RFG ‘bankruptcy’ fears
ANOTHER multimillion-dollar slice has been carved from Retail Food Group’s market capitalisation after speculation banks could call in their debts and send the Gold Coast company bankrupt.
The Southport-based franchisor, which operates brands including Donut King, Gloria Jean’s, Crust Pizza and Brum- by’s Bakeries, released earnings guidance on Tuesday that flagged a net loss of $87.6 million and underlying net profit after tax of $34.5 million for 2017-18.
The company has a huge task ahead in meeting its debt obligations, which require it to more than double its pre-tax earnings next financial year.
More than $9.1 million was wiped off the value of its market capitalisation as the shares lost 6 per cent from yesterday’s close of 76¢, diving to 71¢ by the close of trade — the second record low in two days.
Online forums were awash with punters urging each other to “take what they could get” for RFG shares and get out after a contributor to investing website Motley Fool said the company “could go bankrupt”.
He highlighted the strict lending covenants it was working under as its value sinks level.
In Tuesday’s announcement, RFG said the loss was worsened by a payout to departed managing director Andre Nell. The company did not reply to a question about the amount of the payout.
In its half-year results in March, RFG revealed it held $267.6 million of debt.
RFG’s lenders, Westpac and National Australia Bank, lifted further below its debt their debt-to-earnings ratio to three times to allow the company to remain within its lending requirements.
However the company must comply with strict covenants including making loan repayments of $12.5 million by next March and hitting underlying pre-tax earnings of $90 million for next financial year. That is more than twice what it expects to book for this year.
RFG cited “one-off turnaround costs” and impairments including writedowns on some of its brands and the cost of closing up to 200 stores for the reversal of its fortunes.
The guidance is down from a profit of $61.9 million last year. RFG said it was hoping the loss would be cushioned by $3 million in international licence fees it hoped to receive before the end of June that it was unable to include in the guidance.