Shares in Real Good Food (RGD) have crashed by more than 30% today after accounting issues forced the cake decoration business to issue a profits warning.

The listed company behind the Renshaw home baking brand and Haydens premium bakery told markets at the end of June that EBITDA for year to 31 March 2017 would be between £5m and £5.4m on revenues of £109m.

However, Real Good Food this morning warned in an unscheduled update that profits would now be about £2m.

Real Good said it discovered during the audit process for the full-year accounts that two “substantial” claims against British Sugar regarding historic sugar purchase arrangements had yet to materialise, causing the business to miss forecasts.

In addition, the Real Good board also concluded that certain development costs, which had previously been capitalised in the 2017 financial year, should “more appropriately have been expensed”.

The group added that expansion plans – revealed in June – to invest £7m in growing capacity by more than 50% at Renshaw and £8m to install new facilities at the Haydens site had been delayed after securing funding took longer than anticipated. The projects are now proceeding to plan and being “well received” by customers, it said.

The delays, along with “slightly softer” trading conditions in the first quarter of 2017/18, led the board to lower its expectations for the year to 31 March 2018. EBITDA is now expected to be about £2.3m lower than previously forecast.

“However, the anticipated benefits of these projects remain robust and are expected to be fully realised in the financial year ending 31 March 2019,” the statement said.

Shares tanked by more than 40% earlier today and are currently down 36.2% to 22.3p in late afternoon trading.

On top of these problems, Real Good revealed that almost £1.9m of payments for consultancy services made to executive chairman Pieter Totté and non-executive director Peter Salter over the past three years had not been disclosed properly in the annual reports or accounts for 2014, 2015 and 2016.

The payments amount to £250,000 to Pieter Totté and £25,000 to Peter Salter in the 2014 financial year, £358,000 and £20,000 respectively in 2015 and £1.2 to Totté in 2016.

“The board further announces that it has realised that certain payments made to certain directors for consultancy services have not been separately disclosed in the related party transaction notes to its previously published audited annual report and accounts for FY 2014, FY 2015 and FY 2016,” Real Good Food said.

“These costs were fully accounted for in the relevant accounting periods so have no impact on the reported profit before tax for these three years.”

In a separate announcement Real Good Food said it had accepted the resignation of Peter Salter, who chaired the remuneration and audit committees. He has stepped down from the board with immediate effect.

Real Good Food has struggled with a turnaround plan in the past few years, with a string of profit warnings along the way.

The pricing dispute between its former sugar subsidiary Napier Brown and British Sugar saw its share price and profits take big hits in 2014. It eventually sold off the troubled sugar division to French group Tereos for £44.4m in 2015.

However, heavy investment in its remaining businesses as the group tried to reposition itself continue to cause problems.

The acquisition of Welsh snack food manufacturer Brighter Foods in April this year had lifted the stock from below 25p to past 38p.

Topics