Crust Pizza Rebranding, page-10

Thanks Jack,

Probably the biggest punt (high risk/high reward) move I have made.

In May'18 Invesco lodged two Substantial Shareholder Notices buying an extra 4million shares and taking holdings to 12.3% Even though this fund manager is playing with other people's money it does need to take into account reputation risk so why are they buying shares I asked myself. So I took the increased holding as a positive sign. Note: Invesco have subsequently bought even more RFG stock and now sit at 14.8%. I am assuming Invesco has its own exit strategy that will lift the SP though to what extent I don't know.

I have been involved in franchise chains for many years and everything Richard Hinson is doing is right out of the franchise resurrection playbook. If Hinson pulls this off I will personally deliver a bottle Grange to his door.

The key issue is the banks and the debt. There are still plenty of levers in the business to generate some debt relief. Perhaps sell some of the franchise systems, sell food service, sell the coffee business. Tendering the whole supply chain was a smart move and should generate savings for the franchisees.

The business is still producing operating cashflow. What it really needs is some time.

The government inquiry into franchising was horrible and many of the submissions were made after I doubled down my investment.

I have scanned every submission, all 217. Of these I can attribute 28 to RFG a shocking hit rate. Of these Michel's Patisserie is the biggest offender with 12, 6 for Brumby's, 4 Gloria Jeans, 3 Donut King and 3 for RFG in general. Nothing for Crust Gourmet Pizza, Nothing for the coffee franchises and Food Service is not relevant. Some of the stories were tragic but still the RFG business survives. Like a cockroach in a nuclear winter.

Next to consider were the two class actions. The first by the franchisees is not proceeding at this stage, with a specialist litigation funder reviewing and declining to proceed - not surprised as every franchisee circumstance is different. The second class action by shareholders has not completed its litigation funder review so watch this space.

I'm not sure it can get any worse. The one saving grace is that I think the banks would hate the publicity of putting RFG under. Think of the headlines big Four Bank default's RFG and crushes the little guys and employees. Can you imagine it.

What a mess. But I still think there is a chance even though the market is currently pricing in failure.

Because the franchisees have their whole financial future on the line, they will fight like tigers to survive. I have seen franchisees before pull off miracles when the whole system gets into trouble. It generally needs a new CEO who knows what he/she is doing and it needs a little bit of help from the banks.

Other than the gutless Alfords and the former Chairman none of the other directors have resigned from the board. Of course they are in a difficult situation but I appreciate that they are stilling duking it out.

So after all of that I am still in. Not trying to be a hero, god forbid and not even trying to prove that I am right. I just looked at the risks and thought the upside is huge if???????????
Whatever if is.

GLTAH