The Retail Food Group Limited (ASX: RFG) share price rockets on CEO appointment

Multi-brand food franchisor Retail Food Group Limited (ASX: RFG) shocked the market on Tuesday, announcing the promotion of Richard Hinson to group chief executive officer, effective immediately. Former CEO Andre Nell leaves the group after two years at the helm and 12 years as an RFG executive.

The news boosted investors’ confidence, pushing the RFG share price 10% up to $0.85.

Mr Hinson was appointed as chief executive for the group’s Australian division in January 2018 to lead the implementation of a much-needed strategic business review.

At the beginning of 2017, RFG traded at $7 a share, but the stock price has collapsed 90% lower since then. The decline started amid concerns that the company would have struggled to achieve organic growth as trading conditions in the retail market deteriorated, and was accelerated by negative media coverage on the way the group treated its franchisees. Results released in March delivered the fatal blow. The company posted an $88 million loss accompanied by brand write-offs and store closures, and a dire financial situation prompting the cancellation of dividend payments and the renegotiation of financial covenants.

In his previous role with the group, Mr Hinson was responsible for strengthening the domestic franchising network. Franchisees benefited from the reductions in cost of goods, renewal and new store fees. Other initiatives included new product range and quality, supply chain improvements, a customer loyalty program, and other promotional activities.

In his new position, Hinson will receive a $600,000 per annum remuneration, plus up to $400,000 per annum in short-term and long-term incentives subject to the satisfaction of performance criteria.

His 30 years’ experience in the retail food sector, with executive roles at Wrigley Pacific and Metcash Limited (ASX: MTS), will serve him in the difficult task of turning around the business. According to Hinson, this will take between 12 and 18 months. “Trading conditions in food retailing continue to be tough,” he said. “The actions we are taking in collaboration with franchisees are starting to see a positive response.”

Foolish takeaway

The price of the stock might partially recover in the next few weeks following today’s announcement. The similarly troubled retailer Myer Holdings Ltd (ASX: MYR) has gained 20% since John King was appointed as CEO on April 23.

However, it will take a while before the company can deliver some meaningful improvement in its performance, and with the new banking covenants on RFG’s debt facilities, I wouldn’t expect dividend payments anytime soon.

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