Shares in Real Good Food (RGD) have crashed to lows not seen since last April this morning as the business warned its full-year profits would fall short of expectations.
Heavy investment across the cake decoration, food ingredients and premium bakery businesses as the group restructures following the sale of the troubled Napier Brown sugar subsidiary last year, along with other “one-off events”, has led to a short-term impact on margins.
EBITDA within the continuing business is expected to will remain flat year on year as a result, Real Good Food said in the profit warning statement. The board added it did not expect the final profit outcome for the financial year ended 31 March 2016 to meet current market expectations.
“The current financial year has been one of significant transition for the group as it implements its operational strategy and investment programme across the business,” the statement said.
“The business has invested heavily in people, product and brand across all its businesses as it executes its strategy of achieving the optimal operating platform from which to drive significant future growth.”
Investors took flight when the stock market opened this morning, sending the share price tumbling by almost 20% to 35p – a low not seen since another profit warning last April as low EU sugar prices soured trading at Napier Brown. The stock has recovered some of the losses and is now trading 12.4% down at 39p.
Real Good Food said it remained confident the negative impact on margins was short-term and the group was well positioned for future growth following its investment programme. It also noted the sale of the sugar division to French group Tereos for £44.4m, which netted an exceptional profit of £9.4m, would mean pre-tax profits and earnings per share would be “significantly improved” compared with the previous financial year when it made losses of almost £1m.
The disposal of Napier Brown was also expected to “substantially” reduce net borrowings for the group.
“This leaves the group in a strong position to execute its dual investment and acquisition strategy, which is already well underway, leading to future growth and increased financial strength,” the business added.