But even that has been queried in light of the $111 million net loss it incurred in the last half, as its network shed 93 stores and earnings fell 132 per cent in its food manufacturing and distribution arm.
Ross Mottershead, a forensic accountant and director of consultants Helm Advisory, said RFG’s decline in profits and increased balance sheet risk had to be reflected in its level of goodwill.
“If a business unit has no anticipated profit there is no goodwill,” Mr Mottershead said.
“It should be grossly devalued because of the company’s distressed state. The higher the risk, the lower the market cap.”
RFG has been in crisis since an investigation by The Age and SMH revealed in late 2017 that its sharp business model was driving many franchisees to the wall and that some of its brands were struggling.
The company’s market value has since fallen from $809 million to $43 million as its share price collapsed.
Graeme Lavelle, partner at chartered accountants Lavelle & Co and a former auditor at HLB Mann Judd and forensic director at PPB Advisory, said the fact intangible assets were the only thing keeping RFG’s assets in positive territory meant its goodwill needed to be looked at.
“The carrying value of goodwill and intangibles need to be further assessed and reduced if required,” Mr Lavelle said.
RFG’s executive chairman, Peter George, defended the company’s accounts, saying its brands had intrinsic value individually, even if the company as a whole was challenged.
“The underlying businesses to which that goodwill relates is still profitable,” he said. “RFG’s problem is too much debt.”
“If we were to write it down further we would drive the company into a negative net asset position, when even at current share prices the market says we’ve got a capitalisation of $50-odd million.”
Mr Geroge said comparisons to other retailers were invalid because, as a franchisor, RFG’s assets were entirely intangible and came from its brands and products.
RFG is in the process of trying to sell the Donut King business and its pizza chains so it can pay down debt, and recorded $124 million as provision for sale assets in its half-year accounts.
“There’s a massive restructuring process underway which is aimed to make more money for our franchise partners… there are plans in place to refinance the balance sheet, and that’s why there’s still goodwill on the balance sheet,” Mr George said.
RFG’s bankers, NAB and Westpac, have waived the testing of covenants three times in the past year for $259 million it has in debt.
Covenant testing is generally waived when a company would not meet the conditions attached to its loans. Failing such a test can trigger a bank calling in a loan.
RFG’s auditor, PWC, said it did not comment on client matters.
RFG has forecast underlying earnings of $43 million to $48 million this year. The company’s share price has fallen another 11 per cent since in the three days since it handed down its half-year accounts.
Roopa is a journalist for The Age.