During what it described as a ‘period of transition’, the group delivered adjusted earnings before interest, taxes and amortisation (EBITDA) of £3.3m, against £1.9m in the previous year. Revenue increased by 8.1%, from £61.6m to £66.6m.
Real Good Food now constitutes two main divisions, Cake Decoration (trading under the brand names of Renshaw and Rainbow Dust Colours) and Food Ingredients (trading as Brighter Foods). The two divisions were profitable and generated an adjusted EBITDA of £6.8m before central costs.
Commenting in the firm’s final results statement, executive chairman Mike Holt said a revitalised management team led by Steve Moon at JF Renshaw had boosted customer service, product quality and product innovation.
“Some cost improvements have been achieved but more is needed to generate acceptable returns whilst remaining competitive,” said Holt. “In summary, the cake decoration business is now more customer focused and is beginning to recreate and leverage the value of the Renshaw brand, albeit the progression is steady rather than transformational at this stage. Progress is being accelerated.”
Renshaw had delivered new product launches in Tesco, Waitrose and Marks & Spencer across the year.
Progress had been made despite the unit selling into mature, competitive markets, particularly within retail, and operating out of an aged Liverpool site with a higher than sector average wage bill, Holt added. It had also weathered adverse effects such as the impact of the pandemic on social gatherings and declining sugar paste demand.
“In contrast, recent investments to increase the production capacity of Brighter Foods yielded significant benefits during the year to 31 March 2020,” he continued. “Revenue increased by £10.1m (66%) to £25.3m and profits more than doubled to £2.9m during the year.
“More importantly this growth has continued despite the set-back of COVID-19 at the start of the current year. The business has continued to gain traction with several new blue-chip customers leveraging its reputation and ability to introduce top quality new products quickly and effectively.”
According to Real Good Food’s final annual results, central costs at the group were reduced by £0.4m, from £3.9m to £3.5m.
Net debt stood at £45.4m, compared with £35.7m for the previous year. This was predominantly represented in shareholder loans, with £12.3m in the form of convertible loan notes.
“Brighter Foods has made significant progress in earnings and revenue since March 2019, outperforming the board’s expectations,” said the group.
“Meanwhile, Cake Decorations is still in the last phases of turnaround, demonstrating an ability to win new business from a streamlined cost base,” it added.
Overall, the underlying adjusted EBITDA on continuing activities of the group improved by £1.4m, from £1.9m to £3.3m, due to further progress at Brighter Foods and lower central costs ‘more than offsetting’ the lower (short-term) profits in Cake Decorations.
Performing under pressure
The group said Cake Decoration had come under pressure owing to the UK declining market for sugar paste and marzipan, but Renshaw’s sales outperformed the underlying market decline.
“Frostings are a growing market, and the business is well placed in this segment following recent investment,” the group said.
Renshaw also signed a new exclusive distribution agreement with cake supplies distributor Decopac to assist in growing its share of the US market.
The group said the impact of COVID-19 was seen in the first quarter ‘as many customers felt the impact of lockdown’.
However, trading in both divisions improved as restrictions were eased, with sales in the third quarter aligning with board expectations.
“A lot has happened since March,” said Mike Holt, executive chairman of Real Good Foods. “Clearly, COVID-19 has impacted financial performance in the current year, and the near-term outlook continues to hold challenges due to the pandemic.
“However, both businesses are getting stronger and more resilient. In particular, Brighter Foods continues to grow and has further strengthened its reputation for innovation and responsiveness.
“For the group as a whole, Brexit ought to be more positive than negative. The board is committed to reducing the company’s debt burden and normalising its capital structure as soon as possible.”