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RNS Number : 2549J
Real Good Food PLC
16 August 2019
 

16 August 2019

Real Good Food plc

 

("Real Good Food" or the "Company")

 

Final results for the year ended 31 March 2019

Real Good Food plc, (AIM: RGD) the diversified food business, today announces its final results for the year ended 31 March 2019.

 

Financial highlights

•       Revenue from continuing businesses decreased by 3.4% from £63.8 million to £61.6 million.

•       Adjusted EBITDA of £1.9m (see note 3) compared to a loss of £0.3m in the prior year, despite the 3.4% decline in revenue.

•       The two continuing divisions, Cake Decoration and Food Ingredients are profitable (before impairment charges) and cash generative; total divisional adjusted EBITDA of £5.8m (see note 3) before central costs.

•       Central costs have been materially reduced during the year by £1.3m.

•       Goodwill has been impaired by £18.7m (2018: Nil), to reflect the value today of the continuing businesses.

•       Bank term debt has been repaid; the invoice discount financing materially reduced

•       Net debt at 31 March 2019 stood at £35.7 million (2018: £37.8 million), being predominantly shareholder loans, of which £9.6m is in the form of convertible loan notes.

Operational highlights

•       A year of significant transition focusing on our core assets, with business disposals, refinancing, and cost reductions.

•       During the year, Garrett Ingredients, Haydens Bakery, R&W Scott and Chantilly Patisserie were sold, with total cash proceeds of £18 million, utilised in debt reduction and working capital.

•       Significant increase in capacity of Food Ingredients facility following its capital investment programme.

•       Appropriate Board structure is now in place in line with our commitment to improved corporate governance.

Post-period end events

•       £0.3 million fine paid following AIM Disciplinary Notice relating to failings of corporate governance in and prior to 2017.

Current Trading

•       Current trading is in line with the Board's modest expectations.

•       Cake Decoration (Renshaw and Rainbow Dust Colours):

Improved capital base and operating structure, reflective of the turnaround underway. 

Focus on strengthening customer relationships and growing sales.

Early progress evident although the UK retail sector continues under pressure to rationalise its supplier base.

•       Food Ingredients (Brighter Foods):

Significantly increased capacity since the period end, on the back of demand from existing and new customers.

Currently selling all its production.

Bodes well for the division to outperform its modest expectations.

•       Further reductions in central costs

•       The Group remains focused on continuing to improve its results, and reduce net debt.

 

Hugh Cawley, Chief Executive commented:

"After a very difficult period in the Group's history and a great deal of corporate activity, Real Good Food plc now comprises two divisions, with clearly articulated objectives and defined strategies to accomplish those objectives. We believe we now have the leadership, the senior management and the resources capable of delivering a further uplift in performance from both businesses, and a substantially lower central cost base more fit for purpose.

"In the new financial year to date, current trading from the two remaining, robust and profitable businesses is in line with our modest expectations for the year. The Group remains focused on continuing to improve its results and on reducing net debt, as well as continuing to support the business's strategy and thereby to increase shareholder value and returns."

 

Enquiries:

Real Good Food plc

Hugh Cawley, Chief Executive

Maribeth Keeling, Chief Financial Officer

Tel: 0151 541 3790

 

 

 

finnCap Limited (Nomad and Broker)

Matt Goode / Carl Holmes / James Thompson (Corporate Finance)

Tel: 020 7220 0500

 

 

MHP Communications (Financial PR) 

Reg Hoare / Katie Hunt

 

Tel: 020 3128 8734

[email protected]

 

About Real Good Food plc

Real Good Food plc is a diversified food business serving a number of market sectors including retail, manufacturing, foodservice and export.  The Company now focuses on two main markets: Cake Decoration (Renshaw and Rainbow Dust Colours) and Food Ingredients (Brighter Foods).

Chairman's Statement

I am pleased to report that Real Good Food has made significant progress over the past financial year. It is now a focussed group comprising two businesses, both of which are profitable at adjusted EBITDA level and cash generative, having started the year as an unprofitable cash-absorbing collection of six businesses with little clear strategic direction.

The Group's strategy is to develop the two remaining core businesses which are leaders in their chosen markets. Management actions are in place for Cake Decoration to rebuild customer relationships and trust by improving product quality and dependability whilst also improving operational efficiencies further and growing sales in the UK and internationally. Food Ingredients is meeting the challenges of scaling up production, which has nearly doubled in the year, and broadening its customer base.

We are fully committed to improving the Group's financial performance and reducing its debt burden. The Board is confident that the actions being taken by management are the right ones and that, together with the investments we have made, should deliver benefits in the coming year.

Strategic Review

 

31 March

2019
£'000s

31 March

2018
£'000s

Loss before taxation of continuing businesses

(26,090)

(9,078)

Depreciation of property, plant and equipment

1,573

1,431

Impairment charge

18,675

-

Amortisation of intangibles

1,454

1,737

Significant items

1,717

4,008

Finance costs

4,406

1,424

Other finance costs

166

164

EBITDA (adjusted) Profit/(Loss)

1,901

(314)

 

2018/19 performance

Revenue from continuing businesses declined slightly from £63.8m to £61.6m, with Food Ingredients seeing a reduction of £0.9m and Cake Decoration's sales down by £1.2m. The former principally resulted from the short-term restriction of sales owing to operational issues arising from the expansion of capacity to accommodate significant growth in the future; underlying demand for the division's products remained strong throughout the period. Cake Decoration was affected by the loss of one significant customer which unfortunately more than offset the revenue growth accomplished elsewhere within the division. The combined effect of lost sales and extra costs incurred in the capacity expansion resulted in a reduction in underlying adjusted EBITDA for Food Ingredients (continuing) from £3.7m to £2.8m. In Cake Decoration, underlying adjusted EBITDA increased from £1.1m in 2018 to £3.0m in 2019, despite the loss of the customer referred to above.

Over the last two accounting periods, significant costs (both cash costs and non-cash costs) have been recognised in the turnaround of the business - restructuring costs necessary to align central resources with the anticipated, smaller size of the group, for example, losses on disposal of non-core businesses and impairment charges where future forecast profitability could not sustain the value of goodwill recognised some years ago. These have now all been recognised, and the Board's intention is to ensure that such turnaround costs are now a thing of the past; more importantly, the remaining businesses are profitable and they both generate cash. The Group's central resources have been pared back to minimal levels and opportunities are continually sought to reduce these further, consistent with good governance. The Group retains higher levels of shareholder debt than is ideal, debt on which the coupon was determined in less profitable times, and this interest burden, almost all of which is rolled-up, will remain for the foreseeable future.

Capital structure

During the course of the financial year, the Company formally stabilised its funding structure. During July and August 2018, principally through the provision of shareholder loan notes convertible into equity in the sum of up to £8.8 million, provided by our three major shareholders (Napier Brown, Omnicane and Downing LLP client funds), supplemented by an oversubscribed open offer for £1 million, the longer-term survival of the company was assured, albeit with a significant interest coupon attaching, and details of those loans, and other funding sources, are set out in note 10. These financial restructuring arrangements were approved at a general meeting of shareholders in August 2018.

