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Retail Food Group just posted a half year loss of $111.1 million

The Retail Food Group Limited (ASX: RFG) share price will be one to watch on Friday following the release of its half year results just before the market closed yesterday.

Here’s a summary of how the embattled food and beverage company performed in the first half compared to the same period last year:

  • Revenue (including discontinued operations) dropped 1.8% to $192 million.
  • Underlying EBITDA dropped 47.7% to $23.9 million.
  • Underlying net profit after tax fell 73.4% to $6.6 million.
  • Statutory net loss of $111.1 million.
  • Underlying earnings per share of 3.6 cents.
  • Net debt roughly flat at $258.9 million.

What drove the poor result?

Retail Food Group’s 73.4% drop in underlying profit was driven by a number of factors including ongoing difficult retail trading conditions, the cumulative impact of outlet closures, investment in restructuring activity, prevailing negative sentiment regards franchising, and declines in new store, resale and renewal activity.

The company’s massive statutory loss reflected non-cash impairments, write-downs, and provisioning totalling $123.7 million, as well as $12.7 million in one-off expenses for business turnaround and restructuring activities, property disposal, and lease exit costs.

Executive chairman, Peter George, appears cautiously optimistic on the future.

He said: “The 1H19 results show that the Group has gone some way towards clearing the decks and stabilising the performance of continuing operations, although a lot of work remains to be done to resurrect the financial health and performance of the business.”

Before adding: “We remain committed to equipping our franchisees with the best possible products and support to enhance their own profitability and expect these benefits to start materialising in the first quarter of FY20.”

Debt update.

The company finished the period with net debt of $258.9 million, which was roughly flat on the prior corresponding period.

During the first half Retail Food Group’s lenders agreed to waive the testing of financial covenants under its senior debt facility for the period ending December 31.

Another review is due shortly and the company appears hopeful that its bankers, National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC), will continue to be supportive.

Nevertheless, management is looking into a range of options to reduce its debt. This includes alternative fund opportunities and the potential sale of its Donut King business and QSR division brand systems. Negotiations for the sale of these units are ongoing and no formal binding agreement has been reached.

Should you invest?

At this stage I don’t believe Retail Food Group is investment grade, but it could be worth keeping an eye on its asset sales in the coming months. If these sales reduce its net debt to a more manageable level then it may be necessary to look over it again.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank 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.

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