REG - Real Good Food PLC - Trading Update

Real Good FoodAnnouncement

30/09/2022 07:01

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RNS Number : 2561B  Real Good Food PLC  30 September 2022

30 September 2022

Real Good Food plc

("RGF" or "Group")

 

Trading Update

 

 

Real Good Food plc (AIM:RGD), the food manufacturing business specialising in
Cake Decoration, announces a trading update for its current financial year
ending 31 March 2023.

 

The Group made a good recovery from Covid at the start of last year but as
reported in the trading update issued on 20 April 2022, trading conditions
have been challenging since the start of the calendar year. These
macro-headwinds, fuelled in part by the War in Ukraine, have continued through
the summer and are expected to continue for the immediate future given the
wider macro-economic outlook.

 

Our operations have continued to be impacted by daily supply shortages and
erratic deliveries of key ingredients and there has been hyper cost inflation;
the cost of sugar has doubled, and costs overall are about 30% higher. The
wider economic conditions have also affected short-term demand for our
products as households react to pressure on disposable incomes.

 

For the first five months of the financial year to 31 August 2022, volumes
were 29% down on the same period last year and 16% lower than our pre-covid
benchmark (FY20). The Group has been increasing prices and reducing costs to
partially mitigate the fall in volumes but is currently incurring losses at an
EBITDA level. As a result, negotiations with customers are being accelerated
to address the widening gap caused by cost inflation.

 

As noted in the April 2022 trading update, the Group is determined to hunker
down, control costs and protect revenues. One of our competitors (Food
Innovations) was recently put into administration, which reflects the sector
wide challenges, but this also creates an opportunity for the Group to gain
market share and strengthen its market position.

 

Having commenced a voluntary redundancy programme in May 2022, which will
reduce headcount by 51, the Board has been working with external consultants
to put into effect a more radical reform of the Group to eliminate overhead
costs, and to build stronger partnerships with key customers. Further
headcount reductions will therefore be required. The recovery plan is well
defined and includes significant price re-sets with customers and circa £3.2
million of overhead cost savings to take the business back to profitability.
Successful implementation of the plan is expected to return between £2.0
million and £4.0 million in EBITDA under current market conditions. Several
price adjustments have already been agreed with major customers.

 

The Group, with support from advisers, is in advanced discussions to secure an
additional £2.5 million of funding to support the restructure. Existing Loan
Note Holders have pledged £1.0 million and a new asset-backed facility of
circa £7.5 million, comprising a term loan of £2.3 million and circa £5.0
million invoice discount facility, is under discussion underpinned by robust
asset security and the recovery plan. This new facility will replace existing
facilities of £6.3 million with Leumi ABL, which comprise a term loan of
£0.8 million and an invoice discount facility of £5.5 million, of which
£3.2 million is currently drawn. A further announcement in respect of the
funding package will be made within the next few weeks.

 

Notwithstanding the disappointing start to the current financial year, the
Board and major stakeholders are confident that the right actions are being
put in place to return the business to the sustainable profitability that the
Company had started to deliver prior to the War in the Ukraine, and post
Covid.

 

The Company will be releasing its Annual Report and Accounts for the year
ended 31 March 2022 later today. As noted above, both the Directors and Loan
Note Holders believe that the recovery plan will be successful, and that
funding will be in place within a matter of weeks, but due to the timing of
the Annual Report and Accounts there will be an emphasis of matter
qualification within them in relation to the recovery plan.

 

 

Mike Holt, Executive Chairman commented:

 

"Market conditions have remained extremely challenging due to a perfect storm
of rising costs and lower revenues resulting in a reduction in management's
expectations for the current financial year. To mitigate this, we are putting
into effect a more radical programme to reduce costs, protect revenues and
preserve the inherent value of the Group. We retain the support of our Loan
Holders and major shareholders to undertake this for which we are grateful."

 

 

Enquiries:

 

 Real Good Food plc                                 Tel: 0151 541 3790

 Mike Holt, Chairman

 Maribeth Keeling, Group Finance Director

 finnCap Limited (Nomad and Broker)                 Tel: 020 7220 0500

 Carl Holmes / James Thompson (Corporate Finance)

 MHP Communications (Financial PR)                  Tel: 020 3128 8793

 Reg Hoare                                          rgf@mhpc.com

 About Real Good Food

 Real Good Food plc is a food manufacturing business specialising in Cake
 Decoration; it serves several market sectors including retail (own label and
 private label), manufacturing and export, and operates under two brands,
 Renshaw and Rainbow Dust Colours. http://www.realgoodfoodplc.com
 (http://www.realgoodfoodplc.com/)

 

The information communicated in this announcement contains inside information
for the purposes of Article 7 of the Market Abuse Regulation (EU) No.
596/2014.

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