Gold Coast’s Retail Food Group flags 34 per cent profit drop on top of $445 million lost value

A MAJOR listed Gold Coast company’s share price remains in free fall today, losing an astonishing $274,000 a minute in value since the market opened. The company is now worth $445 million less than it was 10 days ago.

Brumby's Bakery is not making enough dough.

BESIEGED Gold Coast franchisor Retail Food Group has flagged an eye-watering 34 per cent drop in profit for the first half of the financial year, fuelling a sharemarket rout which by this morning had stripped $445 million from the company’s value in 10 days.

The company blamed soft retail conditions and “negative media coverage” for falling revenue and said it expected net profit for 1HY18 of about $22 million, compared to 1H17’s $33.5 million.

The share price dipped below $2 this afternoon, less than half of the closing price on December 8. In January, shares in the company had traded as high as $7.18.

It has lost an astonishing $274,000 a minute in value since the market opened today.

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Retail Food Group is in a sticky situation. Picture: Supplied.

RFG said the accusations of unsustainable franchise fees and underpayment of staff had made potential franchisees rethink their plans to buy or renew franchise agreements.

The company is yet to revise its full year guidance which flagged a six per cent increase in net profit.

In a statement to the ASX this morning, RFG said Crust and Donut King had continued to perform to expectation, but Michel’s Patisserie, Brumby’s and Gloria Jean’s were trading below expectations.

“Recent negative media coverage about franchising, retail and RFG in particular has also contributed to a noticeable decline in momentum in new and renewing franchise sales,” the statement said.

“Associated revenues are now forecast to be below prior expectations and future franchise trading revenues are also likely to be impacted.”

Profit from Michel’s Patisserie & Café is tracking below expectations.

The company said its food processing and distribution operations were performing in line with expectations but that sales and volumes to its cafe and retail customers were tracking below expectations.

It is seeking a time extension for $150 million in loans, due to be repaid next December.

Managing director Andre Nell said any cost-saving initiatives identified in RFG’s “business-wide review” would be accelerated.

“The retail market is expected to remain challenging for the near future and we remain focused on responding to this challenge through delivering franchisee support initiatives and reducing corporate costs”, he said.

Retail Food Group managing director Andre Nell (right) and Chairman Colin Archer.

The half-year results will include one-off costs of about $7 million post tax, including costs associated with the business- wide review and losses on disposal of corporate properties recognised in the period.

RFG said the revised profit expectations were dependent on take-up of new international franchises and to “heightened risk to franchise earnings, given the current adverse publicity”.

“Noting the foregoing, it is difficult to predict full year outcomes for the Franchise segment under current circumstances,” the statement said.

“RFG continues to monitor trading results carefully and will update the market regarding revised full year guidance as appropriate.”