TIDMRGD
RNS Number : 2824S
Real Good Food PLC
29 September 2017
For immediate release
Real Good Food plc
("the Company" or "Real Good Food")
Final Results for the year ended 31 March 2017
Real Good Food plc (AIM: RGD) announces Final Results for the
Year Ending 31 March 2017.
Financial Highlights
-- Revenue increased by 8% from GBP100.4m to GBP108.2m
-- Gross profit reduced by 1% from GBP26.7m to GBP26.4m
-- EBITDA reduced from GBP5.0m to GBP1.2m leading to an
operating loss of GBP(5.8)m (2016: GBP2.1m)
-- Delay in passing on raw material price inflation post-Brexit vote
-- Significant sugar trading dispute unresolved during the financial year
-- Increases in overheads and costs as part of growth plan
-- Poor control of central costs
-- Impairment of assets and goodwill
-- Net debt at 31 March 2017 was GBP16.2m (2016: GBP5.0m)
Operational Highlights and post period end events
-- Strategic decision taken to invest in increasing capacity at
main Cake Decoration and Premium Bakery sites
-- Re-financing undertaken post-year end to fund growth plan
-- Significant Board changes
-- Review of financial processes and procedures and corporate governance being undertaken
-- Focus on cash generation
-- New banking covenants agreed
Commenting on the results Chris Thomas, Executive Director
said:
"Real Good Food has recently experienced a period of substantial
management change at the executive leadership and Board level as
well as challenging trading conditions. These management changes
have principally been instigated following the recognition that the
financial performance of the business during the reported period
was substantially below the level that might reasonably have been
anticipated. Poor corporate governance and controls were also
identified and are being addressed.
He added: "The Board remains confident in the future prospects
for the Company. With new leadership, a commitment to improve the
Group's financial controls and corporate governance, the Board
believes the business is now well positioned to capitalise on the
investment being made to improve profitability and cashflow over
the coming years for the benefit of all shareholders."
The Company's Annual General Meeting will be held at the Real
Good Food Development Centre, 61 Stephenson Way, Wavertree
Technology Park, Liverpool, L13 1HN at 11am on Thursday 26th
October 2017.
-Ends-
The information communicated within this announcement is deemed
to constitute inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
ENQUIRIES:
Real Good Food plc
Chris Thomas, Executive Director Tel: 020 38573900
Harveen Rai, Finance Director
Andrew Brown, Marketing Director
finnCap Ltd (Nomad and Broker)
Matt Goode Tel: 020 7220 0500
Carl Holmes
Belvedere Communications (PR)
John West Tel: 020 3567 0510
Kim van Beck
About Real Good Food plc
Real Good Food plc is a diversified food business serving a
number of market sectors including retail, manufacturing,
wholesale, foodservice and export. The Group focuses on three main
markets: Cake Decoration (Renshaw, Rainbow Dust Colours), Food
Ingredients (Brighter Foods, Garrett Ingredients and R&W Scott)
and Premium Bakery (Haydens and Chantilly Patisserie).
Statement from the Board
2016/17 Performance
Real Good Food has recently experienced a period of substantial
management change at the executive leadership and Board level as
well as challenging trading conditions. These management changes
have principally been instigated following the recognition that the
financial performance of the business during the reported period
was substantially below the level that might reasonably have been
anticipated. Poor corporate governance and controls were also
identified and are being addressed.
While sales grew from GBP100.4 million in 2015/16 to GBP108.2
million in 2016/17, EBITDA dropped from GBP5.0 million in 2015/16
to GBP1.2m in 2016/17 leading to an operating loss of GBP(5.8)
million.
There were three main reasons for this. First, there was the
adverse effect of the exchange rate on key commodity prices
following the Brexit vote and a lag in implementing price increases
to restore margins. Secondly, there was poor financial control of
central costs. Finally, a significant trading dispute regarding the
non-supply of contracted sugar to Garrett Ingredients, remained
unexpectedly unresolved by the year end.
The Board recognised these failings and as a result has taken
the following actions.
Re-capitalisation
Shortly after the year end, the acquisition of Brighter Foods
took place. The Board sees this as a very strong addition to the
Group's portfolio. Following this acquisition, it became clear that
the business was seriously under-funded and was not in a position
to pursue its growth plan, particularly at Renshaw and Haydens.
In June, a major re-capitalisation was effected by raising
GBP4.0 million of loans from two existing shareholders and GBP10.0
million of loan notes and equity from a new shareholder.
There is a peak in capital investment during the year 2017/18
and so in July 2017 a further GBP2.0 million was invested by the
two existing major shareholders to secure an overdraft facility
with Lloyds Bank plc and a further GBP4.0 million has been raised
by all three major shareholders in September 2017 to ensure that
sufficient working capital is now available to enable the Company
to execute its strategy.
The major shareholders have also stated that, while this is not
anticipated, they are prepared to support as required any short
term working capital shortfall. In September, following the
conclusion of these cash injections, new agreements on covenants
were concluded with Lloyds Bank which has confirmed its continued
support for the business for at least 12 months.
Board changes
On 1st August Peter Salter (Non-Executive Director) resigned and
Pieter Totté (Executive Chairman) and Dave Newman (Finance Director
and Company Secretary) resigned on 7th August.
The Board has been significantly strengthened by the appointment
of three new Directors. Judith MacKenzie (non independent
Non-Executive Director) was appointed on 29th June and Hugh Cawley
(independent Non-Executive Director) joined on 7th August. Harveen
Rai, was appointed as Finance Director and Company Secretary on
14th August and on 8th August, Christopher Thomas was appointed as
Executive Director (from Non-Executive) and Pat Ridgwell assumed
the post of Interim Non-Executive Chairman (from Deputy
Chairman).
These changes were made to improve the independence and
corporate governance structure of the Board and to further
strengthen the strategic and turnaround expertise for the Group.
The Board intends to undertake a full independent review of the
Group's financial processes and procedures, corporate governance
and controls in light of the previous failings.
Operating performance and outlook
Following this challenging period, the operating businesses are
now focused on cash generation and on achieving short term targets
with the aim of creating strategic value for all shareholders in
the longer term.
