Retail Food Lifts Profit But Misses Guidance

By Glenn Dyer | More Articles by Glenn Dyer

Investors yesterday withheld judgement on the 2016-17 profit from the coffee, bakery and pizza franchise owner The Retail Food Group (RFG).

The shares bounced around $4.80 yesterday, rising to a high of $4.895 and hitting a low of $4.67. They ended the day at $4.84 up 0.8%.

That did nothing to lessen the loss so far this year. The shares are down 31% so far in 2017 after the company downgraded its outlook earlier in the year.

The owner of chains like Gloria Jean’s, Brumby’s, Bakery, Donut King and Crust reported a net profit of $61.9 million for the year to June 30, up 17% from 2015-16.

But the 14% rise in underlying profit to $75.7 million was below its June guidance of 15%, and well under the earlier company forecast for 20% growth.

Revenue jumped 27% to $349.3 million, indicating that the company’s profit margins (which rose at half the rise in revenues) came under pressure in the year.

The group also booked about $18.3 million in transaction, restructuring and asset impairments in 2016-17, similar to the bill in 2015-16. RFG said the improved performance came off the back of a bigger offshore push as it expanded five of its brands – Gloria Jean’s, Donut King, It’s A Grind Coffee House, Pizza Capers and Brumby’s Bakery – into new markets, including the Middle East, Africa and India.

The number of outlets shrank by a net 14, compared with net outlet growth of 84 in 2016, after 45 Michel’s Patisserie and Pizza Capers stores were closed. However, RFG granted 15 new international licences overseas, taking the number of international territories to 81.

RFG also reached agreement with the UAE-based Al Hathboor Group and HKO Group to build a network of coffee outlets through the Middle East and North Africa.

Earnings from the core franchise businesses in Australia were flat at $78.1 million, while earnings from international franchise and coffee operations rose 7.5% to $19.4 million.

Coffee wholesaling profits were also flat at $14.2 million, while the group booked $11.8 million in earnings from its new commercial division, which was established after the $88 million acquisition of food maker and distributor Hudson Pacific and foodservice businesses. Donut King was its best performing franchise business, while Michel’s Patisserie was impacted by changes to the business related to the introduction of customised cakes.

Managing director Andre Nell said the group’s growing international network has boosted the company’s revenue streams.

“Global licence activity not only provides immediate short-term benefits on the grant of a new licence; importantly it also contributes to building recurrent revenue streams which increase as international territories grow their outlet footprint, providing a strong platform for increased royalty and product supply earnings,” Mr Nell said.

Final dividend was 15 cents, up half a cent, making a total for the year of 29.75 cents share and up from 27.5 cents a share in 2015-16.

Glenn Dyer

About 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.

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