- Statutory loss of $307 million (down from a $62 million profit in FY 17)
- Non-cash impairments and write downs of $403 million which it said were a reflection of its expected future earnings and the “risk profile inherent in current challenges”
- 123 domestic stores closed in 2H18
- Net debt of $259 million (compared to the company’s market cap of $103 million)
RFG shares were down 10% following the announcement.
What did management have to say?
Management said the result was “disappointing” and had been impacted by “a combination of factors including difficult retail trading conditions, the cumulative impact of domestic store closures; effectiveness of tactical initiatives; a decline in new store growth, resale and renewal activity; and investment in business turnaround initiatives”.
Those are a lot of factors and they reflect a business that is experiencing significant headwinds from every direction. Management also said that trading results would, “likely remain subdued” going forward.
RFG’s net debt position is still a cause for major concern and an area management are actively trying to find solutions to.
The company reached an agreement with its senior debt lenders to reset the debt covenants effective 31 August 2018 with the operating leverage ratio being increased from 3x to 5x up to December 2018 followed by reductions to 4.5x in March 2019 and 4x from 1 April 2019 onwards.
Existing senior debt facilities were reduced by $24 million to $285 million.
The company is also considering a sale of assets and a potential market recapitalisation to help pay off its debt. The former would reduce the company’s ability to earn income going forward and the latter would dilute existing shareholders but there isn’t much of a choice.
I think the challenges at RFG will continue and the shares could drop further as investors get diluted in a potential recapitalisation. Investors might want to stay away and focus on other food shares such as Collins Foods Ltd (ASX: CKF), Domino’s Pizza Enterprises Ltd (ASX: DMP) and Freedom Foods Group Ltd (ASX: FNP).
Where to invest $1,000 right now
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.
*Returns as of June 30th
You can find Kevin on Twitter @KevinGandiya.
The Motley Fool Australia has recommended Collins Foods Limited, Domino's Pizza Enterprises Limited, and Freedom Foods Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
- Warren Buffett is buying banks – should you too? – November 16, 2018 10:34am
- Telstra CFO to replace Elon Musk as Chair on Tesla Board – November 9, 2018 11:08am
- 5 ASX shares that I think are your best bet on Melbourne Cup Day – November 6, 2018 7:00am