29 August 2017
FY17 Results & Restatement of Prior Years' AccountsKey Matters
FY17 underlying financial metrics(1):
Revenue up 27.0% on prior corresponding period (PCP), to $349.3m.
EBITDA up 12.1% on PCP, to $123.5m.
NPAT up 14.0% on PCP, to $75.7m.
Translated to:
EPS up 7.9% on PCP to 43.7cps(1).
FY17 Dividends of 29.75cps, an increase of 8.2% on PCP.
Acquisition of Hudson Pacific Corporation (HPC) & Associated Foodservice (AFS):
Represents significant additional long-term growth platform, further diversifying earnings.
Transformed RFG into holistic food & beverage company.
81 international licensed territories (FY16: 69):
Complemented by 1H18 establishment of Middle East Hub joint ventures.
Review of accounting treatment of certain items resulted in significant restatement of financial information for prior years' accounts(2).
Retail Food Group Limited (RFG, the Company or Group) today announced FY17 underlying NPAT of $75.7m, which reflected a 14.0% increase on PCP.
The Company's profit result was underpinned by a 12.1% increase in underlying Group EBITDA to $123.5m, derived from Revenues of $349.3m, which represented a 27.0% increase on PCP.
These results translated to underlying Earnings per Share growth of 7.9% on PCP, to 43.7cps.
The RFG Board today announced a final, fully franked dividend in respect of FY17 of 15 cents per share, which when combined with the Company's interim dividend, contributed to total dividends for the year of 29.75cps, an increase of 8.2% onPCP.
The FY17 final dividend will be paid on 17 October 2017 following a Record Date of 12 September 2017. The dividend will be eligible for the purposes of the Company's Dividend Reinvestment Plan(3).
International Operations:
RFG now enjoys a global network incorporating 81 international licensed territories, following the grant of 15 new international territory licenses since the conclusion of FY16.
RFG Managing Director Andre Nell noted that the Group's growing international network extends the Company's revenue streams, enhancing future growth opportunity.
"Global license activity not only provides immediate short term benefits on the grant of a new license, importantly, it also contributes to building recurrent revenue streams which increase as international territories grow their outlet footprint, providing a strong platform for increased royalty and product supply earnings," he said.
The Company's international platform was further enhanced in the 1H18 by RFG's entry into breakthrough joint venture arrangements with leading UAE based businesses, the Al Hathboor Group and HKO Group, to accelerate Brand System expansion within the Gulf region and establish a world class coffee enterprise focused on realising significant untapped coffee opportunities throughout the Middle East & North Africa (MENA) region.
Commercial Division:
The 1H17 acquisition of HPC led to establishment and resourcing of a dedicated Commercial Division focused on leveraging the opportunities afforded by the Company's national growth platform for coffee, dairy and bakery supply across retail and wholesale channels.
Commercial operations performed strongly during FY17, contributing $11.8m to underlying Group EBITDA for the period, assisted by a c.6% increase in Dairy Country annualized value-added cheese throughput to c.26.4m kg, and a c.16% increase in Bakery Fresh annualized bakery goods throughput to c.3.8m kg.
Coffee & Allied Beverage (C&AB):
The Company's C&AB operations contributed $42.7m to FY17 underlying Group EBITDA (FY16: $42m), with growth amongst Franchise Division coffee supply and commercial contracts offset by a reduction in lower margin supermarket capsule business. Annualized C&AB throughput of c.6.2m kg was consistent with PCP.
RFG's C&AB operations have been repositioned under the "Di Bella Coffee Co" brand to leverage the substantial market reputation and brand strength it enjoys across the coffee segment. The repositioning consolidates the entirety of RFG's domestic coffee operations under a single banner, whilst aligning it with the Group's broader international coffee strategy.
Franchise Division:
Franchise Division contribution to FY17 underlying Group EBITDA rose $1.4m, or 1.5%, on PCP , supported by strong performance amongst the Group's Coffee Retail operations, which grew underlying EBITDA by 9.0%.
Within Bakery Café, a strong performance from Donut King offset reduced performance amongst Michel's Patisserie, which was impacted by transition to instore customisation. As well, QSR Division performance was impacted by the regional alignment of Pizza Capers and promotion of Crust as the Group's representative national pizza brand.
Weighted Same Store Sales (SSS) and Average Transaction Values (ATV) grew 0.9% and 1.8% respectively, a credible result in a highly competitive retail market.
210 organic outlet commissionings were achieved during FY17.
Mergers & Acquisitions:
Following the FY17 acquisition of HPC and AFS, medium term M&A focus is aligned to the Commercial Division's Eastern Seaboard growth strategy to extend capability in alignment with the Group's franchise and wholesale networks.
Outlook & Guidance:
Focused on a Global 2020 strategy to leverage the Company's increasingly diversified business model and growing global platform, RFG remains optimistic in respect to future performance. This platform will be further enhanced via the commissioning of a whole of business program focused on transformational development of internal capability.
Looking forward, organic growth is anticipated across all divisions in FY18, largely driven by International, C&AB and Commercial performance, contributing to forecast FY18 underlying NPAT growth of c.6%(4).