Although the Board believes the Group's level of debt outstanding remains higher than a business such as Real Good Food should have, given its business model, the presence of bank debt within the Group was restricted to asset-backed finance held by J F Renshaw and its invoice discounting facility; as at 31 March 2019 there was no bank term loan outstanding. At the same time, the Group's balance sheet retains a significant tangible asset base, goodwill that has been written down to realistic levels, and has net assets significantly in excess of the Group's current stock market capitalisation. This is an important measure in establishing the Group's financial worth in the future.

Operating performance and Outlook

For each component of the very much simpler group, we have set budgets for the new financial year. So far, the performance of each of the businesses is well aligned with the board's expectations and central costs are also in line. The Cake Decoration market in the UK, particularly in the retail sector, is proving increasingly competitive but we are confident that we can leverage the fund of experience and expertise we have to deliver what our customers need and want. The Cake Decoration business has recently welcomed a new Chief Executive, Steve Moon, whose experience of the sector and business improvement credentials are such that we have high hopes of him continuing the successful implementation of the newly articulated strategy for that business. The Food Ingredients division's growth plans are also now well in train under well-established, experienced management and the future for both businesses looks justifiably bright. The uncertainties of Brexit for the business community continue, of course, and we are mindful that the Cake Decoration business has European marketing and distribution operations which may be impacted.

After two challenging years in the period to 31 March 2019, the board wishes to thank all the Group's and businesses' stakeholders for their understanding and patience to date. We are now entering a period when the rewards for that patience should start to become evident.

Group strategy

In the Report and Accounts last year, we explained that the Board's strategy was to implement a turnaround plan for the Group by focusing on its core assets and that the first phase of the plan had broadly been delivered, through business disposals, some refinancing, cost reductions and implementation of normalised accounting policies.

As an important part of our determination to improve the profitability and cash generation of the core assets, we undertook a formal process, with third party involvement, of understanding our customers' perception of the Cake Decoration business and setting a refreshed and invigorated strategy for that division. We identified areas of strength and weakness and have set in motion processes to address each.

The strategy for the Food Ingredients division continues to be relevant and focused on delivering great products for our customers, as evidenced by the significant potential for growth in that business. After investing £3.2 million in that business over the past year, its capacity has doubled and, such is the quality of the product coming out of its Tywyn facility, that the only current constraint on sales is the business's ability to make the product.

It was a part of the role of any Group staff to work appropriately with the management of each business to help improve its performance, in its efforts to increase the return on the considerable investment that has been made in recent years. As the number of businesses has decreased, therefore so has the level of Group central resource, such that each business is now self-sufficient. Central resources are now therefore limited to functions that relate to finance, information services and general management.

Summary and Outlook

After a very difficult period in the Group's history and a great deal of corporate activity, Real Good Food plc now comprises two divisions, with clearly articulated objectives and defined strategies to accomplish those objectives. We believe we now have the leadership, the senior management and the resources capable of delivering a further uplift in performance from both businesses, and a substantially lower central cost base more fit for purpose.

In the new financial year to date, current trading from the two remaining, robust and profitable businesses is in line with our modest expectations for the year. The Group remains focused on continuing to improve its results and on reducing net debt, as well as continuing to support the business's strategy and thereby to increase shareholder value and returns.

We have made significant progress in our corporate governance regime, and now have in place an appropriate board structure, balanced as to Executive, Non-Executive and independent Non-Executive Directors. The Board is grateful for the continued support of all stakeholders who have shown confidence in the Group during the past year and will make every effort to retain the positive momentum which is now clearly evident in the underlying businesses. The Board is confident in the future prospects for the Group as a whole.

 

Divisional Business Review

Cake Decoration

2018/19 Performance

In a transitional year, the result for Cake Decoration was encouraging in that the division delivered a significantly improved underlying adjusted EBITDA performance, despite overall challenging consumer demand and trading conditions, control of overhead expenditure and the realignment of resources from Group to Cake Decoration.

At the overall market level, consumer demand for Cake Decorating products in the company's core market, the UK, was in slight decline at minus 1% year on year, but there was some improvement in the key seasonal trading period in the last three months of the year when market volumes increased by 2%.

In the UK, where all the division's manufacturing facilities are located, sales in the wholesale and retail distribution channels were down on prior year with the decision of one significant customer in retail to move production in-house, accounting for a year-on-year reduction of £1.6m in revenue, while sales within the manufacturing channel grew by 8%, and sales to the company's sister company in the USA, increased by £2.4m, reflecting increased customer demand and some limited re-stocking in that market.

Following the establishment of a USA-based warehouse, to fulfil orders for North America and an increase in customer demand, sales in North America grew by a healthy 22%. A review of the order fulfilment model for Continental Europe customers was also completed, resulting in the closure of the Brussels warehouse and office. Order fulfilment for Continental Europe customers is now handled by the Company's main customer service and warehouse operation based in Liverpool. The change was well executed with the customer base retained and sales down by only 3% when compared with prior year, reflecting increased competition and some economic uncertainty rather than the change in distribution model.

A new line to produce convenience formats of Renshaw's core product, rolled icing, was fully operational, delivering increased throughput and lower costs and a new soft icings plant became fully commissioned with the first orders for UK retailer own label frostings being produced.

An independent customer survey was undertaken, which in turn, led to a comprehensive review of the company's strategic plans. The survey acknowledged the strength of the Renshaw brand, its heritage and that for many customers it was seen as a "must stock" brand. The survey also highlighted the key areas that the company needed to address to further secure its position in the market and grow. A comprehensive strategic plan and associated schedule of actions was drawn up to address each of the areas highlighted.

Related to the customer feedback, a review of the company's sales and operations planning process was undertaken with the help of a specialist consultancy. The resultant process redesign and associated structure changes have been implemented and are already providing customer service and inventory benefits.

 

Forward plans

The business continues to implement its strategic plans, arising from the strategic review referred to above. These are focused on reducing reliance on the company's core product line, ready-to-roll icing, by developing a wider range of products within the cake decoration category. The products developed and made available will be rooted in genuine consumer insight and seek to address consumer concerns and needs in the areas of convenience, health, the environment and providing accessible inspiration. The company's marketing activities are also being aligned in one function and reorganised to support the revised strategy.

In addition to product and marketing initiatives, the Company is making progress in engaging with its key customers to provide a more consultative approach to the overall cake decorating category through the better use of bought-in market data, insight generation and application and digital media content.

The B2B division continues to see and capitalise on significant opportunities to leverage its long-standing industry knowledge and expertise to help cake manufacturers through the provision of reliable core products. It also continues to identify new customers for products such as caramel and mallow in rapidly growing emerging categories, such as the snack bar market.

Export growth is focused on North America where detailed strategies for three principal areas have been identified and recruitment is underway to ensure we have sufficient resource and expertise to implement plans. The US operation will agree closer distribution partnerships with key industry players throughout the year.

Following changes to the order fulfilment model for Europe, the business will continue to evaluate how it best serves its European customer base, seeking constantly to improve customer service and product availability.

