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Veritas 1H profit falls on acquisition costs; FY earnings to be at low end of guidance

Veritas Investments, the food and beverage investor, reported a 16 percent decline in first-half profit as acquisition costs mounted during a buying spree, and warned annual earnings may be at the low end of guidance depending on how its new businesses perform.

Net profit fell to $1.71 million, or 4.54 cents per share, in the six months ended Dec. 31, from $2.04 million, or 5.52 cents, a year earlier, the Auckland-based company said in a statement. That included one-off acquisition costs of $775,000 for the purchase of gourmet supermarket chain Nosh Food Market and The Better Bar Group. Revenue jumped 89 percent to $27.4 million.

The board said annual earnings may be at the lower end of the guidance given at its November annual meeting, suggesting revenue of about $71 million, earnings before interest, tax, depreciation and amortisation of $10.6 million and net profit of $6.3 million in the 12 months ending June 30.

"The key determinants of the full-year result will be the speed at which the Nosh business improves, performance of the Hamilton BBC (Better Bar Co) sites and the medium-term effect of the new drink-driving legislation," Veritas said. "The board will keep the market appraised later in the year."

Veritas has been on the acquisition trail since its formation from a shell company in December 2011. It bought the Mad Butcher chain in May 2013, half of meat patty supplier Kiwi Pacific Foods in December of that year and the gourmet-supermarket chain Nosh Food Market in September 2014. The latest purchase, Better Bar Co, has 11 bars in Auckland and Hamilton.

The company took on bank debt to fund the latest acquisitions, and had total borrowings of $37.5 million as at Dec. 31. With cash and equivalents of $5.5 million at the balance date, that puts its net debt-to-equity ratio at 230 percent.

Veritas generated operating cash flow of $1.96 million in the half, down from $2.01 million a year earlier, and spent $25.4 million on acquisitions, which it funded through drawing down $27.8 million in bank debt.

The company's Mad Butcher business lifted revenue 14 percent to $16.6 million, while Ebitda slipped 4.8 percent to $2.94 million. Its Nosh unit generated sales of almost $8 million for an Ebitda loss of $251,000, while the Better Bar Co unit reported earnings of $666,000 on sales of $2.8 million.

Its Kiwi Pacific Foods unit reported Ebitda of $359,000.

The board declared an interim dividend of 2.7 cents per share, payable on March 30, with a March 16 record date.

The shares last traded at $1.25, and are unchanged this year.