Cooks targets transition to cashflow breakeven in FY 2018

NZAX & Media Release 13th April 2017

Cooks targets transition to cashflow breakeven in FY 2018

Cooks announces advanced negotiations to sell its Chinese business into a new joint venture and the sale of its primary produce subsidiary Progressive Processors.

Cooks Global Foods (NZAX.CGF) today announces a strategic reorganisation to refocus the company on its global scaled artisan Organic and Fairtrade coffee operations and further incentivise its regional partners to drive growth.

The initiatives, which are at a sufficiently advanced stage of negotiation to warrant a market update, have the potential to significantly accelerate the growth of the coffee operations whilst reducing the demands on Cooks’ financial resources and allowing the company to target a transition to generating positive cashflows in the year to 31 March 2018.

They include:

• The establishment of a new joint venture with Chinese partners to accelerate the growth of Cooks’ branded coffee business in Greater China including Taiwan, Hong Kong and Macau;

• The sale of Cooks’ primary produce subsidiary Progressive Processors which has completed today.

Cooks expects the moves to accelerate growth in China whilst saving the company around $4 million in cash in the first year following conclusion of the agreements. However, they are likely to result in one off non-cash write downs of a similar amount and these charges are likely to be incurred in the financial year to 31 March 2017.

Cooks Global Foods Executive Chairman Keith Jackson said: “Cooks enjoys a wealth of opportunities to grow the artisan style coffee outlets based on best practice cafes in New Zealand and Australia that we are now establishing around the world. These restructuring initiatives, which follow on the earlier confirmation that Cooks had secured $10 million in new equity, put us in a much stronger position to make the most of this potential.

“The Chinese restructure is targeting the introduction of new business partners with an in-depth local knowledge of the fastest-growing branded coffee market in the world. It also incentivises these partners to drive the growth and development of the business in a way that Cooks cannot do itself. 7484367_1

“The plan closely follows a model that major fast food franchisors McDonald’s and KFC1 have implemented over the last year in China. It offers Cooks a share in the profits in Greater China and it reduces demands on our working capital. Cooks recognises that the strategy of having a smaller share of a bigger pie will add value for all shareholders.

1 Bloomberg: McDonald’s Sells Control of China Business to Citic, Carlyle.

2 The final consideration and the structure of the transaction will be finalised following the completion of due diligence.

“Additionally, the sale of Progressive ensures Cooks’ investment programmes are directed at core business opportunities that have the greatest potential to generate value for our shareholders.”

Further announcements will be forthcoming as appropriate.

China joint venture

Cooks is in advanced discussions with a third party in China over a term sheet that envisages the creation of a joint venture company between Cooks and a Chinese-based investment entity (CIE). The term sheet provides for the joint venture to:

• own the Master Franchise for the Esquires Coffee brand in China, Hong Kong, Macau and Taiwan;

• take over the assets and businesses of Cook’s wholly-owned subsidiary Beijing Esquires Management Limited (BEML), the exclusive franchisee of Esquires Coffee for mainland China; and

• fund and drive the development of branded coffee houses across the Greater China region.

Cooks will contribute: BEML; the rights to operate the Esquires Coffee brand in Greater China and rights to future royalty payments and franchise fees in the region. In exchange Cooks will gain a 30% share in the new entity.

Meanwhile, the CIE will contribute significant new funding2 to the venture for a 70% stake. These funds will be used to drive the development of the venture’s branded coffee network and therefore will substantially reduce the new capital requirement for Cooks to achieve growth in Greater China.

The new company would likely be headquartered in Shanghai, from where it will drive growth throughout the Greater China territory. Cooks will continue to provide design, supply chain and other technical services to the new company as appropriate.

The transaction is expected to result in a one off non-cash $3.5 million net write down to Cooks’ Chinese operations, reflecting the conversion of existing intercompany loans to equity. This charge is likely to be incurred in the financial year to 31 March 2017.

The transaction with the CIE is subject to ratification at a board meeting to be held in late April, followed by entry into formal agreements, which are expected to be concluded shortly 7484367_1

thereafter. The transaction may also be subject to obtaining Cooks shareholder approval and this will be determined as the formal agreements are worked through.

Progressive Processors sale

Progressive Processors management have acquired Progressive’s assets and stock and in return have agreed to relinquish the 2.5 million shares they hold in Cooks. Cooks now has a call option over these shares and may place them to investors at its discretion. Cooks retains Progressive’s creditors and debtors as at the date of settlement. The transaction will result in Cooks writing down the carrying value of Progressive by $500,000. The charge will be incurred in the year to 31 March 2017.

Other Discussions

Cooks is also in discussions regarding potential transactions to refine its operating structure in other international markets with strategic partners. These discussions, if successful, will likely utilise the residual underwriting obligation of Cooks Investment Holdings Limited of approximately $1.7 million. To enable Cooks to complete these discussions it has agreed to extend the date for fulfilment of those underwriting obligations until 30 June 2017.

About Cooks Global Foods

Cooks Global Foods operates in world markets and is listed on the NZAX market operated by NZX Limited in New Zealand under the code CGF. It owns the intellectual property and master franchising rights to Esquires Coffee Houses worldwide excluding New Zealand and Australia. Cooks currently operates or franchises Esquires Coffee Houses in Canada, the United Kingdom, Ireland, Bahrain, Kuwait, Saudi Arabia, UAE, Indonesia, and China. For more information visit: www.cooksglobalfoods.com

About Progressive Processors

Progressive Processors is based at Taneatua near Whakatane and is a producer, supplier and exporter of kiwifruit product bases (purees and kiwifruit juice) to juice and food manufacturers world-wide, as well as fresh asparagus. For more information visit: www.akiwiaday.co.nz/

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