Ensuring the supply of consistently high-quality product remains the key imperative for the Company; as a result of which there is now an active quality improvement programme across the entire business. In addition to continuous improvement and preventative measures, the programme involves acquiring the leading scientific understanding of the products manufactured by the company to ensure it stays ahead of the competition.

12 months to March

2019
£m

2018
£m

Revenue

 46.4

 47.6

EBITDA (adjusted)*

 3.0

 1.1

Impairment charge

(18.7)

-

Operating (loss)/profit

 (17.3)

 (1.0)

Operating (loss)/profit %

(37.3%)

(2.1%)

 

Food Ingredients

2018/19 Performance

During the period under review, this division has undergone significant change; at the start of the year, it comprised three businesses, R&W Scott, Garrett Ingredients and Brighter Foods; the first two of these were sold during the year and only Brighter Foods remained as part of the Group by the end of the year. Brighter Foods was acquired in April 2017 and creates, develops and manufactures snack bars for the healthy snacking market from its factories in Tywyn, Gwynedd in mid Wales. Brighter Foods is a multi-award-winning company which produces snacks which are targeted at areas such as diet control, gluten free, lactose free, low or no added sugar, sports nutrition, organic and fair trade and its manufacturing capabilities, even before recent expansion, are highly regarded throughout the industry. As well as manufacturing partner-branded products, Brighter Foods has its own healthier brands such as Wild Trail, which is stocked in retailers and health food stores.

Brighter Foods itself also saw significant change in growing its capacity by 9% in the year ended 31 March 2019, with a further 91% increase in the current year-to-date, to accommodate newly acquired business and in preparation for further growth in the new financial year. Some £3.2m was invested in new capacity and the workforce grew substantially from 160 people to 297, both of which transformations posed their own short-term challenges. The impact of this rapid, albeit planned and wholly welcome expansion, was felt through a short-term reduction in sales, as the operational changes were implemented, and the new staff were trained and brought up to speed. The result is that Brighter Foods is now a larger business, with a more diverse customer base and the ability to grow further without more significant investment. The last year has also seen a controlled growth in the professional overhead base of the business, in anticipation of the increasing demands of its blue-chip clients, but the business retains its well-run, entrepreneurial spirit and continues to go from strength to strength.

During the period under review, as was announced in early March 2019, the dispute regarding the non-supply of contracted sugar, to Garrett Ingredients which had been outstanding for over a year, was satisfactorily resolved, broadly in line with the provision made within last year's accounts.

Forward plans

Following the disruption from the implementation of changes necessary for the future growth of the business during 2018/19, Brighter Foods, well-positioned as it is in the health and wellness market, anticipates a resumption of the growth in revenue which has characterised every other year of the business since its formation in 2014.

12 months to March

2019
£m

2018
£m

Revenue

15.2

16.1

EBITDA (adjusted)*

2.8

3.7

Operating profit

 1.2

2.1

Operating profit %

7.8%

12.8%

* See note 3 for reconciliation.

 

Finance Review

Revenue

Group revenue the continuing businesses for the 12 months ending 31 March 2019 was £61.6 million (2018: £63.8 million), a decrease of 3.4% on the revenue to 31 March 2018. This results from reductions in Cake Decoration of £1.2m (2.6%) and in Food Ingredients of £0.9m (5.9%). The decrease in Cake Decoration came principally from the loss of one significant customer, whereas the Food Ingredients division reduction was driven mainly from the practical difficulties arising out of the implementation of new plant and equipment and the simultaneous, rapid increase in people numbers.

Profit measure on operations

Gross profit on the continuing businesses for the overall Group was £18.0 million (2018: £17.9 million). At 23.7%, the delivered margin in the year, for the continuing businesses, was above the prior year of 23.0% and significantly above that reported for the whole group in the prior year of 14.9%, strongly indicative of the improved quality of earnings for the Group as a whole. Delivered margin is defined as gross profit less costs of delivery.

The operating loss in the year of £21.5 million is reported after an impairment charge of £18.7 million, depreciation and amortisation charge of £3.0 million and significant costs of £1.7 million.

After finance costs of £4.6 million and the inclusion of a £6.2 million loss from the discontinued operations, this results in a loss after tax for the year of £32.0 million (2018: loss of £26.6 million). This equates to a basic loss per share of 28.64 pence on continuing operations (restated at 11.82 pence in 2018) and a loss per share of 6.85 pence on discontinued operations (restated to 23.76 pence in 2018) (see note 9).

Cashflow and net debt

Shares issued in the year and additional loans to 31 March 2019 amounted to £10.4 million, of which £7.7 million of cash was used in investing activities and £2.7 million of cash was used in operating activities.

Pension scheme

The Group offers a defined contribution scheme for all current employees that is funded on a monthly basis. In addition, the Company operates a defined benefit scheme that was closed to new members in 2000. The defined benefit scheme is the Napier Brown Retirement Pension Plan (the Plan). The IAS 19 pension schemes valuation reported a gross deficit at 31 March 2019 of £7.4 million (2018: restated to £7.9 million). The Plan assets increased by £0.3 million to £13.8 million (2018: £13.5 million) and the Plan liabilities are £21.2 million compared to £21.4 million at 31 March 2018. The 2017 and 2018 deficit has been restated in relation to certain pension increases which were previously being considered discretionary.  Fresh legal advice clarifies these payments are mandatory. The correction has been adjusted via brought forward reserves from 2017, thus matching the cost and benefit, rather than taken in the current period accounts. See note 11 for further details.

Dividend

The Directors, considering the Group's performance and cash resources, do not recommend the payment of a final dividend for the year ended 31 March 2019 (2018: nil).

12 months to March

2019
£m

2018
£m

Revenue

 61,560

 63,788

Gross profit

 18,027

 17,904

Delivered margin

 14,612

 14,680

Delivered margin %

23.7%

23.0%

EBITDA (adjusted)* profit/(loss)

 1,901

 (314)

Operating loss before impairment and significant items

(1,126)

(3,482)

Operating loss after impairment and significant items

 (21,518)

 (7,490)

Operating loss %

(35.0%)

(11.7%)

Loss before tax

 (26,090)

 (9,078)

All figures refer to continuing businesses.

* See note 3 for reconciliation.

