Liverpool / UK. (rgf) British Real Good Food Company PLC (RGF), 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 percent 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 percent down on the same period last year and 16 percent 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 GBP 3.2 million of overhead cost savings to take the business back to profitability. Successful implementation of the plan is expected to return between GBP 2.0 million and GBP 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 GBP 2.5 million of funding to support the restructure. Existing Loan Note Holders have pledged GBP 1.0 million and a new asset-backed facility of circa GBP 7.5 million, comprising a term loan of GBP 2.3 million and circa GBP 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 GBP 6.3 million with Leumi ABL, which comprise a term loan of GBP 0.8 million and an invoice discount facility of GBP 5.5 million, of which GBP 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.»