I'm no expert at reading financial reports, and so I'm happy to be corrected on my interpretations here, but from what I understand:
- Revenue increased to $63M from $54.7M in 1H22.
- Increased same store sales especially in Donut King, Michel's Patisserie and Gloria Jeans.
- A loss of $1,092,000 for 1H23, compared to profit of $5,076,000 in 1H22, but this includes about $8M for the ACCC settlement from last year.
- A negative cash flow of about $5.2M, which is a lot worse than their 1H22 result of negative $2.7M.
- If I'm reading their accounts correctly then their borrowings have decreased to $32M from $37M ($9.7M current + $27.2M non-current), which seems to match the $5M in repayments that they made. But $32M still seems like a lot of debt when they only have $24M in cash, although I don't really know how similar companies compare. Also, I don't know exactly where to find the interest payments that they need to service the debt, but I assume it's in "Finance costs" which is $2.1M, which again seems like a pretty big amount given their profit (excluding the ACCC settlement) is somewhere in the $5M-$10M range. Lastly, the $32M debt is due in September this year, and so they say they are looking at refinancing, asset sales or a capital raise (!).
- A capital raise at these share prices: assume $32M at 10c/share is 320M shares. Sounds like a lot, but not as dilutive as it may appear given that they have 2.1B (yes billion!) shares. So about a %15 dilution.
Having lost about 85% of my investment I sold out between 50c and $1 when it fell from grace a few years ago, but I couldn't help but look around at how popular Donut King and Gloria Jeans are at our local Westfield (I admit to buying more cinnamon donuts there than I should). So I bought a small "I can't believe Donut King is going to disappear" holding when the ship seemed to have steadied a bit. Recently the donut prices have definitely gone up but it doesn't seem to have slowed the customer count in our food court.
There's still a Michel Patisserie class action case that could go against them, although according to their report on the situation, it seems that things are going their way. They also mention the threat of a shareholder class action from 2018 that hasn't materialised yet, so that could also be a problem. But it's been almost 5 years since the first announcement of it by the law firm, so maybe it's not going to happen. (I'm no lawyer, and perhaps this is just how long these things take.)
So my takeaway (like a hot cinnamon donut): things may have bottomed out with the settlement of the ACCC proceedings, and while the financial position is not good, it may not be catastrophic. Although a capital raise is a very real possibility. I'll keep hanging on until at least the full year announcement, but I'm looking to see that same store sales and revenue continues to increase. (I'll have to buy a few more donuts to help.)
