Mon 04 May 05:54:14 NZST

Cooks Global Foods Limited Ordinary Shares (CGF) Analysis

Overview

Cooks Global Foods (NZX:CGF) is an integrated food and beverage retail and supply group founded on globally leveraging New Zealand's reputation for fresh and quality foods.

CGF owns the intellectual property and master franchising rights to Esquires Coffee Houses worldwide - excluding Canada, New Zealand and Australia. The company also owns a number of retail and wholesale companies in related industries.

In the UK and Ireland, CGF owns the Esquires Coffee Houses brand and system where it also directly franchises stores. In the Middle East and China stores are franchised through master franchise holders.

Cooks Global Foods focuses on three fundamental business elements:

- Ownership of the international retail footprint under the established Esquires Coffee Houses brand principally utilising a franchise model.
- Acquisition of supply businesses in the food and beverage sectors to develop a self-managed and efficient distribution chain.
- Growth of the retail and supply sides of the group through a combination of organic growth, further acquisitions and the appointment of Master Franchises in new markets.

Progressive Processors Ltd
CGF acquired Progressive Processors Ltd in October 2013. Progressive Processors is based near Whakatane and grows, supplies, processes and adds value to a number of fresh fruits and vegetables including asparagus and kiwifruit. It supplies product domestically and also to export markets, particularly Japan.

Scarborough Fair
Scarborough Fair was acquired in October 2013 and is a wholesaler of Organic and Fairtrade teas, coffees and chocolates. There are many synergies with the Scarborough Fair product range and the products sold through the Esquires Coffee Houses internationally.

Dairyland Products Ltd. CGF holds 42 per cent of Dairyland Products Limited, a company formed to undertake investments in the dairy industry. The company owns the factory site in Tokoroa and holds both building and resource consents to enable the establishment of a Whole Milk Powder factory on the site.

Performance

This information was extracted from the half year report provided by Cooks Food Group Limited released on 15 December 2014:

Total operating revenue for the period ended 30 September 2014 was $4.3 million, derived primarily from Esquires Coffee House revenues of $3.75 million with revenues from the Supply Division, which includes the Scarborough Fair and Progressive Processors businesses, of $0.55 million. Cash outflows from operating activities were $1 million reflecting costs associated with growing the global footprint for the Esquires franchise business, including those relating to the acquisition of the China Esquires operation.

Cooks has continued to consolidate the various companies acquired in October 2013 and the Design Environments business acquired in February 2014. Support functions and operational systems continue to be developed and strengthened. The focus also remains on appointing and developing key personnel as the business expands and grows.

As at 30 September 2014, Esquires had 79 Coffee Houses worldwide. The stores are based in the UK, Ireland, Middle East and China. Store numbers continue to grow rapidly with a further 6 stores added to this number since – three in China, two in Kuwait and one in Bahrain. A further three stores are anticipated to open in China and the Middle East before the end of December 2014.

Sales across the store network are showing good growth on prior year comparatives. Irish store turnover continues to lead the way with some of the best performing stores in the franchise. China figures are strong and the Middle East also continues to improve on past performance.

Results from the UK business continue to be mixed, but the business now has a strong team in place and a number of opportunities in train. The business recently sold its Durham store to a new Franchisee after a major store refurbishment incorporating the new branding and design templates to be progressively rolled out across the network in the UK and internationally. Trading results since the store reopened in October have been very encouraging with turnover up more than 20%.

During the period the company completed the signing of Master Franchise Agreements in Northern Cyprus and in Indonesia. The agreement in Indonesia will see a minimum of 40 stores rolled out in the country over the next 10 years. Work is currently underway to open the first stores in both countries before the end of the current financial year.

Independent Research

The opinions expressed and conclusions reached in the report(s) linked below do not represent any official position or opinion of NZX Limited or its related companies or subsidiaries ("NZX"). NZX has not assessed, nor does it provide advice, on the content of the report and disclaims any liability that may arise from the use of a report.

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http://www.edisoninvestmentresearch.co.uk/researchreports/cooksglobal290414outlook.pdf

http://www.edisoninvestmentresearch.co.uk/researchreports/CooksGlobalFoods201213QV.pdf

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