Preliminary Results of Cooks Global Foods

PRELIMINARY FINANCIAL RESULTS FOR THE 12 MONTHS TO 31 MARCH 2020 Cooks reports positive operating income from continuing business SUMMARY o Total group revenue from continuing activities increases 1.7% to $4 million o Operating income before depreciation, amortisation & finance charges $1.1m profit compared to prior year loss of $2.3m o Operating profit from continuing operations after tax improves to $0.4 million from net loss of $2.6 million last year reflecting a restructuring of the Group's loss-making business units. o The Covid-19 impact in all markets applied from mid-March with the revenue declines supported by various levels of government support packages that mitigated the full impact. o There has been a slowing of new store growth as openings have been deferred due to the Covid closed downs mandated by various governments. o While there have been delays there have been no closures of existing stores or withdrawal from opening plans of any new stores through the global network attributable to Covid-19. Revenue from ongoing continuing operations was $4.0m which was 1.7% ahead of last year's comparative numbers, total Group total revenue for the 12 months rose 20.7% to $7.2m as we saw the full year impact of the short term holding of 3 stores in the UK contribute to the sales value growth. These stores along with the Middle East company operations and the New Zealand FMCG operations have been determined to be non-core and either have been or are being sold as part of the drive to improve cash profitability. Net income before tax from continuing operations improved to $0.4 million from a loss of $2.6 million in the same period a year ago, reflecting the benefits of prior restructuring and reduction of costs. Cooks Executive Chairman Keith Jackson said: The group is focused on profitably growing core business and divesting non-core activities and this has resulted in benefits during FY20 which will be further evidenced in FY21 and beyond. "The UK business was re-organised in FY20 with a focus on developing regional master franchisees and the strengthening of operational management. To date three regions have been sold and the results of this were beginning to show through with faster growth in the as local developers ramped up activity. This has slowed in the Covid period but is regaining momentum as controls are relaxed". As discussed above 3 stores were held & operated by the company for various periods during FY19 & FY20 as part of a plan to sell the businesses to new franchisees. This process is well advanced and the stores are classified as discontinued business. The focus on the core business has meant that we are now focussed exclusively on internal design for our own franchised cafes and we have seen cost savings from these initiatives flowing through to our results with the design operations breaking even financially and providing excellent service to our international operations. The company has restructured the Middle East operations and are now working with key supply partners to provide local servicing to our franchisees rather than having our own operations and staff in the region. This has resulted in cost reduction whilst aligning supply sources with our UK and Irish businesses. With no cafe operations in New Zealand that provided synergies for the FMCG business operated under the Scarborough Fair tea and Grounded coffee brands it was determined that these were non-core and a conditional sale agreement has been reached with completion of the sale expected by the end of June 2020. The major focus of the business is cafes in UK, Ireland & Europe plus providing support to our master franchise partners in the Middle East, Pakistan, Canada & Indonesia. Within this definition the acquisition of Triple Two Coffee provides a significant benefit to our scale and critical mass in the UK. Triple Two is a fast-growing cafe chain in the UK with a very similar philosophy and vision to CGF. The initial stages of the sale agreement were concluded for shares in CGF and the vendors will stay in the company for at least 3 years and have the chance to obtain further consideration by improved performance. Triple Two adds 13 stores to the existing 44 store UK network and provides vital critical mass. This announcement is based on unaudited financial statements. The group financial statements are in the process of being audited. The auditor of the prior year financial statements issued a disclaimer of opinion, this will impact the current year audit opinion. BALANCE SHEET Borrowings decreased to $5.5 million from $7.0 million at the same time a year ago. These include loans from entities associated with Executive Chairman Keith Jackson as well as certain convertible loan notes. Cooks continues to pursue alternative funding options to better reflect the appropriate mix of equity and debt requirements for the business. Lease receivables of $18.3m and right-of-use assets of $2.4m, lease liabilities of $20.8m have been recognised this year, following the adoption of IFRS 16 Accounting Standard for Finance Leases from 1 April 2019. CHINA BUSINESS CARRYING VALUE The Directors have been carefully reviewing the carrying value of the China investment in accordance with the current activities of the Chinese company and its future plans and have decided to re-evaluate the carrying value. In the later part of 2019, there has been continued restructuring of the business and