Boom times for Retail Food Group

Posted by Nicole Eckersley on 17th August 2010

Australian franchise giant Retail Food Group, owner of Donut King, Brumby’s Bakery, Michel’s Patisserie, bb’s cafe and Big Dad’s Pies franchise systems, has today reported a record 10.6% increase in full year net profit after tax, to $26 million.  Collectively, RFG has 1,122 stores across Australia and New Zealand.

RFG’s board announced a 37% increase in fully franked final dividend to 6.5 cents per share, given the Company’s strong performance and robust cash position.

“The Company’s outstanding results have been delivered notwithstanding difficult trading conditions and are testament to the resilience of RFG’s franchise business model, innovative product offering, strong management and compliment of resourceful franchisees,” said RFG Chairman John Cowley.

“The underlying strength of the Company is best demonstrated by RFG’s five year NPAT and EPS cumulative average growth rates (CAGR) of 50.2% and 38.9% respectively,” Cowley said.

RFG CEO Tony Alford was also positive about the results.

“Franchisee reported network sales, up $8.6m despite a challenging retail environment and the programmed rationalisation of poor performing outlets, were supported by a 1.6% increase in weighted average weekly sales together with a 3.2% increase in weighted average transaction values,” he said.

“The Company has significantly reduced its costs of doing business without impacting upon franchisee service delivery, personnel complement or ability to convert value accretive opportunities
into tangible and positive outcomes for all stakeholders.

Alford said that the company’s enhancements of its proprietary coffee business were of particular note.

“This revenue opportunity is thus far relatively untapped, with the Company having, throughout FY10, completed the commissioning of enhanced coffee blends to all its franchise systems and is now in the final stages of implementing a roll-out of proprietary packaged coffee products for sale in non-traditional markets including wholesale channels,” he said

Alford said the programmed transition of Michel’s Patisserie franchisees to the royalty model remains on schedule, with the number of participating outlets now exceeding 200.

“Collectively, the enhanced coffee blends and transition of Michel’s Patisserie franchisees to the royalty model has not only positively impacted franchisee outcomes but resulted in a 3.1% increase
in Company gross margin to 63.9%,” Alford said.

“Organic outlet growth, whilst supplemented by acquisitive activity, continues to be impacted by a contraction in the new franchisee candidate market, high national employment levels, curtailed bank lending practices and depressed shopping centre development that has lead to reduced site opportunities.”

“Pleasingly, RFG has continued the generation of significant net free cash flows which were applied to increase the dividend payout ratio, invest $11.5 million in franchise system
acquisitions and attend further voluntary reduction of debt. As at 30 June 2010 net debt stood at $72.9m, a reduction of 19.5%, or $17.7m, over the previous corresponding period.”

“We believe RFG is distinguishable from many of its industry peers by its ability, year on year, to deliver robust and enduring outcomes notwithstanding extremely challenging retail conditions and diverse market influences,” Alford said. “Management has single-mindedly focused on those metrics under its influence and control, fortifying a foundation for ongoing success and long term stakeholder satisfaction.”