Retail Food Group Limited

Negative sentiments in the market due to the Debt Level - Retail Food Group Limited is an Australia-based company engaged in the intellectual property ownership of the Donut King, Brumby’s Bakery, Michel’s Patisserie, bb’s Cafe, Gloria Jean’s Coffees, It’s A Grind, The Coffee Guy, Cafe2U, Esquires, Pizza Capers Gourmet Kitchen and Crust Gourmet Pizza Bar franchise systems. The Group is planning to bring together four wholesaling coffee brands; Di Bella Australia and US, Roasting Australia and Evolution Roasters so that it will increase operational diversity and can have a good share in the coffee-roasting market.


Summary of Group’s Franchisee Results (Source: Company Reports)

Further, there were speculations in the market that the Group has hired investment bankers at UBS so that it can advise the Group on potential asset sales that can solve the Group’s debt problems. The key reason for the decline in the share price was due to its debt as shareholders got worried that the banks may force the group into a fire sale of assets, or the Group can witness some kind of debt-for-equity swap with private equity or some distressed debt operators would see the banks get at least a small part of what’s owing to them back. Percentage of Debt in total capital employed increased from 34.9 per cent in June 2017 to 40.9 per cent in December 2017.

The Group has witnessed an improvement in terms of reducing franchisees cost of goods, renewal and new store fees, and is working with franchisees to pilot innovative new store concepts. The Group focuses on improving its performance and growing a stronger balance sheet now and into the future and has suspended all the Dividend payments. It is expected that this kind of situation can be recovered by the Company’s coffee roasting business and through an asset sale like that of Hudson Pacific.

To recollect, RFG has been smashed by investors since late 2017 owing to profit downgrades and its business model. The group was lately removed from the S&P/ASX 200 Index effective at the Open on June 18, 2018. RFG now aims to provide an update to the market in due course while it expects FY18 underlying NPAT to be approximately $34.5 million and statutory NPAT to be a loss of approximately $87.6 million, taking account of the substantial impairment charges booked at 31 December 2017. The stock is trading very near to its 52-week low price (of $0.415). The stock was down by 89.93 per cent in one year on 10 July 2018. The stock closed at $0.455 as on 11 July 2018.


RFG’s Stock Performance for 1 Year (Source: Thomson Reuters)

 
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