Crust sale set to raise debt dough

The West Australian - - WEST BUSINESS - Neale Prior and Alex Druce

Atro­phied fran­chis­ing giant Re­tail Food Group has con­firmed it is con­sid­er­ing sell­ing as­sets to pay down debt, but says the $100 mil­lion price tag me­dia slapped on its Crust Pizza em­pire is too high.

A news­pa­per re­ported yes­ter­day that PAG Asia Cap­i­tal was be­lieved to be in pole po­si­tion to buy Crust Pizza from Re­tail Food Group at auc­tion.

The sales come as the com­pany faces an Oc­to­ber 31 dead­line for re­pay­ment or re­struc­tur­ing of its es­ti­mated $250 mil­lion­plus in bank debt af­ter breach­ing bank­ing covenants last year.

Af­ter a hor­ror run over the past two years, shares in Re­tail Food spiked more than 20 per cent be­fore the com­pany an­nounced a tem­po­rary trad­ing halt to ad­dress the spec­u­la­tion.

The Glo­ria Jean’s Cof­fees and Donut King op­er­a­tor con­firmed to the mar­ket that it was in­ves­ti­gat­ing pos­si­ble sales to re­duce debt.

But it said no bind­ing agree­ment had been reached for any of its as­sets.

Re­tail Food said the $100 mil­lion sale price for Crust Pizza es­ti­mated in the re­port was above its own ex­pec­ta­tions.

The shares re­turned to trade con­sis­tently higher to fin­ish 15 per cent stronger at 34¢, a 4.5¢ rise for the day.

Yet the stock lost about 95 per cent of its value over the past two years af­ter shock­ing in­vestors with losses and trou­bles with its fran­chise net­work.

In Au­gust Re­tail Food Group ex­panded its store clo­sure pro­gram af­ter it slumped to a $306.7 mil­lion full-year loss, the lat­est in a string of fi­nan­cial stum­bles fol­low­ing ac­cu­sa­tions it was treat­ing fran­chisees badly.

The com­pany re­vealed plans to close 250 do­mes­tic stores — up from the pre­vi­ously an­nounced 200 — by the end of the 2018-19 fi­nan­cial year as it tries to gets its fi­nances in or­der.

Its an­nual ac­counts showed $265 mil­lion was re­payable within 12 months de­spite it ear­lier hav­ing ne­go­ti­ated loan re­pay­ments out to early and late 2020.

Notes to the ac­counts re­vealed Re­tail Food had breached debt covenants in June 2018, and that its debt covenants were re­struc­tured af­ter re­ceiv­ing a waiver for the breaches of old covenants.

This al­lowed it to have higher net debt com­pared with earn­ings, but put the ma­jor loan re­pay­ment back from the 2020 dates to Oc­to­ber 31 this year and de­manded a higher cut of as­set sales for debts.

“These re­vised bank­ing ar­range­ments will also come at an in­creased cost to the group, which has been fac­tored into fu­ture cash flows,” the com­pany warned share­hold­ers.

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