Gold Coast franchisor Retail Food Group’s change of chairman caps challenging week

FLAILING franchisor Retail Food Group has capped off an eventful week by appointing its second new chairman in a month. When will the turmoil finally end?

FLAILING franchisor Retail Food Group has capped off an eventful week by appointing its second chairman in a month.

The Southport-based company behind a suite of brands that include Donut King, Pizza Capers and Gloria Jeans, said former Optus director Peter George would replace veteran board member Stephen Lonie, who was only appointed chair on September 25 — the same day Mr George joined as non-executive director.

In a brief statement to the ASX, RFG said the election of Mr George was part of a “broader turnaround strategy”, which included “significant board renewal”.

RFG said Mr George was recruited to the board as a turnaround specialist for the beleaguered franchisor, which has seen its share price and profit smashed in the wake of allegations of mistreatment of franchisees.

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RFG is hoping for sweet profits to return. Photo: iStock

The company’s annual report revealed it did not open a single new outlet in the second half of the past financial year.

It said a possible market recapitalisation and asset sales remained on the table for the company, which remains at the mercy of its lenders.

While the RFG Annual Report back catalogue is a sonata of acquisitions and growth, FY2018’s held a different tune.

The report revealed 305 RFG outlets, which include Donut King, Gloria Jeans, Michel’s Brumbies and Pizza Capers, had closed in 2017-18, including 217 traditional outlets and 15 mobile vans in Australia, as well as 83 international outlets.

The company announced in March it would close 160-200 stores it had deemed unviable.

The annual report, meanwhile, said “250 existing outlets” would be closed by the end of this financial year.

The revelations followed news the Senate had taken the extraordinary step of issuing subpoenas to three former executives, who had refused four times to appear voluntarily at a joint parliamentary inquiry into the franchise sector.

Former CEO Tony Alford, former executive Alicia Atkinson and former managing director Andre Nell have been formally summoned to Canberra for the inquiry which was convened in the wake of allegations of a damaging franchise models of companies including RFG, which some franchisees claim has ruined their livelihoods.

ANDRE NELL WAS PAID MORE THAN $1.65 MILLION BY RFG IN FY18

Stephen Lonie was chairman of RFG for barely a month. Photo: Kit Wise

This week it was revealed RFG had become the tenant of its former CEO Tony Alford and Ms Atkinson, who bought its property at 18 Commercial Dr, Ashmore.

Property records revealed the pair, through their company WC92 Pty Ltd, paid $2.075 million for the 3510sq m property in November.

The agent behind the deal, struck at public auction, said RFG agreed to a 12-month leaseback of the site, with two six-month options once that expires.

Mr Alford also bid for RFG’s two other high-value properties, including its headquarters at 1-3 Olympic Circuit in Southport, where he was outbid by a Sydney buyer, the agent said.

Attempts by the Gold Coast Bulletin to contact Mr Alford and Ms Atkinson this week were unsuccessful.

Mr George previously led the restructuring of commercial printer PMP Limited when he was managing director between 2012 and 2017 and was non-executive director of Optus Communications from 1994 to 1998.

“My focus is on effectively executing the already developed turnaround strategies to return RFG to stability and profitable growth and add further impetus to the group’s efforts to restore value for shareholders,” he said.

In his final director’s interest notice, Mr Lonie, who has also stepped down from the board as a director in addition to chairman, declared he held 54,195 shares worth $21,948 based on the current share price of 40.5¢.

He first joined the board in 2013.

RFG’s share price lifted 2.47 per cent to 41.5 cents in a resurgent market on Friday.

Timeline of trouble for RFG:

December 2017: Accusations of poor treatment of franchisees attain national media coverage. Shares fall from $4.40 to $3.08 over a weekend.

RFG says it expected profit to be 34.4 per cent down for the first half of the financial year. Shares fall to $1.60, but rebound to $2.51 by the end of the month.

January 2018: RFG revises it guidance for the first half of the financial year, saying it expected to make less than the $22 million profit it flagged in December. Shares fell to $1.95

February: After twice downgrading its guidance, RFG was due to reveal its first-half results but didn’t. Shares are suspended from trading at $2.04.

March: Both RFG’s profit forecasts prove fanciful at best as the company posts a $87.8 million loss for the first half, down more than $120 million from the same period last year. Shareholders are told they will not receive a dividend this year and the company said up to 200 stores would close by the end of June 2019. Shares fall to $1.03.

RFG’s new Australian CEO Richard Hinson pledges reductions in some supply costs and fees for franchisees. By the end of March, shares have dropped to 93c.

May: RFG shares hit another new low, with the company ranked as the ninth most-shorted stock on the ASX. Shares at 79 cents.

The company announces the immediate departure of managing director Andre Nell, who was replaced in the top job by Mr Hinson.

June: RFG said it expected a net loss of $87.6 million for the full financial year. Shares sink to 72.5 cents.

The company’s market capitalisation is less than a third of its debt. Analysts recommend shareholders sell out of RFG and they oblige. Shares hit 41.4 cents.

RFG’s lenders cut it some slack on lending requirements. Shares rally to 55 cents.

August: RFG shares hit a new low of 39.5 cents, before a bafflingly sharp rebound to 67 cents, which sparked a price query from the stock exchange.

September: RFG’s expectations of its results again prove unfounded, as the company posts a staggering $306.7 million net loss — well above the $87.6 million it flagged and a shuddering turnaround from its $91.6 million profit the previous year. Shares sink to 46 cents within a week.

It’s revealed Mr Nell pocketed $1.65 million, including a $750,000 termination payout, from the struggling company in 2017-18.

Chairman Colin Archer steps down, announcing Stephen Lonie as his replacement. Shares at 49.5 cents.

October: Three former RFG executives, Tony Alford, Alicia Atkinson and Andre Nell are formally summoned to face a federal inquiry into the franchise sector. Shares fall to 42 cents.

RFG’s annual report suggests more than 500 outlets will have closed by the end of June 2019 and flags possible asset sales and market recapitalisation. Shares fall to 40.5 cents.

RFG announce its chairman Stephen Lonie is stepping down after one month in the job and will be replaced by Peter George. Shares up to 41.5 cents.