Despite these unsettling times the Board is confident that the
underlying position of each business is fundamentally sound. Sales
growth performance is strong-in the first 22 weeks of the FY 2018,
like-for-like revenue is up 10% year-on-year in both Cake
Decoration and Premium Bakery and up 28% in Food Ingredients though
this latter sector is partly impacted by increased commodity
prices-but it is recognised that this must be converted into
operating profit and operating cash flow at the Group level.
For the remainder of the 2017/2018 year, prior to the critical
Christmas trading period, sales prospects continue to remain
positive. The re-capitalisation and cash injections have enabled
the investment programmes (GBP11 million at Haydens on freezing
capability and a new Yum Yum line and GBP8 million at Renshaw on
new automated icing discs and soft icing production lines) to
proceed. The delays have, however deferred the delivery of benefits
which are now anticipated to be fully realised in FY 2019.
Banking agreements and Debt Position
The Group and Lloyds Banking Group ("LBG") have reached
agreement in relation to the resetting of covenants and other
conditions on the Group's term debt as follows:
-- No covenant tests at 30 September 2017.
-- New Net Debt and Interest Cover covenant tests at 31 December
17 for the 9 month period up to that date.
-- New Net Debt and Interest Cover covenant tests at 31 Mar 18,
30 June 18 and 30 Sept 18, each for a 12 month period up to these
dates.
o Repayment of the outstanding term loan by 31 Oct 18.
o A capital expenditure covenant from 1 Nov 17 to 31 Oct 18.
The Group's principal debt facilities now comprise:
-- A term loan with LBG subject to the above revised covenants
(GBP2.25m outstanding at 31 August 2017)
-- An invoice discounting facility with LBG of up to GBP20m
(cGBP10.0m utilised as at 31 August 2017)
-- An overdraft facility with Lloyds Bank plc of GBP2m.
-- Asset finance with ABN Amro (c.GBP3.9m outstanding at 31 August 2017)
-- Asset finance with LBG (c.GBP3.2m outstanding at 31 August 2017)
-- Shareholder facilities of c.GBP17.25m
Summary
The Board remains confident in the future prospects for the
Company. With new leadership, a commitment to improve the Group's
financial controls and corporate governance, the Board believes the
business is now well positioned to capitalise on the investment
being made to improve profitability and cashflow over the coming
years for the benefit of all shareholders.
Divisional Business Review
Real Good Food
Cake Decoration
2016/17 Performance
After a disappointing first half, sales saw good growth in the
second half of the year. Volumes of sugarpaste and caramels grew
though marzipan sales fell slightly. Sales for export grew with
increasing demand in the US and the launch of Renshaw 'Extra' in
Europe. Rainbow Dust faced increased competition but still managed
to grow sales by 13% with the Progel colours range performing
particularly strongly.
Overall divisional EBITDA was down on the previous year by
GBP0.9 million as a result of increased overheads at Rainbow Dust
and in Europe as well as set up costs and people investment in the
new Americas operation.
-- REVENUE of GBP47.0m
-- EBITDA(*) of GBP6.5m
-- OPERATING PROFIT of GBP5.5m
Forward plans
Product plans at Renshaw include a drive on discs and plaques
from the new automated line while frostings and the Simply Create
ranges will begin sale in the final quarter. Significant new
business is anticipated internationally with the developing
American market and the launch of the brand into Australia. The
Rainbow Dust range will be relaunched during the year with a
refreshed logo, new designs and internationally compliant
packaging.
The investment plan at the Renshaw Crown street site has begun
with the installation of new sugar milling capacity, the new,
automated discs and plaques line and the hot process frostings for
the Simply Create brand. At Rainbow Dust, the site is being
upgraded to BRC standard which will open up sales opportunities
within the manufacturing sector.
2016/2017 2015/2016
12 months to March GBPm GBPm
------------------- --------- ---------
Revenue 47.0 48.3
EBITDA* 6.5 7.3
Operating profit 5.5 6.5
Operating profit % 11.7% 13.5%
------------------- --------- ---------
*Represents adjusted EBITDA see note 5 for reconciliation
Real Good Food
Food Ingredients
2016/17 Performance
Sales revenues grew by over 20% but this was largely a result of
recovering commodity prices in sugar and dairy. R&W Scott
increased its sales by just over 5% while Garrett's pursued a
strategy of retaining customer volume despite poor margins. Both
businesses suffered gross margin reverses with Garrett Ingredients
particularly suffering around the sharp and unexpected currency
movements after the Brexit vote leading to increased commodity
costs. A dispute regarding the supply of sugar constrained
Garrett's trading position and remained unresolved at the year end.
As a result the division traded at an operating loss.
An annual impairment review was conducted in accordance with
IAS38 'Intangible assets' and IAS36 'Impairment of assets' and this
resulted in an impairment of goodwill and fixed assets of GBP3.6
million.
-- REVENUE of GBP27.3m
-- EBITDA(*) of GBP(1.6)m
-- OPERATING LOSS of GBP(5.8)m
Forward plans
The acquisition of Brighter Foods transformed the scale and
profitability of this division and met the objective of expanding
our presence in the added value health sector. New supplier
relationships following the trading dispute should enable margin
recovery in sugar from October 2017, while dairy trading should
also present opportunities during the second half of the year
providing currency trends stabilise.
R&W Scott started supply of a major jam contract in
September while last year's investment will deliver operational
savings. R&W Scott has also worked on a number of inter-company
supply contracts, particularly to Haydens, which will bring margin
in-house.
2016/2017 2015/2016
12 months to March GBPm GBPm
------------------- --------- ---------
Revenue 27.3 22.7
EBITDA* (loss) (1.6) (0.1)
Operating (loss) (5.8) (0.4)
Operating (loss) % (21.2)% (2.0)%
------------------- --------- ---------
*Represents adjusted EBITDA see note 5 for reconciliation
Real Good Food
Premium Bakery
2016/17 Performance
Divisional sales grew 15% YOY (partly a result of the Chantilly
acquisition) though Haydens like for like sales were over 7%
higher. Most of the growth came from established customers such as
Waitrose and Marks and Spencer. Performance at Chantilly was
frustrated by capacity constraints with a delay in the proposed
move to a new site nearby. At Haydens a strengthened management
team was in place for the final quarter.
