By not paying the invoices and not entering into a repayment plan with the franchisor, the franchisees are in default to the franchisor (refer Notes to the accounts 9.1 and 25.9).
Note 9.1 shows that the company expects to not recover 24% of current invoices and worse for overdue accounts (100 - 24 = 76). Note 6 shows a provision for impairment of receivables of $15m made along with the write off of $7 m (Note 5) in the financial year. Directors' report states there has been no material change to the number of closures in the financial year (whatever that means). Why are there bad debts still not being recovered?
I am aware that RFG makes money from the sale of franchise agreements. Note 2 shows revenue of $72 m from this source as other revenue. I also note there has been an accounting change, with AASB 15 commencing at the beginning of the financial year. Note 35.1 (h) Accounting for Financial Agreements shows the revenue was $9.1 m but I haven't wrapped my brain around this yet.
If the stores are as profitable as claimed, and there is such negative sentiment around them (see Note 9.1), then if the company runs the stores until sentiment improves, operational improvements should be achieved, certainly in the area of collectability of debtors. Depends on the level of profitability.
My sentiment remains to sell but I haven't had the guts to crystalise my losses (over $200k) yet.
RFG Price at posting:
16.5¢ Sentiment: Sell Disclosure: Held
