The Retail Food Group (RFG) slid 10% to $4.56 yesterday after it sprung a surprise downgrade on the market and got punished as a result.
That’s the lowest the shares have been since March 2016.
The company which is Australia’s biggest listed fast food and coffee group, cut its profit forecast for 2017 by $3.3 million after running into trouble internationally and being unable to recoup marketing costs from two of its domestic franchise chains.
RFG owns Michel’s Patisserie, Gloria Jean’s Coffees, Donut King, Brumby’s Bakery, Pizza Capers and Crust Gourmet Pizza
It’s not a profit downgrade (ie lower) as such – RFG trimmed its expected 2016-17 net profit to $76.3 million – which would be up 15% from the 2015-16 result, but less than previous forecasts fora 20% increase. That excludes the write down detailed below.
The company said while its domestic franchise operations were trading in line with the prior year, but growth across most brands had been offset by a decline for Michel’s Patisserie, which has been hit by supply chain issues.
Retail Food Group also will record a $22 million write-down in its 2016-17 financial results after re-assessing the recoverability of advances made to the marketing funds for its Michel’s Patisserie and Pizza Capers chains.
It said the advances are unrecoverable in full because each chain now has fewer outlets (from closures).
It’s the second time investors have dumped the company this month. Shares fell 11% on June 5 over suggestions new accounting standards that would see a boost to liabilities as operating leases presently off balance sheet, come onto the company’s accounts from 2019 onwards. RFG said the impact was around $15 million at most.
RFG said 44% of operating profits for 2016-17 are expected to come from domestic operations, with the balance coming from overseas. RFG also said that the number of overseas territories covered by franchise agreements has grown from 46 to 80 over the past 3 years, suggesting the potential for further overseas growth.
But the company said growth in its international business had been hit by delays signing a new franchise agreement, which would now happen next financial year.
Its coffee and beverage division, which includes the Di Bella brand, are performing to expectation, with growth in commercial coffee contracts offset by a reduction in the lower-margin supermarket capsule business.
RFG said it anticipates organic growth to continue in 2017-18, largely driven by its international, commercial and coffee divisions, while its food franchises are expected to achieve modest growth.
In that comment there’s a hint that 2017-18 might not be as upbeat as some investors have thought.