EBITDA increased by GBP0.4 million despite a delay in price
recovery on raw materials (butter, Haydens' biggest raw material by
value doubled in price between July and October 2016) so the strong
Christmas trading period saw lower margins.
-- REVENUE of GBP33.9m
-- EBITDA(*) of GBP1.2m
-- OPERATING PROFIT of GBP0.1m
Forward plans
The factory investment plan at Devizes will transform the
operation with significant added Yum Yum capacity and freezing
capability which will reduce costs and increase flexibility. A
number of new products are planned with the first stage of
additional capacity coming on stream in September and the second
from January 2018. There is increasing interest in Haydens' product
capabilities from a number of new retailers. The Haydens
Distribution operation is expected to continue to perform well with
Waitrose and growth in third party sales. Following the delay in
moving the Chantilly operation, a review of options will be
undertaken during the autumn of 2017.
2016/2017 2015/2016
12 months to March GBPm GBPm
------------------- --------- ---------
Revenue 33.9 29.4
EBITDA* 1.2 0.7
Operating profit 0.1 (0.1)
Operating profit % 0.3% (0.5)%
------------------- --------- ---------
*Represents adjusted EBITDA see note 5 for reconciliation
Finance Review
Overview
During the audit process for these full year accounts for the
year ended 31 March 2017, a number of issues were identified, which
ultimately resulted in a significant profit downgrade for the
Company. As a result, the finance team has been working together
with the Board of Directors, the Company's auditor, financial
adviser and external consultants in a comprehensive review of the
Company's financial position.
Revenue
Group revenue for the 12 months ending 31 March 2017 was
GBP108.2 million (2016: GBP100.4 million) which is an increase of
8% on the revenue to 31 March 2016. This is the result of growth in
the Food Ingredients business of GBP4.6 million, and in Premium
Bakery of GBP4.5 million offset by Cake Decoration which traded
behind prior year by GBP1.3 million. The increase of revenue in
Premium Bakery included a full year effect of the acquisition of
Chantilly which amounted to GBP2.1 million in the year.
Results of continuing operations 31 March 31 March
2017 2016
GBP'000s GBP'000s
---------------------------------- --------- ---------
Revenue 108,208 100,439
Gross Profit 26,351 26,670
Delivered Margin 21,383 21,303
EBITDA (adjusted) 1,179 5,043
Operating Loss/Profit (5,819) 2,137
Operating Loss/Profit % (5.4)% 2.1%
Loss/Profit before tax* (6,462) 4,735
---------------------------------- --------- ---------
*The 2016 Profi-t before tax of GBP12,890k is made up of
Continuing Operations of GBP4,735k and Discontinued Operations of
GBP8,155k
Profit measure on operations
Gross profit on the continuing businesses for the overall Group
was broadly flat at GBP26.4 million (2016: GBP26.7 million). At
19.8% of revenue gross margin was lower than the 21% reported in
2016. This reduction in margin has reflected higher than
anticipated commodity ingredient costs, in part due to an
underestimation of the impact of currency volatility post-Brexit,
compounded in some cases by a later than expected price recovery
from customers following the increase in raw material costs.
The operating loss for the 12 months to 31 March 2017 was
GBP(5.8) million, down significantly from a profit of GBP2.1
million in 2016.
The operating loss in the year of GBP(5.8) million is reported
after the impairment charge of GBP4.1 million, depreciation charge
of GBP2.4 million, amortisation of GBP0.4 million and significant
items of GBP0.1 million.
An annual impairment review has been conducted and this resulted
in an impairment of goodwill of GBP1.6 million and an impairment of
fixed assets of GBP2.5 million.
This has resulted in a statutory loss before tax of GBP6.5
million (2016: profit of GBP12.9 million) giving a basic loss per
share of 8.50p in 2017 against an EPS of 18.36p in the prior
year.
Cash flow and net debt
Given the factors described above, insufficient cash was
generated to fund the Company's strategic investment programme and
further borrowings were secured. Investment in tangible and
intangible assets in the year amounted to GBP11.5 million which led
to the Company's increasing net debt by GBP11.2 million (2016:
GBP5.1 million) to GBP16.2 million as at 31 March 2017. This led to
a worsened ratio of net debt to EBITDA from 1.0 in 2016 to 13.7 in
2017.
31 March 31 March
2017 2016
GBP'000s GBP'000s
--------------------------------------------------------------------- --------- ---------
Working Capital (inventories, trade and other receivables, trade and
other payables) 14,096 16,156
Net Borrowings (incl cash) 16,231 5,066
Net Debt/EBITDA 13.7 1.0
--------------------------------------------------------------------- --------- ---------
Capital cancellation and dividend
Following the capital cancellation of the parent company share
premium account and following the Company statement at the AGM, the
Directors paid an interim dividend in the year of 0.04p in January
2017 (2016 - GBPNil).
The Directors are not intending to recommend payment of a final
dividend in respect of the 12 months ended 31 March 2017 (2016 -
GBPNil).
Re-financing
Following the year end, the Company undertook a major
re-capitalisation exercise by raising loans from existing
shareholders and loan notes and equity from a new shareholder.
Together with existing loan facilities the Company's cash position
has now been stabilised and this combination of sources has
injected a total of GBP20.0 million of funds into the 2017/18
FY.
The Board is now confident that sufficient working capital is
available to enable the Company to complete its investment
programme and execute its growth strategy.
Outlook
A key focus for the year is to ensure that, with stronger
financial controls and improved corporate governance, the
management team supports the planned growth of the businesses, to
increase shareholder value and returns.
Key Performance Indicators
The Board of Directors monitors a range of financial and
non-financial key performance indicators, reported on a periodic
basis, to measure the Group's performance. The key performance
indicators, all based on continuing operations, are set out below.
The Board intends to review these Key Performance Indicators in the
coming year with a greater emphasis on targets for free cash flow
generation.
2017 2016 2015 2014 Comment
---------------------------- --------- --------- --------- --------- ----------------------
Revenue growth GBP108.2m GBP100.4m GBP104.6m GBP110.2m Revenue in the
Revenue is calculated year has increased
for continuing by 8% driven by
business and is Premium Bakery
from external sources and Food Ingredients
only.
