Retail Food Group posts $87.8 million six-month loss in wake of devastating franchisee scandal

A MAJOR ASX-listed Gold Coast company has revealed a disastrous half-year result posting an $87.8 million loss instead of the $22 million expected profit. It comes after the company was suspended from trading.

The company was suspended from trading yesterday after failing to lodge its results on Wednesday.

RETAIL Food Group has swung an already-low profit forecast into a devastating first half loss of $87.8 million and has flagged the closure of up to 200 of its Australian stores.

The company said at least 160 of its domestic franchise operations, which include Donut King, Michel’s Patisserie, Pizza Capers and Gloria Jeans, are “unsustainable over the long-term”.

The results were released two days late and after a suspension from trading on the ASX.

The company’s shocking loss, for the financial year to December 31, is down from a $33.5 million profit for the same period last year.

The blow represents a $121.3 million downward spiral from the franchise group’s position compared to 2017.

Shareholders will not receive a dividend for the disastrous half after pocketing a healthy 15C per share this time last year — dividends have been suspended indefinitely on the previously-high-yielding stock.

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Retail Food Group (RFG) Managing Director Andre Nell talks to a shareholder during the company's annual general meeting in Southport on the Gold Coast, Thursday, November 30, 2017.

The company were due to release their results for the first half of the financial year on Wednesday, but instead managing director Andre Nell cancelled media interviews and the company requested a trading halt.

The company initially flagged a drop from $33.5 million profit last year to $22 million profit this year.

A second guidance a month later said the profit was likely to be “lower”, but there was no indication such a dramatic loss would be posted.

Retail Food Group booked a negative earnings before interest, tax, depreciation and amortisation of $100.8m for the six months to December 31, compared to positive earnings of $55.4m in the first half last year.

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Managing director Andre Nell told analysts this morning the company had “grown too quickly and hadn’t realised the organisational efficiencies available to the company”.

“We need to get back to basics when it comes to supporting franchisees,” he said.

“The company has a 22-step process to ensure that new franchisees are of a high quality.”

The company said unsustainable rent and declining shopping centre performance would contribute to between 160 and 200 stores closing by the end of fiscal year 2019.

Shares were trading at $2.04 when they were placed into the trading halt on Wednesday, and will be reinstated on Monday morning.

Before the franchise scandal, which broke in early December, they were selling at $4.40.