Gold Brands starts to unravel
Even with the 300-store ChesaNyama in its ranks, this food franchise company has been unable to fulfil its promises
When Gold Brands came to the market in February 2016 its founders, Efpraxia and Stylianos Nathanael, hyped it as being well on its way to becoming the leading fast-food franchise company in SA and internationally.
In reality they were bringing to market a micro-cap company destined to inflict serious financial harm upon its shareholders and franchisees.
But back in 2016 the Nathanaels seemingly had a good story to tell. It was made more plausible by the emphasis placed on their sale of The Fish & Chip Co franchise business they had founded in 2009 to Taste Holdings in January 2012 for R66m.
What they failed to mention was that shortly after the sale they attempted, according to Taste, to have the deal cancelled.
The end result was three years of litigation, after which Taste emerged victorious.
Be that as it may, there were those gullible enough to fall for the Nathanaels’ line in 2016. Gold Brands’ initial public offer at R1 a share raised R25m and in a scramble for shares on its first day of listing on the JSE AltX board its price spiked as high as R2.
Gold Brands came to market with five brands — spearheaded by ChesaNyama, which the Nathanaels had launched in 2012 and grown into a chain of more than 300 franchise stores. The brand offers local fare including liver and kasi pap, spicy cabbage and beef stew.
Also in Gold Brands’ line-up at the time of its listing was Black Steer, a 17-store steakhouse chain; and insignificant start-up brands Chicken Wild Wings, 1+1 Pizza and Opa!Pitaland. Café Rouge, Bella Italia and Las Iguanas were added more recently.
Gold Brands gained some credence in its year to February 2016 with revenue of R235m up 14.5% on the previous year and headline EPS (HEPS) up 32% at 10.25c, well ahead of the 8c forecast in its prospectus.
Then the wheels began to come off.
In the year to February 2017 revenue dived R92m (down 39%), gross profit collapsed R44m (down 73%) to R16.3m, and operating costs shot up from R49m to R62m.
It left Gold Brands nursing a R48.5m loss and HEPS at a negative 40.9c.
The Gold Brands balance sheet also suffered devastating damage, with shareholders’ funds falling from R54m to R5m and creditor and bank borrowing levels soaring.
The slump in consumer demand was blamed but it looked more like catastrophically bad management. It had led to the closure of 155 underperforming franchise stores during the year.
Despite the disastrous situation the Nathanaels, Efpraxia as CEO and Stylianos as COO, continued to hype up Gold Brands.
An entry by ChesaNyama into the US and UK markets was being pursued and as recently as November 2017 it acquired a 50% stake in the two-store Ed’s Diner.
Amazingly, there were also unnamed investors prepared to pump more capital into Gold Brands. In February, R1m was raised through the issue of shares at R1 a share and R1.68m through the issue of shares at 73c a share. At the time of the issues, Gold Brands shares were trading at 58c.
During its past year to February Gold Brands also underwent some rather desperate restructuring but it was not enough to stop the group shedding another R100m of revenue and turning in a 12.3c HEPS loss.
Gold Brands also slid into technical insolvency with total liabilities exceeding total assets by R8m and its NAV at a negative 7c a share.
Cash stood at only R99,000.
In a desperate attempt to stay afloat, Gold Brands has announced the sale of Black Steer for R3.2m with an initial payment of R750,000, R1.25m on the signing of the agreement and R300,000 in monthly payments over four months. The full amount will merely cover about 40 days of operating costs.
Attempts to get comment from the Nathanaels proved futile. The Gold Brands head office contact number is permanently disconnected.
Summing up the situation facing Gold Brands, Anthony Clark of Vunani Securities says: "It is in a classic death spiral."