Outlines 2009 Strategic Initiatives
NexCen Brands, Inc. (PINK SHEETS: NEXC) provided a business update, including a review of 2008 operating activities and information on the status of its efforts to complete and file its delinquent quarterly and annual reports. Additionally, the Company outlined its key strategic initiatives for 2009.
Review of 2008 Activities
Kenneth J. Hall, Chief Executive Officer of NexCen Brands, stated, “In view of the substantial work we have done and the time that has been required to put ourselves in a position to return to a regular reporting calendar, we felt it would be useful to provide our stakeholders with a further update on important operational developments within our business. Although we have provided periodic business updates during 2008 and anticipate filing our complete financial results by March 31, 2009, we believe an additional update is appropriate, particularly in light of the current economic turmoil affecting most businesses.”
“While NexCen faced a number of challenges in 2008, we took the opportunity to make significant changes to our business strategy and to take steps to improve our operations,” Mr. Hall continued. “We believe that we have made material progress. Despite the recent unprecedented deteriorations in the U.S. and global credit and financial markets, we restructured our debt and divested our licensing business in the home and luxury sectors. We reduced our expense structure to be more closely aligned with the underlying revenues of the business, and we improved our corporate infrastructure. Although our financial results have been materially impacted by the non-recurring costs associated with these efforts and we are not immune from the economic downturn, we believe that the Company now is on more solid financial footing as a result of the changes that we have implemented. At the same time, we also have made strides toward continuing to build our franchising business, and we are encouraged by the continued international expansion of our franchised brands. We are now fully focused on growing our core franchise business and believe we have developed a strategic path forward that we believe will allow us to generate long-term value for our stakeholders.”
2008 Highlights:
- Divestiture of Non-Core Licensing Businesses: In the fourth quarter of 2008, NexCen completed the sale of its Waverly and Bill Blass businesses, which enabled the Company to streamline its organization to focus solely on its seven franchised brands. Additionally, the divestitures allowed the Company to reduce its debt by approximately $33.4 million, or 19%, as of the end of 2008.
- Improvements to the Company’s Cash Flow: NexCen significantly improved its cash flow as a result of the comprehensive restructuring of both the Company’s credit facility and operations. NexCen anticipates a meaningful reduction in interest expense this year based on the Company’s reduced debt level, the recent amendment to its credit facility that reduced the fixed interest rate applicable to some of the Company’s debt, and the low variable rates currently applicable to other portions of its debt. In addition, the Company reduced recurring operating expenses, aligned its payroll expense to more efficiently support its organizational structure and renegotiated vendor contracts. Overall, from May 2008 through year-end, the Company reduced recurring operating expenses by over 35%.
- Strengthening of NexCen’s Corporate Infrastructure: The Company made significant changes to its executive leadership and management structure and enhanced corporate governance. NexCen completed a review and revision of its internal controls and procedures, and bolstered its financial and accounting functions, including creating and hiring for the new positions of Principal Accounting Officer and Director of Financial Reporting, and retaining a leading accounting firm to work in an advisory capacity separate from the Company’s independent audit firm.
- Initiatives to Grow the Franchised Brands: In 2008, the Company opened 97 franchised quick service restaurants (“QSR”) and 67 franchised retail stores and, in line with its strategy to expand its franchised stores internationally, signed agreements to enter new markets such as Kuwait, Lebanon, Bahrain, Guam and Vietnam. NexCen also continued a re-branding campaign for The Athlete’s Foot; established an online cookie cake ordering program at Great American Cookies; introduced new packaging for pints and quarts at MaggieMoo’s; launched a new in-store presentation with a new menu board program at Marble Slab; gained the first significant national media coverage for Pretzelmaker and Pretzel Time; and opened its first international Shoebox New York franchised store.
Status of Quarterly and Annual Filings
The Company announced that it anticipates being able to file an amended Annual Report on Form 10-K, which will include a restatement of its 2007 financial results, as well as its 2008 quarterly and annual reports, with the Securities and Exchange Commission (SEC) by March 31, 2009.
As previously reported, in May 2008, the Company withdrew its Annual Report on Form 10-K for the 2007 fiscal year as a result of issues relating to the terms of a January 2008 amendment of its existing credit facility with BTMU Credit Corporation (“BTMUCC”), which provided NexCen with financing for its acquisition of the Great American Cookies business. NexCen concluded that it needed to restate its 2007 financial statements and would be unable to file its 2008 financial statements with the SEC until the restatement has been completed. The Company’s Audit Committee commissioned an independent investigation of the circumstances surrounding the January 2008 amendment and the Great American Cookies acquisition. Upon conclusion of the investigation, the Company developed a plan to remediate the circumstances that contributed to these matters and implemented numerous management, corporate governance and internal control enhancements, as well as a revised strategic plan that included the sale of its licensing businesses. Following an extensive evaluation, the Company’s independent auditing firm formally re-engaged in the financial statement audit and review process in January 2009, and the Company has been working diligently with its independent auditing firm to complete the restatement, the amendment to its 2007 Annual Report and its four 2008 periodic filings.
