Real Good Food looking at period of depressed demand
Real Good Food updated the market on its trading for the financial year ended 31 March on Wednesday, as well as the impact of the Covid-19 coronavirus pandemic, reporting that revenues for the year were “broadly in line” with its expectations, although performance was impacted in March due to the pandemic.
The AIM-traded firm said revenues were up around 9% to £67m, while adjusted EBITDA rose around 178% year-on-year to £5.4m, which benefited from further reductions in head office costs.
Revenues in the Brighter Foods division were up 67% year-on-year, having secured a new contract with a global customer which started in January, while benefiting from continued organic growth with existing customers.
Brighter started producing products on its new production line during the year, with efficiencies delivered in line with expectations.
Cake decoration operations had come under pressure, owing to the declining market for sugar paste by around 14.7%, and marzipan by 2.1%.
However, Real Good Food said frostings were a growing market, with the business described as “well-placed” in that segment following recent investment.
Revenues in the US and Europe were broadly in line with expectations, with the cake decorations division reducing its overheads by 11%, and continuing to review its cost base during the 2021 financial year.
Looking at the impact of Covid-19, the company's board said it expected there to be a material impact on sales at least in the first quarter.
It said it was following all government guidelines, with most back-office staff now working from home and full risk assessments completed in terms of social distancing at its manufacturing sites.
The recent IT upgrade at Renshaw's had enabled home working and the ability to hold virtual meetings with international customers and colleagues, the board said, adding that Brighter was already “well invested” in that area.
In light of lower demand, production planning was being reviewed in consultation with customers to rationalise the products being made.
Real Good Food said it had a “robust” crisis management plan that was being implemented, including taking actions to mitigate risks.
For example, when the pandemic first appeared in China, it reviewed its suppliers in China and sourced alternatives in Europe, ensuring adequate production cover.
Looking at the various sectors served, Real Good Food said the manufacturing sector was likely to be able to maintain or grow sales, while the wholesale sector was experiencing a downturn due to its customers in the restaurant and leisure sectors having to close premises.
The retail sector, meanwhile, had focussed on filling shelves with 'essential' products, and had changed some order patterns, while rationalising some niche products and colours.
Looking at Brighter Foods, the company said the division’s snack bars had “significant” sales into the 'food on the go' and service station sectors, and thus the current restrictions on travel were impacting those sales.
The nutritionally-controlled and diet sector was also facing challenges, and thus there were expected to be lower stock requirements, although the board said that overall, Brighter was operating in line with demand, and was in close contact with its customers to ensure forecasts were in line with production.
In the Renshaws division, revenues were impacted in both France and the Netherlands, where it had a high proportion of activity.
Renshaws revenues in America, although lower, were said to be holding up “relatively well” thus far.
The division had furloughed nearly half of its employees, giving the business a lower cost base, to offset some of the decline in sales.
On the dunfing front, Real Good Food said it was working to prepare its business for varying levels of revenues, and had modelled the effects of those , while reviewing all the measures it could take to ensure it exits the crisis period with a sustainable business model.
It explained that it had “close working relationships” with its major shareholders and funders, which reportedly remained supportive.
In common with other companies, Real Good Food said it was reviewing all options to mitigate the impact of the reduced sales.
For example, its cake decorations operation was using the government job retention programme and had furloughed around 140 staff across all functions, for an initial period of three weeks.
The first priority was conserving cash, the board said, and the firm said it was using or considering a number of measures including the funding of its debtors, furloughed employees assistance from the government, the delay of discretionary capital expenditure and review of other discretionary costs, deferred payment of VAT, and deferring payments of rent and rates in agreement with landlords and councils.
“We are grateful to our staff and stakeholders as we work together through this challenging period,” said non-executive chairman Mike Holt.
“The budgets we were signing off just a short time ago are now being updated to include all the measures we are taking to ensure that the group has a sustainable business going forward.
“We believe the food industry is resilient and that Real Good Food is well placed within the segments we serve and given the quality of our products and operations.”
At 1404 BST, shares in Real Good Food were down 9.09% at 2.5p.