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Retail Food Savaged On Relisting

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As was to be expected investors had their revenge on Retail Food Group (RFG) shares yesterday.

Shares in the troubled owner of the Gloria Jeans and Donut King chains, Retail Food Group, plunged more than 50% in early trade after the company last week revealed heavy write downs, store closures- and indicated that it was now under the close control of its banks, Westpac and the NAB.

The stock was savaged when it resumed trading on Monday morning after four-day trading hiatus as it worked through a dispute with its auditors. I

They plunged to $1.055 when the market opened at 10am, before clawing back some ground to trade down 36% at $1.245 at the close.

Investors were reacting to Friday’s half year results and update.

The write downs led RFG, which also owns the Brumby’s Bakeries, Michel’s Patisserie and Crust Pizza chains, to a loss of $87.8 million for the first half of 2018 compared to a profit of $32.7 million in the first half of 2017.

RFG said it would close between 160 and 200 stores.

Releasing its delayed accounts on Friday morning (they were originally due last Thursday week), the company assured the market it was not in breach of any of its debt covenants set on Friday.

But RFG’s bankers - Westpac and the National Australia Bank - imposed a series of new measures on the company on Friday morning, including lifting its debt to earnings ratio to 3 times from 2.5 times previously — and in the process suggesting that if that limit hadn’t been increased the company could have been in breach of its borrowing covenant, or it will breach the old covenant in the months ahead.

RFG is now effectively in the hands of its banks who have insisted on the $260 million debt be cut, with 60%-net proceeds of any asset disposal (unless agreed) to be applied to paying down that debt.

RFG has suspended dividends for the half to support its balance sheet. based on last year’s interim of 14.75 cents a share, that will save the company just on $27 million.

But it is hard to see the company being allowed by its banks to contemplate a final payout for the year. Last year that was 15 cents a share, meaning a saving of $27.4 million and more than $54 million for the 2017-18 financial year.

The results show just how much trouble RFG has been in with its lenders from Westpac and National Australia Bank.

As of Friday, the two banks now have imposed new benchmarks - RFG now has a budget of $90 million in underlying full-year 2019 earnings before interest, tax, depreciation and amortisation EBITDA).

Seeing EBITDA was $123.5 million in 2016-17, the company is looking earning less than that by the end of the 2018-19 financial year, or 15 months away. There was no estimate for the figure for the current financial year.

RFG’s loss before interest and tax was $106.9 million for the six months to December on a 21% rise in revenue to $195.5 million.

RFG’s financial position will be monitored and examined by its bankers on a quarterly basis.

Part of the impairments include a $45 million writedown on the value of Michel's Patisserie chain, and a $34.5 million charge on its retail coffee division, which includes Gloria Jean's and Cafe2U mobile networks.

The company also booked a $4.5 million writedown on the value of its Pizza Capers chain. A further $35.7 million in charges have been booked as a result of the planned store closure program.

View More Articles By Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.



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