Consolidated Statement of Comprehensive Income

Year ended 31 March 2019

 

Notes

12 months ended

31 March 2019
£'000s

12 months ended

31 March 2018

(restated*)
£'000s

Revenue

2, 3

61,560

63,788

Cost of sales

(43,533)

(45,884)

Gross profit

18,027

17,904

Distribution expenses

(3,415)

(3,223)

Administrative expenses

(15,738)

(18,163)

Operating loss before impairment and significant items

(1,126)

(3,482)

Impairment charge

12

(18,675)

-

Significant items

4

(1,717)

(4,008)

Operating loss after impairment and significant costs

5

(21,518)

(7,490)

Finance costs

6

(4,406)

(1,424)

Other finance costs

7

(166)

(164)

Loss before tax

(26,090)

(9,078)

Income tax credit

 

349

613

Loss from continuing operations

(25,741)

(8,465)

Loss from discontinued operations

 

(6,243)

(18,100)

Net loss

(31,984)

(26,565)

Attributable to:

Owners of the parent

(32,321)

(27,099)

Non-controlling interests

337

534

Net loss

(31,984)

(26,565)

Items that will or may be reclassified to profit or loss

Foreign exchange differences on translation of subsidiaries

(32)

61

Items that will not be reclassified to profit or loss

Actuarial gains/(losses) on defined benefit plan

11

441

(599)

Tax relating to items which will not be reclassified

 

(75)

100

Other comprehensive gain/(loss)

334

(438)

Total comprehensive loss for the year

(31,650)

(27,003)

Attributable to:

Owners of the parent

(31,987)

(27,537)

Non-controlling interests

337

534

Total comprehensive loss for the year

(31,650)

(27,003)

* The result for the year ended 31 March 2018 has been restated to reflect the change in continuing and discontinued operations.

 

 

Notes

12 months ended

31 March 2019
£'000s

12 months ended

31 March 2018

(restated*)
£'000s

Basic and diluted loss per share - continuing operations

9

(28.64)p

(11.82)p

Basic and diluted loss per share - discontinued operations

9

(6.85)p

(23.76)p

*

Earnings per share for the year ended 31 March 2018 has been restated for a prior period adjustment to remove the effect of non-controlling interests, which were included in the figures to 31 March 2018 in error. It has also been restated to reflect the change in continuing and discontinued operations.

 

             
 

 

Consolidated Statement of Changes in Equity

Year ended 31 March 2019

 

Issued Share Capital

£'000s

Share Premium Account

£'000s

Other Reserves

£'000s

Share Option Reserve

£'000s

Foreign Exchange Translation Reserve

£'000s

Retained Earnings

£'000s

Total

£'000s

Non-Controlling Interest
£'000s

Total

Equity
£'000s

Balance as reported at

31 March 2017

1,411

122

-

415

(48)

84,818

86,718

-

86,718

Restated brought forward retained earnings (note 11)

-

-

-

-

-

(1,479)

(1,479)

-

(1,479)

Restated balance at 31 March 2017

1,411

122

-

415

(48)

83,339

85,239

-

85,239

Total comprehensive loss for the year

Loss for the year

-

-

-

-

-

(27,099)

(27,099)

534

(26,565)

Other comprehensive loss for the year

-

-

-

-

61

(499)

(438)

-

(438)

Total comprehensive loss for the year

-

-

-

-

61

(27,598)

(27,537)

534

(27,003)

 

Transactions with owners of the Group, recognised directly in equity

Shares issued in the year

158

2,598

-

-

-

-

2,756

-

2,756

Share based payments

-

-

-

(5)

-

-

(5)

-

(5)

Deferred tax on share-based payments

-

-

-

(100)

-

-

(100)

-

(100)

Long-term liabilities

-

-

(4,796)

-

-

-

(4,796)

-

(4,796)

Acquisition of majority interest

-

-

-

-

-

-

-

1,269

1,269

Total contributions by and distributions to owners of the Group

158

2,598

(4,796)

(105)

-

-

(2,145)

1,269

(876)

Balance as at

31 March 2018 (restated)*

1,569

2,720

(4,796)

310

13

55,741

55,557

1,803

57,360

 

Total comprehensive loss for the year

Loss for the year

-

-

-

-

-

(32,321)

(32,321)

337

(31,984)

Other comprehensive loss for the year

-

-

-

-

(32)

366

334

-

334

Total comprehensive loss for the year

-

-

-

-

(32)

(31,955)

(31,987)

337

(31,650)

 

Transactions with owners of the Group, recognised directly in equity

Shares issued in the year  

418

566

-

-

-

-

984

-

984

Share based payments  

-

-

-

(38)

-

-

(38)

-

(38)

Deferred tax on share-based payments

-

-

-

(34)

-

-

(34)

-

(34)

Total contributions by and distributions to owners of the Group

418

566

-

(72)

-

-

912

-

912

Balance as at 31 March 2019

1,987

3,286

(4,796)

238

(19)

23,786

24,482

2,140

26,622

* Balance as at 31 March 2018 is restated to reflect the impact of the prior period adjustment shown above. Full details are in note 11.

 

 

 

Consolidated Statement of Financial Position

Year ended 31 March 2019

 

Notes

31 March 2019
£'000s

31 March 2018 (restated*)
£'000s

31 March 2017 (restated*)
£'000s

NON-CURRENT ASSETS

Goodwill

 

50,375

69,955

69,416

Other intangible assets

 

1,599

3,247

1,155

Tangible fixed assets

 

16,578

30,098

23,932

Investments

 

81

81

-

Deferred tax asset

 

1,259

1,129

1,435

 

69,892

104,510

95,938

CURRENT ASSETS

Inventories

 

6,840

10,582

13,323

Trade and other receivables

 

8,614

15,296

16,016

Current tax assets

52

27

233

Cash collateral

10

2,000

2,000

-

Cash and cash equivalents

2,909

2,731

464

 

20,415

30,636

30,036

Assets classed as held for sale

 

148

-

-

TOTAL ASSETS

90,455

135,146

125,974

CURRENT LIABILITIES

Bank overdrafts

-

-

619

Trade and other payables

 

10,629

22,486

15,243

Borrowings

10

668

24,160

11,375

Financial instrument

-

-

146

 

11,297

46,646

27,383

NON-CURRENT LIABILITIES

Borrowings

10

37,961

16,390

4,701

Long-term liabilities - NCI put option

 

4,997

4,796

-

Derivative liability - Convertible loan notes

 

294

-

-

Deferred tax liabilities

 

1,881

2,035

1,278

Retirement benefit obligation

11

7,403

7,919

7,373

 

52,536

31,140

13,352

TOTAL LIABILITIES

63,833

77,786

40,735

NET ASSETS

26,622

57,360

85,239

EQUITY

Share capital

 

1,987

1,569

1,411

Share premium account

3,286

2,720

122

Other reserve

(4,796)

(4,796)

-

Share option reserve

238

310

415

Foreign exchange translation reserve

(19)

13

(48)

Retained earnings

23,786

55,741

83,339

EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT

24,482

55,557

85,239

Non-controlling Interest

2,140

1,803

-

TOTAL EQUITY

26,622

57,360

85,239

* Retirement benefit obligation and retained earnings have been restated for an error in the 31 March 2017 accounts. See note 11 for full details.

