Retail Food Group’s financial positioned has worsened to the point where it continues trading only with the forbearance of its banks.
The company – a major owner of retail fast food franchises such as Gloria Jeans, Donut King, Crust Pizza, Pizza Capers, Brumby’s and Michel’s Patisserie – fell deeper into the red in the six months to December on a combination of falling sales and more asset write-downs.
The company reported a $111 million net after-tax loss for the six months to December 31. That compares to an $89 million loss in the same half a year earlier, which contributed to a $306 million full-year loss in 2018 and means the company has lost $417 million in the past 18 months.
With a market value of only $51.1 million at Thursday’s close of 27 cents and debt of $259 million, RFG would have been put into administration a long time ago if it had not been for the latitude shown by its banks – NAB and Westpac.
They, of course, don’t want to be owners of fast food chains whose reputations have been damaged by poor management, rorting franchisees and the growing reluctance of customers to deal with the chains.
The banks gave the company a stay of execution by waiving the testing of its debt covenants for the period ending December 31. The banks also waived covenants in September and June last year.
RFG said its $259 million debt was subject to a review process “at some point”, and that it was looking for ways to pay down the facility by selling Donut King, Crust and Pizza Capers.
“RFG continues to engage with its lenders in connection with the Company’s senior debt facility, which is subject to a potential review process at some point after 28 February 2019, and the Board extends thanks and appreciation to its bankers, NAB and Westpac, for their support to date.” the company said yesterday.
The company said the loss was driven by a deterioration in trading at its network of franchise-owned cafes, bakeries and pizza stores, with 93 outlets closing in the half.
Earnings collapsed even without the write-downs, with underlying net profit after tax falling to just $6.6 million from $24 million a year ago.
RFG revealed a $79 million non-cash write-down to the value its brands and goodwill and took another $45 million in provisions on property and equipment, inventory, trade debtors and onerous leases and contracts.
RFG’s executive chairman, Peter George, said the result showed the company was “clearing the decks” and stabilising the company.
“Although a lot of work remains to be done to resurrect the financial health and performance of the business,” he said.
Mr. George said the company would embark on a cost-cutting drive by firing “surplus and duplicate full-time roles” and selling assets to deliver annual cost savings of $20 million.
