Retail Food Group Limited · ASX:RFG
Retail Food — Investor Presentation (October 2019)
52 slides from Retail Food's investor presentation, Oct 11, 2019
Slide 1: Investor Presentation
Investor Presentation For personal use only 11 October 2019
Slide 2: Important information and disclaimer
Important information and disclaimer This presentation (Investor Presentation) has been prepared by Retail Food Group Limited ACN 106 840 082 (‘RFG’). By accepting, accessing or reviewing this document you acknowledge and agree to the terms set out in this Important Information and Disclaimer. Summa
Slide 3: Contents
Contents For personal use only Corporate snapshot 4 Board & management team 5 Overview 8 Overview of RFG’s operations 10 Brand system FY19 underlying EBITDA contribution 11 Same store sales 12 Strategic initiatives 14 FY20 guidance and capital raising 27 Overview of regulatory investigations and pot
Slide 4: Corporate snapshot
Corporate snapshot Capital structure 0.60 Share price For personal use only 0.50 No. of shares on issue 182.7m 0.40 Market capitalisation1 $31m 0.30 A$ Net debt as at 30 June 20192 ~$260m 0.20 Enterprise value pre capital raising3 ~$291m 0.10 Enterprise value post capital raising4 ~$255m 0.00 Sep 18
Slide 5: Board and management team
Board and management team Peter George, CEO and Chairman Jessica Buchanan, Retail Strategy Consultant For personal use only • Joined the Board of RFG as a non-executive director in September 2018, • Over 20 years’ experience in branding, marketing and advertising working appointed Executive Chairman
Slide 6: Board and management team continued
Board and management team continued Background – Peter George Work history and experience in turnarounds/restructures For personal use only Non-Executive Roles Optus Nylex Asciano PMP2 Non-Executive Non Executive Chairman of Audit Non-Executive Non-Executive Director Director and Risk Committee Dire
Slide 7: Board and management team continued
Board and management team continued Background – Jessica Buchanan Work history and experience in marketing/growth For personal use only Head of Strategy Brand Director Founder, Strategist Founder, Director Board Member (1998 – 2001) (2003 - 2005) Retail Franchise Digital Research Agency (2012 - 2019
Slide 8: Overview
Overview For personal use only Resilient underlying business in the process of stabilisation • FY19 underlying EBITDA $44 million1,2,4 consistent with guidance • FY20 underlying EBITDA guidance – $42 – $46 million2,3,4 • Approximately 939 total trading stores5 across 6 key brands – three RFG brands
Slide 9: Overview continued
Overview continued Strategic focus on store level profitability and franchisee sustainability For personal use only • Stabilise store numbers through operational improvements to drive franchisee profitability – targeting an additional $30 million gross margin generation at the franchisee level from
Slide 10: Overview of RFG's operations
Overview of RFG’s operations • US owned directly and other For personal use only Domestic Bakery/Cafe • Domestic bakery and café division International international territories operating operating under three iconic brands - FY19 Contribution FY19 Contribution through Master Franchise Donut King, B
Slide 11: Brand system FY19 underlying EBITDA contribution
Brand system FY19 underlying EBITDA contribution1,2,3 $m For personal use only 60.0 50.0 $1.5m $(4.7)m $3.4m $3.5m $44.0m $4.6m 40.0 $4.7m $4.9m 30.0 $6.0m $9.9m 20.0 $10.2m 10.0 0.0 Group International Underlying EBITDA Operations to discontinue 1. FY19 underlying EBITDA of $44 million excluding th
Slide 12: Same store sales – July 2017 – June 2019
Same store sales – 1 July 2017 – 30 June 20191 Same store average weekly sales for the month For personal use only 20,000 17,500 15,000 12,500 A$ 10,000 7,500 5,000 2,500 Jul 17 Sep 17 Nov 17 Feb 18 Apr 18 Jul 18 Sep 18 Nov 18 Feb 19 Apr 19 Jun 19 Brumby's Donut King Michel's QSR Gloria Jean's Overa
Slide 13: Same store sales – Calendar year 2019
Same store sales – Calendar year 20191 For personal use only Calendar year 2019 same store average weekly sales for the month 23,000 66,000 21,000 64,000 19,000 62,000 17,000 60,000 15,000 58,000 A$ A$ 13,000 56,000 11,000 54,000 9,000 7,000 52,000 5,000 50,000 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun
Slide 14: Strategic initiatives
