Management, page-4

I agree. I was looking to buy in yesterday but wasn't quick enough and it bounced before I got in. I am still watching so I say this as someone who doesn't currently have skin in the game - but yes if I was a shareholder one of the things I would want to see is the resignation of Nell and the immediate resignation of Archer. He says he won't stand again but he needs to go now.

Hinson is new and although he is not being given a chance by Fairfax or by some franchisees, he's actually a very capable guy and should be received with an open mind and given a fair chance. Gilbert is very good in international he joined RFG in 2015 and has done a good job. But Nell was previously head of the domestic franchise area since 2007 and he came up under and spent too much time working with the Alfords. He needs to go so there can be a demonstrable line drawn between that culture and a fresh start. Hinson is quality with the right support he will do a good job. Nell and Archer are too tainted by too many years serving the Allfords and all that entailed. If I was an activist shareholder that would be the change I would be gunning for.

I actually think this result as terrible as it was shows that RFG can be salvaged but Nell and Archer must go right now.

Some people are saying that the impact of the bad publicity hasn't been felt yet but I would say the opposite. You got the bad publicity because things were so bad. The domestic franchise network stopped growing sometime ago and because RFG was not facing up to reality they were keeping a bunch of loss making stores running and they were failing to sell them already which you can see from the number of 'corporate' stores and RFG was on the hook for costs. The story of the franchise that couldn't be sold for $1 was in the very first article published on Dec 9th - it didn't happen because of the bad publicity the bad publicity happened because franchisees were making a loss and could not sell their stores already. Now they've ripped off the band-aid they will at least close the sources of those ongoing losses. The Deloitte report has created P&L statements for every franchisee they identified 160 non-sustainable that must be closed and a further 40 seen as marginal are to be closed as future proofing. This implies that the remainder of the network is seen as making sufficient revenue to be sustainable but if retail conditions remain poor then you could see more of course. I would have liked more transparency and more facts and figures around what Deloitte have done and are doing released. Anyway, it would seem future growth will have to be international so Gilbert is important. The domestic franchise network can only be so large before you are putting stores into locations that simply won't viably support them and RFG had already reached that point a year or more ago.

The bad publicity will make it difficult for existing franchisees selling their stores and that will be a challenge for sometime but RFG had already run out of road in terms of expanding the domestic franchise network for most of its brands and had already opened too many stores in poor locations where the level of competition and the local population numbers made sustainability improbable. RFG was already bleeding money from the domestic franchise network and it is going to actually be better off for closing stores that it was either losing money on or likely to lose money on soon.

The domestic franchise network is now less than 40% of the business. Going forward the revenue not yet recognized from new master franchise agreements in the UK and India and international franchisees will be what determines whether RFG grows or not. The Australian franchise network will continue to become a smaller and smaller percentage of the total business as each successive year passes. Whatever future RFG might have lies to a large extent outside of Australia I'd guess.

The other possibility of course is that RFG could become a takeover target. After all the brand damage really relates to RFG's running of those brands. If someone else bought them and these were no longer RFG run brands you could roll back some of the impairment immediately - this makes RFG's brands potentially inexpensive, be interesting to see if JAB Holdings or someone buys them. At $1.10 it could be commercially viable to acquire them but nothing like that is happening at this stage as volumes - even yesterday - have been relatively low. Most holders are still holding it seems. The shorting activity will account for a percentage of the volume we're seeing perhaps 10% or so as there are over 20m of the 183 million shares in RFG held short and vol yesterday was a bit over 9 mill.

Anyway tl;dr - just a few random thoughts. Will keep watching this.