Failed deal over Coles stores pushes FoodWorks to the brink

The auditors Pitcher Partners warn there is "significant doubt" the group can continue as a going concern because liabilities exceed assets by $7.2 million.

Despite the 700-store chain's financial woes, its outgoing chief executive, Peter Noble, has been paid an $82,500 cash bonus, bringing his pay packet for the year to almost $547,000.

In a statement to the NSX, the chairman, John Bridgfoot, and the acting CEO, Rick Wright, said that "the corporate store program did not work out as intended".

Financial statements filed by FoodWorks yesterday show it plans to rid itself of all 22 stores so far transferred from Coles by Christmas. Australian United Retailers, the head company of the FoodWorks group, has closed one store and sold nine.

The Coles owner, Wesfarmers, which lent FoodWorks $31.7 million to buy the supermarkets, has agreed to a new repayment timetable that pushes the bulk of repayments out to the end of next financial year. Under the new deal, FoodWorks will pay back $6 million this year and $19.7 million next year.

In a note to the accounts, the company said its loss had blown out from $2 million last year because of the corporate stores venture.

"The directors are confident that after the completion of the divestment program the ongoing trading activities of the core business will result in an improvement in the operating cash flows of the business," the company said.

Mr Noble, who left the company on July 31, was the driving force behind the Coles store deal.

The purchases were designed to transform FoodWorks from a buyers' group into a corporate supermarket chain.

While the deal went sour, company accounts show Mr Noble received 60 per cent of his maximum bonus.

In addition to the $82,500 bonus he received base pay of about $419,000 and superannuation of $45,000.