A last throw by embattled Retail Food Group (RFG) – it wants to raise a total of $160 million mostly through a huge expansion in the number of shares on issue that will, in turn, dilute existing shareholders if they do not participate.
As well in Friday’s extensive announcement, there was confirmation of more losses and write-downs in the coming year which will see more pressure on the group.
But as part of the revamp, the company’s banks will take losses by writing down more than $70 million of their debt with RFG and that could very well give RFG the room to survive if other legal action from franchisees, shareholders and possibility regulators don’t wreck it.
The company had trading in its shares halted on Friday at 17 cents to allow an issue aimed at raising $150 million at 10 cents a share, to start.
That’s a 41% discount to the last price.
The issue results are expected to be announced today.
RFG said in Friday’s statement that expects to report more write-downs and associated losses from closing close to 130 stores in the 2019-20 financial year.
But those losses are forecast to be down sharply on the $150 million in 2018-19 and more than $300 million the year before.
RFG operates the underperforming Donut King, Michel’s Patisserie, Gloria Jeans, Brumby’s and Pizza Capers franchises all of which are problematic for the company with weak sales, problems with franchisees and sceptical investors (and a very weak retailing environment).
But RFG is confident that issuing 1.5 billion ordinary shares at 10 cents apiece to raise $150 million, will work (helped by the banks and their move to write-off part of their loans).
In fact, the company’s banks have also agreed to write down $72 million of the company’s senior debt as part of a new $75.5 million loan.
Retail Food wants to raise a further $10 million through a share purchase plan at 10 cents a share which will be a big ask given the slump in the share price in the past three years – around $7 in 2017 and down 43% in the last year alone.
RFG said the net proceeds from the fundraising will be used to pay down the company’s $260 million debt by around $118 million and provide working capital to support its turnaround plan.
This plan includes closing another 127 stores – not including mobile cafe vans – following a net reduction of 330 stores in 2018-19.15 stores will be opened this financial year as RFG plans to have around 830 stores by next June.
The company did not provide a breakdown of which franchises and locations will be closed.
It reported a $150 million loss in 2018-19 after another poor year, driven by $185.3 million in impairments and provisions.
This followed an impairment-driven loss of $306.7 million in 2017-18.
Adding to the pressures on the company this financial year, RFG said it expects a fall in underlying earnings this financial year. It said these are likely to be in a range of $42 million to $46 million – down 9% to 17% on the $50.7 million underlying figure reported for the year to June.
That figure does not include the impact of new accounting changes for leases, and one-off restructuring costs in FY20 are expected to be less than the $40 million booked in 2019.
