Gold Coast Retail Food Group due to release 2019 half-year results as company turnaround continues

By the end of this week, shareholders of Gold Coast’s listed Retail Food Group will find out whether the company’s turnaround strategy has worked. Here’s how RFG got here.

Fiona Sang prepares one of the last batches of cinnamon donuts as the store prepared to close its doors at Casuarina Square last year.

BY the end of this week, shareholders of Gold Coast’s listed Retail Food Group will find out whether the company’s turnaround strategy is working, with the company due to release its results for the first half of the financial year.

Investors haven’t had a dividend since October 2017, when shares were trading at $4.56 and collectively worth $833.34 million.

RFG dipped 3.57 per cent per cent to 27c yesterday and were worth less than $50 million.

The company has shed two chairmen and a CEO in the first six months of FY2019, after losing its managing director suddenly in May.

RFG executive chairman Peter George.

Much is riding on the shoulders of RFG director-turned-chairman-turned-executive-chairman Peter George, who has flagged drastic changes including asset sales and cost cuts to bring the company back from the brink.

Buyers have been circling for RFG’s valuable brands, which include Donut King, Gloria Jeans, Crust and Pizza Capers.

Last night the company was yet to provide a reporting date or profit guidance to shareholders.

This time last year, half-year results were released two days late and containing an $87.8 million six-month loss despite an earlier guidance of a $22 million profit.

Then-managing director Andre Nell told analysts that morning the company had “grown too quickly”.

It was an understatement.

Brumby's bakeries are an RFG brand.

FORMER RFG EXECS NOW THE COMPANY’S LANDLORDS

The company’s decade-long aggressive acquisition spree meant much of its earnings came the pockets of new franchisees, who were charged fees for everything from cups to marketing.

The company’s reports paint a vivid picture of the rapid expansion: in four years from 2006 to 2009 the number of RFG outlets trebled from 332 to 1063.

That number was at 2446 by 2015 as the company went global, buying up Gloria Jeans and its 800 outlets right after buying 341 mobile coffee outlets with the Cafe 2U and Coffee Guy brands.

Net earnings grew instantly from $59.1 million for FY14 to $88.8 million in FY15 and hit $110.2 million in FY16 as it expanded its wholesale coffee and food distribution businesses.

In financial year 2017, RFG hit its peak number of outlets, reporting 258 new stores for a total of 2516 globally and earnings of $123.5 million.

But even then, as champagne corks popped at the new outlets, an increasing number of existing RFG stores were closing — 174 in that same year.

Retail Food Group shareholder Jon Bosisto at the company's 2018 AGM at RACV Royal Pines. Photo: Kathleen Skene

In the second half of last financial year, as complaints of long-suffering franchisees were widely aired, the lucrative new income tap was tightly turned off.

In its October annual report, RFG revealed it had failed to open a single new outlet in the second half of last financial year, and that 305 outlets had closed in the full financial year.

It expected the closures to continue until the end of this coming June.

For the first time since 2006, RFG did not include the number of existing outlets in its annual report, leaving shareholders and other to work it out for themselves it had 2312, based on the number of openings and closures reported.

The loss of new franchisees came on a backdrop of changed reporting requirements and wider challenges in the retail sector and the group confirmed an FY18 after-tax loss of $306.7 million, an eye-watering turnaround from its $61.9 million profit the previous year.

Whether or not the Southport company’s new strategy has brought back franchisees, remains to be seen, but it hasn’t stopped the exit of many existing operators.

There were more than 200 RFG franchise outlets listed for sale this week, with well over half of them resales of existing stores.

Donut King franchises across Australia are for sale.

Prices for the outlets range widely in price: a Brumby’s franchise at Camberwell outside of Melbourne is listed for $34,500, while a drive-through Gloria Jeans near Perth is taking offers up to $700,000.

Coupled with the slowdown of earnings is the spectre of the company’s lenders, which have so far been forgiving of the company’s net debt — reported as $258.9 million as at June 30 — more than five times the current combined value of its shares.

Last week the company lost a five-year legal battle against a Townsville couple who spent more than $200,000 on a failed Michel’s Patisserie store.

A judge found the company had made misleading claims about the quality, range and delivery of products to the franchisees and had been “deceptive” by not informing the couple its Brisbane-based bakery supplier was in financial difficulty.

The company’s defence that the claims were “mere puffery” and never meant to be relied upon were extraordinary, and the company’s apparent willingness to explore an appeal would not have done it any favours with public opinion or potential franchisees.

RFG’s staff and shareholders need some good news this week — it really is crunch time.