Real Good Food’s shares plummeted as exec warns earnings could fall short of estimates
Real Good Food reported sales growth but experienced losses following trouble with commodity pricing and weak sterling.
Executive chairman Pieter Totté said "there is a risk" the company's earnings won't meet market estimates.
The figures
Total group sales for the Aim-listed ingredients and baking products company grew by 5 per cent to £49m, the company reported in its interim results for six months ending 30 September.
Gross profit was up slightly from £12.5m to £13m, held back by volatile commodity pricing and the weak pound.
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Pre-tax losses increased to £949,000 from £216,000, largely due to administrative expenses which increased to £10.2m from £1.4m.
The company proposed the payment of its first ever dividend of 0.04p per share in December 2016.
Shares fell 9.33 per cent to 34p in afternoon trading.
Why its interesting
Real Good Food's sales growth was driven primarily by a strong showing in its premium bakery division and the successful integration of frozen dessert supplier Chantilly.
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However, it will be more challenging to meet target EBITDA in the second half of the year because of raw material inflation, like the doubling price of butter and cream because of the drop in milk production.
Garrett Ingredients, one of the company's ingredient suppliers, struggled during the first six months of the year with prices rising in the sugar and dairy industries. It was the only division to fall outside of expectations.
After a slower summer than usual, the Great British Bake Off helped contribute to improving sales in autumn, the group said.
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What Real Good Food said
The company makes the majority of its profits in the second half of the year, and sales trends for the third quarter are in line with expectations so far, Totté said.
The weak sterling, increased raw material prices and price recovery timing pose challenges for the next half of the year.
This, as well as the uncertainty in commodity pricing in particular at Garrett Ingredients, means that, while we expect our year end EBITDA to be ahead of last year, there is a risk that it could fall short of current market estimates.