Butcher opened its 40th Store in Nelson in November 2014. The
business is tracking to targets although there is some pressure from the
tight supply of product and price pressures. Wholesale red meat prices in
particular have been at elevated levels and for longer peak periods, fueled
by increased export demand.

As noted in the Financial Statements, Veritas has retained ownership of the
Invercargill store and any sale process relating to that store has been
postponed until revenues have grown. Mad Butcher also owns the Onehunga and
Henderson stores which are now being actively marketed for re-sale. Ownership
of stores as a transitional arrangement is a normal part of franchisor
activity.

Kiwi Pacific Foods
The joint venture with the Burger King franchisor Antares Restaurant Group is
going well and ahead of plan. The combination of winning several new supply
contracts and better procurement processes are making a positive contribution
to the business.

Nosh Food Market
Nosh was acquired in September 2014 and is a turn-around business that was
distressed at the time of purchase and that was reflected in a purchase price
below net assets. The Board is pleased with progress and the business is
showing positive signs of improvement.

Rod de Vries was appointed General Manager for Nosh and commenced in January
2015. The Veritas Board says Nosh is marginally behind in its turn-around
plan and expects to make a small loss in the turnaround period.

The supply logistics plan will be finalised during the next few months and
that is expected to materially reduce operating costs. The customer offering
has improved markedly. Nosh aims to open a new store in Pakuranga around July
2015 and has secured a high profile site on Pakuranga Road, a major arterial
road directly opposite Pakuranga Plaza.

The Better Bar Company
The Better Bar Company was acquired on 28 November 2014 and one month's
trading has been included in the half year results. The business is
immediately profitable and will be a material contributor to the Veritas
Group. The Auckland metro sites are operating above plan. The Hamilton sites
that were acquired by the vendors in late 2014 are operating below plan. The
three Hood Street sites are all relatively new including the iconic 'Good
Home' site. A marketing campaign commences in late February 2015 to launch
the bar precinct which is anticipated to lift business and profile.

BBC operates in a highly regulated industry and the new drink-driving
legislation that came in to force on 1 December 2014 has had an impact on the
business, particularly affecting suburban areas. While a known risk, there
has been a larger than expected adverse effect right across the hospitality
sector and the business is closely monitoring how that settles down over time
and actively working on counter strategies. The industry overall has been
slow to react with low alcohol beer and wine alternatives and these industry
strategies are now being brought forward.

Forecast
The Veritas Board has reviewed the forecast for the full financial year
ending 30 June 2015 and estimates performance at the lower end of the range
as indicated in the pro-forma forecasts at the annual general meeting on 25
November 2014. The key determinants of the full year result will be the speed
at which the Nosh business improves, performance of the Hamilton BBC sites
and the medium term effect of the new drink-driving legislation. The Board
will keep the market appraised later in the year.

Dividend
The Veritas Board has declared a fully imputed interim dividend of 2.7 cents
per share. This represents a dividend payout of 70 per cent of NPAT, at the
top of the dividend policy range.

The record date for the interim dividend is 16 March 2015 and will be paid on
30 March 2015.

For and on behalf of the Board
Mark Darrow, Chairman, Veritas Investments Limited

About Veritas Investments Limited
Veritas Investments is a NZX Main Board-listed investment company focusing in
the Food and Beverage sector. The shell company was formed in December 2011
and made its first acquisition of the Mad Butcher franchisor business in May
2013 through a reverse acquisition transaction. A further investment was
made in December 2013 for 50% of Kiwi Pacific Foods Limited. In September
2014 Veritas acquired the Nosh Food Market business. In November 2014 Veritas
acquired The Better Bar Company group business.
www.veritasinvestments.co.nz