The company that runs such franchises as Pizza Capers, Gloria Jean's and Donut King is taking advantage of share price recovery since November to raise $47.4 million worth of debt and equity, the bulk of which will be used to pay down existing loans with about $17 million remaining for working capital and chasing "core business and inorganic growth opportunities".
Gold Coast-headquartered Retail Food Group (ASX: RFG) saw its shares jump from around 5.5cps to 9cps between late November and when a trading halt was called earlier this week.
This improvement was buoyed by strong performances from RFG's coffee businesses and Donut King in particular, as well as promising signs from the new franchise concept "Rack ‘em Bones BBQ Ribs" that has been trialled across 11 existing franchise outlets by leveraging their kitchens to secure additional sales that do not 'cannibalise' existing offerings.
Investors were also given more certainty around the group's longstanding legal troubles in December following a settlement to pay $13 million to franchisees following allegations of unconscionable conduct and false or misleading conduct in its dealings with them.
Retail Food Group - whose brand stable also includes Brumby’s Bakery, Michel’s Patisserie, Crust Gourmet Pizza, Cafe2U, The Coffee Guy and Di Bella Coffee - announced it has received firm commitments to raise $24.9 million via a share placement to sophisticated and institutional investors at an offer price of 8cps, representing a dilution of more than 15 per cent for current shareholders.
This will be followed by a share purchase plan (SPP) aimed at a $2.5 million top-up from existing shareholders at the same offer price, while a binding term sheet has been signed to secure a new $20 million facility with Washington H. Soul Pattinson and Company (ASX:SOL).
After the placement SOL will have total holdings in RFG of 7.97 per cent.
RFG executive chairman Peter George says the capital raising and new debt facility will enable the company to reset and strengthen its balance sheet, allowing it to pursue core business and inorganic growth opportunities. The repayment and extinguishing of existing bank facilities is expected to cost around $34 million.
"The company’s strong 1H23 results demonstrate the resilient nature of the group’s brand system portfolio and validate the strategic decisions implemented throughout the company’s ‘franchisee first’ turnaround journey," George explains.
"We have carried considerable momentum into the 2H23 and remain focused on delivering solutions to unlock growth and drive enhanced profitability for both our franchise partners and shareholders.
"We are pleased to welcome a number of respected institutional investors amongst new shareholders to the register, and extend thanks to those existing shareholders who have endorsed the company’s strategic growth platforms and initiatives by increasing their shareholding via the placement."
The group's underlying EBITDA was up by 47.4 per cent in the December half to hit $13.7 million, although legal settlements sliced up the bottom line leading to a statutory loss of $1.1 million, compared to a $5.1 million profit in the December half of 2021. Of note, RFG notched 66 outlet renewals in the period, which George earlier described as "pleasing" as it exceeded the figure of 58 for the entirety of FY22.
At the end of the calendar year, Retail Food Group had $24.15 million in cash and cash equivalents, having recorded net cash inflows of $7.91 million over six months.
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