TIDMRGD
RNS Number : 3315W
Real Good Food PLC
22 April 2021
22 April 2021
Real Good Food plc
("RGF" or "the Group")
Disposal of Brighter Foods Limited, Notice of General Meeting
and Trading Update
Real Good Food plc, (AIM: RGD) the diversified food business,
announces that it and the Managers have conditionally agreed to
sell the entire issued share capital of Brighter Foods Limited for
an aggregate cash consideration of GBP43.0 million on a cash
free/debt free basis to THG plc ("THG"). RGF, through its
subsidiary NBF, has an interest in 84.334 per cent. of the issued
share capital of Brighter Foods Limited with the balance owned by
Brighter's Managers. The Group will therefore receive cash proceeds
of GBP35.64 million.
The consideration due to the Sellers is subject to customary
adjustments for (amongst other things) the actual working capital
at Completion against an agreed target level. The net assets being
disposed of amount to GBP17.3 million, resulting in a profit on
disposal of approximately GBP20.4 million.
The Board believes that the Disposal provides the Company with
the opportunity to crystallise an attractive return on invested
capital with respect to Brighter Foods, reduce net debt, make a
material contribution towards the Group's pension deficit and also
to provide additional financial flexibility to support the
operation and growth of the Continuing Group. Following the
Disposal, the Continuing Group will consist of the Company's Cake
Decorations businesses being Renshaw and Rainbow Dust Colours, and
two vacated properties held as assets for sale. The offer from THG
broadly equates to 8.6 times FY20 EBITDA and 11.7 times (unaudited)
EBITDA for the last 12 months ended 31 March 2021.
Use of Disposal proceeds
It has been agreed with the Group's pension trustee that GBP8.5m
of the aggregate net consideration will be paid to the Continuing
Group's pension scheme (the Napier Brown Retirement Plan) (the
"Plan"), which is broadly equivalent to the Plan's low dependency
technical provisions basis. As such, it is expected that the Group
will not have to pay further deficit contributions, which currently
amount to GBP1.0 million per annum, until a new schedule of
contributions is agreed based on the valuation to be agreed as at
31 March 2021 for the Plan; such agreement would take into account
this cash injection, which may result in payments of up to GBP1.5
million (in aggregate) being paid between 1 January 2023 and 30
June 2025 to close the gap towards a buy-out basis.
The Continuing Group has also agreed to pay GBP23.1 million to
the Loan Note Holders, reducing the amount repayable from GBP45.6
million to GBP22.5 million in respect of the loan notes, resulting
in a significant reduction in the financial liabilities attached to
the loan notes. Approximately GBP3.0 million of net proceeds will
be retained to provide working capital to support the financing
needs of Renshaw and Rainbow Dust Colours.
As a result, RGF's total net debt is expected to reduce from
GBP47.6 million (as at 31 March 2021) to GBP21.2 million. The Board
will be undertaking a thorough review of the Group's working
capital needs in the coming weeks, which may result in further
payments to Loan Note Holders and the Plan to further de-risk the
balance sheet.
Summary of use of proceeds:
Use GBPm
Pension scheme payment 8.5
---------
Loan note repayment 23.1
---------
Transaction fees 1.0
---------
Retained for working
capital 3.0
---------
Total RGF proceeds GBP35.6m
---------
Notice of General Meeting
The Disposal is of sufficient size relative to that of the
Existing Group to constitute a disposal resulting in a fundamental
change of business pursuant to Rule 15 of the AIM Rules and
Completion is, therefore, conditional upon the approval of
Shareholders at a general meeting of the Company.
Accordingly, Shareholder approval of the Disposal will be sought
at the General Meeting expected to be held at 10.00 a.m. on 10 May
2021. The notice convening the General Meeting and setting out the
Resolution to be considered at it will be set out in a circular
which is expected to be posted to Shareholders later today,
extracts of which can be found in the appendix to this
announcement. Irrecoverable undertakings to vote in favour of the
Disposal have been received by the Company in respect of
approximately 51.2% of the Company's issued share capital.
Capitalised terms, unless otherwise defined, have the same
meaning as will be set out in the circular to be posted to
Shareholders later today.
Trading update
As reported on 26 January 2021, the impact of COVID-19 was most
severe in Q1 (April to June 2020), during the first lockdown.
However, as lockdown restrictions eased, trading in both divisions
improved during the second half of the year ended 31 March 2021.
