Consumer discretionary is the terminology used to describe those goods and services that are considered to be non-essential items for consumers, ranging from entertainment to cars, vacations and home improvements. Consumers prefer to enjoy this category of goods and services if they have the purchasing capacity. On 14 October 2019 (AEST 02:21 PM), the S&P/ASX 200 Consumer Discretionary (Sector) on ASX was trading upward by 0.97% to 2,606.8 as compared to its last close.
In this article, we would be discussing one ASX listed consumer discretionary stock, Retail Food Group (ASX: RFG). Let us have a look at the company’s operations and its recent developments.
About Retail Food Group (ASX: RFG)
Headquartered in Queensland, Australia, Retail Food Group (ASX: RFG) is a global food & beverages company, which is the owner of a multi-brand retail food franchise. Moreover, the company, with a network of more than 2,400 stores in the country, is engaged in the supply of superior coffee products in Australia. It is also an emerging leader in the fields of food service, wholesale bakery along with dairy processing.
Recently, the company declared FY2019 results for the period ended 30 June 2019, reporting a fall of 6.5% in revenue from $374.0 million in FY2018 to $349.8 million in FY2019. Underlying EBITDA decreased by 28.9% to $50.7 million, underlying NPAT went down by 53.6% to $15.4 million and underlying EPS fell by 54% to 8.4 cents per share.
The performance of the company was impacted by the planned reduction in outlets post 2018 strategic domestic store network reset. The result was also impacted by a fall in revenues from new and renewing franchisees. The exit of Di Bella Coffee from the capsule business in FY2018 followed by loss of main customers in competitive contract roasting segment also impacted the company’s performance during FY2019. The company had also taken initiatives with respect to restructuring and cost reduction.
The operating net cash outflows got impacted due to funding along with restructuring activities, supplier credit terms, franchisee support and lease occupancy and departure costs on heavy franchise leases. The balance sheet of the company highlighted a net liability of $15.7 million.
At the end of the year, the company had $262.8 million in total bank borrowings. The company had also requested for an extension for the repayment of the current syndicated debt facility whose maturity date is 31 October 2019. It was also highlighted in the report that during that time, the extension for the loan was under consideration by the lenders.
The company is continuing to look for options to boost cash-flow for the business which comprises of targeted asset sales. With the completion of the disposal of the manufacturing & distribution division, the company is expecting to realise cash proceeds that would be used for making payment towards a portion of the external borrowings. The company is also proceeding well towards raising funds up to $160 million through a new equity raising or via a debt and convertible note financing package with Soliton Capital Partners.
Capital Raising Through Placement and Share Purchase Plan
Recently on 11 October 2019, the company unveiled the launch of an institutional placement, aimed towards raising $150 million before costs. The placement to sophisticated and professional investors with the ability to accept oversubscriptions would involve approximately 1,500 million ordinary shares at a price of $0.10 per share. The placement would depend on the approval of shareholders at the general meeting of the company on or around 19 November 2019.
Retail Food Group also clarified that it intends to raise another $10 million before costs via a Share Purchase Plan at the same offer price of $0.10 per share. The company also holds the right to increase the SPP to a maximum of $20 million.
The equity raising forms part of a broader recapitalisation strategy. The existing senior lenders of RFG have signed a binding commitment letter and term sheet, depending on various terms and conditions which comprise a receipt of $118.5 million of proceeds from the offer which would be used for the partial repayment of the senior debt, by which the lenders agree to end $71.8 million of prevailing senior debt, and to offer a new $75.5 million term loan facility with the maturity date in November 2022 to refinance the existing senior debt. The lenders have approved to extend the current facilities until 28 February 2020.
The proceeds through the placement and SPP would be used to pay the debt and provide support to the company in meeting working capital needs for stabilising the business and supporting turnaround plan.
The company opened the placement bookbuild on 11 October 2019, with closure scheduled on 14 October 2019. SPP would open on 18 October 2019 and would close on 22 November 2019. Settlement of the new placement shares would occur on 25 November 2019, and the shares would be allotted on 26 November 2019. The shares under SPP would be allotted on 2 December 2019.
The shares of RFG have given a negative YTD return of 42.37%. The shares are under a trading halt pending a market release by the company related to a bookbuild to gauge demand for a possible institutional placement. The shares of RFG traded last on 10 October 2019 and closed flat at a price of $0.170. RFG has a market cap of $31.07 million and ~ 182.75 million outstanding shares.
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