Retail Food Group (RFG) has appointed ‘turnaround specialist’ Peter George as its new chairman, after laying out a three-pronged strategy to stabilise, optimise and reinvest in the business at its annual general meeting (AGM) on Thursday.
George, who joined the board as a non-executive director in September, was elected chairman on Friday. He takes over from Stephen Lonie, who stepped into the role vacated by previous chair Colin Archer, who announced his retirement from the board at the end of September after RFG reported a $306.7 million full-year loss.
George previously led the restructuring and merger of integrated marketing solutions provider, PMP Limited, as managing director from 2012-2017, and was executive chairman of Nylex Limited from 2004-2008.
His focus will be on effectively executing the already developed turnaround strategies to return RFG to stability and profitable growth, and add further impetus to the group’s efforts to restore value for shareholders, he said.
Lonie admitted in the company’s annual report on Thursday that RFG, which owns a portfolio of food brands including Gloria Jean’s, Donut King, Crust Pizza, Brumby’s Bakery and Michel’s Patisserie, faced several challenges in FY18, which contributed to its poor performance.
Increased scrutiny of the treatment of franchisees, specifically those within RFG’s network, contributed to a decline in new store growth, resale and renewal activity and the number of outlets being passed to management in FY18. This, combined with challenging retail trading conditions, particularly in shopping centres, and the increased complexity of the business, forced RFG to write down $402.9 million in impairments in FY18, pulling the company’s $374 million revenue into the red.
Lonie highlighted the need to stabilise the business and improve profitability and said the company has already embarked on a turnaround strategy. This includes integrating and streamlining the group’s operations and right-sizing the operational base across RFG’s businesses to support a more sustainable model for the company and its franchisees.
Group CEO Richard Hinson noted in the report that he met with approximately 700 of RFG’s franchisees during a national roadshow to listen to feedback and explain the steps that RFG is taking to enhance the profitability of their businesses, including delivering $4.5 million in cost of goods savings, discounting new store and franchise renewal fees, investing an additional $1.5 million in field support per year and $1.2 million in wage entitlement audit and compliance activities per year.
Hinson said the response to the roadshow was “overwhelmingly positive”, with 79 per cent of franchisees who responded to a subsequent survey professing support for the company’s future direction.
That future direction is broken down into three stages. The first stage, stabilise, involves a mix of cost saving initiatives through simplifying and consolidation the organisational structure and identifying supply chain efficiencies and extending support for franchises. The second stage, optimise, includes further improvements to the store offering through ‘gold standard’ customer service training and enhanced digital capabilities, as well as further cost reductions through store rationalisation and a simplified product portfolio.
The final stage, re-invest, includes enhancements to sales and marketing operations, revised employee training and development and the launch of corporate owned and operated ‘flagship stores’.
Lonie noted in his letter to shareholders on Thursday that reducing RFG’s debt and strengthening its balance sheet is a key focus for the company.
RFG reported a net debt of $258.9 million as at 30 June 2018. Subsequent to this date, the group further negotiated the financial covenants attached to its debt facilities, but Lonie said the risk that RFG could breach financial covenant thresholds within the next 12 months remains, which could result in the syndicated debt becoming due and payable.
“Work on these options began some time ago and is continuing, but, at this date, the board does not have a definitive position on which option is in the best interests of RFG’s shareholders,” he wrote in the report.
Lonie announced his retirement as chair and non-executive director on Friday, alongside non-executive director Russell Shields, who has also stepped down from the board. David Grant has joined the board as a non-executive director.