Retail Food Group chairman flags asset sales, imminent "major restructuring"

The new executive chairman brought in to change Retail Food Group's (ASX: RFG) fortunes says 2019 will be "another demanding year", with asset sales and job cuts looking likely for the for the franchise operator.

For Peter George, who has worked on the turnaround of companies including Optus and Asciano, RFG's woes can be traced back to a rapid acquisition-driven growth spurt from 2012 to 2016 which led to an "unprecedented" level of management complexity.

"At its peak, the company managed more than ten different franchise systems, each with differing challenges around product offering, market positioning, store location and competitive conditions," he told today's AGM.

"We diversified away from our core franchising business with the Di Bella and Hudson Pacific acquisitions which also added to the complexity.

"Towards the end of the period, we experienced the loss of many of the key personnel who had contributed to the Company's success. This included people with in-depth understanding in the Company's operations, including some who had built the Company from the ground up."

He also pointed to the loss during that period of key personnel who had contributed to RFG's success.

The company - also known for its Donut King, Brumby's Bakery and Pizza Capers franchises - has been embroiled in controversy for close to a year now due to claims of financial ruin amongst franchisees, many of whom have taken up class action against RFG. In July, its former CEO Tony Alford was accused of allegedly using a Brumby's franchise owner to hide loss-making stores.

These problems coupled with high levels of debt culminated in the group's worst ever result in FY18 with a $306 million loss.

George admits the level of customer service "suffered as a result" of the group's "complexity" - an apt euphemism for a struggling company in need of drastic change.

"While there has been some encouragement from our franchise customers about improvements in the network, the Company's current financial performance is unsustainable," he says.

"As a Company, our main reason for being is serving our franchise and non-franchise customers through brand promotion, product innovation and superior customer service."

He says reducing bank borrowings and refocusing on customers are the top priorities for RFG right now.

"To reduce our bank borrowings, it is likely that we will need to sell assets, recapitalise the balance sheet and reduce our cost base by a large amount," he says.

"The Board continues to look at a range of options, including potential asset sales but also potential for alternative funding.

"Inevitably, part of repairing the Company's financial position will mean implementing major restructuring and cost reduction initiatives through the Group, as an immediate priority."

He claims the franchise operator's journey to become a more "nimble" customer-focused organisation has begun.

"This will not happen quickly and will not be easy to achieve but I and the Board and management team are committed to using our best endeavours to make this happen as soon as possible," he says.

"Despite the immediate challenges, I believe that RFG can aspire to a brighter future once the restructuring phase is complete. Our coffee business is key to our future success and we must better capitalise on the brand equity which exists in Di Bella Coffee.

"The consolidation of four coffee operations into a single, integrated business under the Di Bella Coffee brand, was an important step in becoming a global coffee business. In many respects, coffee roasting remains a cottage industry in this country and we will be looking to better capitalise on organic growth opportunities in this market."