Cake decoration specialist Real Good Food has sold its Rainbow Dust brand and hired an insolvency specialist to explore options for the remaining Renshaw business as the group struggles to turn around its fortunes.
Scottish ingredients firm the Albex Group picked up Rainbow Dust – which RGD bought for £7.5m in 2015 – for £800k in cash, according to a stock exchange statement.
RGD also appointed Interpath Advisory to assist with a review of strategic options for the Renshaw brand, after it admitted sales in November and December would be lower than forecast amid ongoing difficulties with supply issues and cash constraints.
All options are on the table as RGD battles “a challenging environment” and a cashflow squeeze, including a sale of the shares or the business and assets of Renshaw, as well as sourcing necessary external funding.
The sale of Rainbow Dust to Albex is expected to make a profit of about £325k against the book value of the business, with £220k of the proceeds being used to pay down a proportion of the £2.5m loan secured from Hilco last year.
RGD executive chairman Mike Holt said the group had made “substantial” progress over the past year.
“The radical reform programme has delivered significant benefits and recent senior management changes have also made a real difference,” he added.
“The group, however, is struggling to meet demand through supply issues and cash constraints. The board together with JF Renshaw is exploring all possible options and working closely with Interpath Advisory to determine the best way forward.”
Real Good Food has been battling soaring costs and declining sales while attempting a turnaround, with additional loans secured earlier this year to help see it through the challenging trading environment.
Its ‘radical reform programme’ has seen the group reset prices and prioritise cost savings in an effort to swing from large losses back into profitability.
In the six months to 30 September 2023, revenues rose 2% year on year to £16.1m thanks to price increases but volumes fell 10%, while EBITDA losses improved from £2.3m to £700k, according to a trading update released at the end of October.
However, in the new statement on the sale of Rainbow Dust, Real Good Food said sales for November and December were below expectations.
Real Good Food has suffered a torrid run in recent years, with a string of profit warnings, declining sales, management shake-ups and accounting scandals.
The plc’s share price has almost completely collapsed from historic highs of 165p in 2005, with the stock now trading at just 1.4p.
Rainbow Dust is the latest in a long line of sell-offs at Real Good Food, including a £43m disposal of snack bar maker Brighter Foods to THG in 2021.
It also sold Garrett Ingredients to Rainbow Dust’s new owner Albex Group in 2018, as well as agreeing sales of its other businesses Napier Brown, R&W Scott and Haydens Bakery.
Rainbow Dust will sit alongside five other specialist brands in the Albex Group already serving the bakery ingredients sectors: BFP, Henley Bridge Ingredients, Kent Foodservice, Tom Walker & Sons and Yes Chef.
Albex director Andrew Dalglish said: “Rainbow Dust has an excellent range of high-quality food art products well known and loved by cake-makers and confectioners, from hobbyists to semi-professionals to larger manufacturers.
“We’re delighted to have such a highly respected brand in our family. Like other companies in the Albex Group, Rainbow Dust will operate as an independent business with a sharp focus on the market they’re expert in, food colourings and decorations.
“However, we look forward to supporting them in realising their exciting plans by providing the financial backing and significant infrastructure of the Albex Group.”
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