RFG posts $306 million loss

By Nick Hall | 31 Aug 2018 View comments

Embattled franchisor, Retail Food Group (RFG) has slumped to a $306.7 million full-year loss, consolidating a tough 12 months for the group.

Earlier this month, RFG’s shares hit an all-time low in the wake of repeated allegations of misleading franchisor behaviour and reports of misconduct within its network.

The group, which operates the franchise rights for food retailing brands Gloria Jeans Coffee, Donut King and Brumby’s Bakery now plan to close a further 250 domestic stores, up from the previously reported 200 by the end of 2019.

Despite seeing revenue rise by 7.1 per cent over the last 12 months, the company was forced to make impairments and provisions to the tune of $402.9 million to cover closures, restructuring and a reduction in brand value and assets.

The biggest brand system and goodwill impairments came from struggling franchises, Gloria Jeans Coffee ($90.1 million) and Michel’s Patisserie ($59.2 million).

RFG also reported decreases in receivables, PP&E, intangible assets, and deferred tax balances, and increases in provisioning, primarily attributable to non-cash impairments and write-downs, and provisioning, totalling $320.9 million.

“As 2017 progressed, it became evident that trading results were not meeting management’s expectation, impacted by challenging retail market trading conditions, especially within shopping centre locations, negative market sentiment towards franchising and RFG in particular, the cumulative impact of 2H17/1H18 store closures, and internal challenges in the management of RFG’s business model,” RFG said in a statement.

“These factors, together with concerns regarding franchisee sentiment and engagement, and the group’s supply chain performance, also contributed to a decline in new store growth, resale and renewal activity, and the number of outlets being passed to RFG management.”

Upon Friday’s announcement of the loss, shares in RFG plummeted by as much as 12 per cent.

At 1430 AEST, they were still down 8.8 per cent at 57.5 cents, compared to the all-time low of 39.5 cents set two weeks ago.

The loss cements a forgettable year for RFG, with the group rocked by allegations from both current and former franchisees that they had been mistreated and misled in relation to fees, marketing costs and territory distribution.

The group has since been the subject of much contention at the Parliamentary Inquiry into the Franchising Code of Conduct, however this latest report suggests the group has cited improved franchisee support in a rapidly changing retail environment as the key contributor to rebuilding revenue and market share.