the closure of all but 8 cafes due to adverse trading that was further exacerbated during the lockdown period in China from Covid-19. Of the operational cafes at the end of March 2020, 6 were in Shandong Province, one in Beijing and the other in Shanghai. During the FY20 financial year the Chinese company purchased a coffee roastery which has the capacity of 1,800 tonnes of coffee per annum, the roastery has secured the coffee supply to a number of high profile cafe customers in Shanghai. There are numerous opportunities for growth in all segments and there are a number of new business opportunities being worked on by the high calibre team based in Shanghai. The Chinese operations are now undergoing a significant re-focus of their operations under the lead of the majority shareholders. The Chinese company will no longer seeking to grow a large franchise operations in China, instead is pursuing an opportunity related to self-serve coffee outlets. There is no requirement for Cooks Global Foods to provide any funds for this new investment strategy. However, as a result of this change in business, the Directors have concluded that it is probable there will be no positive cash-flows from this investment in the near future, and that no value can be ascribed to any potential future value. As a result, the Directors have fully impaired the investment in the associate as at 31st March 2020.This will lead to a write down of $2.5m in the FY20 accounts. OUTLOOK Mr Jackson said that the FY21 year will be one where there will be a significant impact of the Covid-19 virus and the related shutdowns in all markets. The major markets that CGF is present in are UK & Ireland and these countries are slowly emerging from the lockdowns that have meant that the store sales in these markets for the first quarter will be very small as there were only certain stores that were able to open for takeaway coffee and food. The sales impact has been partially offset by government support programmes that have assisted in covering key cost areas such as Labour and Rent. The lack of income for the April - June period will impact the earnings and the picture for the full year will depend on the recovery patterns in the July - March 2021 period which are unknown and very difficult to predict with any degree of accuracy. We do not expect that we will see a return to a more normal trading situation until the second half of FY21. In the Middle East, Pakistan and Indonesia where we have stores operated by Master Franchisees the position is similar with the majority of outlets closed by government decree. Saudi Arabia which is the largest market in terms of store numbers and sales has seen the temporary closure of the city mall outlets which are the majority of the outlets, the airport stores which are normally significant sales outlets have continued to be open but the volume of travellers has been significantly reduced. Saudi Arabia and other countries are beginning to re-open businesses although it is too early to confirm sales trends compared to last year. However it is significant that Saudi Arabia is not allowing international visitors to come into the country for this year's Haj celebration. Jeddah Airport, where our Master Franchisee has 2 cafes is normally very busy with the influx of international pilgrims but this year will be different due to the virus impact. TRIPLE TWO ACQUISITION CGF has recently acquired the fast growing Triple Two Cafe chain, Triple Two Coffee franchises 13 cafes in the UK and has been one of the most highly recruited franchises in the UK since the start of 2019. Triple Two currently operate across a number of regions in the UK, with the initial flagship store opening in Swindon in August 2016. They now have several sites trading in major towns, cities and shopping centres across the UK, such as London, Colchester, Oxford, Cheltenham, Cirencester and Hove. Due to the unrivalled demand the brand has seen, there is currently a pipeline of 15 sites expected to open by the end of 2020, despite the COVID 19 pandemic, the next being in Manchester. Triple Two originated from seeing an opportunity in the market to create a brand where customers can enjoy speciality quality coffee alongside freshly prepared grab and go style food in a relaxing, modern and unique environment. David Hodgetts, Co-Founder and Managing Director of Triple Two Coffee commented on the acquisition by Cooks Global Foods. "The board of directors have been working with the Cooks Global Foods board for 12 months to secure this transaction. All through this period the chemistry between the 2 organisations has been exceptional and a major reason this was completed even during these challenging COVID 19 times." "The Triple Two board recognised the strong synergies between the organisations which together make a fabulous combined business. The exciting brand of Triple Two now has the backing of a larger organisation from the industry which will enable us to go from strength to strength with part of the acquisition ensuring that all the Directors will continue driving the business for years to come." "The Triple Two model is to create a business that gives customers an experience where they can get great coffee and fantastic food. We will also look to accelerate our focus in our 'cafe bar' style sites, retail range, online coffee subscriptions and international expansion, with our first unit in Paris anticipated to still open this year." The acquisition