Strategic initiatives For personal use only Right size RFG 15 Initiatives to increase franchisee profitability 16 Actions to stabilise RFG’s business 17 Product and brand enhancement initiatives 18 Old structure 19 New structure - senior executives removed and brand teams set up 20 Product developme
Slide 15: Right size RFG
Right size RFG Status For personal use only Complete c.$10.7 million per annum payroll reduction achieved in FY19 • Reduction of c.80 FTEs, removal of unnecessary functions • Increased brand P&L accountability Planned c.$8.0 - $9.0 million per annum cost savings with potential for further upside • C
Slide 16: Initiatives to increase franchisee profitability
Initiatives to increase franchisee profitability For personal use only Status Complete Franchisee coffee supply cost reduction • Wholesale coffee prices charged to franchisees reduced by c.15 – 20% on 1 July 2019 • 18% increase in average coffee volumes ordered per store in July 2019 compared to pri
Slide 17: Actions to stabilise RFG's business
Actions to stabilise RFG’s business Status For personal use only Primarily complete Store rationalisation • Strategy to turn around at risk stores through new product and marketing initiatives • Planned rationalisation of underperforming stores significantly progressed over FY18 and FY19 with a net
Slide 18: Product and brand enhancement initiatives
Product and brand enhancement initiatives Proactive marketing activity to drive customer count and revenue Restructure of brand system, procurement and marketing resources 2 For personal use only • • Improved franchisee analytics to assess performance real time Product range refreshed • Consumer tes
Slide 19: Old structure
Old structure For personal use only High Level Senior HEAD OF HEAD OF HEAD OF HEAD OF HEAD OF HEAD OF DIGITAL BUSINESS PROCUREMENT & MARKETING PRODUCT STRATEGIC Executives INTELLIGENCE SUPPLY INNOVATION CHANGE Too far removed from store level Disconnected from franchisees and end customers Page 19 N
Slide 20: New structure
New Structure - senior executives removed and brand teams set up For personal use only Agility/Speed to Market Increased Direct Senior Executives Marketing Spend removed Brand teams set up. Decrease Cost IP for individual IP brands Page 20 Note – Diagram is for illustrative purposes only
Slide 21: Product development process - new versus old
Product development process - new versus old OLD Procurement For personal use only (External) GATE 1 Marketing Led Innovation GATE 2 Development Driven by Internal Product Team MARKETING GATE 3 General External Procurement Product Manager Innovation (Internal) NEW PD7 Procurement PD1 Reporting Based
Slide 22: Reporting
Reporting For personal use only Analysis of Deep Dive top 75% SKU’s only Minimum/Maximum SKU Thresholds Store Type Time Of Day Market Segmentation Findings determine product direction Page 22 Note – Diagram is for illustrative purposes only
Slide 23: Campaign objectives
Campaign objectives For personal use only 1 Remain Mass Market Focused 2 Launching Proven Category Ranging 3 Flavour Alliance Leverage1 Note – Diagram is for illustrative purposes only Page 23 1 Alliances with well known brand flavours i.e. Nestle Kit Kat
Slide 24: Campaign results
Campaign results 2 For personal use only No days since Approximate social media Estimated annualised Brand Campaign or product launch1 reach achieved (million)2 network sales ($m)3 Kit Kat Chiller 147 3.2 1.3 Hot Choc 77 3.9 1.0 Donut Ranging 77 2.5 0.7 Toastinis 38 5.6 3.0 Total 15.2 6.0 4 1. As at
Slide 25: Campaign results
Campaign results 2 For personal use only No days since Approximate social media Estimated annualised Brand Campaign or product launch1 reach achieved (million)2 network sales ($m)3 Gourmet Donuts 101 5.8 0.5 New Savoury Pies 52 6.9 0.9 Hot Choc 73 5.7 1.2 Matt Sinclair Improved Savoury 44 5.4 1.3 To
Slide 26: Retail strategy and systemisation
Retail strategy and systemisation New retail strategy underway delivering growth whilst supporting a stable and integrated underlying structure and systems framework to underpin the retail network For personal use only Strategic planning, systemisation & integration Network Initiatives System adopte
Slide 27: FY20 guidance and capital raising
