Failed deal over Coles stores pushes FoodWorks to the brink

THE independent supermarket chain FoodWorks has been deeply wounded by its failed bid to take over 45 Coles stores, running up a loss of $26 million for the year.

By InvestSMART · 14 Sep 2010

By InvestSMART ·
14 Sep 2010

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THE independent supermarket chain FoodWorks has been deeply wounded by its failed bid to take over 45 Coles stores, running up a loss of $26 million for the year.

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.

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Frequently Asked Questions about this Article…

What happened with FoodWorks' failed bid to take over 45 Coles stores?

FoodWorks attempted to buy 45 Coles stores as part of a plan to move from a buyers' group into a corporate supermarket chain, but the corporate store program 'did not work out as intended.' The deal ran into trouble, contributing to heavy losses and a wider divestment of the stores.

How large was FoodWorks' loss and is the company considered a going concern?

FoodWorks reported a $26 million loss for the year. Auditors Pitcher Partners warned there is 'significant doubt' about the group's ability to continue as a going concern because liabilities exceed assets by $7.2 million.

What role did Wesfarmers (Coles' owner) play in the FoodWorks store purchases and what are the repayment terms?

Wesfarmers, the owner of Coles, lent FoodWorks $31.7 million to buy the supermarkets. Wesfarmers agreed to a revised repayment timetable that pushes most repayments to the end of the next financial year: FoodWorks will repay $6 million this year and $19.7 million next year.

How many Coles-acquired stores has FoodWorks already moved to sell and what is the divestment plan?

So far 22 stores have been transferred from Coles to FoodWorks; the company plans to rid itself of all 22 by Christmas. Australian United Retailers, the FoodWorks group parent, has closed one of those stores and sold nine as part of the divestment program.

How did the failed corporate stores venture affect FoodWorks' profit compared with last year?

Company accounts show the loss widened sharply from $2 million the previous year to $26 million this year, with the corporate stores venture blamed for the deterioration in results.

What did FoodWorks' directors say about the business outlook after the failed deal?

The directors said they are confident that once the divestment program is completed, ongoing trading of the core business will lead to an improvement in operating cash flows.

What happened to FoodWorks' CEO pay and leadership after the failed Coles store deal?

Outgoing CEO Peter Noble, who drove the Coles store purchases, left the company on July 31. He received a cash bonus of $82,500 (60% of his maximum bonus), bringing his total pay for the year to almost $547,000, which included base pay of about $419,000 and $45,000 in superannuation.

Who commented on the failed corporate store program and what did they say?

Chairman John Bridgfoot and acting CEO Rick Wright told the NSX that 'the corporate store program did not work out as intended.' Their statements accompanied the company’s financial disclosures and plans to divest the transferred stores.