RGF reveals plans to grow cake decorations business

Renshaw cake decorating products

Real Good Food (RGF) is set to shake up its cake decorations range as part of the development of its new streamlined business structure.

RGF has shed many of its businesses in the past 18 months, and now comprises a Cake Decoration division made up of Renshaw and Rainbow Dust Colours, and a Food Ingredients division comprising Brighter Foods.

Announcing its results for the full year to 31 March 2019, the company reported a 3.4% drop in turnover from the continuing businesses to £61.6m. The company said, however, that the performance and costs of each business were in line with expectations and that the future of the two divisions look “justifiably bright”. 

Plans include a wider range of cake decorating products and growth in the Brighter Foods snack bars business (see Divisional Performance below)

Over the period, Food Ingredients turnover fell £0.9m. RGF said underlying demand for its products were strong, and that the decline was a result of operational issues following expansion of capacity to accommodate future growth.

Cake Decoration sales fell by £1.2m following the loss of a major customer that more than offset growth elsewhere in the division.

Despite this, underlying adjusted EBITDA for Food Ingredients fell from £3.7m to £2.8m, and increased from £1.1m in 2018 to £3m in Cake Decoration.

Chairman Mike Holt said RGF had started the year as "an unprofitable cash-absorbing collection of six businesses with little clear strategic direction”, but was now a focussed group comprising two businesses that he described as market leaders.

"At the start of the year we were an unprofitable cash-absorbing collection of six businesses with little clear strategic direction”

“Management actions are in place for Cake Decoration to rebuild customer relationships and trust by improving product quality and dependability whilst also improving operational efficiencies further and growing sales in the UK and internationally.

“Food Ingredients is meeting the challenges of scaling up production, which has nearly doubled in the year, and broadening its customer base.”

Despite the fall in revenue, the business has reported an adjusted EBITDA of £1.9m, compared to a loss of £0.3m in the prior year, with central costs down by £1.3m.

"After a very difficult period in the group's history and a great deal of corporate activity, Real Good Food plc now comprises two divisions, with clearly articulated objectives and defined strategies to accomplish those objectives,” said RGF chief executive Hugh Cawley.

He added that the company now believes it has the leadership, senior management and resources to boost performance from both businesses, and a substantially lower cost base.

"In the new financial year to date, current trading from the two remaining, robust and profitable businesses is in line with our modest expectations for the year. The group remains focused on continuing to improve its results and on reducing net debt, as well as continuing to support the business's strategy and thereby to increase shareholder value and returns."

The company said its central resources had been reduced to minimal levels, adding that it was continually seeking opportunities to reduce these further, consistent with good governance.

RGF this week announced it had agreed an extension on the deadline to repay loans from its major shareholders.

Divisional performance

Cake Decoration

  • Revenue: £46.4m (-2.5%)
  • EBITDA (adjusted)*: £3.0m
  • Operating loss: £17.3m (division had £18.7m goodwill impairment charge)

RGF’s Cake Decoration division reported a £17.3m operating loss following a large goodwill impairment charge and a £1.6m hit to revenue after a major customer moved production in house.

However, sales through the manufacturing channel grew 8%, and sales to the company's sister company in the US increased £2.4m.

A new line to produce convenience formats of Renshaw's core rolled icing became fully operational over the period, while a new soft icings plant became fully commissioned with the first orders for UK supermarket own-label frostings being produced.

Following a review, RGF has shut its warehouse and office in Brussels, with orders for Europe now handled out of Liverpool.

The division has drawn up a strategic plan following an independent customer survey that showed Renshaw was seen as a ‘must stock’ brand, and highlighted key areas the company needed to address.

As a result, the business plans to reduce reliance on its core ready-to-roll icing by developing a wider range of products in the cake decoration category that will address demands such as convenience, health, the environment and inspiration.

The division also plans to provide its key customers with a more consultative approach to the cake decorating category through better use of bought-in data, insight generation and application and digital media content.

In addition, there is now a quality improvement programme across the entire business.

Baking industry veteran Steve Moon has recently taken over the division, and RGF said it has “high hopes of him continuing the successful implementation of the newly articulated strategy for that business”.

Food Ingredients

  • Revenue: £15.2m (-5.5%)
  • EBITDA (adjusted)*: £2.8m
  • Operating profit: £1.2m

The division comprises Brighter Foods, which was acquired by RGF in 2017, and develops and manufactures snack bars for the healthy snacking market from factories in Tywyn, Gwynedd in mid Wales.

Brighter Foods increased capacity by 9% in the year ended 31 March 2019, with a further 91% increase in the current year-to-date to accommodate new business and in preparation for further growth. Around £3.2m was invested in new capacity and the workforce grew from 160 people to just under 300.

“The impact of this rapid, albeit planned and wholly welcome expansion, was felt through a short-term reduction in sales, as the operational changes were implemented, and the new staff were trained and brought up to speed,” reported RGF. “The result is that Brighter Foods is now a larger business, with a more diverse customer base and the ability to grow further without more significant investment.”

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