FY20 guidance and capital raising For personal use only FY20 guidance 28 Capital raising sources and uses of funds 29 Pro forma recapitalisation metrics 30 Conclusion: equity investment thesis 31 Proposed revised banking arrangements 32 Pro forma balance sheet 30 June 2019 33 Capital raising summary
Slide 28: FY20 guidance
FY20 guidance For personal use only FY20 Guidance $m1 EBITDA (underlying) 2,3,4 42.0 – 46.0 RFG expects to incur material one-off restructuring costs in FY20 • In FY19 these cash costs amounted to c.$40 million • RFG currently expects FY20 one-off restructuring cash costs will be materially less tha
Slide 29: Capital raising sources and uses of funds
Capital raising sources and uses of funds Funds primarily applied to debt repayment and providing 2 sufficient capital to stabilise the For personal use only business Source of funds $ million Use of funds $ million Equity raising proceeds1 160.0 Debt repayment 118.5 Cash2 7.8 Working capital 37.3 T
Slide 30: Pro forma recapitalisation metrics
Pro forma recapitalisation metrics Pre equity raising Pro-forma post $160m For personal use only ($m) equity raising ($m)1 Net Debt2 260 64.1 Market capitalisation3 31 191 Enterprise Value 2914 2555 FY19 underlying EBITDA6,7,10 44.0 44.0 FY20 underlying EBITDA guidance7,8,9,10 42 – 46 42 – 46 Enterp
Slide 31: Conclusion: equity investment thesis
Conclusion: equity investment thesis For personal use only • Company capable of generating around $42 - $46 million underlying EBITDA1,2,3 • Established franchise network with a portfolio of household brand names • Strong cash flows post business stabilisation • Identifiable opportunities to grow bo
Slide 32: Proposed revised banking arrangements
Proposed revised banking arrangements For personal use only Revised key debt facility terms and conditions Gross senior debt1 $265.8 million Debt repaid $118.5 million 3 Debt write-off2 $71.8 million New term facility3 $75.5 million Maturity of 3 years • • Interest rate calculated as BBSY plus margi
Slide 33: Pro forma balance sheet – June 2019
Pro forma balance sheet – 30 June 2019 $’ million 30 June 2019 Adjustments4 Pro-forma 30 June 2019 For personal use only Cash reserves 12.3 29.5 41.8 Other current assets1 85.7 (0.2) 85.5 Intangible assets 256.2 - 256.2 Other non-current assets1 91.0 (17.8) 73.2 Total assets 445.2 11.5 456.7 Current
Slide 34: Capital raising summary
Capital raising summary Structure 2 For personal use only Equity capital raising of $160 million • Placement of 1,500 million shares to raise $150 million1 • Placement subject to shareholder approval at a general meeting to be held on or Structure and size around 19 November 20192 • Share purchase p
Slide 35: Capital raising timetable
Capital raising timetable 2 Timetable For personal use only SPP record date 10 October 2019 Trading halt 11 October 2019 Placement bookbuild 11 – 14 October 2019 Trading halt lifted and capital raising results announced 15 October 2019 Notice of general meeting lodged 18 October 2019 SPP opening dat
Slide 36: Overview of regulatory investigations and potential class actions
Overview of regulatory investigations and potential class actions Parliamentary Joint Committee Report on “Fairness in Franchising” 2 published on 14 March 2019 For personal use only • Identified conduct by RFG that the Committee considered may have amounted to misconduct or fallen short of communit
Slide 37: Appendix
Appendix For personal use only Detailed balance sheet – 30 June 2019 38 Bridge FY19 underlying EBITDA 39 Bridge FY19 Revenue 40 Key assumptions supporting FY20 underlying EBITDA guidance 41 Executive remuneration 43 Key risks 44 International offer restrictions 50 Page 37
Slide 38: Detailed balance sheet – June 2019
Detailed balance sheet – 30 June 2019 $’ million 30 June 2019 For personal use only Cash reserves 12.3 Trade receivables 15.4 Assets held for sale1 55.8 Plant & Equipment 23.1 Intangibles 256.2 Deferred tax assets 55.9 Other assets 26.5 Total assets 445.2 Trade payables 15.0 Provisions 28.3 Borrowin
Slide 39: Bridge FY19 underlying EBITDA
Bridge FY19 underlying EBITDA1 For personal use only $m 60.0 $0.7m $0.5m $50.7m $0.9m $0.8m 50.0 $1.9m $1.9m $44.0m 40.0 30.0 20.0 10.0 0.0 Underlying EBITDA Other Underlying EBITDA excluding AASB15 including AASB15 1. Underlying EBITDA is a non-IFRS financial measure. Non-IFRS financial measures ha
Slide 40: Bridge FY19 Revenue
