For wasabi lovers, the intense and pungent flavour is what draws them into taking a bite, and perhaps the burst of excitement and complexity to dishes are what keep them coming back. However, not everyone can handle the heat, and what if you can’t handle them from burning your nose? Same goes for TasFoods (ASX: TFL). After overseeing the operations of its wasabi business Shima Wasabi for a span of seven years, the Tasmanian food and beverage company concluded that Shima Wasabi no longer contributed significant value to the mutual interests of both businesses, therefore prompting them to enter into a binding contract to sell Shima Wasabi to Hillwood Berries.

In 2016, TasFoods acquired Shima Wasabi as part of its product portfolio strategy for just under $3 million. However, after reassessing its business portfolio in 2022, TasFoods concluded that it couldn’t effectively expand Shima Wasabi products to a level that justified keeping it within its core brand. They determined that they were not the appropriate company to develop a premium range of wasabi products and achieve wider market access. Further prompted by Shima Wasabi’s inability to achieve the benchmarks under the capital management framework, TasFoods decided to divest Shima Wasabi to Hillwood Berries for an undisclosed selling price.

Whilst Shima Wasabi products continue to be enjoyed by customers in restaurants and at home, the divestment to Hillwood Berries is expected to provide Shima Wasabi with the best opportunity to achieve its full potential under new ownership whilst ensuring TasFoods remains focussed on its core product portfolio.

The transaction is expected to be finalised by 30 June 2023, upon which time the net proceeds from the sale will be used to retire debt and support working capital requirements. The sale price of $700,000 (less employee entitlements at settlement date) represents 1.8 times revenue which is a reasonable outcome in the current environment. TasFoods will not require shareholder approval for the transaction.

TasFoods was founded in 2015 with the purpose of showcasing Tasmanian brands that leverage the natural benefits of the region in producing food and beverage items that align with changing consumer demands. Aside from Shima Wasabi, other Tasfoods brands include Nichols Poultry, Pyengana Dairy, Meander Valley Dairy, Betta Milk, as well as Isle and Sky.

For the quarter ending 31 March 2023, TasFoods reported a net revenue increase for the quarter of 15% over pcp to $19.7 million. EBITDA performance improved by 82% on pcp driven by Poultry division’s return to profitability.

However, net operating cash outflows were negative $1.5m, reflecting a net increase in trade debtors balance from Q4 FY2022 of $0.4m. This is flat on total operating cash outflows compared to PCP which is an adequate result given the cost pressures being experienced across the Company. Two new distribution arrangements with The Juice Guys and The Udder Way have been signed to leverage the strength of customer service and logistics operations. The Company is pro-actively assessing its business divisions to adapt to the current challenging macroeconomic operating environment. Tasfoods ended with a closing cash on hand balance of ($0.96m) and unused finance facilities of $2.9m.