23-Nov-2019: RFG held their GM on Tuesday this past week to have the shareholder vote on their debt restructuring package, and the resolution was passed with 93.77% for and 6.23% against. Not surprising considering that in his Chairman's Address at the meeting RFG's Executive Chairman, Peter George, said that likely alternatives included RFG’s Lenders appointing receivers or selling the debt to a third party, who may impose more onerous debt terms on the Company, or, alternatively, the Directors may resolve to appoint administrators to the Company should they form the view that the Company is no longer able to pay its debts as and when they fall due.
Not an easy thing to vote for in one way, with the SP of RFG down to 13c on Tuesday (they closed even lower yesterday at 11.5 cents per share) and the placement and SPP priced at 10 cps, and shareholders being diluted by this placement by more than 50% - the tiny value of their remaining shares being more than halved once more. However, when the likely alternative is that the company gets receivers or administrators appointed by either the lenders or the company's own board, any deal that sees the company's shares remain on the boards is clearly a better option.
It was made abundantly clear that if the package was voted down, it was a "lights out" scenario. The debt refinancing package was subsequently voted up, of course.
George thanked RFG’s Lenders, NAB and Westpac, for their "ongoing support and patience, and ultimately, for providing RFG a fresh opportunity to establish a new platform for stabilisation and business improvement."
As I've previously mentioned, banks always do what's in their own best interests, and this was the best option they could find to salvage some value out of this mess.
George finished his Chairman's address at Tuesday's meeting with this: "Lastly, I would like to take this opportunity to once again thank each of you, our existing shareholders, for your ongoing support of the Company throughout the recapitalisation and restructuring process, and the challenging times which RFG has dealt with.
The recapitalisation is transformational for the RFG business and should enable the Company to continue to harness the underlying value of the Company’s franchise network and enhance franchisee profitability. I look forward to continuing the creation of a brighter future for RFG, and embarking on this next chapter in the Company’s journey with you."
Perhaps? Or more spin? The vast majority of this raising (placement + SPP) is going to debt reduction, with very little being retained for working capital, so while it gives them some breathing space, it doesn't give them the capital required to inject significant money back into their ailing business. They still have a toxic relationship with a significant number of their franchisees, they have a poor industry reputation, they are struggling to attract new franchisees, they are trying to renogotiate existing rental agreements with shopping centres to reduce their costs, & they expect to increase foot traffic via marketing initiatives (which cost money).
Peter George said on Tuesday, "... your Directors consider that the Company will be afforded a stable and sustainable go forward capital structure and net debt position that will provide RFG with a material liquidity buffer whilst management continues to implement various cost reduction and performance improvement initiatives. Driving franchise business performance through strategic initiatives is a key element of this. RFG is targeting an additional $30 million gross margin generation at the franchisee level from current initiatives, which contemplates savings derived from rent renegotiation and cost of goods reductions, operational improvements and improved foot traffic and sales derived from product category extensions and marketing programmes. My vision for the Company is that RFG becomes a respected leader in both the domestic and international retail food and coffee arenas. I believe that with the right support, the right team, culture, and strategy – this can be achieved."
Possibly. With the right support (1, including sufficient capital), the right team (2), the right culture (3) and the right strategy (4), they may be able to achieve that. However, do you think they really have all of that sorted now? It does conveniently give him 4 possible things to blame when things don't work out.
And he is sticking around for a couple of years at least. They've just renewed his contract to 30 June 2022, including fixed remuneration of $600,000 per annum (inclusive of superannuation), accommodation provided proximate to the Company’s National Headquarters in Queensland and 15,000,000 (15 million) performance rights as part of his LTI plan, as voted up at this year's AGM.
It does sound risky taking shares in a company that could still go to zero, but he's hedging his bets - he is also receiving a one-off cash bonus of $300,000.
Disclosure: Not held.