Group revenues were 2.4% ahead of FY20 in Q3. For Q4, revenues
within Cake Decorations were marginally ahead of last year, but
revenues within Brighter were lower, mainly due to a particularly
strong Q4 last year and the timing of limited edition launches.
Unaudited EBITDA for the Existing Group for the year ended 31 March
2021 was GBP2.8 million (FY20: GBP5.4 million).
Mike Holt, Executive Chairman, said:
"We are very pleased with the disposal which crystallises
substantial value for the Group and enables us to halve our debt
burden at a stroke, whilst materially improve the funding of the
pension scheme. It also provides a basis for further balance sheet
restructuring, as we look to accelerate and maximise value within
Renshaw and Rainbow Dust Colours.
Brighter Foods is a very good business and I am sure it will
continue to grow and develop with the direction and support of THG.
We wish Robin Williams, Brighter's founder, and his team at
Brighter Foods all the best. I would also like to thank Shaun
Brownell and his team at Spayne Lindsay for helping to secure best
value for the Group on Brighter's sale."
Spayne Lindsay & Co. LLP acted as Financial Adviser to Real
Good Food plc on the disposal of Brighter Foods Limited.
Enquiries :
Real Good Food plc Tel: 0151 541 3790
Mike Holt, Executive Chairman
Maribeth Keeling, Group Finance Director
finnCap Limited (Nomad and Broker) Tel: 020 7220 0500
Carl Holmes / James Thompson (Corporate
Finance)
MHP Communications (Financial PR) Tel: 020 3128 8100
Reg Hoare / Katie Hunt / Ailsa Prestige rgf@mhpc.com
About Real Good Food
Real Good Food plc is a food manufacturing business serving
several market sectors including retail (own label and private
label), manufacturing and export. The Group has two businesses,
Cake Decoration (Renshaw and Rainbow Dust Colours) and Food
Ingredients (Brighter Foods), with leading brands in their chosen
markets.
Appendix - EXTRACTS FROM THE CIRCULAR
LETTER FROM THE CHAIRMAN
1. Introduction
The Company has today announced that its subsidiary NBF and the
Managers have conditionally agreed to sell the entire issued share
capital of Brighter for an aggregate consideration of GBP43.0
million on a cash free/debt free basis. The Existing Group, through
the Company's subsidiary, NBF, has an interest in 84.334 per cent.
of the issued share capital of Brighter.
The consideration due to the Sellers is subject to customary
adjustments for (amongst other things) the actual working capital
at Completion against an agreed target level.
The Board believes that the Disposal provides the Company with
the opportunity to crystallise an attractive return on invested
capital with respect to Brighter, reduce net debt, make a material
contribution towards the Continuing Group's pension deficit and
also to provide additional financial flexibility to support the
operation and growth of the Continuing Group. Following the
Disposal, the Continuing Group will consist of the Company's Cake
Decorations businesses being Renshaw and Rainbow Dust Colours.
As mentioned above, it has been agreed with the pension trustee
that GBP8.5 million of the aggregate net consideration receivable
by the Continuing Group will be paid to its pension scheme (the
Napier Brown Retirement Plan) (the "Plan"), which is broadly
equivalent to the Plan's low dependency technical provisions basis.
As such, it is expected that the Continuing Group will not have to
pay further deficit contributions, which currently amount to GBP1.0
million per annum, until a new schedule of contributions is agreed
based on a valuation to be agreed as at 31 March 2021 for the Plan
which would take into account this cash injection, which may result
in payments of up to GBP1.5 million (in aggregate) being paid
between 1 January 2023 and 30 June 2025 to close the gap towards a
buy-out basis. The Continuing Group has also agreed to pay GBP23.1
million to the Loan Note Holders, reducing the amount repayable
from GBP45.6 million to GBP22.5 million in respect of the loan
notes held by them. As a result, total net debt is expected to
reduce from GBP47.6 million to GBP21.2 million taking into account
cash of GBP6.1 million (which includes approximately GBP3.0 million
of net proceeds receivable by the Continuing Group which will be
retained to provide working capital to support Renshaw and Rainbow
Dust Colours).
Should surplus cash be generated over the coming six months, or
the required level of working capital investment is lower than
forecast, additional payments may be made to the Loan Note Holders
and to the Plan.
The Disposal is of sufficient size relative to that of the
Existing Group to constitute a disposal resulting in a fundamental
change of business pursuant to Rule 15 of the AIM Rules and
Completion is, therefore, conditional upon the approval of
Shareholders at a general meeting of the Company.
