Real Good Food: Currency and costs drive £5.8m loss

Renshaw and Haydens owner Real Good Food has made a loss of almost £6m – admitting it has had poor control over its central costs.

The business, which has seen a shake-up of its board this year and is overhauling its corporate governance procedures, reported a £5.8m loss in the 12 months ending 31 March 2017 despite a £7.8m year-on-year increase in group sales to £108.2m.

Real Good Food (RGF) said there were three key reasons for the profits slump:

  • The effect of currency exchange on key commodity prices following the Brexit vote, and a lag in implementing price increases to restore margins.
  • Poor financial control of central costs
  • A “significant” trading dispute regarding the non-supply of contracted sugar to Garrett Ingredients, which remained “unexpectedly unresolved” by the year end.

RGF founder and executive chairman Pieter Totté resigned in August after the business issued a profits warning and admitted it had failed to fully report details of payments made to directors. Peter Salter, chairman of the firm’s audit and remuneration committees, and chief financial officer David Newman also left the business.

“Real Good Food has recently experienced a period of substantial management change at the executive leadership and board level as well as challenging trading conditions,” said executive director Chris Thomas, adding the changes followed recognition that the financial performance of the business during the reported period was “substantially below the level that might reasonably have been anticipated”.

RGF is divided into three divisions: Cake Decoration including Renshaw and Rainbow Dust Colours; Food Ingredients including the Brighter Foods snack bar business acquired this year, Garrett Ingredients and R&W Scott; and Premium Bakery including Haydens and Chantilly Patisserie.

Premium Bakery performance

  • Revenue: £33.9m
  • Operating profit: £0.1m

Divisional sales grew 15% year-on-year, partly a result of the acquisition of Chantilly last year, although Haydens sales were up 7%. Most of the growth came from established customers such as Waitrose and Marks & Spencer.

Factory investment at Devizes will transform the operation, said RGF, with added yum yum capacity and freezing capability that will reduce costs and increase flexibility. New products are planned, and RGF said there had been increasing interest in Haydens' product capabilities from a number of new retailers.

Cake Decoration performance

  • Revenue: £47m
  • Operating profit: £5.5m

RGF said sugarpaste and caramels volumes grew, although marzipan sales fell slightly. Overall sales were disappointing in the first half but saw “good growth” in the second half of the year. Rainbow Dust faced increased competition, RGF reported, but sales grew 13%, with the Progel range performing particularly well. Earnings were impacted by increased overheads at Rainbow Dust and in Europe as well as set up costs in the US Renshaw operation launched last year.

Looking forward, Renshaw is set to launch a push on discs and plaques produced from an automated line at its Renshaw Crown Street site. Frostings and the Simply Create ranges will go on sale in the final quarter.

RGF is expecting overseas growth in the developing US market and from the launch of the brand in Australia. The Rainbow Dust range is to be relaunched during the coming year with a refreshed logo, new designs and internationally compliant packaging.

Food Ingredients performance

  • Revenue: £27.3m
  • Operating loss: £5.8m

Commodity price increases drove a 20% rise in revenue, but margins at R&W Scott and Garrett's Ingredients fell, with Garrett's particularly suffering from currency movements after the Brexit vote.

“A dispute regarding the supply of sugar constrained Garrett's trading position and remained unresolved at the year end,” stated RGF. “As a result the division traded at an operating loss.”

RGF said the acquisition of snack bar firm Brighter Foods in April had transformed the scale and profitability of the division. It added that new supplier relationships following the sugar trading dispute should enable margin recovery.

R&W Scott started supply of a major jam contract in September and has worked on inter-company supply contracts, particularly to Haydens.

Confident in future

Thomas said the board remained confident in the future prospects for the company.

“With new leadership, a commitment to improve the group's financial controls and corporate governance, the board believes the business is now well-positioned to capitalise on the investment being made to improve profitability and cashflow over the coming years for the benefit of all shareholders.”

RGF said sales growth had been strong in the first 22 weeks of the current financial year, with like-for-like revenue up 10% year-on-year in its cake decoration and premium bakery divisions, and up 28% in food ingredients.

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