Retail Food Group shares still sliding amid online talk its lenders could force it into bankruptcy

ANOTHER multimillion-dollar slice has been carved from Retail Food Group’s market capitalisation after speculation banks could call in their debts and send the Gold Coast company bankrupt.

Shares in RFG continue to drop. Photo: iStock

ANOTHER multimillion-dollar slice has been carved from Retail Food Group’s market capitalisation after speculation banks could call in their debts and send the Gold Coast company bankrupt.

The Southport-based franchisor, which operates brands including Donut King, Gloria Jean’s, Crust Pizza and Brumby’s Bakeries, released earnings guidance yesterday that flagged a net loss of $87.6 million and underlying net profit after tax of $34.5 million for 2017-18.

The company has a huge task ahead in meeting its debt obligations, which require it to more than double its pre-tax earnings next financial year.

More than $9.1 million was wiped as the shares lost six per cent from yesterday’s close of 76c, diving to 71c by lunchtime today — the second record low in two days.

Online forums were awash with punters urging each other to “take what they could get” for RFG shares and get out after a contributor to investing website Motley Fool said the company “could go bankrupt”, highlighting the strict lending covenants it was working under as its value sinks further below its debt level.

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Richard Hinson, Retail Food Group's new chief executive officer. Photo by Richard Gosling

In yesterday’s announcement, RFG said the loss was pushed by a payout to departed managing director Andre Nell. The company did not reply to a question about the amount of the payout.

The net loss was also impacted by impairments, which turned the forecast underlying net profit after tax of $34.5 million into the blistering loss.

In its half-year results in March, RFG revealed it held $267.6 million of debt.

RFG’s lenders, Westpac and National Australia Bank, lifted their debt-to-earnings ratio to three times to allow the company to remain within its lending requirements.

However the company must comply with strict covenants including making loan repayments of $12.5 million by next March and hitting underlying pre-tax earnings of $90 million for financial year 2018-19 — more than twice what it expects to book for this year.

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Retail Food Group chairman Colin Archer has already announced his plans to step down.

RFG cited “one-off turnaround costs” and impairments including writedowns on some of its brands and the cost of closing up to 200 stores for the reversal of its fortunes.

The guidance is down from earnings of $123.5 million last year.

The company said it was hoping the loss would be slightly cushioned by $3 million in international licence fees it hoped to receive before the end of June that it was unable to include in the guidance.