“The year under review was one which the company will look back on with little pride or satisfaction, but from which we believe many valuable lessons had been learnt which will stand us in good stead in the future,” the board stated in its strategic review included in annual results to 31 March.
“The importance of strong corporate governance and clear strategic direction, the ill-advisedness of investing before having secured the necessary funding and without having a clear, rational, unequivocal business case, and the enormous consequential direct and indirect cost of failings in these areas, all feature prominently in the reasons for our poor performance in this period.”
Acknowledging a statutory pre-tax loss of £25.2m in the year to 31 March, up from £6.2m in the previous year, the review continued: “These significant losses arose from a number of issues. There was uncontrolled growth in the infrastructure and overhead base of the businesses and head office, in anticipation of significant, unprecedented and unrealised growth in revenues.”
It suggested commercial priorities for RFG’s businesses had been blurred as “sizeable capital investments were implemented in less than perfectly managed projects”.
‘Monolithic inability to adapt’
“We were also affected by the macro-economy with a variety of unfavourable movements in external influences, including commodity prices, exchange rates and litigation. Our inflexible and monolithic inability to adapt to these macro changes exacerbated an already complex situation.”
However, the RFG board said it had implemented several radical measures designed to address the company’s commercial struggles. These included eliminating term bank debt, reducing costs and increasing focus on continuing businesses.
A simple, clear objective and turnaround strategy had been articulated and was underway and significant board changes had been made to improve corporate governance. These included the appointment of Hugh Cawley as chief executive officer from 1 January 2018.
Chief executive Hugh Cawley said as a result of the action taken, “the performance of, and prospects for, what is now a smaller and more focused group, have improved considerably”. RFG warned that the Christmas period remained critically important for Renshaw, one of its principal continuing businesses.
Major shareholders Napier Brown, Omnicane and Downing LLP had been called upon for an injection of capital. “The requirement arose not just from the poor results of the business and the extensive capital programme, but also from having acquired Brighter Foods in April 2017, without having clearly identified the source of funds which would satisfy the acquisition funding,” RFG stated.
RFG had sold off Garrett Ingredients and Haydens Bakery to focus more strongly on Cake Decoration and Food Ingredients, for a total of £13.8m during the year. Further plans were underway to invest in developing its core business.
Across the past financial year, it said its Cake Decoration division had struggled with delays to the commissioning of new manufacturing equipment, a delay in recovering commodity cost increases and a significant increase in competition in the retail sector. In addition, consumer demand in the category had been broadly flat.
However, a transformational capital investment programme had started, with a new line to produce convenience formats of rolled icing from subsidiary Renshaw and a new soft icings plant in the process of becoming fully operational.
RFG’s Rainbow Dust Colours manufacturing site in Preston had achieved British Retail Consortium Global Standard and US Food and Drug Administration certification and now aimed to grow exports. This would dovetail with RFG’s aims for the whole Cake Decorating business to boost sales of everyday and convenience products in the UK and selected overseas markets.
International growth would focus on the significant potential offered by North America and there were plans to boost sales activity, raise RFG’s profile and acquire new customers.
Following a review of order fulfilment in Europe, the business had closed its Brussels warehouse and reverted to supplying product from the UK, claiming service levels have not been negatively affected.
Regarding its business to business activity, RFG stated it planned to deliver better value core ingredients and some innovative products, capitalising on current cake decorating trends.
RGF posted an operating loss of £23.2m in the year to 31 March on sales up 20% from £107.7m in the previous year to £129.8m.