Bridge FY19 Revenue For personal use only $m 400 $330.4m $2.4m $1.9m $337.1m1 350 $2.4m 300 250 200 150 100 50 0 Revenue Domestic Bakery/ Domestic Coffee Domestic QSR Revenue excluding AASB15 Cafe including AASB15 1. Excludes Bakery Fresh revenue (closed in May 2019) Page 40
Slide 41: Key assumptions supporting FY20 underlying EBITDA guidance
Key assumptions supporting FY20 underlying EBITDA guidance Store numbers and underlying franchisee profitability For personal use only • Opening trading store numbers of approximately 9391 • Closing trading store numbers of approximately 8272 stores, excluding mobile coffee vans and international fr
Slide 42: Key assumptions supporting FY20 underlying EBITDA guidance continued
Key assumptions supporting FY20 underlying EBITDA guidance continued Wholesale coffee For personal use only • 15 – 20% reduction in wholesale coffee prices1 charged to franchisees, compared to FY19 • No material loss of existing customers or material change to supply terms to other wholesale custome
Slide 43: Executive remuneration
Executive remuneration • Peter George has agreed1 to continue in his role as CEO and Executive Chairman with his post For personal use only recapitalisation performance rights package intended to be subject to shareholder approval at the Company’s AGM in November 2019 • The package consists of a $60
Slide 44: Key risks
Key risks Set out in this section are some of the potential risks associated with RFG, its business, the industry in which it operates and an investment in RFG shares. It is not an exhaustive list of every risk faced by RFG now or in the future. For personal use only Any, or a combination, of risks
Slide 45: Key risks – risks associated with an investment in RFG
Key risks – risks associated with an investment in RFG Risk For personal use only Compliance RFG is subject to a range of laws and regulations concerning how its business is conducted. These include, but are not limited to, the Franchising Code of Conduct (Franchising Code), with laws and competitio
Slide 46: Key risks continued
Key risks – risks associated with an investment in RFG continued Risk For personal use only Compliance with The Fair Work Amendment (Protecting Vulnerable Workers) Act 2017 took effect in September 2017 (Amendment Act). Under the Amendment Act, franchisors are potentially liable for a laws and franc
Slide 47: Key risks continued
Key risks – risks associated with an investment in RFG continued For personal use only Risk Divestment risk RFG has marked certain business units for divestment and as part of RFG’s turnaround objectives, certain other business units may be marked for divestment in the future. RFG may not be able to
Slide 48: Key risks continued
Key risks – risks associated with an investment in RFG continued Risk For personal use only Workplace health RFG’s employees and the employees of its franchisees are at risk of workplace accidents and incidents. In the event that an employee is injured in the course of their employment, RFG and safe
Slide 49: Key risks – risks associated with an investment in RFG shares
Key risks – risks associated with an investment in RFG shares Risk For personal use only Market price of RFG The market price of RFG’s shares may fluctuate over time as a result of a number of factors including the financial performance and prospects of RFG, prevailing market conditions, shares gene
Slide 50: International offer restrictions
International offer restrictions This document does not constitute an offer of new ordinary shares (New Shares) of RFG in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed to any person, and the New Shares may not be offered or For personal use only
Slide 51: International offer restrictions continued
International offer restrictions continued Jurisdiction Canada (British Columbia, This document constitutes an offering of New Shares only in the Provinces of British Columbia, Ontario and Quebec (the "Provinces") and to those persons to whom they may For personal use only Ontario and Quebec be lawf
Slide 52: International offer restrictions continued
International offer restrictions continued Jurisdiction For personal use only Singapore This document and any other materials relating to the New Shares have not been, and will not be, lodged or registered as a prospectus in Singapore with the Monetary Authority of Singapore. Accordingly, this docum
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