Ocho 'seriously underperforming'

The Ocho Chocolate Company Is in the middle of a major restructuring as it sought to return to profitability following "higher than expected costs" related to its recent expansion and relocation to a new factory showpiece.

It is expected to report a loss for the financial year when its results come out in September.

Ocho chairman Jim O'Malley said expansion and refurbishment of the new Roberts St craft chocolate factory, which opened in January this year, had come with an overall price tag of about $1.4million.

This included refit costs which were $200,000 above budget, at $750,000, while new equipment had cost another $500,000, and $150,000 had gone into initial operational expenses.

Mr O'Malley said Mondelez, owners of Cadbury, had also "blacklisted" Ocho from buying any of the used equipment from its now dormant Dunedin factory.

He said these delays and expenses had an immediate and profound impact on profitability.

"Production was not able to support the market during the five-month refurbishment process, impacting supply during the important holiday and Christmas trading period."

Mr O'Malley had taken a hands-on role at the company, implementing a turnaround strategy after the company had continued to "seriously underperform" for the first three months since moving into its new factory.

This had also seen the departure of founder and general manager Liz Rowe, who left at the end of June.

Ms Rowe, who remains as the largest shareholder with a 10% stake in the company, said there was no underlying issue or problem with the company but that it was simply the right time to go.

"We've taken steps to move the company back into positive cashflow territory by ramping up production, we are recruiting for a new GM to lead the business and we have positive order books going forward."

Following the recent departure of director and accountant Stewart Cowan, the company had also enlisted Ying Qin, of Westpac, as an "observer" to the board.

Mr O'Malley said the plan included a refocusing on sales through specialist, fast-moving consumer goods merchandising, expanding the retail footprint and corporate and other co-branding avenues and increasing online sales.

"There is also tremendous opportunity to expand our tour business, which was already at capacity during the tourist season."

In reference to Ocho as a potential takeover target, Mr O'Malley said the company's constitution had limited shareholder control to 11% of the company, with the wide number of small investors also mitigating against a potential takeover offer.

Almost 3500 investors, of which 35% were local, snapped up shares in the company following its successful "Own the Factory" PledgeMe campaign in 2017.

The campaign - launched in the wake of news that Dunedin's Cadbury factory would close - raised $2 million in less than 48 hours.

Mr O'Malley said the company's overdraft was about $120,000.

The company's annual meeting would be held late next month and shareholders would be presented with a full picture of the company's plans.

 - Brent Melville