RGD Real Good Food Plc

TIDMRGD

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 GBP3.2 million of overhead cost savings to take the business back to profitability. Successful implementation of the plan is expected to return between GBP2.0 million and GBP4.0 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 GBP2.5 million of funding to support the restructure. Existing Loan Note Holders have pledged GBP1.0 million and a new asset-backed facility of circa GBP7.5 million, comprising a term loan of GBP2.3 million and circa GBP5.0 million invoice discount facility, is under discussion underpinned by robust asset security and the recovery plan. This new facility will replace existing facilities of GBP6.3 million with Leumi ABL, which comprise a term loan of GBP0.8 million and an invoice discount facility of GBP5.5 million, of which GBP3.2 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 
 

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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September 30, 2022 02:00 ET (06:00 GMT)

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