---------------------------- --------- --------- --------- --------- ----------------------
EBITDA GBP1.2m GBP5.0m GBP5.3m GBP4.9m EBITDA of GBP1.2
EBITDA is defined million reflecting
as earnings before both difficult
significant items, market conditions,
interest, tax depreciation including commodity
and amortisation. price increases
due to currency
volatility, and
increased overhead
costs
---------------------------- --------- --------- --------- --------- ----------------------
Net Debt GBP16.2m GBP5.1m GBP30.1m GBP31.1m Net debt in the
Net Debt is the year has increased
total Group borrowings to GBP16.2 million
less cash at bank. to fund the Group's
investment strategies
---------------------------- --------- --------- --------- --------- ----------------------
Debt cover As a result of
Debt cover is calculated increased net debt
by dividing total the current net
Net Debt by continuing debt/EBITDA cover
EBITDA. 13.7 1.0 5.6 6.3 stands at 13.7
---------------------------- --------- --------- --------- --------- ----------------------
Health & Safety
score
Health & Safety
score represents
an average score For 2018 the Group
across the sites will change to
and is measured an industry HSE
against internal standard measurement
standards generated of Accident Frequency
by an external Rate to give a
consultant. Figures more comparable
are quoted for measurement with
calendar years. 88% 90% 82% 88% other industries
---------------------------- --------- --------- --------- --------- ----------------------
Consolidated Statement of Comprehensive Income
Year ended 31 March 2017
Year ended 31 March Year ended 31 March
2017 2016
Continuing Discontinued Continuing Discontinued
Operations Operations Total Operations Operations Total
Notes GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
---------------------------- ------ ------------ ------------ --------- ------------ ------------ ---------
REVENUE 108,208 - 108,208 100,439 13,237 113,676
Cost of sales (81,857) - (81,857) (73,769) (11,884) (85,653)
------------------------------------ ------------ ------------ --------- ------------ ------------ ---------
GROSS PROFIT 26,351 - 26,351 26,670 1,353 28,023
Distribution costs (4,968) - (4,968) (5,367) (1,149) (6,516)
Administration
expenses (23,006) - (23,006) (18,221) (288) (18,509)
Impairment Charge (4,109) - (4,109) - - -
Significant items (87) - (87) (945) - (945)
------------------------------------ ------------ ------------ --------- ------------ ------------ ---------
OPERATING (LOSS)/PROFIT (5,819) - (5,819) 2,137 (84) 2,053
Fair value gain
on contingent
consideration - - - 3,267 - 3,267
Finance costs (427) - (427) (478) (906) (1,384)
Other finance
costs (216) - (216) (191) - (191)
Profit on disposal
of discontinued
operations - - - - 9,145 9,145
------------------------------------ ------------ ------------ --------- ------------ ------------ ---------
(LOSS)/PROFIT
BEFORE TAXATION (6,462) - (6,462) 4,735 8,155 12,890
Income tax credit/(expense) 618 - 618 (439) - (439)
Tax on discontinued
business - - - - 256 256
Income tax on
significant items (135) - (135) 113 - 113
------------------------------------ ------------ ------------ --------- ------------ ------------ ---------
(LOSS)/PROFIT
ATTRIBUTABLE TO
THE EQUITY
HOLDERS OF THE
PARENT (5,979) - (5,979) 4,409 8,411 12,820
------------------------------------ ------------ ------------ --------- ------------ ------------ ---------
OTHER COMPREHENSIVE
LOSS
Items that will
not be reclassified
to profit or loss
Foreign exchange
differences on
translation (48) - (48) - - -
Actuarial (losses)
on defined benefit
plan (1,847) - (1,847) (484) - (484)
Income tax relating
to components
of other comprehensive
loss 351 - 351 35 - 35
------------------------------------ ------------ ------------ --------- ------------ ------------ ---------
OTHER COMPREHENSIVE
LOSS (1,544) - (1,544) (449) - (449)
------------------------------------ ------------ ------------ --------- ------------ ------------ ---------
TOTAL COMPREHENSIVE
(LOSS) FOR THE
YEAR ATTRIBUTABLE
TO THE EQUITY
HOLDERS OF THE
PARENT (7,523) - (7,523) 3,960 8,411 12,371
------------------------------------ ------------ ------------ --------- ------------ ------------ ---------
Earnings per share
- basic (8.50)p - (8.50)p 6.31p 12.05p 18.36p
- diluted (8.50)p - (8.50)p 5.83p 11.13p 16.96p
------------------------------------ ------------ ------------ --------- ------------ ------------ ---------
The notes form part of these financial statements.
