Gold Coast’s Retail Food Group didn’t open a single new outlet in second half of the financial year

NEW business owners have lost their appetite for Retail Food Group, with the Gold Coast franchise company failing to open a single new outlet in the second half of last financial year. The number of stores closing down is also far higher than expected.

NEW business owners have lost their appetite for Retail Food Group, with the Gold Coast franchise company failing to open a single new outlet in the second half of last financial year.

Instead of gobbling up more store locations and brands, RFG’s annual report suggested it was likely to have lost more than 500 outlets over two years to the end of next June.

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.

Yesterday’s report said about “250 existing outlets” would be closed by the end of this financial year.

After a decade of annual reports that boasted hundreds of new store openings, the FY2018 report yesterday revealed that negative results and sentiment had scared away new franchisees in Australia and overseas.

RFG’s share price hovered just above its low tide mark of 39.5 cents yesterday, closing at 40.5 cents. This time last year it was $6.90.

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A Brumby's bakery store.

FORMER RFG EXECS NOW THE COMPANY’S LANDLORDS

The group confirmed its after-tax loss of $306.7 million, an eye-watering turnaround from its $61.9 million profit the previous year.

RFG’s reported earnings from international franchising operations dropped by almost half, from $19.4 million in FY17 to $10.2 million, a slashing new CEO Richard Hinson attributed to “prevailing negative sentiment” and increased international coffee distribution costs.

The company flagged the possibilities of more asset sales and a market recapitalisation to help it meet debt obligations.

Despite consolidating its Di Bella Coffee businesses, those earnings were also battered, falling from $14.2 million in FY17 to $8.1 million.

New chairman Stephen Lonie said the board appreciated the challenge it had in restoring value to shareholders, whose investments have fallen in price by as much to 90 per cent since December.

RFG Group CEO Richard Hinson is leading a company turnaround. Photo by Richard Gosling

RFG has been pummelled by investors and customers since revelations its franchise model had proven unsustainable for many of its franchisees.

Three of its former executives, Tony Alford, Alicia Atkinson and Andre Nell have been formally summoned to face a federal inquiry into the franchise sector.

The company reported net debt of $258.9 million as at June, 30 — more than triple the current combined value of its shares.

It has since gained some breathing room by renegotiating the terms of its loans, however it remains at risk of breaching them, Mr Lonie said.

“The risk that the Group may breach financial covenant thresholds within the next 12 months remains, which could result in the Company’s syndicated debt becoming due and payable,” he said.

Pizza Capers is an RFG brand.

“RFG’s continuing viability is, therefore, dependent upon the continuing support of its syndicated lenders, and managing the terms of its renegotiated debt facilities.

“Having regard to these matters, a key focus for RFG is the reduction of debt and strengthening the Company’s balance sheet.

“The Company is considering a range of options, including potential asset sales and securing potential alternative funding such as a market recapitalisation.

“Work on these options began some time ago and is continuing, but, at this date, the Board does not have a definitive position on which option is in the best interests of RFG’s shareholders.”