 

Consolidated Cash Flow Statement

Year ended 31 March 2019

 

Notes

31 March 2019
£'000s

31 March 2018
£'000s

CASH FLOW FROM OPERATING ACTIVITIES

Adjusted for:

(Loss) before taxation

(32,333)

(26,512)

Finance and other finance costs

6, 7

4,572

1,805

FX movement

(98)

152

Impairment charge

 

18,675

10,494

Share based payment expense

(38)

(5)

Loss on discontinued business

 

5,202

142

Loss on disposal of intangible assets

123

-

Loss on disposal of property, plant and equipment

135

107

Past service cost on pension

11

106

115

Fair value of derivative liability

294

-

Fair value of NCI put option

201

-

Depreciation of property, plant and equipment

 

2,656

2,929

Amortisation of intangibles

 

1,464

2,274

Operating Cash Flow

959

(8,499)

Decrease in inventories

186

3,675

Decrease in receivables

613

1,641

Pension contributions

11

(347)

(942)

NCI put option

-

(4,796)

(Decrease)/increase in payables

(3,511)

3,155

Cash (used in) from operations

(2,100)

(5,766)

Income taxes (paid)/received

(68)

1

Interest paid

(493)

(809)

Net cash (outflow) from operating activities

(2,661)

(6,574)

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of intangible assets

 

(10)

(249)

Purchase of property, plant and equipment

 

(4,474)

(10,961)

Disposal of discontinued business, net of cash disposed of

 

16,669

-

Acquisition of business, net of cash acquired

-

(1,781)

Payment of deferred consideration

(4,520)

-

Net cash inflow/(outflow) from investing activities

7,665

(12,991)

CASH FLOW USED IN FINANCING ACTIVITIES

Shares issued in year

 

984

2,756

Repayment of borrowings

8,10

(1,750)

(750)

Inflow of investor loans

8,10

856

21,398

Inflow of funds from convertible loan notes

8,10

8,545

-

Drawdowns on revolving credit facilities

57,266

99,266

Repayments on revolving credit facilities

(65,935)

(99,930)

Asset finance cashflow

-

1,008

Capital repayments on finance leases

(4,783)

(1,306)

Net cash (outflow)/inflow from financing activities

(4,817)

22,442

NET INCREASE IN CASH AND CASH EQUIVALENTS

187

2,877

CASH AND CASH EQUIVALENTS

Cash and cash equivalents at beginning of period

2,731

(155)

Effects of currency translations on cash and cash equivalents

(10)

9

Net movement in cash and cash equivalents

188

2,877

Cash and cash equivalents at end of period

8

2,909

2,731

 

Notes to the Financial Information

Year ended 31 March 2019

1. Presentation of financial information

General information

Real Good Food plc is a public limited company incorporated in England and Wales under the Companies Act (registered number 04666282). The Company is domiciled in England and Wales and its registered address is 61 Stephenson Way, Wavertree, Liverpool L13 1HN. The Company's shares are traded on the Alternative Investment Market (AIM).

Basis of preparation

The consolidated financial information is presented on the basis of International Financial Reporting Standards (IFRS) as adopted by the European Union and has been prepared in accordance with AIM rules and the Companies Act 2006, as applicable to companies reporting under IFRS.

The financial information set out in this preliminary statement does not constitute the Group's statutory accounts for the years ended 31 March 2019 or 2018. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The accounts are prepared on a going concern basis.

These results were approved by the Board of Directors on 15 August 2019.

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 operation 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.

During the twelve months to 31 March 2019, the Group sold Garrett Ingredients Ltd, Haydens Bakery Ltd, R&W Scott Ltd, and RGF Patisserie Ltd (t/a Chantilly Patisserie). At 31 March 2019, some remaining assets in relation to the disposed businesses are classed as held for sale.

Any references to discontinued operations throughout this report refer to Garrett Ingredients Ltd, Haydens Bakery Ltd, R&W Scott Ltd and RGF Patisserie Ltd.

IFRS standards and interpretations adopted

New standards which are effective from 1 January 2018, and have been considered within the Group's accounting policies are:

•     IFRS 9 Financial Instruments; and

•     IFRS 15 Revenue from Contracts with Customers.

The adoption of IFRS9 has not had a material impact in the presentation of the accounts of the Group.

There is no impact in the accounts from the implementation of IFRS 15 Revenue from Contracts with Customers, as the requirements of this standard are in line with those already adopted by the Group in regard to recognition of revenue.

There are a number of standards and amendments to standards that have been issued but are not yet effective. The Group has not decided to adopt these early. These are:

•     IFRS 16 Leases (effective for periods beginning after 1 January 2019);

•     Amendments to IFRS 9 Prepayment Features with Negative Compensation (effective 1 January 2019);

•     Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures (effective 1 January 2019); and

•     IFRS 17 Insurance Contracts (effective 1 January 2021)

The adoption of IFRS 16 Leases, will require the Group to recognise right-of-use assets and liabilities for all contracts that contain a lease. The Group does not currently recognise related assets or liabilities for operating leases, but instead spreads the lease payments on a straight-line basis over the lease term. As such, the Group will no longer recognise an operating expense for the lease payments but will replace this with interest on its lease liabilities and amortisation of the right to use assets. This will increase EBITDA for the Group.

The Board has decided to apply the modified retrospective adoption method in IFRS 16 and will therefore only recognise leases on the balance sheet as at 1 April 2019. They have also decided to measure the asset as the lease liability on that date, meaning there will be no immediate impact on net assets at 1 April 2019, as the asset will offset with the liability.

At 31 March 2019, there are £0.4 million of operating lease commitments outstanding, with a reduction of £0.2 million expected in the year to 31 March 2020. The impact expected on EBITDA for the year ended 31 March 2020 is therefore £0.2 million, being the current operating lease cost.

The Group does not expect any other standards issued by the IASB, but not yet effective, to have a material impact on the Group.

2. Revenue

The revenue for the Group for the current year arose from the sale of goods in the following areas:

Cake Decoration £46.4 million

Manufactures, sells and supplies cake decorating products and ingredients for the baking sector.

Food Ingredients £15.2 million

Manufactures and supplies a range of snack bars to the retail sector.

 

3. Segment reporting

Business segments

The divisional structure reflects the management teams in place and also ensures all aspects of trading activity have the specific focus they need in order to achieve our growth plans.

The Group operates in two main divisions: Cake Decoration and Food Ingredients. The Head Office functions of Finance, Technical and Information Services provided support to the divisions in varying scale.

12 months ended 31 March 2019

Cake

Decoration

£'000s

Food Ingredients

£'000s

Head Office
and non-trading subsidiaries

£'000s

Continuing Operations

£'000s

Discontinued Operations
£'000s

Total

Group
£'000s

Total revenue

56,340

15,151

-

71,491

26,365

97,856

Intercompany sales

(9,931)

-

-

(9,931)

(346)

(10,277)

External revenue

46,409

15,151

-

61,560

26,019

87,579

Cost of sales

(31,716)

(11,585)

(232)

(43,533)

(21,615)

(65,148)

Gross profit/(loss)

14,693

3,566

(232)

18,027

4,404

22,431

 

Distribution expenses

(3,074)

(341)

-

(3,415)

(1,227)

(4,642)

Administrative expenses

(9,662)

(1,998)

(4,078)

(15,738)

(9,267)

(25,005)

Operating profit/(loss) before impairment and significant items

1,957

1,227

(4,310)

(1,126)

(6,090)

(7,216)

 

Significant items

(589)

(42)

(1,086)

(1,717)

(46)

(1,763)

Impairment charge

(18,675)

-

-

(18,675)

-

(18,675)

Operating (loss)/profit after impairment and significant items

(17,307)

1,185

(5,396)

(21,518)

(6,136)

(27,654)

Finance costs

(141)

-

(4,265)

(4,406)

(107)

(4,513)

Other finance costs

-

-

(166)

(166)

-

(166)

(Loss)/profit before tax

(17,448)

1,185

(9,827)

(26,090)

(6,243)

(32,333)

Income tax expense/(credit)

18

(122)

453

349

-

349

(Loss)/profit after tax as per comprehensive statement of income

(17,430)

1,063

(9,374)

(25,741)

(6,243)

(31,984)

Geographical segments

The Group earns revenue from countries outside the United Kingdom, as shown below:

 

Cake Decoration
£'000s

Food Ingredients
£'000s

UK

30,276

15,149

Europe

6,201

2

USA

8,643

-

Rest of World

1,289

-

Total

46,409

15,151

The Group has two customers which constitute over 10% of revenue; one providing 22% of revenue, and the other 13%.

