Southport / AU. (rfg) Leading Australian retail food brand manager and franchisor Retail Food Group Limited (RFG) said in a statement that it had reached an agreement with Allied Mills Pty Ltd pursuant to which the company shall dispose of its Central Manufacturing Facility (CMF). The CMF, being a facility dedicated to the manufacture and wholesale supply to franchisees of donut and bakery products, was established by RFG during FY 2007 at Yatala within the Gold Coast / Brisbane corridor.
RFG commissioned the CMF given the manufacturing processes relevant to the large scale production of its proprietary Donut King products were unique within Australia. The manufacturing business associated with the CMF therefore constituted a departure from RFG´s core business of developing and managing retail franchise systems. The Allied Mills transaction contemplates:
- the sale of RFG´s interest in the CMF operations, land, building, plant and equipment which will result in a profit on disposal; together with
- a long term supply agreement, having an initial ten year term and guaranteeing continuity of supply of product to Donut King franchisees, whilst generating initial and ongoing licence fee income for RFG which will be immediately EPS accretive.
RFG CEO Tony Alford: «The transactions represent a realisation of the CMF divestment strategy disclosed during the company´s recent AGM and provides a vertical integration opportunity for Allied Mills whilst allowing RFG to concentrate on its core competency of franchise intellectual property development, enhancement and management. The business disposition and supply agreement also eliminates RFG´s exposure to product procurement, staffing and other supply side risks normally associated with the operation of a manufacturing facility.
RFG and Allied Mills have enjoyed a successful association dating back to the late 1980´s with the later supplying the proprietary Donut King and bb´s cafe pre-mix products. These transactions provide significant opportunity to further enhance RFG´s long term strategic supply chain relationship with Allied Mills and its associated entities including collaboration in relation to the development of both donut and other pre-mix products for introduction to all four of RFG´s franchise systems. The transactions will further insulate franchisees from sudden and or dramatic input price variations, as a result of Allied Mills´ commodity risk management capability.
Other benefits accruing to franchisees from the transactions include continuity of product supply, lowest possible unit costs, ongoing product development and margin certainty arising from negotiated product price reviews being limited to once per annum. Whilst also maintaining the lifestyle enhancements which first gave rise to the establishment of the CMF».
Completion of the transaction is scheduled for January 2009 at which time RFG will apply the entire proceeds of the transactions, some 9,5 million AUD, toward the voluntary reduction of debt facilities. Alford: «Voluntary application of the transaction proceeds in this manner, together with debt reduction already sourced, and to be sourced, from the company´s free cash flow, increases available headroom under existing facilities to in excess of 30 million AUD».
Allied Mills is a 60:40 joint venture between ASX listed GrainCorp Limited, an Australian based bulk handling company, and Cargill Australia, a subsidiary of Cargill Incorporated. The joint venture was formed in 2002, and its heritage encompasses more than 100 years of ownership in flour milling and food ingredient assets, knowledge and experience. Allied Mills is the largest manufacturer of human consumption flour and flour related ingredients in the Australian milling industry.
Joe Di Leo, Managing Director of Allied Mills: «Our company has held a strong supply partnership with Retail Food Group for close to 20 years. It is exciting to see this partnership evolve into an acquisition of RFG´s Central Manufacturing Facility. This acquisition supports our overall growth strategy and we look forward to continuing to work closely with RFG».
