Ann: FY23 Results Presentation, page-28

For many companies in this space its a simple business model as you say, but for RFG the business model is different. As I've said in the past their focus doesn't look like building a solid network of franchisees who all do well long term. They don't focus on the quality of their network and they don't invest properly in any of their brands. They are almost the exact opposite.

Instead RFG has focused on short term gains from selling the franchises. Many struggle to make a living out of it and fail to provide the long term royalties which should be expected but with their life savings tied up in it they often have to just keep peddling to stay afloat.

Another reason RFG do poorly is because they fail to invest properly into their existing brands. Some are dated and their branding quite tacky. Instead of building their brands RFGs attitude to brands is just like it is to its network, just buy something new which seems on trend and hope for the best. Buying businesses then throwing them in the basket and neglecting them like all the existing ones only results in one thing.

Its a vicious circle. Raise capital to buy more brands in order to keep revenue coming in. Now the entire company is worth less than just one of their brand purchases. They haven't built a business, they have brought a bunch of existing businesses then neglected most of them.

Case in point: RFG purchased Gloria Jeans for $163m nine years ago. At the time GJ had EBIT of $11.8m. They also purchased The Coffee Guy for $4.36m and Cafe2U but I don't see a number of that. Under RFG management for 9+ years the combined EDITDA from all three entities has grown all the way down to $5.7m.

Then there is the Crust Pizza acquisition almost exactly 11 years ago for $24m plus which was supposed to add $7.5m to the bottom line in the next year alone. A year earlier they purchased Pizza Capers for $30m with a supposed EDIT contribution of $4.3m. 11/12 years later the combined EBITDA contribution of Crust Pizza, Pizza Capers and their latest foray, Rack'em Bones is only $5.8m in total, down from almost $12m.

As you can see rather than acquiring and growing businesses, they acquire and slowly strangle them.

RFG already had Michel's, Brumbys and Donut King then it spent around $270m on buying more brands only to have a combined market value of $134m a decade on.

The Coffee Guy - $4.36m
Cafe2U - $?
Gloria Jeans - $163m+
Di Bella Coffee - $30-47m

Pizza Capers - $30m
Crust Pizza - $24m

The market wants to see that RFG management has changed it spots and starts building a strong and profitable franchisee network. Nothing here looks even remotely like that. Looks like more of the same.

In short RFG have been very good at spending money but not at making it. If thats what investors want I'm happy to offer them my wife who has similar skills.