Reconciliation of operating (loss)/profit to underlying adjusted EBITDA

Cake

Decoration

£'000s

Food Ingredients

£'000s

Head Office

and non-trading

subsidiaries

£'000s

Continuing Operations

£'000s

Discontinued Operations
£'000s

Total

Group
£'000s

Operating (loss)/profit

(17,307)

1,185

(5,396)

(21,518)

(6,136)

(27,654)

Significant items

589

42

1,086

1,717

46

1,763

Impairment charge

18,675

-

-

18,675

-

18,675

Loss on disposal

-

-

-

-

5,202

5,202

Depreciation

1,016

242

315

1,573

1,083

2,656

Amortisation

12

1,376

66

1,454

10

1,464

Underlying adjusted EBITDA

2,985

2,845

(3,929)

1,901

205

2,106

 

31 March 2019

Cake

Decoration

£'000s

Food Ingredients

£'000s

Head Office

and non-trading

subsidiaries

£'000s

Continuing Operations

£ '000s

Discontinued Operations
£'000s

Total

Group
£'000s

Segment assets

108,357

13,460

(31,362)

90,455

-

90,455

Segment liabilities

23,985

3,073

36,775

63,833

-

63,833

Net operating assets

84,372

10,387

(68,137)

26,622

-

26,622

Non-current asset additions

102

4,581

-

4,683

-

4,683

Depreciation

(1,016)

(242)

(315)

(1,573)

(1,083)

(2,656)

Amortisation

(12)

(1,376)

(66)

(1,454)

(10)

(1,464)

In line with the Group strategy of allowing each business to understand its true cost base as a stand-alone business, during the 12 months ended 31 March 2019, Head Office costs of £1.4 million have been re-allocated to the Cake Decoration division. In order to provide clear and consistent comparisons, the 12 months ended 31 March 2018 have been restated.

12 months ended 31 March 2018 (Restated)

Cake

Decoration

£'000s

Food Ingredients

£'000s

Head Office & non trading subsidiaries

£'000s

Continuing Operations

£'000s

Discontinued Operations
£'000s

Total

Group
£'000s

Total revenue

55,175

16,096

61

71,332

71,035

142,367

Intercompany sales

(7,544)

-

-

(7,544)

(4,697)

(12,241)

External revenue

47,631

16,096

61

63,788

66,338

130,126

Cost of sales

(33,744)

(11,876)

(264)

(45,884)

(59,753)

(105,637)

Gross profit/(loss)

13,887

4,220

(203)

17,904

6,585

24,489

 

Distribution expenses

(2,906)

(317)

-

(3,223)

(2,287)

(5,510)

Administrative expenses

(10,937)

(1,842)

(5,384)

(18,163)

(9,429)

(27,592)

Operating profit/(loss) before impairment and significant items

44

2,061

(5,587)

(3,482)

(5,131)

(8,613)

 

Significant items

(1,060)

(5)

(2,943)

(4,008)

(1,477)

(5,485)

Impairment charge

-

-

-

-

(10,494)

(10,494)

Operating (loss)/profit after impairment and significant items

(1,016)

2,056

(8,530)

(7,490)

(17,102)

(24,592)

Finance costs

(214)

-

(1,210)

(1,424)

(332)

(1,756)

Other finance costs

-

-

(164)

(164)

-

(164)

(Loss)/profit before tax

(1,230)

2,056

(9,904)

(9,078)

(17,434)

(26,512)

Income tax expense/(credit)

1,364

185

(936)

613

(666)

(53)

Profit/(loss) after tax as per comprehensive statement of income

134

2,241

(10,840)

(8,465)

(18,100)

(26,565)

 

Reconciliation of operating (loss)/profit to underlying adjusted EBITDA

Cake

Decoration

£'000s

Food Ingredients

£'000s

Head Office & non trading subsidiaries

£'000s

Continuing Operations

£'000s

Discontinued Operations
£'000s

Total

Group
£'000s

Operating (loss)/profit

(1,016)

2,056

(8,530)

(7,490)

(17,102)

(24,592)

Significant items

1,060

5

2,943

4,008

1,477

5,485

Impairment charge

-

-

-

-

10,494

10,494

Depreciation

797

209

425

1,431

1,498

2,929

Amortisation

276

1,404

57

1,737

537

2,274

Underlying adjusted EBITDA

1,117

3,674

(5,105)

(314)

(3,096)

(3,410)

 

4. Significant items

 


Reference

12 months ended

31 March 2019
£'000s

12 months ended

31 March 2018
£'000s

Abnormal costs relating to ongoing capital projects

1

(38)

(885)

Investigation work and penalties

2

(315)

(1,207)

Professional fees in relation to refinancing costs

3

(380)

(669)

Asset write-offs

4

(330)

(920)

Commercial disputes

5

(118)

(239)

Management restructuring

6

(582)

(1,254)

Acquisition and legal costs

-

(311)

Significant items

(1,763)

(5,485)

Continuing business

(1,717)

(4,008)

Discontinued business

(46)

(1,477)

Total significant items

(1,763)

(5,485)

The Group's underlying profit figure excludes a number of items which are material and non-recurring and are detailed separately to ensure the underlying operating performance of the businesses is clearly visible, without the distortions of these non-recurring costs.

The year to 31 March 2019 has seen a lower level of significant items than in the previous year. A number of the costs shown are carried forward in relation to activities from the year to 31 March 2018. They are explained in the notes below:

1.   Abnormal costs during improving capacity of business units. Considerable funds have been invested throughout the Group in the past two years in capital projects, to improve the capacity and operating efficiency of the Group. The costs incurred in the year ended 31 March 2019 are in relation to different capital projects from those reflected in the year ended 31 March 2018.

2.   Investigation work and penalties relating to corporate governance failings. There were well-publicised failings in the area of corporate governance. The costs of securing the services of external agencies sufficiently specialised, experienced and qualified to ensure all failings were fully investigated and identified, and remedial actions highlighted on a timely basis have been identified separately.