Review of Accounting Treatment of Certain Items & Restatement of Financial Information for Prior Years' Accounts:
The Group conducted a detailed review of its accounting policies, and having regard to new guidance being released during the year on application of certain accounting standards.
Accounting policies reviewed were with respect to intangible assets, contingent consideration payments for acquisitions, and accounting for Brand System marketing funds, and as a consequence, the Group's accounts for each of the financial years ended prior to and 30 June 2015 (FY15) and the financial year ended 30 June 2016 (FY16) will be restated.
This review of the accounting treatment in those prior years has had no impact on the underlying performance of RFG for the financial year ended 30 June 2017 (FY17).
The accounting adjustments are more particularly detailed in the "RFG - FY17 Results Announcement Addendum" accompanying this release.
Refer FY17 Results Presentation for reconciliation to reportedperformance.
As more particularly described herein, and in the Company's FY17 financial statements, including the Directors' Report forming part thereof.
DRP Elections will close on the next business day following the Record Date (13 September 2017), and the DRP Price will reflect a 2.5% discount to the VWAP of RFG ordinary shares for the 5 trading days preceding and inclusive of the Record Date, and the 5 trading days following the Record Date. The Company may undertake a DRP Shortfall Placement to support capital management initiatives.
Excluding acquisition, integration & restructuring costs.
ENDS
For further information, interviews or images contact:
Annie Lyon, Corporate Communications Manager, Retail Food Group Limited, 0431 306 727 or annie.lyon@rfg.com.au
About Retail Food Group Limited:RFG is a global food and beverage company headquartered in Australia. The Company is owner of the Donut King, Brumby's Bakery, Michel's Patisserie, bb's Café, Esquires, Gloria Jean's Coffees, It's A Grind, The Coffee Guy, Café2U, Pizza Capers and Crust Gourmet Pizza Bar Brand Systems, and is a significant wholesale coffee roaster supplying existing Brand Systems and third party accounts under the Di Bella Coffee Company and Evolution Roasters brands. As well, RFG is an emerging leader in foodservice, dairy processing and wholesale bakery pursuits, operating the Hudson Pacific Foodservice, Associated Foodservice, Dairy Country and Bakery Fresh businesses. For more information about RFG visit: www.rfg.com.au
RFG - FY17 results announcement addendumReview of accounting treatment of certain items and restatement of financial information for FY15 and FY16
Retail Food Group Limited (RFG, the Company or Group) advises that the Group conducted a detailed review of its accounting policies, and having regard to new guidance being released during the year on application of certain accounting standards.
Accounting policies reviewed were with respect to intangible assets, contingent consideration payments for acquisitions, and accounting for Brand System marketing funds, and as a consequence, the Group's accounts for the financial years ended prior to and including 30 June 2015 (FY15) and the financial year 30 June 2016 (FY16) will be restated.
This review of the accounting treatment in those prior years has had no impact on the underlying performance of RFG for the financial year ended 30 June 2017 (FY17).
Accounting policy considerations, adjustments & corrections for FY15 and FY16Following an agenda decision of the IFRS Interpretation Committee (IFRIC) made in November 2016 with respect to accounting for Intangible Assets, the Group has reviewed the tax effect accounting for its Brand System intangible assets (being indefinite life intangible assets). This has resulted in the recognition of deferred tax liabilities with respect to these intangibles, with the resultant uplift in goodwill recorded in the Group's statement of financial position as at 30 June 2015.
The review conducted of the Group's accounting policies for intangible assets with the afore mentioned IFRIC decision determined the Group's Brand Systems represent an individual CGU (cash generating unit) for the purposes of impairment testing. Impairment testing has been conducted on a retrospective basis. As a result, it has been determined that certain individual Brand Systems were impaired in the financial years prior to and ended 30 June 2015.
Certain contingent consideration payments for the Gloria Jean's Coffee acquisition that imply a service obligation by the vendor should have been recognised in the Group's profit or loss in FY15 and FY16 rather than recorded as goodwill.
Following the write-down of advances to marketing funds announced on 21 June 2017, the Group conducted a further detailed review of its accounting policies with respect to franchise system marketing expenditure, and accounting for internally generated intangible assets, including research and development expenditure. As a result of this review, the Group has determined that the accounting for Brand System marketing expenditure will be incurred and recovered on an annual basis, with the revenue and expenditure associated with Brand System marketing activities presented net within the Group consolidated statement of profit or loss and other comprehensive income.
The write-down of advances to marketing funds not recovered prior to and including FY15 and FY16 have been recognised in FY15 and FY16 respectively. The FY16 consolidated statement of profit or loss and other comprehensive income has been restated to present the revenue and expenditure associated with Brand System marketing activities on a net basis, and the write- downs attributable to the FY16 year.
It is important to note that the technical accounting changes for intangible assets do not impact on the cash flows of the business, or the manner in which the Group defines and operates its Brand Systems at the CGU and segment level. Indeed, the valuation of the Group's intangible assets, when viewed at the segment and Group level, comfortably exceeds the carrying value of those assets.
Restatement of financial information for FY15 and FY16The following tables summarise the financial effect of these changes on the Group's accounts for FY15 and FY16.