Consolidated Statement of Changes in Equity
Year ended 31 March 2017
Issued Share Share FX Translation Retained Total
Share Premium Option Reserve Earnings GBP'000s
Capital Account Reserve GBP'000s GBP'000s
GBP'000s GBP'000s GBP'000s
----------------------------------- --------- --------- --------- -------------- --------- ---------
Balance as at 31 March
2015 1,392 71,272 577 - 8,678 81,919
Total comprehensive income
for the year
Profit for the year - - - - 12,820 12,820
Other comprehensive income
for the year - - - - (449) (449)
----------------------------------- --------- --------- --------- -------------- --------- ---------
Total comprehensive income
for the year - - - - 12,371 12,371
----------------------------------- --------- --------- --------- -------------- --------- ---------
Transactions with owners of
the Group, recognised directly
in equity
Contributions by and distributions
to owners of the Group
Shares issued in the year 10 103 - - - 113
Share based payment expense - - 15 - - 15
----------------------------------- --------- --------- --------- -------------- --------- ---------
Total contributions by
and distributions to owners
of the Group 10 103 15 - - 128
----------------------------------- --------- --------- --------- -------------- --------- ---------
Balance as at 31 March
2016 1,402 71,375 592 - 21,049 94,418
----------------------------------- --------- --------- --------- -------------- --------- ---------
Total comprehensive income
for the year
Loss for the year - - - - (5,979) (5,979)
Other comprehensive income
for the year - - - (48) (1,496) (1,544)
----------------------------------- --------- --------- --------- -------------- --------- ---------
Total comprehensive income
for the year - - - (48) (7,475) (7,523)
----------------------------------- --------- --------- --------- -------------- --------- ---------
Transactions with owners of
the Group, recognised directly
in equity
Contributions by and distributions
to owners of the Group
Shares issued in the year 9 19 - - - 28
Deferred Tax on Share
based payments - - (177) - - (177)
Dividends paid - - - - (28) (28)
Cancellation of share
premium - (71,272) - - 71,272 -
----------------------------------- --------- --------- --------- -------------- --------- ---------
Total contributions by
and distributions to owners
of the Group 9 (71,253) (177) - 71,244 (177)
----------------------------------- --------- --------- --------- -------------- --------- ---------
Balance as at 31 March
2017 1,411 122 415 (48) 84,818 86,718
----------------------------------- --------- --------- --------- -------------- --------- ---------
Consolidated Statement of Financial Position
Year ended 31 March 2017
31 March 31 March
2017 2016
Notes GBP'000s GBP'000s
------------------------------------- -------- --------- ---------
NON-CURRENT ASSETS
Goodwill 69,416 71,005
Other intangible assets 1,155 834
Property, plant and equipment 23,932 18,066
Deferred tax asset 1,435 1,556
----------------------------------------------- --------- ---------
95,938 91,461
---------------------------------------------- --------- ---------
CURRENT ASSETS
Inventories 13,323 12,360
Trade and other receivables 16,016 17,039
Current tax assets 233 -
Cash and cash equivalents 464 2,946
----------------------------------------------- --------- ---------
30,036 32,345
---------------------------------------------- --------- ---------
TOTAL ASSETS 125,974 123,806
----------------------------------------------- --------- ---------
CURRENT LIABILITIES
Bank overdrafts 619 949
Trade and other payables 15,243 13,243
Borrowings 11,375 7,008
Financial instrument 146 -
Current tax liabilities - 127
----------------------------------------------- --------- ---------
27,383 21,327
---------------------------------------------- --------- ---------
NON-CURRENT LIABILITIES
Borrowings 4,701 55
Deferred tax liabilities 1,278 1,925
Retirement benefit obligation 5,894 6,081
----------------------------------------------- --------- ---------
11,873 8,061
---------------------------------------------- --------- ---------
TOTAL LIABILITIES 39,256 29,388
----------------------------------------------- --------- ---------
NET ASSETS 86,718 94,418
----------------------------------------------- --------- ---------
EQUITY
Share capital 1,411 1,402
Share premium account 122 71,375
Share option reserve 415 592
Foreign exchange translation reserve (48) -
Retained earnings 84,818 21,049
----------------------------------------------- --------- ---------
TOTAL EQUITY 86,718 94,418
----------------------------------------------- --------- ---------
These financial statements were approved by the Board of
Directors and authorised for issue on 28 September 2017.
They were signed on its behalf by:
C O Thomas
Executive Director
H Rai
Finance Director
The notes form part of these financial statements
Consolidated Cash Flow Statement
Year ended 31 March 2017
12 months 12 months
ended ended
31 March 31 March
2017 2016
GBP'000s GBP'000s
-------------------------------------------------------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES
Adjusted for:
(Loss)/Profit before taxation (6,462) 12,890
Finance and other finance costs 643 1,575
Share based payment expense - 15
Depreciation of property, plant and equipment 2,434 1,917
Impairment charge 4,109 -
Profit on disposal of Napier Brown - (9,061)
Fair value gain on contingent consideration - (3,267)
Past service gain on pension (1,330) -
Amortisation of intangibles 365 113
-------------------------------------------------------- --------- ---------
Operating Cash Flow (241) 4,182
(Increase)/decrease in inventories (963) (1,900)
(Increase)/decrease in receivables 1,021 (2,034)
Pension contributions (310) (282)
(Decrease) in payables 1,497 (1,866)
-------------------------------------------------------- --------- ---------
Cash generated from operations 1,004 (1,900)
Income taxes received/(paid) (237) (614)
Interest paid (427) (1,661)
-------------------------------------------------------- --------- ---------
Net cash from operating activities 340 (4,175)
-------------------------------------------------------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from disposal of property, plant and equipment - 160
Purchase of intangible assets (686) -
Purchase of property, plant and equipment (10,820) (6,408)
Disposal of Discontinued business - 37,201
Acquisition of business, net of cash acquired - (1,666)
-------------------------------------------------------- --------- ---------
Net cash used in investing activities (11,506) 29,287
-------------------------------------------------------- --------- ---------
CASH FLOW USED IN FINANCING ACTIVITIES
Shares issued in year 28 113
Dividends paid (28) -
Repayment of borrowings - (33,447)
Repayment of loans (688) -
Net movements on revolving credit facilities 5,628 3,705
Advances net of repayments on finance leases 4,074 (122)
-------------------------------------------------------- --------- ---------
Net cash used in financing activities 9,014 (29,751)
-------------------------------------------------------- --------- ---------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (2,152) (4,639)
-------------------------------------------------------- --------- ---------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of period 1,997 6,636
Net movement in cash and cash equivalents (2,152) (4,639)
-------------------------------------------------------- --------- ---------
Cash and cash equivalents at end of period (155) 1,997
-------------------------------------------------------- --------- ---------
Cash and cash equivalents comprise:
Cash 464 2,946
Overdrafts (619) (949)
-------------------------------------------------------- --------- ---------
(155) 1,997
-------------------------------------------------------- --------- ---------
The notes form part of these financial statements.
Notes to the Financial Statements
Year ended 31 March 2017
1. Presentation of financial statements
General information
Real Good Food plc is a public limited company incorporated in
England and Wales under the Companies Act (registered number
4666282). The Company is domiciled in England and Wales and its
registered address is International House, 1 St Katharine's Way,
London, E1W 1XB. The Company's shares are traded on the Alternative
Investment Market (AIM).
Basis of preparation
These consolidated financial statements are presented on the
basis of International Financial Reporting Standards (IFRS) as
adopted by the European Union and have been prepared in accordance
with AIM rules and the Companies Act 2006, as applicable to
companies reporting under IFRS.