3.   Professional fees relating to refinancing. The very unusual frequency and short-term costs of refinancing in the period are highlighted here, as being the costs associated with providing repeated emergency funding before any form of longer-term package was able to be negotiated. All loans have now been renegotiated.

4.   Asset write-offs. The costs incurred in the year ended 31 March 2019 relate to inventory and intangible asset write-offs in relation to an abandoned product launch. In the period to 31 March 2018 this relates to the closure of Garrett Ingredients Nutrition, and asset write-offs in relation to aborted projects.

5.   Commercial disputes. These costs relate to the well-publicised issues, identified separately in previous announcements to the City, arising from disputes over material sugar contracts. The value of the disputes was unusually large and occurred some years after the original contracts were entered. They are not expected to re-occur. All claims are now settled.

6.   Management restructuring. Individual redundancies are generally a matter of everyday business, however, significant restructuring has been required and effected right across the Group during the past 24 months, as fundamental changes in the operations have been brought about, while deliberate, one-off changes have been delivered. The central functions have been largely disbanded, for example, as the Group can demonstrably no longer afford to sustain a central overhead of marketing, operations, or HR. The costs of severance for these staff members have been separately identified and disclosed here.

5. Operating profit

Operating profit for continuing operations

 

Notes

12 months ended

31 March 2019
£'000s

12 months ended

31 March 2018
£'000s

External Sales

61,560

63,788

Staff Costs

 

(20,622)

(21,800)

Inventories:

- cost of inventories as an expense (included in cost of sales)

(25,917)

(29,545)

Depreciation of property, plant and equipment

 

(1,573)

(1,431)

Amortisation of intangible assets

 

(1,454)

(1,737)

Significant items

4

(1,717)

(4,008)

Impairment charge

 

(18,675)

-

Operating lease payment:

- land and buildings

(486)

(651)

- other assets

(57)

(124)

Research and development expenditure

(803)

(1,172)

Impairment of trade receivables

 

(100)

(146)

Foreign exchange losses/(gains)

(327)

415

Other net operating expenses

(11,347)

(11,079)

Total

(83,078)

(71,278)

Operating loss

(21,518)

(7,490)

 

6. Finance costs

 

12 months ended

31 March 2019
£'000s

12 months ended

31 March 2018
£'000s

Interest on bank loans, overdrafts and investor loans

(4,164)

(1,311)

Interest on obligations under finance leases

(154)

(330)

Interest on non-controlling interest put option

(89)

-

Past service cost on pension (note 11)

(106)

(115)

 

(4,513)

(1,756)

Continuing business

(4,406)

(1,424)

Discontinued business

(107)

(332)

 

7. Other finance costs

 

12 months ended

31 March 2019
£'000s

12 months ended

31 March 2018
£'000s

Interest on pension scheme liabilities (note 11)

(516)

(553)

Interest on pension scheme assets (note 11)

350

389

 

(166)

(164)

 

8. Notes supporting the cash flow statement

The cash collateral figure for the Group is £2 million. This has been provided to Lloyds Bank plc as security for the liabilities of the Group. The £2 million has been supplied as investor loans by Omnicane Investors Ltd and NB Holdings Ltd and attracts interest. This amount is not included in the cashflow.

Group

 

Non-current Loans and Borrowings

£'000s

(Note 10)

Current Loans

and Borrowings

£'000s

(Note 10)

Total

£'000s

At 31 March 2018

16,390

24,160

40,550

Cash Flows

6,214

(12,015)

(5,801)

Non-cash flows

- Loans renegotiated to move from current at March 2018 to non-current at March 2019

12,144

(12,144)

-

- Interest accruing on loans

4,317

-

4,317

- Accrued interest added to principal loan at the point of issue of convertible loan notes

261

-

261

- Transaction costs of issuance of convertible loan notes included in liability

(317)

-

(317)

- Fair value measurement of convertible loan notes

(345)

-

(345)

- Hire purchase disposed of as part of discontinued entity

(36)

-

(36)

- Loans and borrowings classified as non-current at March 2018 becoming current before March 2019

(667)

667

-

At 31 March 2019

37,961

668

38,629

 

 

 

 

 

9. Earnings per share

Basic earnings per share

Basic earnings per share is calculated on the basis of dividing the profit/(loss) attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the year.

 

12 months ended

31 March 2019

Continuing Operations

£'000s

12 months ended

31 March 2019

Discontinued Operations

£'000s

12 months ended

31 March 2018 (restated)*

Continuing Operations

£'000s

12 months ended

31 March 2018

(restated)*

Discontinued Operations

£'000s

Loss after tax attributable to ordinary shareholders (£'000s)

(26,078)

(6,243)

(8,998)

(18,101)

Weighted average number of shares in issue for basic EPS ('000s)

91,032

91,032

76,179

76,179

Employee share options ('000s)

364

364

1,790

1,790

Convertible loan notes ('000s)

144,554

144,554

-

-

Weighted average number of shares in issue for diluted EPS ('000s)

235,950

235,950

77,969

77,969

Basic and diluted loss per share

(28.64)p

(6.85)p

(11.82)p

(23.76)p

*     Earnings per share for the year ended 31 March 2018 has been restated for a prior period adjustment to remove the effect of non-controlling interests, which were included in the figures to 31 March 2018 in error.

The total loss per share (continuing and discontinued operations) for 2019 is (35.49)p (2018: (35.58)p).

Diluted earnings per share

The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of all outstanding share options. The potential ordinary shares are considered anti-dilutive as they decrease the loss per share. Therefore, diluted EPS is the same as basic. If all of the share options had been exercised before the period end, the earnings per share would then have been a loss per share of 11.05p (2018: loss of 11.54p) on the continuing operations and a loss per share of 2.64p (2018: loss of 23.21p) on the discontinued operations.

The weighted average number of shares in issue for the year was 91,032,295 and the number of options outstanding was 5,554,550. If these were all exercised the cash raised would be equivalent to that which would be raised by issuing 364,362 shares at the average share price during the year. There were also 232,432,078 convertible loan notes outstanding, of which the weighted average number of shares was 144,553,649. Therefore, the weighted average number of dilutive potential ordinary shares is 235,950,306.

10. Borrowings and capital management

 

31 March 2019
Group

£'000s

31 March 2018
Group

£'000s

Secured borrowings at amortised cost

Bank term loans

 - 

 1,750

Revolving credit facilities

-

 8,669

Hire purchase

 1,636

 6,406

Investor loans*

 25,165

 21,398

Investor loans - Cash Collateral

 2,000

 2,000

Convertible loan notes**

 9,550

 - 

Government grants

 278

 327

 

 38,629

 40,550

Amount due for settlement within 12 months

 668

 24,160

Amount due for settlement after 12 months

 37,961

 16,390

Total

 38,629

 40,550

 

*

Accrued interest of £0.7m at 31 March 2018 is not shown in the above Investor loans, this is shown within accruals in payables. Accrued interest of £2.9m is shown within the number at 31 March 2019.

**

Convertible loan notes shown at 31 March 2019 consists of £8.8m investment, £1.4m accrued interest, £(0.3m) fair value adjustment and £(0.3m) of transaction costs to be spread over the life of the liability.

