Cake decoration specialist Real Good Food has taken out a £550k loan from key investors to see it through a ‘perfect storm’ of rising costs and falling sales.
It has secured the short-term loan from Downing and Omnicane Investors, two of its principal shareholders and loan note holders.
The funding supports the additional funding of £2.5m secured from Hilco Private Capital in November 2022.
The new loan notes rank behind Hilco and Leumi ABL but ahead of existing loan notes. It is intended that the new loan notes will be repaid in October 2023 as part of the refinancing of debt when the current Hilco facility becomes due for repayment on 18 November.
The interest rate of the loan is 12% (annualised), payable on repayment, compounding monthly along with a 35% redemption premium. This premium escalates if the loan is not repaid in October.
Issuing a trading update to accompany the announcement of the funding, the group said market conditions remain “very challenging” due to the “perfect storm of rising costs and lower revenues during the currently difficult economic period”.
It said its “radical reform programme” is progressing well, with significant price resets and cost savings having been achieved, while it continues to focus on improving manufacturing efficiency and balancing capacity to levels of demand.
However, Q4 revenues were below expectations, as consumer demand and confidence were knocked by speculation in the media of a recession in the early months of 2023.
As a result, the board expects to report a loss for the year ended 31 March 2023, following losses in the first half and further losses in the second half.
The full year benefit of the price resets and cost savings are expected to lead to a significant performance improvement in the new financial year commencing 1 April 2023, with EBITDA anticipated to be in the range of £2m to £4m.
“Market conditions remain as challenging as when we last reported in December 2022,” said executive chairman Mike Holt. “However, our internal reform programme is progressing well and, without relying on a market upturn, the board expects the group to be both EBITDA profitable and cash generative in the new financial year.
“After a tough start to 2023, we are beginning to see early signs of some improvement in demand, particularly within B2B and wholesale markets.”
The new loan notes increase convertible loan notes and shareholder loans to £25.9m, including accrued interest and redemption premiums.
In addition to this, there is a £2.6m loan from Hilco Private Capital and a term loan of £0.7m million from Leumi ABL, while the group also has a £5.5m invoice discount facility with Leumi, £2.4m of which is currently utilised.
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