Retail Food Group expects to its earnings to take another hit as it closes another 130 stores this financial year, but the embattled Donut King owner is nonetheless forging ahead with a $160 million capital raising.
Shares in the Michel's Patisserie, Gloria Jeans, Brumby's and Pizza Capers franchisor were placed in a trading halt on Friday as it prepared to issue 1.5 billion ordinary shares at 10 cents apiece to raise $150 million.
Retail Food will also attempt to raise a further $10 million through a share purchase plan at the same price, which represents a 41 per cent discount on the company's last close of 17 cents.
Net proceeds of the fundraising will be used to pay down the company's debt - which stands at $260 million - and will provide working capital to support its plan to turn things around after a horror two years.
However, the company also revealed on Friday it expected to close another 127 stores - not including mobile cafe vans - throughout FY20, following a net reduction of 330 stores in FY19.
With another 15 stores to open during FY20, Retail Food Group said it will be left with about 830 stores all up at the end of the financial year.
It did not provide investors a breakdown of which brands or locations will get the chop.
Retail Food has suffered huge losses amid wide-ranging reputational and regulatory issues that started in 2017 when it was accused of badly mistreating franchisees.
A parliamentary inquiry this year said the company's management had been either "unethical" or "incompetent", that it had damaged the reputation of franchising in Australia, and should be investigated by the competition regulator, the corporate regulator and the Australian Taxation Office.
In May, RFG also acknowledged extending use-by dates on food products but said it was withdrawing them from sale by franchisees.
The company's shares had been worth more than $7 at the start of 2017 and were still valued at $4.40 in December that year, but eroded to an all-time low of 12.5 cents in June.
It slumped to a $150 million loss in FY19 after another poor year, driven by $185.3 million in impairments and provisioning expenses.
This followed an impairment-driven loss of $306.7 million the year before.
The company on Friday flagged it was still yet to hit its nadir, with underlying earnings for FY20 likely to be in a range of $42 million to $46 million - a decline of between 9.3 per cent and 17 per cent on the $50.7 million underlying figure reported for FY19.
That figure does not include the impact of new accounting changes, although it said one-off restructuring costs in FY20 are expected to be less than the $40 million booked in 2019.
The company said Friday's fundraising announcement was one plank of a wider recapitalisation plan that involves repaying $118.5 million in debt.
The banks have also agreed to write down $72 million of the company's senior debt as part of a new $75.5 million loan.
The placement bookbuild opens today and is scheduled to close on Monday.