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Real Good Food (RGD) has warned it is likely to post a loss in the current financial year commodity price increases and labour costs have hit earnings.

The Liverpool-based food group updated the market this morning ahead of its AGM on Thursday.

It said that it has recorded “encouraging” revenue growth in the first six months of the current financial year, with sales up 6% in cake decoration, 10% in premium bakery and 28% in food ingredients on a like-for-like basis and excluding the contribution of its Brighter Foods acquisition.

However, this sales growth has not translated to the bottom line, where first half profitability has been “disappointing… compared to previous expectations”.

RGD blamed increased commodity prices from both exchange rate issues and supply restrictions as well as the disruption to production during the installation of the additional production capacity at Haydens and Renshaw creating inefficiencies.

It noted that its premium bakery business is “considerably” below profits expectations due to commodity price increases (particularly butter) and labour inefficiencies and materials wastage during disruptive site re-development.

Cake decoration and food ingredients divisions were also behind the board’s expectations in September and the first half as a whole.

As a result all these divisions are currently undergoing a full review of overheads. RGD also said group and head office costs are “too high” and these are also being reviewed – including moving its head office from London to Liverpool.

RGD previously guided that the company would produce EBITDA of approximately £6.5m in the year to 31 March 2018.

However, its board now expects a materially reduced level of EBITDA in the second half and also therefore in the year to 31 March 2018 as a whole. It now expects that the company will report a loss before tax for the full financial year and said it will give further guidance at its interim results in December.

The company stated: “The board believes each of its three divisions hold strong market positions and have good prospects. It is conscious of the high levels of investment which have been made and the need to deliver shareholder value and is developing a clear plan of action to achieve returns on these investments which it anticipates will be seen from 2018/19.”

Real Good Food shares have fallen a further 7.7% this morning back to 24p, having had a third wiped off its share price since mid-May

Morning update

It’s a quiet start to the week with no other market releases of note this morning.

The FTSE 100 has opened the week down almost 10 points (or 0.1%) to 7,513.7pts, having ended Friday flat after a small rally in sterling.

Other than Real Good Food, early movement in grocery stocks is relatively limited.

Early movers include PayPoint (PAY), up 2.3% to 945.5p, SSP Group (SSPG), up 2.1% to 579p, and Tate & Lyle (TATE) 1.3% to 640.5p.

Fallers include Crawshaw (CRAW), down 2.3% to 15.6p, McColl’s Retail Group (MCLS), down 2.2% to 269.1p and Science in Sport (SIS), down 2.1% to 70p.

This week in the City

There isn’t a huge amount of newsflow in the UK scheduled for this week, but quarterly reporting season is well underway in the US with plenty more companies updating the market over the coming days.

In the UK the main items of note are interim results from Costa Coffee owner Whitbread (WTB) on Tuesday and Magners brewer C&C Group (CCR) on Thursday.

Internationally, Wednesday brings a third quarter trading update from GlaxoSmithKline (GSK), while pharmacy giants Walgreen Boots Alliance (WBA) issues its fourth quarter and full-year figures on the same day.

Wednesday also brings third quarter results from Coca-Cola (KO), while brewer Heineken is scheduled to deliver its third quarter results also on Wednesday.

Thursday sees tobacco giant Altria (MO) issue its third quarter results in the US. Thursday also brings third quarter results from AB InBev (ABI) and Beiersdorf.

In economic news, Wednesday brings the preliminary third quarter GDP figures from the Office of National Statistics, while the CBI Distributive Trades Surveys are out on Thursday.

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