Loss expected following Retail Food Group's rough year

Loss expected following Retail Food Group's rough year

Embattled café and pizza franchiser Retail Food Group (ASX: RFG) has issued a loss warning to cap off the company's disastrous year.

The group expects FY18 underlying NPAT to be approximately $34.5 million and the statutory NPAT to be a loss of $87.6 million, which take into account substantial impairment charges the group suffered at the end of 2017.

The company says these figures do not include approximately $3 million worth of international licence fee revenues that may come through before the end of the financial year.

However, termination payments to former managing director Andre Nell are included in the statutory NPAT figure.

Nell left RFG in late May 2018 and was replaced by Richard Hinson, who joined the company in January to lead a strategic review of the business.

The group continues to blame "difficult retail market conditions" for its downturn over the last financial year, as well as the closures of a number of stores in its portfolio and the negative opinion of the company in Australia.

RFG, which operates food franchises such as Donut King, Gloria Jean's Coffee and Pizza Capers, Crust Pizza and Michel's Patisserie, was accused of forcing franchisees to the wall financially by charging exorbitant franchise fees along with excessive marketing and food costs for low quality products. It was also alleged that RFG offered limited support to franchisees.

RFG's share price plummeted by more than 50 per cent in a single day of trade, after it emerged from a two-day trading halt to reveal massive half year losses and the closure of up to 200 stores.

RFG went into the trading halt because of a dispute with its auditors and it then revealed plans to close up to 200 outlets on the back of a net loss after tax of $87.8 million, compared to $32.7 million profit in the previous half year and $138 million in writedowns in the value of its brands.

The company cited "challenging trading conditions" while acknowledging its own "disappointing performance" as it outlined its business-wide review to turn the company around.

"Trading conditions in food retailing continue to be tough. The actions we are taking in collaboration with franchisees are starting to see a positive response," Hinson says.

RFG is one of a number of franchise networks, including 7-Eleven, Domino's Pizza and recently Red Rooster and Oporto's parent company Craveable Brands, to be accused publicly of mistreating franchisees or similarly underpaying staff.

A federal parliamentary inquiry into the franchise sector is now underway in response to the string of allegations across several companies.

Shares in Retail Food Group are steady at $0.78 per share at 10.42am AEST.

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