Oliver's Real Food shares surge on founder's return
Written on the 12 March 2019 by Matt Ogg
A healthy fast food chain with bloated overheads is about to rein in costs through an executive overhaul that has already led to a doubling of its share price since the announcement was made on Monday morning.
That company is Oliver's Real Food (ASX: OLI), an enterprise headquartered on the Central Coast of New South Wales that listed in mid-2017 on a promise of healthy living and investment in a strong balance sheet.
What transpired for shareholders was anything but.
Shortly after bringing in UK Subway veteran Gregory Madigan as CEO in March 2018 to replace founder Jason Gunn (pictured), it became apparent the business had not been going well in the nine months leading up to his appointment.
Shares were sliced in half after profit forecasts were cut, while major shareholder Endeavor Asset Management went running and less than two weeks later Gunn himself suddenly agreed to step aside from all involvement in day-to-day operations.
The share price continued to slide before the company's CFO Alan Lee decided to jump ship in December, and then a trading update in January this year showed revenue was lower than forecast in H1FY19 and Oliver's only had $3.47 million in cash.
Shares fell in half again after that announcement, with confidence in the stock only worsening after the resignation of chairman Mark Richardson on 26 February. Two days later, two non-executive directors and company secretary Emma Lawler also stepped down.
Co-founder and substantial shareholder Kathy Hatzis was brought in as interim chair to fill the void and work towards a turnaround.
She was joined by two other key non-executive directors - Jason Gunn and his wife Amanda Gunn, who had been instrumental in developing operational systems during her time as chief of store operations.
Just one day after these substantial board changes were made, Madigan stepped down as CEO after 10 months in the role.
Recovery from such an exodus was never going to be easy, but Hatzis and the board were working on the tough task with the help of new CFO Rowena Hubble, who had replaced Lee in December and brought industry experience from executive roles at Metcash and McDonald's Australia.
Gunning for Change
The executive team clearly were not wasting time in the first half of March, with major announcements on Monday that Jason Gunn would regain his position as CEO and original Video Ezy franchisor Nicholas Dower would be the new chairman.
Amanda Gunn was also appointed operations manager and business recovery specialist Steven Metter became the new company secretary.
In a frank letter to shareholders, Dower held no reservations in his assessment of the company's difficulties and what changes needed to be made.
"There is no doubt that since listing, Oliver's performance has been unacceptable. Like many of the smaller companies that list, Oliver's has had difficulty in adjusting," Dower said.
"With a bloated head office and overhead structure that was not focused on its core business, performance at the cash register has suffered.
"The company has been internally focused, key frontline people were ignored by management, and the results are evident."
The new chairman added in some cases there had been a weekly cash burn rate of $100,000. The essence of his message was confined to the pithy quote "Oliver's has lost its way NOT its promise."
"It is the view of the incoming board that Oliver's is still able to achieve its potential as a stable, profitable category leader in its unique space," he said.
"The new board has also undertaken a detailed investigation into the overheads and expenditure, and has already identified and confirmed overhead reductions almost equal to the cash burn rate, which includes significant reduction in fees for the board and senior management.
"There was a significant number of outside consultants and advisors being paid fees and charges with a dubious relationship to outcomes, which the board has now stopped."
He said a "hopelessly inadequate" accounting structure was being replaced by a more appropriate system whose application was nearly complete.
"This will provide an improved information flow with relevant reporting and more timely information to management," he said.
"Jason Gunn returns as CEO after a 9-month break invigorated, relaxed and ready for this challenge, with new insight and appreciation of what it takes to lead a public company.
"As founder and creator, Jason is undoubtedly the right person to drive the business through this turnaround process, as he did while Oliver's grew at the rate it did over the last 10 years."
Dower emphasised Gunn had faced many challenges and obstacles at Oliver's and had always overcome them.
"With the guidance of his fellow board members, his first decision was to reduce the CEO's salary by two thirds and hence his impact is already being felt," Dower said.
"The addition of Amanda Robson Gunn (recently married to Jason) is particularly exciting, as she has 9 years with Oliver's and understands every aspect of the business at an operational level, an aspect not present in the previous management configuration.
"Amanda is highly regarded and admired by everyone she works with and her calm methodical approach imbues confidence.
It is that sense of calm that the new board hopes to bring to the business, inspiring confidence in employees while showing a "relentless focus" on implementing cost savings and returning the business to the successful formulae from its pre-IPO stage.
"We intend to liquidate the many assets that are currently underutilised and free up that cash," Dower said.
"It is the board's goal and undertaking to run this business profitably from its cash registers and rebuild shareholder value."
Since Monday the share price has risen from $0.02 to $0.041, but there is still a very long way to go if it's ever going to reach its IPO price of $0.22.Never miss a news update, subscribe here. Follow us on Facebook, LinkedIn, Instagram and Twitter.
Business News Australia
Author: Matt Ogg