Written on the 28 August 2014 by Nick Nichols


RETAIL Food Group’s (ASX: RFG) profit growth shows no signs of slowing down as the company announced a record result and the acquisition of two new businesses today.

The Southport-based franchise group, owner of Brumby’s Bakeries, Michel’s Patisseries and Donut King, has driven full-year net profit 15.2 per cent higher to $36.9 million.

The result has been aided by a strong contribution from the company’s two pizza chains, Crust and Pizza Capers, and a focus on improvements within its existing franchise systems.

While the company has been relatively quiet on the acquisition front the past year, RFG has made up for it with news that it has entered into agreements to buy the La Porchetta chain and Cafe2U mobile coffee business.

The deals, worth a combined $31 million, will add another 306 outlets to RFG’s stable, adding to the 150 new outlets it commissioned over the past year.

RFG chief executive Tony Alford (pictured) says the organic growth of outlets is a record for the company, with inquiries from potential franchisees particularly running hot in the quick service restaurants division, which includes the pizza chains.

Lead generation over the 2014 financial year exceeded 400, he says.

“Organic outlet growth amongst the company’s remaining brand systems was also robust, notwithstanding the programmed suspension of new outlet commissioning amongst the Michel’s Patisserie and Brumby’s Bakery brand systems pending full implementation of Project EVO initiatives.”

Project EVO involves an overhaul of the Michel’s, Donut King and Brumby’s stores, which the company says has led to a 13.3 per cent increase in average weekly sales for the upgraded Donut King outlets.

“These are exceptional results achieved in a challenged retail environment and are testimonial to management’s initiatives and dedication to ensuring the company’s traditional brand systems remain attractive, modern concepts well able to satisfy customer demand, and importantly, demonstrate immediate and enduring growth,” Alford says.

Alford says the new acquisitions are the result of “significant and wide-ranging” investigation of opportunities in the market over the past 18 months.

The acquisitions will be funded by cash and debt, with the businesses acquired a multiple of five times EBITDA (earnings before interest, tax, depreciation and amortisation).

Cafe2U was established in 2000 and has become the world’s largest mobile coffee franchise group, with operations in Australia, New Zealand, UK, US and South Africa.

RFG says the chain will complement The Coffee Guy system, which it bought in 2012.

La Porchetta, established in Melbourne in 1985, is Australia’s largest Italian themed casual dining restaurant franchise system with operation in both Australia and New Zealand.

“As a casual dining family restaurant concept, La Porchetta represents even greater diversification of our brand system stable,” Alford says.

Both deals will add to RFG’s bottom line in the current financial year, and Alford says they will reduce further RFG’s reliance on shopping centres to grow its outlets.

La Porchetta CEO Sara Pantaleo has been enlisted by RFG to oversee the operation following the buyout.
Both acquisitions are expected to be finalised over September and October.

In the year ahead, Alford says cautious consumers and intense competition will be at play, but the company is forecasting 15 per cent growth in underlying pre-tax profit.

RFG is paying a final dividend of 11.25c a share, bringing the full-year payout to 22c., up 10.4 per cent from the 2013 financial year.

Author: Nick Nichols





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