Retail Food Group Limited

Restructuring Initiatives to Aid Improved Business Prospects:Retail Food Group Limited (ASX: RFG) is a multi-brand retail food franchise owner across Australia. The company is also engaged in the development and management of the coffee roasting facilities, and wholesale supply of coffee and related products. The company intends for a fully underwritten placement to the sophisticated and professional investors amounting 1,700 million ordinary shares at a price of $0.10 per share.

On 15 October2019, RFG cited its Share Purchase Plan (SPP) program to raise up a capital of $20 million before costs, at $0.10 per share. The funds will be used to lower down its debt levels and working capital management.
Operational Performance for Year ending 30 June 2019:  Retail Food Group Limited announced its full-year results for FY19, wherein the Company reported revenue of $349.8 million, down 6.5% on y-o-y basis and underlying NPAT of $15.4 million as compared to $33.3 million during FY18.RFG reported Underlying EBITDA of $50.7 million during the year as compared to $71.4 million in previous financial year.


FY19 Financial Highlights (Source: Company Reports)

The company is looking for planned reduction of outlets, following 2018 strategic domestic store network reset and has closed 130 outlets and 43 Coffee Vans. The Management commented that decline in the domestic franchise, renewal activity and international licenses were impacted by negative consumer demand. During the year, Di Bella Coffee segment sold its capsule business and witnessed a loss of key customers in the competitive contract roasting sector. The company started with major restructuring initiatives to improve overall business performance and cost reduction.

During the year, the Company made non-cash write-downs of intangibles, and provisioning of $150.3 million. Other business’s turnaround and restructuring costs stood at $35.2 million.The company reported that operating net cash outflows during the period were impacted by funding and restructuring activities, followed by supplier credit terms, franchisee assistance and lease occupancy, and exit costs on onerous franchise leases. Manufacturing & Distribution were impacted by the reduction in customers and sales volumes. Service levels impacted by tightening supplier credit conditions and associated operational challenges. The Company witnessed a margin decline on increased sales volumes, and additional overhead costs, associated with additional production and cold storage facility.

Strategic Activities:The company is focusing on reducing its debt and is evaluating its equity and debt funding options while looking for asset sales options. To improve franchisee profitability, the Company will focus on several marketing strategies, such as delivering rolling pipeline of 62 new campaigns over the next 12 to 18 months. RFG is looking to lower its wholesale coffee pricing by 15-20%. In addition, profitability will be boosted by simplifying franchise renewal cost structures and increased support in the form of lease renewals. Through the cost restructuring initiatives, the company is eyeing annualized cost savings worth c.$20 million.

Guidance:  Excluding the impact of AASB 15 and AASB 16, and including Dairy Country operations, FY20 underlying EBITDA is estimated to be between $42 million to $46 million. The Company expects that FY20 one-off restructuring cash costs will be materially lower than FY19 costs of c.$40 million. Assuming an equity raising of $170 million, the company expects Net Debt/FY20 underlying EBITDA multiple to be in the range of 5.7x - 6.2x, pre-equity raising, and 1.2x - 1.3x, post equity raising.

The announcement pertaining to capital raising worth $170 million brought the share price down by more than 14% on 15 October 2019. The stock has a market capitalization of ~$31.07 million and 52-weeks trading range for the stock stand at $0.125 to $0.460. Currently, the stock of the company is trading at $0.145, down 14.706% as on 15 October 2019.
 

Home Consortium Limited

A Look at a Property Management Player:Home Consortium Limited (ASX: HMC) operates in the real estate sector and derives its revenue from rental income, interest income and outgoing recoveries.

Operating Activities for the year ending 30 June 2019:HMC declared its full-year results for FY19, wherein the company reported property income of $49.25 million as compared to $14.16 million in prior corresponding period. The Company reported a loss of $22.58 million as compared to a profit of $516.31 million in FY18. As at 30 June 2019, cash and cash equivalents stood at $36.29 million, total assets at $1,108.09 million and net assets at $423.95 million. Cash outflow from operating activities during the year stood at $31.79 million.

During the year, the company sold four investment properties, generating gross proceeds of $43 million. In addition, the company also entered into an agreement for the acquisition of leases property at Coffs Harbour, New South Wales.After the financial year ended, the company entered into another sale contract for acquiring a leasehold property at Hawthorn, VIC, which is expected to be settled prior to 31 December 2019. Also, the company signed a binding commitment for replacement of existing debt facilities with a new senior debt facility amounting to $500 million.


FY19 Financial Highlights (Source: Company Reports)

The stock of HMC is currently trading at $3.670, down by 2.133% as on 15 October 2019. At CMP, the stock has a market capitalization of $741.79 million.

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