Shareholders to join class action against Retail Food Group Limited

Shareholders to join class action against Retail Food Group Limited

MELBOURNE, 10 May 2018: Class action law firm Phi Finney McDonald and Australia's leading dispute financier IMF Bentham Limited (ASX:IMF), announced today a class action against Retail Food Group Limited (RFG) for misleading or deceptive conduct and breaching continuous disclosure obligations.

RFG operates franchise networks in Australia and 58 individual markets through household brands including Donut King, Brumby's Bakeries, Michel's Patisserie, Gloria Jean's Coffee, Crust Gourmet Pizza, Pizza Capers Gourmet Kitchen, The Coffee Guy and Café2U.

Fairfax Media articles and RFG announcements between December 2017 and February 2018 revealed RFG's franchise model was under stress, there was serious deterioration in the financial performance of domestic franchise networks, and the allocation of rewards between franchisees and the franchisor required 'rebalancing'.

The class action alleges:

• RFG failed to disclose to the market that its franchise model had material financial risks and its franchise networks were deteriorating.¹ The company misled investors regarding its financial position and performance.
• RFG failed to disclose the situation was concerning enough for it to appoint Deloitte Touche Tohmatsu to review the sustainability of its franchise model.²
• RFG's August 2017 profit guidance for the 2018 financial year lacked reasonable grounds.
• The class action is open to investors who suffered loss after acquiring shares in RFG between 18 April 2017 and 28 February 2018 (inclusive).

"Shareholders should be angry. RFG's Board knew about critical defects in the franchise model and the financial crisis afflicting its franchise networks. However, RFG investors only discovered these issues from media coverage in December 2017," said Phi Finney McDonald Director, Tim Finney.

"RFG continued to deny any structural dysfunction within its franchise and didn't properly reveal the difficulties until March 2018," Mr Finney said.

"By concealing these serious problems from the market, RFG shares traded at an artificially inflated price," Mr Finney said. "This class action seeks compensation for investors who suffered substantial loss and damage as a consequence of RFG's misconduct."

IMF Investment Manager Matt Kennedy added: "IMF Bentham's seasoned litigation experts have carefully examined RFG's conduct and consider that investors have strong grounds to recover their losses."

RFG Timeline

1. From 7 to 18 December 2017, Fairfax reports and RFG announcements disclosed to the market: there was significant financial stress within its franchise networks, and the severe financial stress lead the Board to commission Deloitte Touche Tohmatsu in June 2017 to conduct a Business-Wide Review of the sustainability of the company's franchise model and franchise network operations.
2. During the trading period 11 to 18 December 2017, RFG's share price fell $1.75 (approximately 40%).
   
3. On 19 December 2017, RFG disclosed to the market that its 2018 half-year results would be materially lower than the prior corresponding period. In response, RFG's share price fell a further $0.67 (approximately 25%).
   
4. On 2 March 2018, in its 2018 half-year results, RFG disclosed a significant deterioration in the performance of its domestic franchise division, substantial asset impairments, and a proposal to close 160-200 outlets by 2019 to address further financial deterioration for the Company.
   
5. When RFG was reinstated to quotation on 5 March 2018 the market reaction was immediate and visceral. By the close of trade, RFG's share price had fallen a further $0.75 (approximately 36.5%).

What can Shareholders do?

Phi Finney McDonald and IMF Bentham encourage all investors who acquired shares in RFG between 18 April 2017 and 28 February 2018 (inclusive) to register their interest with IMF Bentham https://www.imf.com.au/rfg.

About IMF Bentham

IMF is one of the leading global litigation funders, headquartered in Australia and with offices in the US, Singapore, Canada, Hong Kong and the UK. IMF has built its reputation as a trusted provider of innovative litigation funding solutions and has established an increasingly diverse portfolio of litigation funding assets.

IMF has a highly experienced litigation funding team overseeing its investments. We have a 90% success rate over 166 completed investments and have recovered over A$1.3 billion for clients since 2001.

For further information regarding IMF and its activities, please visit www.imf.com.au.

1. *from at least April 2017
2. from June 2017