fits with building scale and critical mass in our core UK market area. Refer to previous NZX announcement dated 19th June 2020 for further details. BUSINESS PERFORMANCE THE UNITED KINGDOM UK store numbers increased to 44 at the end of March up from 39 at the same time a year ago. During the year we opened 7 stores and closed 2. Constant currency coffee store sales for the year increased to $20.9 million from $20.6 million in the same period a year ago. Most of the new stores were opened in the second half of FY20 and sales for the first 2 months of the final quarter were 9.2% up on FY19 but this was offset by the closures due to Covid-19 in March when sales were 73% of FY19. The UK business has a strategy to establish regional franchise developers and as part of this, it has restructured the regional franchise fee and royalty schedule to better incentivise franchisees. Continuing operations in the UK division demonstrate positive operating profits of $0.2 million, with discontinued operations representing operating losses of $0.8 million. Triple Two profitability prior to the acquisition was $1.1m for the 2019 calendar year. It is expected to be additive to earnings and cash flows post acquisition in FY21. As the UK recovers from the Covid-19 impact we look forward to seeing the momentum return and with the combined Esquires and Triple Two brands we believe we are well placed to deliver strong and sustainable results. IRELAND & EUROPE Constant currency total store sales in Ireland were $16.4 million, 4.5% ahead of FY19 despite the impact of COVID-19 on March 2020 sales. During the year we added one new store in Ireland and that was only opened for 4 days in March before it had to close due the government regulations. Prior to this constant stores were 5.1% ahead of the prior year in local currency. The region posted an operating profit of $0.2 million compared against an operating loss of $0.2 million in the same period a year ago, resulting from increased revenue in Ireland offset against increased costs representing further investment in the European region than the previous year. GLOBAL Cooks operating revenue in the segment fell from $1.4 million to $1.3 million, with the fall relating to discontinued international product sales to the Middle East. The global business posted a favourable operating profit of $0.8 million compared to an operating loss of $0.1 million in the same period a year ago, largely due to significantly lower staffing costs, legal and consulting fees than incurred in the prior year. In particular, there was a significant reduction in staffing related to the Design business, equating to a comparative cost saving of $0.7 million. SUPPLY AND CORPORATE Revenue at the supply businesses increased to $1.2 million from the same period a year ago at $0.8 million with strong gains in revenue in the new carbon-neutral Grounded coffee brand offset by weakness in Scarborough Fair's other brands. The Crux supply business also recorded weaker sales, and this was due largely to the timing of shipments to and from its customers offshore. Supply operating losses rose to $0.4 million compared to $0.3 million at the same time a year ago. Corporate operating losses were $0.9 million, improved from an operating loss of $1.6 million last year due to overall reduced expenses, particularly in relation to legal and consulting fees. SUMMARY CGF generated significant momentum in the second half of FY20 and this had begun to show benefits in scale and profitability. The first stages of these benefits are evidenced in the result for the FY20 year. The timing of the Covid-19 pandemic has been unfortunate to say the least and at this time we cannot accurately determine the impact. We believe that the business model is sound with the focus on clearly defined core business areas that we can scale and we are well placed to emerge from the outbreak with our ability to respond to local customer preferences through the franchise network placing us well for the recovery. For further information: INVESTORS KEITH JACKSON Executive Chairman +64 21 702 509 ABOUT COOKS GLOBAL FOODS Cooks Global Foods operates in world markets and is listed on the NZX market operated by NZX Limited in New Zealand under the code CGF. It owns the intellectual property and master franchising rights to Esquires Coffee Houses worldwide (excluding New Zealand and Australia). Cooks currently operates or franchises Esquires Coffee in Canada, the United Kingdom, Ireland, Portugal, Bahrain, Kuwait, Saudi Arabia, Jordan, Pakistan, Indonesia and China. For more information visit: www.cooksglobalfoods.com 1 Total store sales are the aggregate of sales of all Esquires branded coffee stores, whether franchised or partially/fully owned, across the company's global brand network. Cooks derives income from its franchised stores from franchise related fees, primarily related to these sales levels as well as store sales for those stores directly owned by the company, except in China. Total network store sales, therefore, have a correlation to the portion of revenue earned by Cooks Global Foods relating to recurring franchise fees. Chinese sales are also indicative of the potential value residing in the Chinese venture. However, total network sales are not and should not be confused with the revenue of Cooks Global Foods which is reported in its financial statements as the two do not directly correlate. End CA:00355424 For:CGF Type:FLLYR Time:2020-06-30 08:30:11