Gold Brands mulls disposal
But cash flow squeeze causes auditors Nexia SAB&T to raise red flag over the company’s going concern status
Small restaurant franchiser Gold Brands International, which owns the Chesanyama brand, is now so starved of capital that it is mulling the sale of a subsidiary to secure much-needed cash flows.
Belated financial results released on Monday showed the company’s current assets of R18.5m not nearly covering current liabilities of R47m. Gold Brand’s liquidity squeeze is markedly worse than last financial year when current assets totalled R33m compared with current liabilities of R51m.
This has prompted its auditors to again raise a red flag over the company’s “going concern” status, despite Gold Brands managing to markedly cut its bottom line losses to R16m (previously R48.5m) off dramatically reduced store base that gene-rated turnover of R40m (previously more than R140m) in the year to end February.
Consumer appetites have lately dwindled in a competitive fast food and restaurant sector, where even large listed players such as Spur Corporation and Famous Brands have struggled to fatten profit margins.
Anthony Clark, an analyst at Vunani Securities, said the financial results were concerning. “Without a large cash infusion, Gold Brands risks going up in flames.”
To ease balance sheet pressure, Gold Brands CEO Praxia Nathanael said there was interest from a third party to acquire a subsidiary. She said the board had decided to enter into a formal process to evaluate the disposal of the unnamed subsidiary to increase cash flow, settle debt and mobilise surplus cash to open corporate-owned international brand stores.
Nathanael said management was also continuing to capitalise on the increasing demand for Chesanyama in the middle to upper market.
She said while Chesanyama’s number of stores decreased to 141 outlets, the brand’s system-wide sales for the financial year was R295m, with an increase in average store sales of 5.2% and an increase in average spend per transaction at store level of 6.77%. Nathanael believed a push into casual dining, via brands such as Las Iguanas, Café Rouge and Ed’s Diner, offered the company an opportunity to launch a portfolio of diverse brands with cultural flavours.
“This new portfolio of brands is expected to give a higher return on investment, driving new business sales … [and] sales through our distribution centre.”
Nathanael said locations had been earmarked in shopping centres in more affluent areas to launch these brands.
But in a disclaimer on the reviewed results, auditors Nexia SAB&T cast doubt on the execution of this strategy by raising questions around the company’s “going concern status”.
The auditors said directors were still in the process of securing an appropriate level of funding to support the com-pany’s current working capital and liquidity requirements,