2009 Strategy
The Company has developed a four-pronged approach in executing its business strategy for 2009. The Company will strive to: (i) strengthen each of its brands; (ii) integrate its brands; (iii) increase profitability of its franchisees; and (iv) leverage its franchising platform. As part of these initiatives and, in line with specific growth objectives for each of its franchised brands, the Company expects to implement the following strategic initiatives:
- Integrate Pretzel Time and Pretzelmaker, thus creating the second largest pretzel brand in the U.S. by market share;
- Reduce product SKU count at MaggieMoo’s to increase franchisee profitability;
- Execute a rebranding and remodeling program for Marble Slab stores to strengthen the Marble Slab brand;
- Create a new branding plan to update the look and feel of the Great American Cookies brand;
- Implement a new training platform for franchisees of The Athlete’s Foot; and,
- Further expand the Shoebox New York brand domestically and internationally.
Additionally, NexCen plans to gain franchisee alignment by leveraging its NexCen “University” franchising platform -- a centralized training, research, development and operations center in Norcross, Georgia. In doing so, the Company will continue to build on the expertise of the management team and franchise system as well as state-of-the-art tools and technology to train franchisees in every aspect of owning and operating a NexCen franchised store.
Kenneth J. Hall, Chief Executive Officer of NexCen Brands, concluded, “Our mission to become a leader in the global management of franchised consumer brands remains unchanged. As we move forward, we are focused not only on strategies to weather the current challenging economic environment, but also to position the Company for long-term growth when the economy improves. To that end, we will work to exceed the expectations of our franchisees and consumers while strengthening our brand awareness and brand equity. Further, we will continue to closely monitor and manage the Company’s cash flow, which we believe is essential to our corporate viability and stability. As we look forward into 2009, we believe we have a clear understanding of the road ahead and the remaining steps we need to take.”
About NexCen Brands
NexCen Brands, Inc. is a strategic brand management company with a focus on franchising. It owns a portfolio of franchise brands that includes two retail franchises: The Athlete's Foot® and Shoebox New York®, as well as five QSR franchises: Great American Cookies®, MaggieMoo's®, Marble Slab Creamery®, Pretzelmaker® and Pretzel Time®. The brands are managed by NexCen Franchise Management, Inc., a subsidiary of NexCen Brands.
Forward-Looking Statement Disclosure
This press release contains “forward-looking statements,” as such term is used in the Securities Exchange Act of 1934, as amended.Such forward-looking statements include those regarding expected cost savings, expectations for the future performance of our brands or expectations regarding the impact of recent developments on our business.When used herein, the words “anticipate,” “believe,” “estimate,” “intend,” “may,” “will,” “expect” and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements.Forward-looking statements are based on current expectations and assumptions, which are subject to risks and uncertainties.They are not guarantees of future performance or results.The Company's actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements.Factors that could cause or contribute to such differences include: (1) the Company’s efforts to focus on the franchise business as its core business may not be successful and may not improve the performance of the Company; (2) economic conditions may deteriorate in international and domestic markets, which could negatively impact the Company’s business and financial performance, (3) we may not be able to generate sufficient cash flow to make interest and principal payments on our bank credit facility, (4) our ability to comply with negative and affirmative covenants in our bank facility and the effects of restrictions imposed by such covenants may have a negative impact on our ability to operate our business, (5) any failure to meet our debt obligations would adversely affect our business and financial conditions, (6) the bank facility may not provide our business with sufficient liquidity to meet our operating expenses; (7) increases in LIBOR, which affects approximately 60% of the current aggregate bank credit facility, will increase our interest expenses (8) our inability to file our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008, June 30, 2008 and September 30, 2008 within the required timeframe, the need to amend our Annual Report on Form 10-K for the year ended December 31, 2007, and the failure to hold an annual meeting of stockholders for the fiscal year ended December 31, 2007 may subject us to governmental investigations or third-party claims, (9) continued delays in our compliance with SEC filing requirements may negatively impact the Company, (10)our statements are based on preliminary unaudited results that are subject to change upon finalization of the Company’s Quarterly Reports on Form 10-Q for March 31, 2008, June 30, 2008 and September 30, 2008 and the Company’s Annual Report on Form 10-K for year ended December 31, 2008, (11) we are continuing to assess and quantify the impact on our financial results related to the costs associated with the restructuring of our credit facility, the special investigation by the Audit Committee, the sale of the Waverly and Bill Blass businesses and asset impairment charges, any and all of which may materially impact the Company’s operating results(12) we may not be successful in effectively executing our 2009 strategy or in generally operating or expanding our brands or integrating them into an efficient overall business strategy, (13) we depend on the success of our franchisees to develop and grow our franchise systems both domestically and internationally, (14) we may not be able to retain existing, or attract new, employees, franchisees, and licenses, and (15) other factors discussed in our filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Contacts:
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Leigh Parrish/Stephanie Rich, 212-850-5600