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The transformation of Real Good Food (LON:RGD) moved on apace in the first half of its financial year, with the company moving into the black.
The cake decoration, food ingredients and bakery company got shot of its troublesome sugar distribution business Napier Brown for £44.4mln, delivering a one-off exceptional profit during the six months to 30 September of £9.4mln.
Underlying earnings (EBITDA) in the period were positive at £2.0mln, versus a loss the year before of £3.0mln, on revenue that grew to £46.66mln from £45.56mln.
The company announced a post-tax profit of £9.32mln, versus a loss last year of £4.71mln.
Net debt plunged to £3.0mln from £36.3mln a year earlier, giving the company a significantly stronger balance sheet.
"We will now look to use the group's strong balance sheet to continue to invest in our three pillar markets of cake decoration, food ingredients and premium bakery, to drive EBITDA and operating profit as well as exploring further bolt-on acquisition opportunities,” said Pieter Totté, the executive chairman of Real Good Food.
“We are now well into the important third quarter, which includes the Christmas trading period and I am pleased to report positive sales trends so far at both our cake decorating businesses and at Haydens. With this context, the board is confident that the outcome for the full year will be in line with current market expectations and we look forward with confidence," he added.
Turnover at Renshaw, its food ingredients arm, was slightly down on a like-for-like basis year-on-year (yoy), largely due to the termination of a low-margin third party manufacturing contract.
Early signs are that the important Christmas trading period will be strong for Renshaw and sales in overseas territories such as the US and particularly Australia continue to make good progress, the company said.
The recently acquired Rainbow Dust Colours, which makes cake decoration products, is now fully integrated into the group and continued to show significant yoy growth in sales and operating profit in the reporting period.
Garrett Ingredients, which sources dairy, sugar and other specialist food ingredients, saw revenue slide 30% in an environment of fierce price competition, though operating profit only fell 15%.
The management team is focusing on pursuing a number of added value initiatives such as the targeting of new sectors including the growing Sports Nutrition market.
R&W Scott, which produces chocolate coatings and sauces, saw revenues ebb slightly but operating profit and gross margin improved.
The second half of the financial year will see the completion of a significant capital investment programme that will give the business the manufacturing profile it requires to maximise its sales growth opportunities, Real Good Food told investors.
Sales and operating profit at Haydens Bakery were broadly flat yoy, but encouragingly, initial signs for the critical trading period in the run-up to Christmas are promising with a strong presence of products over Christmas in Waitrose, Costa, M&S , Aldi and Morrisons.
The group is presently unable to pay dividends, but a resolution was passed at an extraordinary general meeting in September to enable it to do so once the legal eagles have done their stuff.
House broker Shore Capital said: “Overall, we believe the results highlight a solid and significantly improved first half performance compared to the prior year as the group seems to be benefiting from the operational strategy combined with the investment that has been implemented over the past circa 2 years.”
The broker noted a sharp increase in finance costs to £1.2mln from £0.3mln reflecting the non-recurring cost of settling loan notes (following receipt of the disposal proceeds), which resulted in a loss before tax of £0.2mln compared to a loss of £0.4mln in the prior year.
“The move into a net debt position post the sales proceeds received for Napier reflects ongoing capital investment and the seasonal increase in working capital ahead of the busy Christmas trading period. The group is in the process of restructuring its reserves which when completed would enable a dividend to be paid,” Shore Capital observed.
“Overall, we believe RGF has delivered a good set of numbers in H1 and looks well positioned as it approaches the key Christmas trading months,” the company's nominated adviser said.
“We believe RGF is now a transformed business with greater focus and a more added value proposition and with a good start to FY2016F, it suggests brighter times are ahead for group,” it concluded.