‘Radical’ cost reduction plan for loss making food business

A ‘radical reform’ to significantly reduce overhead costs has been signed off at food ingredients business, Real Good Food.

The changes follow another challenging year for the company, which supplies cake ingredients and decorations to customers across the world.

It said rising price increases has hampered growth with pre tax losses for the year to 31 March 2022 widening from a loss of £6.1m in 2021 to £19m.

Group revenue for the period was up 8.3% from £37.3m to £40.4m.

It said with the relaxation Covid restrictions, sales in the wholesale and manufacturing sectors began to return to pre-Covid levels.

While the first half of the year saw strong sales of £20m, up 29.9% versus H1 in FY21, sales in Q3 (October to December), and January were much lower than expected due to severe shortages and erratic deliveries of certain raw materials, compounded by high absence rates in the factory due to the Omicron variant, which affected its ability to fulfil customer orders.

Sales in the second half were therefore flat year on year.

The Liverpool company said the ‘unprecedented increases’ in the cost of raw materials and energy in recent months pose ‘significant challenges to the whole sector,’ and while price increases are being passed onto customers, it expects demand to slow down due to cost of living pressures.

Mike Holt, executive chairman, said RGF is “determined to hunker down, control costs, maximise savings opportunities and protect revenues” by reducing overhead costs, re-set pricing and achieve further manufacturing efficiencies “in order to return the business to profitable growth.”

A successful implementation of the recovery plan is expected to return between £2m and £4m in EBITDA under current market conditions.

He said: “The Group made a good start to the year and expected to build on this during the seasonally busier second half of the year.

“Market conditions changed during Q3 and have remained extremely challenging as noted in our trading updates in April and earlier today.

“To mitigate this, we are putting into effect a more radical programme of reform to reduce costs, protect revenues and preserve the inherent value of the Group. This involves the refinancing of the Group and discussions are underway with potential lenders.”

The board is not recommending the payment of a dividend for the year.