Donut King & Gloria Jean’s owner Retail Food Group dials back equity raising

Gloria Jean’s and Donut King owner Retail Food Group has recut the terms of an equity raising after it failed to secure demand for $35m from investors at the weekend. Picture: Supplied

Brokers were forced to return to shareholders of Retail Food Group with a different equity raising deal this week after first approaching them at the weekend asking for at least $35m of equity.

Apparently, directors of Retail Food Group’s board had feedback from shareholders that they wanted the company to raise less.

The deal was said to be covered at $35m, with a further $5m for a share purchase plan, taking the overall raise to $40m.

But 8 per cent shareholder, Washington H. Soul Pattinson, stepped up with an alternative offer where they provide $20m worth of debt over three years.

WHSP had originally put a $40m debt proposal to the board.

Retail Food Group remained in a trading halt on Wednesday, and working on the raise are Shaw and Partners and Petra Capital, while 333 Capital is providing the debt.

Major shareholders backing the raise are Regal Funds, WHSP and Thorney.

It is the latest demonstration that the market is tough for groups in the consumer space trying to get money in to weather the upcoming inflationary storm.

Shares are being sold at 8c and the share price at the previous close was 9.1c.

The group is raising $27.4m, comprising a $24.9m placement and a $2.5m share purchase plan.

Retail Food Group’s $20m of debt helps it pay down amortisaing debt which limits the company’s capacity to reinvest in strategic growth objectives and reduces interest payment drain on cash flow.

Its net debt at December was $17.6m and its gross debt is $35.9m.

Senior debt facilities mature on September 30.

Retail Food Group produced a result that received a positive response from investors, pleased to see the company stabilised and its issues with the Australian Competition and Consumer Commission out of the way.

It settled with the ACCC last year after it agreed to make payments and waive historical debts on a number of affected current and former franchisees in relation to the purchase of certain corporate stores by the franchisees.

The ACCC alleges that the stores had been operated at a loss, but Retail Food Group did not disclose this before the sale.

It is also paying $5m to Michel Patisserie store franchisees who paid levies into that franchise’s marketing fund between July 2012 and June 2017.

Opportunities may exit in the coming months for the group to snap up distressed brands as interest rate rises hit consumers, but the hope for most investors would be that the company proceeds cautiously after the bumpy ride they have been in for with Retail Food Group over the years.

For the six months to June, Retail Food Group posted a $1.36m loss but a boost to its earnings before interest, tax, depreciation and amortisation of $13.7m from $9.3m in the previous corresponding period.

The loss came with a resolution with the ACCC.

The standout performer for Retail Food Group was Donut King, which had a 41 per cent lift in same store sales.

The company is run by Peter George, who was appointed in 2018 and he is considered a good operator.

Other brands in its portfolio are Brumby’s Bakeries, Michel’s Patisserie, Di Bella Coffee, The Coffee Guy, Cafe2U, Pizza Capers and Crust Pizza.

In 2018, lenders waived Retail Food Group’s loan covenants as it worked with UBS and Deloitte to address its debt woes and return to profitability.

That year, it told the market that it would shut up to 200 of its 1545 outlets and was reviewing the business.

It booked a half-year loss of $87.8m after facing accusations of mistreating its franchisees, who had been struggling to remain profitable.