These consolidated financial statements have been prepared in
accordance with the accounting policies set out in note 2 and under
the historical cost convention, except where modified by the
revaluation of certain financial instruments and commodities.
Discontinued operations
A discontinued operation is a component of the Group's business
that represents a separate major line of business or geographical
area of operations that has been disposed of or is held for sale,
or is a subsidiary acquired exclusively with a view to resale.
Classification of a discontinued operation occurs upon disposal or
when the operation meets the criteria to be classified as held for
sale, if earlier. When an operation is classified as a discontinued
operation, the comparative income statement is presented as if the
operation had discontinued from the start of the comparative
period. The disposal of the Napier business in year to March 2016,
gave rise to a discontinued operation.
New IFRS standards and interpretations adopted
A number of new standards and amendments to standards and
interpretations have been issued but are not yet effective and in
some cases have not been adopted by the European Union. The
directors have assessed the potential impact of IFRS 15 and do not
expect that the adoption of this standard will have a material
impact on the financial statements of the Group in future periods.
IFRS 16 may have an impact on the measurement and treatment of
operating leases and the related disclosures. As at 31 March 2017
the estimated impact of the transition to IFRS 16 would be to
increase tangible fixed assets and liabilities by approximately
GBP1.9m The impact on the profit and loss account is not expected
to be material to the financial statements.
2. Significant accounting policies
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the Group's financial statements.
a) Basis of accounting
The financial statements have been prepared in accordance with
applicable accounting standards.
The Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Divisional Reviews. The financial position of
the Group, its cash flows and liquidity position are described in
the Finance Review. In addition, note 22 to the financial
statements included in the Company's Annual Report sets out the
Group's objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its
financial instruments and hedging activities; and its exposure to
credit risk and liquidity risk.
Also as detailed in note 22 to the financial statements, the
Group has a long term banking arrangement with Lloyds Bank Plc and
this, together with customer contracts and supplier agreements,
enables the Directors to believe that the Group is well placed to
manage its business risks.
The Directors believe that the Group has adequate resources to
continue in operational existence for the foreseeable future. Thus
they continue to adopt the going concern basis of accounting in
preparing the annual financial statements.
b) Basis of consolidation
The Group financial statements consolidate the financial
statements of the Company and its subsidiary undertakings. The
purchase method of accounting has been adopted. Under this method
the results of all the subsidiary undertakings are included in the
Consolidated Statement of Comprehensive Income from the date of
acquisition or up to the date of disposal. Intra-group revenues and
profits are eliminated on consolidation and all revenue and profit
figures relate to external transactions only.
Under Section 408 of the Companies Act 2006 the Company is
exempt from the requirement to present its own income statement.
The result for the financial year, of the holding company, as
approved by the Board, was GBP(5,963)k (2016 - GBP6,004k).
c) Revenue recognition
Revenue comprises the invoiced value of goods and services
supplied by the Group, exclusive of Value Added Tax and trade
discounts. Revenue is recognised at the point or points at which
the Group has performed its obligations in connection with the
contractual terms of the revenue agreement, and in exchange obtains
the right to consideration.
(a) Sales of Goods: Sales of goods are recognised when goods are
delivered and title passed. Sales are recorded net of discounts,
Value Added Tax (VAT) and other sales related taxes.
(b) Finance Income: Interest income is accrued on a time basis,
by reference to the principal outstanding and at the effective
interest rate applicable. Other finance costs includes net interest
costs on the net defined benefit pension scheme liabilities.
(c) Rebates and discounts: all discounts, rebates etc are
accounted for in line with contractual commitments and netted off
gross sales to reflect the net income earned and any costs incurred
in promotional activity are expensed within commercial overheads.
In all cases these accounts will reflect the net position after any
contractual discounts and rebates along with any promotional
costs.
Full accruals are made for any unpaid elements.
d) Income tax
The charge for taxation is based on the results for the year and
takes into account taxation deferred because of timing differences
between the treatment of certain items for taxation and accounting
purposes.
Deferred tax is recognised on temporary differences arising
between the tax basis of assets and liabilities and their carrying
amounts.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and is reduced to the extent that it is no
longer probable that sufficient taxable profits will be available
to allow all or part of the assets to be recovered.
Deferred tax is calculated at the tax rates that have been
applied or substantially applied by the balance sheet date.
Deferred tax is charged or credited to the Statement of
Comprehensive Income, except where it relates to items charged or
credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities, and when they relate to income taxes
levied by the same taxation authority, and the Group intends to
settle its current tax assets and liabilities on a net basis.
e) Significant items
It is the Group's policy to show items that it considers are of
a significant nature separately on the face of the Statement of
Comprehensive Income in order to assist the reader to understand
the accounts. The Group defines the term 'significant' as items
that are material in respect of their size and/or nature; at a
segment reporting level, for example, a major restructuring of the
management of that segment. The Group believes that by identifying
these items separately as significant it enhances the understanding
of the true performance of the segment trading position.
f) Pension costs
The Group operates a defined contribution and a defined benefit
pension scheme. Payments to the defined contribution scheme are
charged as an expense as they fall due. For the defined benefit
scheme the cost of providing benefits is determined using the
Projected Unit Credit Method, with actuarial valuations being
carried out at each balance sheet date.
Actuarial gains and losses are recognised in full in the period
in which they occur.
g) Property, plant and equipment
Property, plant and equipment are stated at historical cost or
fair value at the date of acquisition, less accumulated
depreciation and impairment provisions.
Depreciation is provided to write off the cost, less the
estimated residual value, of property, plant and equipment by equal
instalments over their estimated useful economic lives as
follows:
Freehold buildings 2% - 2.5%
Short term leasehold buildings Length of lease
Plant and equipment 7.5% - 50%
Motor vehicles 25%
Fixtures and fittings 7.5% - 25%
Computer equipment 25%
Impairment reviews of property, plant and equipment are
undertaken if there are indications that the carrying values may
not be recoverable or that the recoverable amounts may be less than
the assets' carrying value.