Accordingly, your approval of the Disposal is being sought at
the General Meeting to be held at the offices of J F Renshaw
Limited at Crown Street, Liverpool L8 7RF at 10.00 a.m. on 10 May
2021. The notice convening the General Meeting and setting out the
Resolution to be considered at it is set out at the end of this
document. A summary of the action you should take is set out in
paragraph 11 below and on the Form of Proxy which accompanies this
document.
Further details of the SPA are set out below and in Part 2 of
this document.
The purpose of this document is to give you details of the
Disposal, including the background to and reasons for it, and to
explain why the Directors consider it to be in the best interests
of the Company and its Shareholders as a whole and therefore
recommend that you vote in favour of the Resolution.
Certain Shareholders have irrevocably undertaken to vote in
favour of the Resolution in respect of, in aggregate, 51,001,232
Ordinary Shares, representing approximately 51.2 per cent. of the
current issued ordinary share capital of the Company.
2. Background to and reasons for the Disposal
Brighter is one of the largest developers and manufacturers of
snack bars in the UK and has grown rapidly since it was acquired by
the Continuing Group in April 2017. It has proven to be resilient
during the current COVID-19 pandemic, albeit sales and profits for
the current year have naturally been affected. Given the high level
of indebtedness of the Continuing Group, due to some poor
acquisitions in the past, the current Board has been minded to
dispose of Brighter at the right value. The timing of the sale is
appropriate in the view of the Board as it also coincides with the
end of the lock-in period of the current CEO and founder of
Brighter. The offer from THG broadly equates to 8.6 times
annualized FY20 EBITDA and 11.7 times (unaudited) EBITDA for the
last 12 months ended 31 March 2021.
Information on Brighter
Brighter is an award-winning company which develops and
manufactures snack bars, principally as a contract manufacturer for
large branded companies. From its factory in Tywyn, Gwynedd in
mid-Wales it produces snack bars which are targeted at markets such
as diet control, gluten free, lactose free, low or no added sugar,
sports nutrition, organic and fair trade. In addition to being a
contract manufacturer to large branded companies, it produces its
own brand Wild Trail, which is stocked in retailers and health food
stores, and also develops and manufactures for innovative small and
medium sized companies.
In the Existing Group's financial year ended 31 March 2020,
Brighter contributed GBP25.3 million of revenue, GBP5.0 million
EBITDA and a profit before non-recurring items and tax of GBP2.9
million, and a pre-tax profit of GBP2.9 million. As at 28 March
2021, the net assets of Brighter amount to GBP17.3 million. The
Continuing Group expects to report an accounting profit on disposal
of Brighter of approximately GBP20.4 million.
Principal terms of the Disposal
Pursuant to the terms of the SPA, the Sellers have conditionally
agreed to sell the entire issued share capital of Brighter to the
Purchaser for an aggregate consideration of GBP43.0 million on a
cash free/debt free basis and subject to their being a normal level
of working capital in the Company at Completion. NBF's share of
that consideration, as a 84.334 per cent. shareholder in Brighter,
is approximately GBP35.6 million before transaction costs.
Completion is conditional on the Resolution being passed by the
requisite majority at the General Meeting (or any adjournment
thereof).
Further details of the SPA are set out in Part 2 of this
document.
4. Information on the Purchaser
The Purchaser is an indirect subsidiary of THG plc. THG is a
vertically integrated, digital-first consumer brands group,
retailing its own brands predominantly in beauty and nutrition,
plus third-party brands, via its proprietary, end-to-end,
e-commerce technology, infrastructure and brand-building platform
(THG Ingenuity) to an online and global customer base.
5. Financial effects of the Disposal and use of the proceeds
The Board will continue to evaluate opportunities to enhance
Shareholder value from the Continuing Group. As noted above, it has
been agreed that GBP23.1 million of the net proceeds will be used
to partially repay Loan Note Holders and GBP8.5 million will be
paid to the Plan so that it is fully funded on an ongoing basis.
Leumi ABL Limited ("Leumi"), which provides the Company with a term
loan of GBP1.3 million, a plant and machinery loan of GBP2.1
million and an invoice discounting facility of up to GBP5.45
million, has confirmed that it will continue to provide funding to
the Continuing Group following Completion.
