Australia’s largest multi-brand retail food franchisor and leading wholesale coffee roaster, Retail Food Group Limited (RFG) has announced a record profit for the first half of the 2015 year.

RFG reported underlying Net Profit After Tax (NPAT) of $25.3 million, an increase of 46.4 per cent over the previous corresponding period, and a 31.8 per cent increase in underlying EPS.

RFG owns 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 Gourmet Kitchen and Crust Gourmet Pizza Bar franchise systems. In addition, the Company is a significant wholesale coffee roaster supplying existing Brand Systems and third party accounts under the Evolution Coffee Roasters Group, Caffe Coffee, Roasted Addiqtion, Maranatha Import Export, Café Palazzo and Barista’s Choice coffee brands.

Results show evolution strategy success, RFG

The Company said its business has been ‘transformed’ by strategic acquisitions during the half.

RFG Chairman Colin Archer said that the Group’s half yearly results “represented the successful execution of the Company’s evolution strategy”, which he said was designed to enhance the scale and nature of RFG’s activities, and afforded the Company “a multitude of new opportunities”.

“The acquisition of Cafe2U and Gloria Jean’s Coffee Group, supported by sustained organic growth amongst the Company’s existing Brand Systems, has driven network population to 2,476 outlets across 45 international territories,” Mr Archer said.

“In terms of network scale and penetration, the Company’s first half activities represent a revolution for shareholders and franchisees, providing immediate access to international markets and increased supply chain capability,” Mr Archer said.

Mr Archer said that RFG’s acquisition of Di Bella Coffee, which settled late last week, complemented the Cafe2U and Gloria Jean’s Coffee Group acquisitions, while “advancing RFG’s strategy to penetrate the whole spectrum of coffee markets” including within the franchise system, ‘in home’, contract roasting, and specialty coffee markets.

Coffee

RFG said the recent acquisition of Cafe2U, the Gloria Jean’s Coffee Group and Di Bella Coffee had:

• More than tripled the Company’s contract roasting business
• Increased annualised coffee throughput by approximately 269 per cent to 5.9 million kilograms (previously 1.6 million kilograms)
• Diversified coffee sales such at 44 per cent is now outside the Group’s Brand Systems (previously 18 per cent)
• Facilitated entry into the burgeoning ‘in home’ capsule market
• Provided immediate scale within the specialty coffee market

“Coffee and allied products remain a significant opportunity to be exploited, particularly in terms of enhanced international penetration and the establishment of a more robust service platform to better leverage the scale afforded by the Company’s growing third party wholesale customer base,” Mr Alford said.

New store growth

RFG established 75 outlets across its portfolio (28 net of closure), and each of the Company’s businesses reported positive Same Store Sales and Average Transaction Value growth during the first half of the 2015 financial year.

The Company said Same Store Sales and Average Transaction Value growth were particularly pleasing among its traditional businesses, where strong promotional activity, performance driven operational initiatives and continued traction from RFG’s Project EVO contributed to an average 12.6 per cent increased in the businesses EBITDA.

“A 23.3 per cent increase in Donut King Brand System EBITDA was an exemplary result, given it is the oldest of the Brand Systems under RFG stewardship,” said Tony Alford, RFG CEO. “Further, a 4.6 per cent Average Weekly Sales increase amongst the Michel’s Patisserie Queensland network represented the first return to positive AWS for that territory since the first half of 2012, testament that the National Bakery Solution and Project Evolution initiatives have placed the Brand System on a positive growth trajectory,” he said.

RFG said that under Project EVO, 194 outlets had not been established or refurbished, ensuring the Company’s traditional Brand Systems remain “both consumer relevant and capable of demonstrating immediate and enduring growth”.

Momentum generated by the Company’s QSR400 initiative also remained strong, with 354 outlets now established, supported by 22 new commissionings during the period.

Outlook for the second half

RFG said that during the first half, the Company generated significant momentum and demonstrated the adaptable nature of its business model. As a result, the Company said it was strongly positioned to exploit the opportunities and initiatives now available to it, despite continued retail headwinds including sustained poor domestic consumer sentiment levels.

RFG said it remained motivated to pursue additional businesses which meet its core investment criteria of being immediately EPS accretive, capable of generating supply-side scale and/or vertical integration opportunity, and/or which enhance the number of Brand Systems and outlets under the Company’s stewardship.

RFG said it maintained a “buoyant outlook” in terms of the full 2015 financial year and beyond.

Having regard to the recent addition of Di Bella Coffee to the Company’s portfolio, together with the first half acquisition and integration, RFG has increased its full 2015 financial year underlying NPAT guidance to $55 million (from $50 million). This represents a 4.9 per cent increase on the 2014 financial year performance.