Real Good Food owns the Renshaws and Rainbow Dust cake decorations business

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Real Good Food has unveiled a radical reform programme to deal with inflationary pressures and protect its attempted turnaround.

The embattled group said it was determined to “hunker down, control costs, maximise savings opportunities and protect revenues” and is also in discussions with potential lenders to refinance.

Given the pressure on the business, a more radical reform of the group has just been signed off by the board and loan note holders to significantly reduce overhead costs, reset pricing and achieve further manufacturing efficiencies to return the business to profitable growth.

A voluntary redundancy programme was agreed in May, which will reduce 51 jobs during Q3 of the current financial period and save £1.4m per year.

Real Good Food, which owns cake decoration businesses Renshaw and Rainbow Dust Colours, has seen the cost of sugar double so far in 2022, while glycerine and butter have increased by 87% and 82% respectively, with the increased cost of raw materials and other costs of production expected to exceed £5m this year and push the group to a loss at the EBITDA level.

Successful implementation of the recovery plan is expected to return between £2m and £4m in EBITDA under current market conditions, the group said.

Revenues at the embattled group rose 8.3% to £40.4m in the year ended 31 March 2022, with adjusted EBITDA from nudging up from £200k to £700k, according to results also released this morning.

However, pre-tax losses spiralled to £19m, compared with £6.1m in the previous year, after a big writedown of goodwill in the cake decoration business.

It came despite the £43m sale of its snack bar business Brighter Foods to The Hut Group in 2021. However, net debt was reduced significantly in the year to £25.5m, down from £48.8m.

The board also said today that it remained “open to divesting the continuing businesses for the right value at the right time”.

Executive chairman Mike Holt said: “Market conditions changed during Q3 and have remained extremely challenging as noted in our trading updates in April and earlier today. To mitigate this, we are putting into effect a more radical programme of reform to reduce costs, protect revenues and preserve the inherent value of the group.”

Real Good Food has taken a battering 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 and is now worth around 1p.

Shares moved 4.3% higher as markets opened this morning to 1.1p.

Morning update

Prime Minister Liz Truss has been forced into a humilating U-turn on her plans to cut the 45p top rate of tax following a growing revolt from Conservative MPs led by former cabinet ministers Michael Gove and Grant Shapps.

Her chancellor, Kwasi Kwarteng, confirmed this morning that he was scrapping the policy laid out in his recent “mini” Budget.

“It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country,” Kwarteng said in a tweet this morning.

“As a result, I’m announcing we are not proceeding with the abolition of the 45p tax rate. We get it, and we have listened,” he added.

The pound, which hit a record low following the announcement of a package of tax cuts, edged higher as a result in morning trading in Europe.

However, the FTSE 100 sank 1% as markets opened to 6,828.58pts.

Early fallers in fmcg included Just Eat Takeaway, down 4.2% to 1,365.4p, Fevertree, down 3.3% to 810p, SSP Group, down 3.1% to 184p, and Ocado, down 3% to 458.4p.

Risers included Finsbury Food Group, up 3.7% to 81.9p, McBride, up 1.9% to 24p, and B&M European Value Retail, up 1.4% to 310.3p.

This week in the City

The Tory Party Conference in Birmingham will dominate newsflow this week as the PM and chancellor struggle to regain their credibility after a disasterous week.

There are a handful of big results in grocery and fmcg this week, starting with a Q3 update from Greggs tomorrow.

Tesco reveals its interims on Wednesday, with analysts expecting first-half sales of £31.2bn versus £30.4bn.

Tobacco giant Imperial Brands is set to issue a pre-close trading update on Thursday

JD Wetherspoon rounds out the week with full-year results on Friday.

Over in the US, there are quarterly results from Keurig Dr Pepper on Wednesday and Constellation Brands and McCormick on Thursday.