Ann: Response Regarding Product Date Extensions, page-19

The profitability of the franchisee has nothing to with the profitability of RFG.

The way to make a franchisee more profitable is to reduce the royalty fee to RFG and reduce the rebates payable to suppliers. This is a direct hit to RFG bottom line.

RFG take 10% royalties on sales and kick backs or rebates from suppliers. Normally 10%. COGS are normally about 30%.

RFG have a largely fixed cost base with head office admin support, accounts, field support, marketing etc. They are extremely leveraged to the number of outlets. They have said they are trying to reduce costs by $20m but won't start to see this until the Sept qtr.

Let's assume they don't close anymore stores and the worst is behind them and the business flat lines doing similar numbers as at 31 Dec 18. Making a NPAT of $12m pa cannot support $260m of debt.

Let's assume they close another 300 stores. And say they generate 13% revenue from franchisee sales (10% and 3% for rebates). Let's assume they average $500k in sales each. 300 x $500k is $150m. x 13% is a further reduction of $19.5m in revenue.

Under your scenario and assuming they run a largely fixed cost structure the company goes broke.

The share price has no chance of getting to $1 to do a cr with the business stabilising at these levels, let alone more outlet closures.