The Board intends to retain GBP3.0 million from the aggregate
net proceeds of the sale to provide working capital to support the
needs of Renshaw and Rainbow Dust Colours. Should the required
level of working capital investment be lower than forecast,
additional payments may be made to the Loan Note Holders and to the
Plan.
6. Strategy for the Continuing Group
Following the Disposal, the Continuing Group will consist of the
Cake Decorations business, being Renshaw and Rainbow Dust Colours.
For the year ended 31 March 2020, revenue of the Continuing Group
was GBP41.2 million, EBITDA was GBP1.8 million and profit before
non-recurring items and tax was GBP0.3 million (excluding Head
Office and share option costs). The Continuing Group will be
operated out of Crown Street and Wavertree in Liverpool and,
immediately following Completion, will have approximately 310
employees.
Whilst the Board will seek to accelerate the improvement
initiatives within the Continuing Group, it will also continue to
explore and consider carefully all appropriate options to grow the
businesses, further improve operational efficiency and reduce
costs. Continuing Group costs within Head Office will also be
reduced where possible and the Continuing Group will explore
further opportunities to refinance and restructure, including the
possibility of putting a proposal to Shareholders to approve the
cancellation of the admission of the Shares to AIM.
Renshaw
Renshaw has a leading position in the UK cake decorating market,
with a renowned and respected heritage brand. It is a
multi-channelled business with a broad range of branded and private
label products, well known for superior quality. During the last 18
months, a new business unit CEO and several new managers have been
recruited to drive value within the business. A number of
operational improvement initiatives are underway to improve and
sustain margins and reduce overhead costs. There is also a real
focus on new product and service innovations to expand into
adjacent and growing market segments, as the core market of sugar
paste is a mature market and volumes of certain products are in
gradual decline. New products and markets recently developed
include caramels and frostings. Renshaw is also successfully
winning new business and broadening its customer base in retail and
wholesale channels.
Rainbow Dust Colours
Rainbow Dust Colours is a market leader in the UK cake colours
and edible decorations market. Its products are listed in all major
sugarcraft outlets and specialist retailers, such as Hobbycraft and
Lakeland. Its products include edible colours, glitters, paint,
confetti, powders, sugar crystals and lustres. The aim is to
continue to innovate and maintain its leading position in the
growth sugarcraft segment as well as expanding sales into the other
markets which Renshaw supplies.
7. Current trading
As reported on 26 January 2021, the impact of COVID-19 was most
severe in Q1 (April to June 2020), during the first lockdown.
However, as lockdown restrictions eased, trading in both divisions
improved during the second half of the year ended 31 March 2021.
For Q3, Existing Group revenues were 2.4 per cent. ahead of FY20
and revenues for Q4 ended 31 March 2021 were GBP13.5 million
compared to GBP15.1 million last year; revenues within Cake
Decoration were marginally ahead of last year's Q4, but revenues
within Brighter lower, mainly due to a particularly strong Q4 in
the prior year. Total net debt as at 31 March 2021 was GBP47.6
million. Looking further ahead to the upcoming financial year, it
is expected that the Cake Decorations division will be back to FY20
levels of revenue and in terms of EBITDA at a similar level to
FY19.
8. Irrevocable undertakings
Irrevocable undertakings to vote in favour of the Resolution
have been received by the Company in respect of, in aggregate,
51,001,232 Ordinary Shares, representing approximately 51.2 per
cent. of the Company's current issued share capital as follows:
% of
No. of current
Ordinary issued
Shareholder Shares share capital
Downing 7,844,924 7.9%
NB 22,139,998 22.2%
Patrick Ridgwell 362,356 0.4%
Omnicane International 20,653,954 20.7%
Total 51,001,232 51.2%
9. General Meeting
You will find set out at the end of this document a notice
convening the General Meeting to be held on 10 May 2021 at the
offices of J F Renshaw Limited at Crown Street, Liverpool L8 7RF at
10.00 a.m. at which the Resolution will be proposed.
The Resolution, which will be proposed at the General Meeting as
an ordinary resolution, is to approve the Disposal and to authorise
the Directors to take all steps necessary or desirable to complete
the Disposal.
A simple majority (being more than 50 per cent.) of votes cast
must be in favour of the Resolution in order for it to be
passed.
Shareholders should read the Notice of General Meeting at the
end of this document for the full text of the Resolution and for
further details about the General Meeting.
