Retail Food Group posts record profit, swallows former Smart50 entrant Crust Pizza for $24 million

Just months after Retail Food Group added franchise Pizza Capers to its menu, the company has snapped up popular chain Crust Gourmet Pizza Bars in a move worth $24 million.


It comes as the company recorded a full-year profit of $30 million – up 8.9% from last year and the biggest result in the company’s history.


Retail Food Group has managed to turn seven years of annual profit growth, even during the global financial crisis, as households opted to spend more discretionary income on cheaper food items instead of more expensive hospitality and entertainment options.


Chief executive Tony Alford announced the acquisition of Crust this morning.


The chain was founded in 2001 by entrepreneurs Michael Logos and Costa Anastasiadis, and eventually turned into a franchise – but it wasn’t an easy move, as the pair had to put their existing stores on the line as collateral.


But since then, business has boomed, with 116 outlets in Australia, New Zealand, Singapore, and a recent expansion into the US.


RFG says it will pay $21 million in cash for the company along with $3 million in RFG shares, a total which it says is roughly seven times the Crust EBIT for 2013.


A year from settlement it will also pay an amount representing the difference between seven times the Crust EBIT less the $24 million in the initial tranche. The second payment will either be made in cash, or cash and scrip.


RFG says the acquisition will provide $7.5 million for 2013 EBIT.


Crust turned over at least $36 million in 2009 and has enjoyed significant revenue growth since then.


Alford said the transaction will “not only…consolidate another impressive retail food system…it delivers on a number of strategic initiatives”.


It comes just after RFG bought another Smart50 entrant, Pizza Capers. However, it says that purchase mostly covered the Queensland market, while Crust will cover New South Wales and Victoria.


Both chains are more expensive than a typical pizza parlour, but they market themselves on using fresh, gourmet ingredients. Crust in particular has gained a healthy social media following for its competitions and buyer incentives.


Logos and Anastasiadis will stay with the business post acquisition.


“The transaction is the culmination of a six month engagement during which we have had the opportunity to familiarise ourselves with RFG management, culture and strategic objectives,” the pair said in a statement.


They said the acquisition was an opportunity to partner “a growing public company with proven expertise in the retail food franchising industry” and also provided “franchisees and other stakeholders early access to the benefits of a larger organisation.”


All up, this gives RFG 1,350 outlets across its divisions including Donut King, Brumby’s Bakery, Michel’s Patisserie, Esquires Coffee Houses and Pizza Capers.


Adjusted revenue increased 20.3% to $100.6 million, while EBIT reached $47.5 million for this year. Net profit after tax reached $28.5 million.


RFG chairman Bruce Hancox says the group has managed to provide a solid result due to its position in the market as a low-cost offering – and says the new acquisitions will help extend that to “high ATV (average transaction value) lunch and evening meal time opportunities”.


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