The Challenged Retail Stock – Retail Food Group

Retail Food Group (ASX:RFG) has refuted the content published in an article of Courier Mail which stated that the company was contemplating to call in administrators within a week and actively seeking disaster PR experts.

Retail Food Group Limited, based in Queensland, is a food and beverage company with retail food franchise businesses primarily in Australia and also in other countries. It operates around 2,400 outlets under the brand names- Donut King, Pizza Capers, Gloria Jean’s, Crust Gourmet Pizza Bar, Brumby’s Bakery, and Michel’s Patisserie. The five business segments include Coffee Retail, Bakery/Café, Di Bella Coffee, QSR, and Commercial Food Services.

The Group’s six months to December 31st, 2018 (1H FY2019), kicked-off with a turnaround program including cost reduction initiatives and management restructuring to bring down the much-publicised net debt, stabilise the business and strengthen the balance sheet. In the process, the Group implemented its domestic outlet network closure program, which is still ongoing, comprising 83 traditional national outlets and ten mobile vans.

As per the financial results for the 1H FY2019, the Donut King and QSR Division Brand Systems, are in the process of negotiation for potential sale and termed as discontinued operations and assets held for sale. The decision stems from a weak performance of most of the divisions causing decline in sales and debtor collections, due to loss of existing customers and reduced capacity to attract new ones.

As of December 31st, 2018, the Group’s net borrowings decline to approximately $ 258.9 million which reaffirms that RFG’s core debt remains high with the present facilities expiring by October 2019.

Despite the ongoing drive to sell assets and restructure the businesses, the Group is faced with the significant risk of breaching its existing financial covenant requirements at March 31st, 2019, June 30TH, 2019, and September 30TH, 2019.

For the concerned period, the Group’s statutory revenue from continuing operations reduced to $171.2 million, down $ 6.9-million on the prior corresponding period (pcp), on account of a $ 5.2 million fall in revenues from Brand System segment, which was offset by revenue of $ 9.4 million accumulated from the adoption of the new AASB 15 Revenue from contacts with customer standards, accompanied by an $ 8.0-million rise in manufacturing & distribution segment’s revenue.

An underlying EBITDA of $ 23.9 million, down $ 21.8 million on pcp was recorded for1H FY2019 along with an underlying NPAT of $ 6.6 million, excluding the $ 9.8-million restructuring cost, $ 2.9-million non-core operations expenses, $ 0.8-million worth amortisation of acquired intangible assets, and ~$ 1.2-million finance costs. Besides, the net cash at hand amounted to $ 21.03 million with massive net cash inflows from operating ($ 7.6 million) and investing ($ 7.04 million) activities in 1H FY2019.

The company has a market cap of AUD 33.81 million to date, and the RFG stock closed the trading session at AUD 0.195, up 5.41 % on March 13th, 2019.

The stock has provided a negative YTD return of 37.29% as on 12 March’19. The upcoming months can possibly remain bleak for the Retail Food Group’s business until the full impact is realised from the turnaround/restructuring initiatives amidst challenging retail market conditions. The company expects EBITDA (underlying) to be around $43 mn- $48 mn for the current fiscal year.

Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.