10. Arrangements for the General Meeting
Given the uncertainty, in light of the COVID-19 pandemic, around
whether Shareholders will be able to attend the General Meeting it
is recommended that all Shareholders appoint the chairman of the
General Meeting as their proxy to vote in accordance with their
instructions. This will ensure that their vote will be counted even
if attendance is restricted or they are unable to attend in
person.
The results of the General Meeting will be available on the
Company's website shortly after the General Meeting has closed.
If you would like to raise questions concerning the business of
the General Meeting
In light of the uncertainty as to whether Shareholders will be
able to attend the General Meeting, Shareholders are encouraged to
participate at the General Meeting by raising any questions in
advance of the meeting by emailing our Company Secretary, Maribeth
Keeling, at RGFplc@realgoodfoodplc.com by 10.00 a.m. on 5 May 2021.
Answers to questions on key themes will be provided via a
'Questions and Answers' document which will be available to view on
the Company's website from or about the date of the General
Meeting.
If you would like to participate in the General Meeting via
electronic means
If you would like to participate in the General Meeting via
electronic means you will need to email RGFplc@realgoodfoodplc.com
by 3.00 p.m. on 5 May 2021 to confirm this, giving details of your
name and Shareholder reference number. We are asking Shareholders
to do this so that we can engage with those Shareholders and
provide them with the required details of how to access the General
Meeting via electronic means. To participate via electronic means
Shareholders will need access to an internet enabled device that
allows the business of the General Meeting to be heard by them and
for the Shareholder to be heard, when wishing to address the
General Meeting. Shareholders should note that the only place at
which the General Meeting is being held is at the offices of J F
Renshaw Limited at Crown Street, Liverpool L8 7RF.
If you plan to seek to physically attend the General Meeting
If you plan to seek to physically attend the General Meeting, we
would ask that you email RGFplc@realgoodfoodplc.com by 3.00 p.m. on
5 May 2021 to confirm your intention to attend, giving details of
your name and Shareholder reference number. We are asking
Shareholders to do this so that we can engage with those
Shareholders about the likely running of the General Meeting and
the Board's expectation concerning whether Shareholders will be
permitted to attend and also to enable the Company to comply with
the then current Government COVID-19 restrictions.
The Board continues to follow advice issued by Government with
respect to the COVID-19 pandemic and will issue further guidance if
necessary. Up to date information and any changes to the General
Meeting arrangements contained in this document will be available
on the website at http://www.realgoodfoodplc.com. Please continue
to check that website for updates.
11. Action to be taken
A Form of Proxy for use at the General Meeting accompanies this
document.
Given the uncertainty, in light of the COVID-19 pandemic, around
whether Shareholders will be able to attend the General Meeting it
is recommended that all Shareholders appoint the chairman of the
General Meeting as their proxy to vote in accordance with their
instructions. This will ensure that their vote will be counted even
if attendance is restricted or they are unable to attend in
person.
The Form of Proxy should be completed and signed in accordance
with the instructions thereon and returned to the Company's
registrars, Link Group, as soon as possible, but in any event so as
to be received by no later than 10.00 a.m. on 6 May 2021 (or, if
the General Meeting is adjourned, 48 hours (excluding any part of a
day that is not a working day) before the time fixed for the
adjourned meeting).
If you hold your Ordinary Shares in uncertificated form in
CREST, you may vote using the CREST Proxy Voting Service in
accordance with the procedures set out in the CREST Manual. Further
details are also set out in the notes accompanying the Notice of
General Meeting at the end of this document. Proxies submitted via
CREST must be received by Link Group (ID RA10) by no later than
10.00 a.m. on 6 May 2021 (or, if the General Meeting is adjourned,
48 hours (excluding any part of a day that is not a working day)
before the time fixed for the adjourned meeting).
The return of a completed Form of Proxy or the appointment of a
proxy using the CREST Proxy Voting Service will not prevent a
Shareholder from attending the General Meeting and voting in person
(should this be permitted under applicable COVID-19 restrictions)
if a Shareholder wish to do so (such Shareholders are referred to
paragraph 7 above, which should be read and considered
carefully).
12. Recommendation
The Directors consider the Disposal to be in the best interests
of the Company and its Shareholders as a whole and accordingly
unanimously recommend Shareholders to vote in favour of the
Resolution to be proposed at the General Meeting.
Certain Shareholders have irrevocably undertaken to vote in
favour of the Resolution in respect of, in aggregate, 51,001,232
Ordinary Shares, representing approximately 51.2 per cent. of the
current issued ordinary share capital of the Company.
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END
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