Assets in the course of construction relate to plant and
equipment in the process of construction, which were not complete,
and hence were not in use at the year end. Assets in the course of
construction are not depreciated until they are completed and
available for use.
h) Intangible assets
Intangible assets consist of computer software, development
costs and business relationships software is considered to have an
economic life of five years; business relationships which are
considered to have an estimated useful economic life of two years
and development which have been internally generated and
capitalised in accordance with IAS 38 which have an estimated
commercial life of 5 years. All of these assets are amortised on a
straight-line basis over these periods. The average remaining life
of intangible assets is three years (2016 - three years). The
charge for the year is included in administration expenses within
the Statement of Comprehensive Income.
i) Leases
Where a lease is entered into which entails taking substantially
all the risks and rewards of ownership of an asset, the lease is
treated as a finance lease. The asset is recorded in the Statement
of Financial Position as an item of property, plant and equipment
and is depreciated over the shorter of its estimated useful life or
the term of the lease. Future instalments under such leases, net of
finance charges, are included within borrowings. Rentals payable
are apportioned between the finance element, which is charged to
the profit or loss, and the capital element, which reduces the
outstanding obligation for future instalments.
All other leases are treated as operating leases and the rentals
payable are charged on a straight-line basis to the profit or loss
over the lease term.
j) Investments
Investments in the Company accounts relate to investments in
subsidiaries and are stated at cost less provision for any
impairment in value.
k) Inventories
Inventories are stated at the lower of cost and net realisable
value after making due allowance for obsolete and slow-moving
inventory. Cost includes all direct costs and an appropriate
proportion of fixed and variable overheads. Cost is calculated
using the standard cost or weighted average cost methods,
appropriate to the materials and production processes involved. Net
realisable value is based upon estimated selling price allowing for
all further costs of completion and disposal.
l) Derivative financial instruments
The Group uses derivative financial instruments to reduce
exposure to commodity price and foreign exchange rate movements.
The Group does not hold or issue derivative financial instruments
for speculative purposes.
Derivative financial instruments are held by the Group as assets
or liabilities on the Statement of Financial Position measured at
the fair values at the year end date. Changes in the value of
derivative financial instruments arising from fair value hedges are
recognised in the income statement.
For a hedging relationship to qualify for hedge accounting it
must be documented at inception and it must be highly effective in
offsetting the changes in cash flows or fair value attributed to
the hedged risk.
m) Cash and cash equivalents
Cash and cash equivalents on the Statement of Financial Position
consist of cash in hand and at the bank. Cash and cash equivalents
recognised in the Cash Flow Statement include cash in hand and at
the bank, and bank overdrafts which are payable on demand. Deposits
are only included within cash and cash equivalents only when they
have a short maturity of three months or less at the date of
acquisition.
n) Trade receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment.
o) Trade payables
Trade payables are recognised initially at fair value and are
subsequently measured at amortised cost using the effective
interest method.
p) Bank borrowings
Interest bearing bank loans and overdrafts are recorded as the
proceeds received net of direct issue costs and are valued at
amortised cost.
q) Foreign currencies
The consolidated financial statements are presented in sterling
which is the Group's functional and presentation currency.
Transactions in foreign currencies are recorded at the rate of
exchange at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance sheet
date are reported at the rates of exchange prevailing at that
date.
All foreign exchange gains and losses arising from transaction
in the year are presented in the Statement of Comprehensive Income
within the administration expense heading.
Foreign currency differences on the translation of foreign
subsidiaries are included in other comprehensive income and are
shown as a separate reserve on the Statement of Financial
Position.
The Group mitigates foreign exchange risk by taking out forward
exchange rate contracts. These are recognised at fair value on the
Statement of Financial Position at the year end.
r) Goodwill
Goodwill is calculated as the difference between the fair value
of the consideration exchanged and the net fair value of the
identifiable assets and liabilities acquired, and is capitalised.
Goodwill is tested for impairment annually and whenever there is an
indication of impairment. Goodwill is carried at cost less
accumulated impairment losses.
When the acquired interest in the net fair value of the
identifiable assets and liabilities exceeds the cost of the
business combination, the excess is recognised immediately in the
income statement.
Gains and losses on the disposal of a business combination
include the carrying amount of goodwill relating to the entity
sold.
IFRS 3 "Business Combinations" requires that goodwill arising on
the acquisition of subsidiaries is capitalised and included in
intangible assets. IFRS 3 also requires the identification of other
intangible assets at acquisition. The assumptions involved in
valuing these intangible assets require the use of estimates and
judgements which differ from the actual outcome. These estimates
and judgements cover future growth rates, expected inflation rates
and the discount rate used.
Business combinations are accounted for using the acquisition
method as at the acquisition date, which is the date on which
control is transferred to the Group. The Group measures goodwill at
the acquisition date as:
-- the fair value of the consideration transferred; plus
-- the recognised amount of any non-controlling interests in the acquiree; plus
-- the fair value of the existing equity interest; less
-- the net recognised amount (generally fair value) of the
identifiable assets acquired and liabilities assumed.
Costs related to the acquisition, other than those associated
with the issue of debt or equity securities, are expensed as
incurred. Any contingent purchase consideration payable is
recognised at fair value at the acquisition date. If the contingent
purchase consideration is classified as equity, it is not
remeasured and settlement is accounted for within equity.
Otherwise, subsequent changes to the fair value of the contingent
purchase consideration are recognised in the Consolidated Income
Statement.
3. Critical accounting estimates and judgements
In order to prepare these consolidated financial statements in
accordance with the accounting policies set out in note 2,
management have used estimates and judgements to establish the
amounts at which certain items are recorded. Critical accounting
estimates and judgements are those that have the greatest impact on
the financial statements and require the most difficult, subjective
and complex judgements about matters that are inherently uncertain.
Estimates are based on factors including historical experience and
expectations of future events that management believe to be
reasonable. However, given the judgemental nature of such
estimates, actual results could be different due to the assumptions
used. The critical accounting estimates are set out below.
a) Impairment of goodwill
An impairment of goodwill has the potential significantly to
impact upon the Group's Statement of Comprehensive Income for the
period. In order to determine whether impairments are required the
Directors estimate the recoverable amount of the goodwill. This
calculation is based on the Group's cash flow forecasts for the
following financial year extrapolated over a rolling 19-year period
assuming a 2% growth rate. A discount factor, based upon the
Group's weighted average cost of capital, which has been increased
to reflect the increased risk of the Company being listed on AIM
rather than the full market, is applied to obtain a current value
('value in use').
