This article is from the Australian Property Journal archive
RETAIL Food Group is facing a potential class action launched by disgruntled investors, which has lost over $550 million in market value.
This comes as RFG revealed last Friday that it would be closing up to 200 stores after posting a 31.8% fall in net profit to $24.87 million for the first half year.
The revelation saw RFG’s share price plunge from $2.04 to close yesterday at $1.295, wiping more than $136 million from the company’s market capitalisation. RFG owns the Donut King, Brumby’s Bakery, Michel’s Patisserie, bb’s Cafe, Esquires, Gloria Jean’s Coffees, It’s A Grind, The Coffee Guy, Cafe2U, Pizza Capers & Crust Gourmet franchise systems as well as a wholesale coffee roaster.
Law firm Maurice Blackburn has launched a registration process for shareholders who want to participate in a class action.
“After watching the market capitalisation of Retail Food Group (RFG) lose well over $550 million since reports of widespread problems within the franchise leviathan were exposed late last year, investors will now be able to hold the company to account for failing to disclose its unsustainable franchise model,” class action principal Ben Slade said.
“After dropping from well over $4 to a low of $1.62 in December 2017, RFG suffered another large drop of more than 35% when it came out of a trading halt on 5 March 2018, indicating shareholders are sick of the company surprising them with bad news.
“RFG appears to have misled the market and has repeatedly failed to explain that its franchise model was unlikely to be profitable in the long term.
“If you’re running an unfair and unsustainable franchise business model that forces, in at least one reported instance, a franchisee to desperately try to sell her business for only $1, the market will eventually find you out,” Slade said.
“It’s completely unacceptable to exploit franchisees while relying on shareholder equity to pump up a poor business model. The lack of transparency of the true business fundamentals of the operation is a breach of the disclosure requirements in the Corporations Act.
“That is why shareholders are furious and have been dumping the stock, and that is why we are proposing to represent their interests in a bid to recoup some of those unfair losses,” he added.
Slade said Maurice Blackburn’s own investigations have so far revealed problems with RFG’s franchise model going back as far as 2015.
“Publicly available information suggests that RFG adopted an exploitative business model as early as June 2015 yet it failed inform the market of its true state of affairs,” Slade said.
Australian Property Journal