UPDATE: Veritas downgrades earnings forecast; won't pay first half dividend

The Auckland-based company said underlying profit, which excludes one-time items, will probably be between $3 million and $3.5 million in the year ending June 30, down from a previous estimate of $5.3 million to $5.5 million. Underlying profit fell 4.3%  to $4.3 million last financial year, after it also downgraded its guidance and lowered its dividend.

Its stock sank 30% to 35c, making it the worst performer on the S&P/NZX All Capital Index in early trading.

Veritas, whose assets include the Mad Butcher franchise, Nosh food stores, Better Bar Company and meat patty supplier Kiwi Pacific Foods, said it won't pay a dividend for the first half of its financial year following disappointing trading. It expects to write down the value of its assets by $5.4 million and is seeking a chief executive as it works with external advisers PwC to review operations and bolster profits.

"This is not the first time they have disappointed the market, so confidence is very low in that stock now and it's going to take quite some time before any confidence will return," said Grant Williamson, a director at brokerage Hamilton Hindin Greene. "When the company misfires and comes up short on its guidance quite regularly then the market just loses complete confidence in the company, so I think it's going to take a lot of hard work to turn this company around.

"Certainly the bargain hunters aren't coming into it at this stage."

Veritas had previously affirmed its profit guidance in November, saying first-quarter trading was in line with expectations and the second quarter was expected to be more profitable. However, today, the board said the group experienced "highly competitive market conditions" during the first half of its financial year and adverse weather conditions had impacted its second quarter results.

The company now expects underlying profit of between $900,000 and $1 million in the first six months of the financial year ended December 31. The results will be released by the end of February, it said. While it's paying no dividend for the period this year, last year it made a first-half payment of 2.7c a share.

Veritas was formed in December 2011 through a reverse sharemarket listing with the aim of acquiring high-quality New Zealand retail and consumer businesses. It said it sought established businesses with strong, sustainable cashflows and considerable future growth opportunities. It bought the Mad Butcher franchisor business in May 2013, took a half share in Kiwi Pacific Foods in December 2013, acquired Nosh Food Market in September 2014 and The Better Bar Company in November that year.

It said today the majority of its Mad Butcher stores were trading profitably, although five stores had consistently failed to achieve budgets. While two of those may be able to be turned around, the other three should be considered as impaired assets, it said.

The Nosh business achieved profitability in the December month although it failed to achieve budget in the preceding two months.

"Significant efforts are being made around gross margin, cost control and increasing sales and the board is confident of a continuing track towards business profitability over the next six months," it said of the Nosh business.

All of its Better Bar Company outlets traded profitably and materially to budget in the second quarter after it sold three under-performing Hamilton bars in December, the company said, adding it was redeveloping some existing sites.

The largest item in its writedown announced today was a $3 million hit to the carrying value of its Kiwi Pacific Foods unit, reflecting uncertainty over its appeal against an arbitrator's ruling in favour of Burger King franchise operator Antares Restaurant Group's quitting their joint venture, which supplies beef patties to the fast food operator.

Veritas bought its stake in Kiwi Pacific Foods for $2.8 million in cash and $400,000 in shares at $1.38 apiece, with potential earn-outs if certain export targets were met. The cash component of the sale was funded by bank debt.