Blue Sky Alternative Investments: Lenard’s chicken franchise posts worsening earnings, fund investors told

One of Blue Sky’s controversial investments, chicken-franchise Lenard’s, posts a worsening financial performance. It comes with short-sellers attacking Blue Sky.

Blue Sky-held Lenard’s sells a range of chicken products, but posted worsening earnings recently.

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ONE of star fund manager Blue Sky’s controversial investments, chicken-franchise Lenard’s, has posted a worsening financial performance.

Brisbane-based Lenard’s just managed to break even following “significant cost increases” for the first six months of 2018, according to an investor note revealed by The Courier-Mail today.

It comes with scrutiny intensifying on assets underneath Brisbane-based Blue Sky Alternative Investments, which has dozens of funds holding assets from student accommodation to burrito stores.

Blue Sky’s shares were smashed $1.03 to $10.40 on Wednesday. It was because short-seller Glaucus — who makes money from stock prices falling — released a critique claiming that Blue Sky had inflated the value of assets under management and manipulated investment performance.

The shares remain in a trading halt as Blue Sky prepares a detailed rebuttal. But in the interim the Brisbane-based company, which has won awards for some assets sales, retorted that Glaucus’s criticisms in general contained “a large number of factual inaccuracies”.

One case Glaucus looked at was how one Blue Sky fund had sold its stake in Lenard’s, which has almost 300 chicken-selling outlets, to another Blue Sky fund in 2010. This was at a higher valuation despite Lenard’s having “missed forecasts by a wide mark”, Glaucus alleged.

The stake is still held by the 2010 fund. And The Courier-Mail can separately reveal that investors in the fund were recently told that Lenard’s had just broken even in the first half of fiscal 2018, compared with $400,000 in “normalised” earnings (before interest, tax, depreciation and amortisation) in the previous corresponding period.

While revenues had remained flat at $3.3 million, Lenard’s “experienced significant cost increases”, the fund told investors. This included changing poultry and ingredient suppliers. These changes would result in “higher quality product at a lower price”.

Other plans included putting Lenard’s product with a major grocery retailer and management changes have occurred.

Lenard’s earnings have seesawed, going from $3.8 million in 2013 to negative $300,000 in 2015, and back to positive $1 million in 2017.

It is one of four assets the fund is trying to offload — the fund was to have handed back money to investors last year but convinced them to extend the period by another 12 months.

Lenard’s should be offloaded by November, according to the fund.

OICS, another company in the fund that caters for camps with resource companies, was up for sale in 2017 but investors were told “we were unable to finalise an outcome due to internal issues with the respective buyers that were outside our control”.

Still, the fund said a sale should occur by this June. Blue Sky declined to comment.