Cooks Food Group announces $1.18m unaudited profit

Cooks Food Group Limited

Report for 12 months to 31st March 2013

Overview

The financial year ended 31st March 2013 has been one where Cooks has made major progress towards transforming the company. The enclosed financial statements are unaudited with the audit currently in progress.

In a post balance date announcement Cooks has advised on 6th June 2013 the following to the NZX.

“COOKS ENTERS TRANFORMATIONAL SHARE PURCHASE AGREEMENT
Overview

Cooks Food Group (Cooks) has entered a conditional sale and purchase agreement to acquire a group of companies owning the intellectual property and master franchising rights to Esquires Coffee Houses worldwide, other than in Canada, New Zealand and Australia.

Cooks is also in advanced negotiations to acquire a New Zealand based food processing business and certain offshore retail businesses.

All agreements are, or will be subject to, approval by Cooks shareholders under the Companies Act 1993, the NZAX Listing Rules and the Takeovers Code.

The transactions are transformational for Cooks having been a listed shell company for the past few years. In recognition of this transformation, Cooks intends to change its name to Cooks Global Foods if the transactions are approved.

Funding

Cooks chairman Keith Jackson says the company has also reached agreement, subject to shareholder approval, to raise more than $4.0m in cash from qualified investors to subscribe for shares. These subscriptions will fund the cash components of the purchase price for the intended acquisitions and provide working capital for the new group. New debt facilities have also been conditionally agreed with Cooks’ bankers.

Post-completion of the transactions Cooks also intends to look at undertaking a share purchase plan offer to give existing shareholders an opportunity to participate in the future of the company.

The Transactions

Cooks has entered a conditional sale and purchase agreement to acquire the shares of the New Zealand company Franchise Development Ltd (FDL).

FDL is owned by New Zealand coffee entrepreneurs Stuart and Lewis Deeks, who developed and sold the Esquires Coffee Houses business in New Zealand and Australia to ASX listed Retail Food Group in 2012. FDL and its subsidiaries hold the master franchisee rights for Esquires Coffee Houses to many parts of the world including Asia, the Pacific Islands, the Middle East and North Africa.

In connection with the transaction with Cooks, and through a $1.3 million secured advance from Cooks, FDL has acquired the Canadian company Esquires Coffee International, Inc., the owner and master franchisor of the global intellectual property rights to Esquires Coffee Houses excluding New Zealand, Australia and Canada. This includes franchisor rights with the Esquires master franchisee’s operating in Ireland and the United Kingdom respectively.

The purchase of FDL will be funded through an issue of shares in Cooks to an entity controlled by Stuart and Lewis Deeks and a cash payment of $300,000. The Agreement also provides for a future issue of shares to Stuart and Lewis Deeks if there is group over-performance. If approved, Stuart and Lewis Deeks will become the largest shareholders of Cooks with a holding of over 50%. The shares issued at completion will be subject to escrow restrictions.

Next Steps

Cooks is presently in negotiations to acquire further businesses. Subject to reaching contract on these proposed acquisitions, further details are intended to be announced to the market shortly. These acquisitions are also proposed to be predominantly funded through share issues by Cooks with those issued shares also subject to escrow restrictions, aligning the interests of the vendors with those of Cooks shareholders.

Following the conclusion of these negotiations, a listing profile will be completed for the new group and shareholder approval sought to undertake all of the transactions. Subject to Takeovers Panel and NZX approvals, Simmons Corporate Finance has been appointed to act as the independent adviser in relation to the transactions.

Mr Jackson says that the new business plans are to pursue a global growth strategy based on an integrated retail and supply chain business aligned with Esquires Coffee Houses internationally.

Further details of the transactions and the further acquisitions under negotiation will be announced in the coming weeks.” Announcement ends

The company is delighted with the proposed transaction that will see it holding the global master franchise for the Esquires Coffee House chain (excluding New Zealand, Australia and Canada). There are 55 operating coffee houses in the system that is part of the transaction with 29 in the UK, 5 in Ireland, 9 in China, 9 in Saudi Arabia, 2 in UAE and 1 in Kuwait as at 6th June 2013. Other listed franchise businesses are the Mad Butcher with 36 stores in New Zealand and Burger Fuel with 44 stores. Given this comparison the group believes it is well positioned to provide shareholders with an exciting opportunity to be part of a New Zealand owned global business that can compete successfully internationally in the rapidly growing coffee sector.

Cooks is delighted to be joined by Stuart and Lewis Deeks who will become the new major shareholders in the business. Stuart and Lewis started the Esquires Coffee House chain in New Zealand and grew the system to 49 stores before selling the business in 2011. They held the Master Franchise rights for much of the globe and have been responsible for establishing the systems in the Middle East and China and will be the driving force to develop the Esquires Coffee House System globally.

With their knowledge of the industry and proven track record we are confident that we have the right people to lead the company and to profitably grow the business internationally.

As described in the release above the company will acquire complimentary businesses that will assist the objective of minimising costs through the supply chain.

Dividends

No dividend is recommended in respect of the FY13 financial year

Other Information

• The company holds 8,491,667 shares (42.46%) shares in Dairyland Products Limited, a company formed to undertake investments in the dairy industry. As at the date of the report this company has not made any investments although it does hold both building and resource consents to enable the establishment of a Whole Milk Powder factory on a site in Tokoroa. If any investment is made by Dairyland Products then new equity will be introduced which will dilute Cooks shareholding in Dairyland. There has been no revaluation of assets during the period and these shares are valued $87 in the accounts.
• There have been no changes in accounting policies during the period.

Summary

Cooks is now firmly on a pathway to transforming the business to becoming an integrated global coffee chain with an efficient supply chain. The Esquires Coffee House chain internationally has 55 operational stores globally as at 6th June 2013 and the company plans to grow this footprint aggressively in the future. The Board believes that this change in strategic direction will provide significant value to shareholders in the medium to long term.

Full documents:
2013_FY_Preliminary_Announcement.doc
NZX_Prescribed_Disclosure.doc

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