Donut King and Pizza Capers lifeline gets the green light
THE board of embattled franchisor Retail Food Group can breathe a sigh of relief after shareholders this morning approved a major restructuring of its finances.
The Donut King and Pizza Capers owner, which carries $262.8 million of debt, last month announced a placement of 1.7 billion shares at 10¢ a share to raise $170 million from institutional and sophisticated investors as part of a recapitalisation plan.
It said $118.5 million of the proceeds would be used to pay back its main lenders Westpac and NAB, which had also agreed to wipe off $71.8 million of debt and provide a new $75.5 million facility through to November 2022 to refinance the remaining debt.
At the same time RFG also announced a share purchase plan for retail investors to raise an additional $20 million.
RFG's main shareholder Invesco, which has a 19.9 per cent stake, would have its holding 'topped up' to maintain its position.
This morning the company said shareholders, who attended a meeting at RACV Royal Pines in Bundall, had approved the deal, which is crucial to turning around the company's fortunes.
RFG's shares have received a battering since allegations rose in 2017 of mistreatment of franchisees. In November, prior to damaging media reports, shares were above $4.46. This year they have fallen to as low as 12.5¢. Shares were steady this morning at 13¢.
RFG was savaged by the joint parliamentary inquiry report into the franchise sector earlier this year, which found it had bled franchisees dry with an unjust business model which remained in place.
Executive chairman Peter George spoke at today's meeting about the challenges faced by the franchisor in the past two years.
"The 2019 financial year saw major restructuring and refocusing of the company which necessitated renewed focus on RFG's core competencies of retail food franchising and coffee operations," Mr George told shareholders.
"Further restructuring and cost reduction initiatives will continue to be implemented throughout the current financial year and additional efficiencies are achievable in FY21."
Mr George said it is "crucial" to repair the company's balance sheet.
He said the net proceeds from the placement, a minimum of $118.5 million, will mainly be used to repay debt and provide working capital to "stabilise the company".
RFG is targeting a $30 million improvement to franchisees' gross margins this year.
"(This) contemplates savings derived from rent renegotiation and cost of goods reductions, operational improvements and improved foot traffic and sales derived from product category extensions and marketing programs."
Mr George said he understood the placement is highly dilutionary to shareholders. He said that was why the company had provided an opportunity for retail investors to participate in the capital raising.
He warned that if it was not approved, it could not be guaranteed that a new proposal could be agreed.
"Quite simply, the failure of the company to refinance or extend its current debt could result in RFG's lenders appointing receivers or selling the debt to a third party, who may impose more onerous debt terms on the company."
Meanwhile spinners for RFG have barred media from its upcoming AGM next week.
Chief communications officer Belinda Hamilton offered no explanation other than saying it is "common for ASX-listed company meetings, which are for shareholders, to be restricted to its shareholders".
However, no other Gold Coast ASX listed company has barred media from their AGM event this year.