Real Good Food warns on profits

As it reorganises under its new 'three pillars' strategy, Real Good Food has warned that profits will be short of market expectations.

Margins have been squashed due to the heavy investment in staff and development of products and brands as part of the shift to the three pillars of cake decoration, food ingredients and premium bakery.

The company, which sold sugar business Napier Brown for £44.4m in the first half of the year, said it expected earnings before interest, tax, depreciation and amortisation from its continuing business in the financial year to 31 March would remain flat on the previous year's £1.96m.

House broker Shore Capital said it would be likely to cut its forecast pre-tax profit of £4.7m and earnings of 5.0p per to nearer £2.0m and EPS of circa 2.2p - still a significant improvement on last year's losses.

And the impact, the company insisted, would just be short-term and that the business would be "well positioned for future growth" following the investment.

Furthermore, net debt should be be substantially reduced following the inflow of the £44m from the disposal, which has enabled the group to repay all of its borrowings from PNC Business Credit.

"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," it said.

Shares in Real Good Food were down 17.5% to 36.7p by 1015 GMT on Monday.