Retail Food Group slashing costs, selling assets to keep banks at bay

Sue Mitchell
Feb 28, 2019
AFR
Fast food franchisor Retail Food Group is slashing costs and selling off assets to reduce debt and keep banks at bay after crashing to another $111.1 million loss in the December half.
The latest loss followed an $87.8 million loss in the year-ago period and a $307 million bottom-line loss in 2018, when the company booked $427 million in asset impairments and costs associated with closing as many as 250 stores.
The owner of Michel’s Patisseries, Donut King, Gloria Jeans, Crust Gourmet Pizza and Brumby’s Bakery booked another $13.5 million in restructuring costs in the December-half after closing another 93 stores and wrote down assets by another $123.7 million following a $138 million write-down in the year-ago period.
Before restructuring costs and write-downs, underlying net profit plunged 73 per cent to $6.6 million.
Sales fell 1.8 per cent to $192 million, same-store sales fell 3.3 per cent, with Gloria Jeans and Michel’s posting the biggest falls, and underlying EBITDA fell 48 per cent to $23.9 million.
Full-year underlying EBITDA is expected to come in between $43 million and $48 million, down from $71.4 million in 2018.
‘Unsustainable’ position
The latest write-downs reduced shareholder funds to $18.5 million — less than RFG’s market capitalisation of $50 million — and left the group with a net current liability of $182 million and almost $260 million in bank debt.
RFG executive chairman, Peter George, said the financial position was “unsustainable” and the company needed to urgently sell assets, recapitalise the balance sheet and reduce costs by about $20 million a year to avoid collapse.
“All of this needs to be done whilst at the same time ensuring that the remaining business is positioned for success in the future,” he said.
RFG is in talks to sell Donut King and pizza businesses and has decided to close its wholesale bakery operations.
Mr George said despite the immediate challenges, the board and management believed RFG could “aspire to a positive future” once the restructuring phase was complete.
“We remain committed to equipping our franchisees with the best possible products and support to enhance their own profitability and expect these benefits to start materialising in the first quarter of 2020,” he said.
Last week a Queensland court found RFG breached Australian Consumer Law by making misleading representations to two Michel’s franchisees, Frederick and Karen Guirguis, about the quality of products in 2012.