RFG defends goodwill figure

By Nick Hall | 08 Mar 2019 View comments

Retail Food Group (RFG), the embattled company behind franchise chains Gloria Jeans and Donut King has come under fire for valuations presented in its recent results.

Last week, the beleaguered franchisor posted a $111m loss, however valued its goodwill at $52m. The move effectively kept the ASX-listed group in the black, with net assets sitting at $19.5m, a figure that would dip into the negative should RFG’s goodwill be written off.

Reports from the Sydney Morning Herald this week suggested that the figure should grossly devalued, a claim that RFG has since refuted.

The nature of RFG’s goodwill

The slashing of goodwill has become common practice among ailing companies of late, with Myer dropping its goodwill last year and Mark Bouris today announcing a complete goodwill write off for his company, Yellow Brick Road.

Over the past 18 months, RFG’s goodwill has been cut down from $270m, but some questions have been raised over the final figure.

Belinda Hamilton, RFG chief communications officer said that it was important to remember that while the company faced many challenges moving forward, underlyingly the company was profitable.

“Our first half results show that we have gone some way towards clearing the decks and stabilising the performance of our operations,” Hamilton told Inside Franchise Business.

“While RFG did record a statutory net loss after tax, it’s important to note that much of this loss relates to non-cash accounting adjustments. What this means is that on an underlying basis, RFG is still profitable – we still have support for all of our brand systems, there are still earnings there, and our brands are still trading profitably so there is certainly strong goodwill in our brands.”

Hamilton’s assessment of brand equity is particularly poignant at this time. RFG is in the process of a major restructuring strategy, one element of which involves the potential sale of certain assets, including Donut King, Pizza Capers and Crust.

Hamilton’s assessment ofRFG’s goodwill and financial situation paints a positive picture of brand’s themselves, which she predicts will continue moving forward.

“People still love our brands and that’s reflected by the amount of customer transactions we see. RFG saw about 67 million customer transactions go through its network last year, so the support remains – our brands are iconic.  That value cannot be disputed,” Hamilton said.

Restructuring process

Where the challenge lies for RFG is in debt reduction. The company’s share price has collapses, with market dropping from over $800m to just $43m.

“We are implementing a number of major initiatives to get that debt down,” Hamilton said. “We acknowledge we still have a lot of work to do however we remain confident that RFG can be restructured and as noted we expect to record earnings of $43m to $48m, so I guess you could say that the proof will be in the pudding.”