The weighted average cost of capital is impacted by estimates of
interest rates, equity returns and market related risks. The
Group's weighted average cost of capital is reviewed on an annual
basis.
The fair value less costs to sell of the cash generating unit is
used if this results in an amount in excess of value in use.
Estimated future cash flows for impairment calculations are
based on management's expectations of future volumes and margins
based on plans and best estimates of the productivity of the income
generating units in their current condition. Future cash flows
therefore exclude benefits from major expansion projects requiring
future capital expenditure.
b) Retirement benefits
The Company sponsors the Napier Brown Foods Retirement Benefits
Plan which is a funded defined benefit arrangement. The amounts
recorded in the financial statements for this type of scheme are
based on a number of assumptions, changes to which could have a
material impact on the reported amounts.
Any net deficit or surplus arising on the defined benefit plan
is shown in the Statement of Financial Position. The amount
recorded is the difference between plan assets and liabilities at
the Statement of Financial Position date. Plan assets are based on
market value at that date. Plan liabilities are based on actuarial
estimates of the present value of future pension or other benefits
that will be payable to members.
The most sensitive assumptions involved in calculating the
expected liabilities are mortality rates and the discount rate used
to calculate the present value. If the mortality rate assumption
changed, a one year increase to longevity would increase the
liability by 5%. Changes to the discount rate of 0.5% would result
in a change in the scheme liabilities of (7)% and a 0.5% movement
in the rate of inflation would change the liabilities of the scheme
by 2%.
The Statement of Comprehensive Income generally comprises a
regular charge to operating profit for the current and past service
cost. Past service costs represent the change in the present value
of the benefits obligation that arises from benefit charges that
are applied retrospectively to prior year benefits that have
accrued. Past service costs are charged in full in the year when
the changes to benefits are made. There is also a finance charge,
which represents the net of expected income from plan assets and an
interest charge on plan liabilities. These calculations are based
on expected outcomes at the start of the financial year. The
Statement of Comprehensive Income is most sensitive to changes in
expected returns from plan assets and the discount rate used to
calculate the interest charge on plan liabilities.
Full details of these assumptions, which are based on advice
from the Group's actuaries, are set out in note 30 in the Company's
Annual Report and Accounts.
c) Significant items
In determining whether an item should be classified as a
significant item the Board reviews the expenditure in question and
assesses whether the expenditure meets the definition of a
significant item as defined in the Group's accounting policy (note
2). Items are included within significant items only if, following
this review, the Board is satisfied that the expenditure meets with
the definition set out in the accounting policy.
d) Business claims
In common with comparable food groups, the Group is involved in
a number of disputes in the ordinary course of business which may
give rise to claims. Provision representing the cost of defending
and concluding claims is made in the financial statements for all
claims where costs are likely to be incurred. The Group carries a
wide range of insurance cover and no separate disclosure is made of
the detail of claims or the costs covered by insurance, as to do so
could seriously prejudice the position of the Group.
e) Going concern
The Directors have considered the Group's business activities
together with the factors likely to affect its future development
and performance. These assumptions have been projected and shared
with the Company's bank and advisers.
The Company has now successfully renegotiated new banking
covenants and confirmed the support of the bank for the next 12
months. The principal shareholders of the Group have shown
considerable support for the working capital requirements and,
having carefully considered the liquidity of the Company in line
with future performance, the Directors believe that there are
sufficient resources in place for the Group to meet its liabilities
and that the Group is well placed to manage its business risks. The
Directors believe the Group is a going concern and the financial
statements have been prepared and submitted on that basis.
4. Revenue
The revenue for the Group for the current year arose from the
sale of goods in the following areas:
Cake Decoration Manufactures, sells and supplies cake decorating products
and ingredients for the baking sector.
---------------- ---------------------------------------------------------------
Food Ingredients Manufactures and supplies a range of food ingredients from
bagged sugar and dairy powders to chocolate coatings and jams.
---------------- ---------------------------------------------------------------
Premium Bakery The manufacture and supply of high quality ambient cakes and
desserts to the retail and foodservice sectors.
---------------- ---------------------------------------------------------------
5. Reconciliation of underlying EBITDA to operating profit
GBP000s Cake Decoration Food Ingredients Premium Head Office Total Group
Bakery
--------------- --------------- ---------------- ------- ----------- -----------
Operating
profit/(loss) 5,494 (5,779) 97 (5,631) (5,819)
Significant
items 264 141 95 (413) 87
Impairment
Charge - 3,589 - 520 4,109
Depreciation 719 469 696 550 2,434
Amortisation 51 16 279 22 368
--------------- --------------- ---------------- ------- ----------- -----------
Underlying
adjusted
EBITDA 6,528 (1,564) 1,167 (4,952) 1,179
The financial information set out in this announcement does not
constitute the company's statutory accounts for the years ended 31
March 2016 or 2017. The financial information for the year ended 31
March 2016 is derived from the statutory accounts for that year
which have been delivered to the Registrar of Companies. The
auditors reported on those accounts: their report was unqualified,
did not draw attention to any matters by way of emphasis and did
not contain a statement under s498(2) or (3) of the Companies Act
2006.
The financial information for the year ended 31 March 2017 is
derived from Group's financial statements for the year ended 31
March 2017 which were approved by the directors on 28 September
2017. The auditors reported on those accounts: their report was
unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under s498(2) or (3) of
the Companies Act 2006. These accounts will be delivered to the
registrar in due course.
Whilst the financial information included in this announcement
has been computed in accordance with International Financial
Reporting Standards (IFRS), this announcement does not in itself
contain sufficient information to comply with IFRS. The accounting
policies used in preparation of this announcement are consistent
with those in the full financial statements that have yet to be
published.
Full Notes to this statement are contained in the Company's
Annual Report and Accounts a copy of which can be found on the
Company's website http://www.realgoodfoodplc.com/
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UKVURBBAKUAR
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