RFG profit a bitter taste

BESIEGED Gold Coast franchisor Retail Food Group has flagged an eye-watering 34 per cent drop in profit for the first half of the financial year, fuelling a 10-day sharemarket rout that by yesterday had stripped $445 million from the company’s value.

The company blamed soft retail conditions and “negative media coverage” for falling revenue and said it expected net profit of about $22 million for the first half of 2018, compared to $33.5 million in the corresponding period this year.

The share price dipped below $2 yesterday, less than half of the closing price on December 8. In January, shares in the company had traded as high as $7.18.

RFG said the accusations of unsustainable franchise fees and underpayment of staff had made potential franchisees rethink their plans to buy or renew franchise agreements.

The company is yet to revise its full-year guidance, which flagged a 6 per cent increase in net profit.

In a statement to the ASX, RFG said Crust and Donut King had continued to perform to expectation, but Michel’s Patisserie, Brumby’s and Gloria Jean’s were trading below expectations.

“Recent negative media coverage about franchising, retail and RFG in particular has also contributed to a noticeable decline in momentum,” the statement said. “Associated revenues are now forecast to be below prior expectations and future franchise trading revenues are also likely to be impacted.”

The company said its food processing and distribution operations were performing in line with expectations but sales and volumes to its cafe and retail customers were tracking below expectations.

It is seeking an extension for $150 million in loans, due to be repaid next December.

Managing director Andre Nell said any cost-saving initiatives identified in RFG’s “business-wide review” would be accelerated. “The retail market is expected to remain challenging for the near future and we remain focused on responding to this challenge through delivering franchisee support initiatives and reducing corporate costs,” Mr Nell said.

The half-year results will include one-off costs of about $7 million post tax, including costs associated with the business-wide review and losses on disposal of corporate properties recognised in the period. RFG said the revised profit expectations were dependent on take-up of new international franchises and saw “heightened risk to franchise earnings, given the current adverse publicity”.

“Noting the foregoing, it is difficult to predict full-year outcomes for the franchise segment under current circumstances,” the statement said.

“RFG continues to monitor trading results carefully and will update the market regarding revised full-year guidance as appropriate.”