Liverpool / UK. (rgf) British Real Good Food Company PLC gave the following update on trading ahead of its AGM, to be held in Liverpool on Thursday this week.
The new management team has spent the last ten weeks undertaking a comprehensive review of the Company’s operations to begin the process of rebuilding profitability.
Each of the Company’s three divisions is experiencing good sales growth. For the first six months of the current trading year (H1), revenues are up 6 percent year on year in Cake Decoration, up 10 percent in Premium Bakery and up 28 percent in Food Ingredients on a like-for-like basis and excluding the contribution of Brighter Foods, which was acquired during the current financial year.
Total sales growth in H1 has therefore been encouraging, up 13 percent on the previous year on a like for like basis and up 20 percent including Brighter Foods. This revenue growth, however, is not currently being translated into greater profitability where H1 performance has been disappointing compared to the Board’s previous expectations, particularly in September. The issues being experienced include increased commodity prices from both exchange rate issues and supply restrictions as well as the disruption to production during the installation of the additional production capacity at Haydens and Renshaw creating inefficiencies.
Although the Premium Bakery division has demonstrated revenue growth in the first half, margins are considerably below previous expectations, as a result of commodity price increases (especially butter) as well as labour inefficiencies and materials wastage during a period of extensive and disruptive site re-development and investment. The new investments at Haydens are progressing and new customer orders are being processed well. The management team is now focused to ensure that the necessary returns on this investment can be made in the future. Elsewhere the Cake Decoration and Food Ingredients divisions were also behind the Board’s expectations in September and in H1 as a whole. These divisions are currently undergoing a full review of overheads.
In addition, it is recognised that Group and Head Office costs have been too high and these are also subject to a comprehensive review, part of which will result in moving the Head Office from London to Wavertree, Liverpool. The Company has also experienced significant additional costs from professional advisers as a result of needing to respond to its Corporate Governance and regulatory shortcomings.
The Board had previously expected the Company would produce Ebitda of approximately £6.5m in the year to 31 March 2018. Following a review of the Company’s performance in H1 from its latest monthly management accounts, the Board has decided to take a more prudent view of its anticipated performance in the second half of the year (H2). As a result of this more prudent view the Board now expects a materially reduced level of Ebitda in H2 and also therefore in the year to 31 March 2018 as a whole. The Board now expects that the Company will report a loss before tax for the year to 31 March 2018. The Board will give further guidance when it reports its Interim results for the six months ended 30th September 2017 (expected to be in early December 2017) when it will have better visibility of the Company’s most important trading period which it is just entering and runs until Christmas.
As previously indicated in the Company announcement of 29 August 2017, the Company’s three largest shareholders (NB Ingredients, Omnicane International Investments and certain funds managed by Downing LLP, the «Major Shareholders») remain committed to support the business and have indicated their willingness to provide additional funding to support the Company’s working capital requirements if required. The Company has recently agreed new banking covenants with its primary lender. Should it be, in light of the Board’s revised expectations, that the current banking covenants come under pressure, the support from the Major Shareholders would extend to ensuring the facilities are maintained.
The Board believes each of its three divisions hold strong market positions and have good prospects. It is conscious of the high levels of investment which have been made and the need to deliver shareholder value and is developing a clear plan of action to achieve returns on these investments which it anticipates will be seen from 2018/19.