     

Government grants represents the amount of grants received for which the criterion to ensure that repayment is not required has not yet been met. Grant monies in respect of which the criteria have been met are included in operating income.

All existing shareholder loans were renegotiated in June 2018 to require repayment in June 2020, and then renegotiated again post year end to defer payment until 17 May 2021. The investor loans shown consists of £22.3 million principal amount and £2.9 million accrued interest up to 31 March 2019.

Convertible loan notes

In May 2018 the Company secured further funding from each of its major shareholders totalling £8.5 million. NB Holdings Ltd and Omnicane Investors Ltd each providing £3.3 million and Downing LLP provided £1.9 million. This instrument has since, with shareholder approval, been replaced with convertible loan notes of £8.8 million with a conversion price of 5 pence. The loan is repayable in 3 years from the date of issue or can be converted at any time into shares at the holder's option.

The instrument accrues interest at a rate of 12 percent per annum accruing daily and will mature and be due for repayment in full on 17 May 2021, unless they are redeemed before that date. On that date, unless the convertible loan notes are converted into ordinary shares on the conversion date, a redemption premium fee will be payable. The redemption fee will be an amount which, when added to the interest accrued on the relevant notes, provides a total return equal to the amount which would have accrued in respect of such notes from the date of the convertible loan note instrument until and including the date the notes are redeemed in full had the interest rate been 30 percent per annum.

A host loan at amortised cost and an embedded derivative liability, being measured at fair value with changes in value being recorded in profit or loss, have been recognised. At 31 March 2019, the derivative liability was valued at £0.3 million.

The convertible loan notes shown consist of a host loan at amortised costs of £8.1 million and £1.4 million accrued interest up to 31 March 2019.

Features of the Group's borrowings are as follows:

The Group's financial instruments comprised cash, hire purchase and finance leases, a revolving credit facility, an overdraft, investor loans and various items arising directly from its operations, such as trade payables and receivables. The main purpose of these financial instruments is to finance the Group's operations. The government grant is specific to Brighter Foods.

The main risks from the Group's financial instruments are interest rate risk and liquidity risk. Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.

The Group also has some currency exposure in relation to its Euro and US Dollar commodity purchases. However, this is mitigated by matching in part against foreign currency sales. The Board reviews and agrees policies, which have remained substantially unchanged for the year under review, for managing these risks.

The Group's policies on the management of interest rate, liquidity and currency exposure risks are set out in the Report of the Directors.

During the year ended 31 March 2019 the Group continued with the borrowing facilities in place and secured loans from investors. As at 31 March 2019, the borrowings comprised:

•     Invoice discounting facility of £8 million with Lloyds Bank plc on a revolving basis with a minimum term of 12 months and a six-month notice period. This facility is secured against the debtors of JF Renshaw Ltd and Rainbow Dust Colours Ltd with an interest rate of 1.5% above Base Rate.

•     An overdraft facility with Lloyds Bank plc of up to £2.0m with two major shareholders (NB Holdings Ltd and Omnicane Investors Ltd) each putting £1.0m into an account as security (cash collateral). The interest rate on the overdraft is at 3.5% above Base Rate.

•     The Group also secured facilities against specific plant and machinery with Lloyds Bank plc and ABN Amro Lease NV totalling £6.3m. The facilities interest payable is varied per specific agreement, but is generally between 3.5% and 4.0%.

The three major shareholders, NB Holdings Ltd, Omnicane Investors Ltd and certain funds managed by Downing LLP, supported the business and provided significant funding to the Group by way of loans.

The loans at 31 March 2019 were as follows:

Date

Amount

Method of Funding

Major Shareholder(s)

May 2018

£8.8m

Loan notes - transferred to convertible loan notes in Aug-18 with accrued interest to date added (original investment was £8.5m)

NB Holdings Ltd (£3.4m), Omnicane Investors Ltd (£3.4m), Downing LLP (2.0m)

March 2018

£4.0m*

Unsecured loan notes

NB Holdings Ltd (£1.7m), Omnicane Investors Ltd (£1.7m), Downing LLP (£0.6m)

January 2018

£3.0m

Unsecured loan notes

NB Holdings Ltd (£1.3m), Omnicane Investors Ltd (£1.3m), Downing LLP (£0.4m)

September 2017

£4.0m

Loan Facility and loan notes Secured on specific chattel assets

NB Holdings Ltd (£1.33m), Omnicane Investors Ltd £1.33m), Downing LLP (£1.33m)

August 2017

£2.0m

Loan facility (applied as collateral for bank overdraft)

NB Holdings Ltd (£1.0m), Omnicane Investors Ltd (£1.0m)

June 2017

£4.0m

Investor loans

NB Holdings Ltd (£2.0m), Omnicane Investors Ltd (£2.0m)

June 2017

£7.3m**

Loan notes

Downing LLP

Total

£33.1m

 

 

*

£0.9m of the funding agreed in March 2018 was received in April 2018.

 

**

Interest is payable on a quarterly basis to the MI Downing Monthly Income Fund up to a principal amount of £0.9m.

 

             

At 31 March 2019 Lloyds Bank plc had a debenture incorporating a floating charge over the undertaking and all property and assets present and future including goodwill, book debts, uncalled capital, buildings, fixtures, intangible assets, fixed plant and machinery. In addition, the banking arrangements with Lloyds Bank plc contain certain cross-guarantees. 

Liquidity risk management

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Board reviews the Group's liquidity position on a monthly basis and monitors its forecast and actual cash flows against maturing profiles of its financial assets and liabilities.

The following table details the Group's maturity profile of its financial liabilities:

 

Less than

1 month

£'000s

1-3 months

£'000s

3 months to

1 year

£'000s

1-5 years

£'000s

5+ years

£'000s

Total

£'000s

2019

Trade and other payables

6,122

3,719

665

123

-

10,629

Investor loans

-

-

-

24,254

-

24,254

Convertible loan notes

-

-

-

8,807

-

8,807

Government grants

5

12

32

197

31

277

Hire purchase

53

101

465

1,017

-

1,636

NCI put option liability

-

-

-

4,997

-

4,997

 

6,180

3,832

1,162

39,395

31

50,600

Interest

5

10

38

10,234

-

10,287

Total

6,185

3,842

1,200

49,629

31

60,887

 

 

Less than

1 month

£'000s

1-3 months

£'000s

3 months to

1 year

£'000s

1-5 years

£'000s

5+ years

£'000s

Total

£'000s

2018

Trade and other payables

13,346

6,008

2,864

267

1

22,486

Bank term loans

250

-

1,500

-

-

1,750

Revolving credit facilities

-

-

8,669

-

-

8,669

Investor loans

-

10,144

2,000

11,254

-

23,398

Government grants

5

12

32

198

80

327

Hire purchase

152

267

1,129

4,858

-

6,406

NCI put option liability

-

-

-

4,796

-

4,796

 

13,753

16,431

16,194

21,373

81

67,832

Interest

35

640

684

1,671

-

3,030

Total

13,788

17,071

16,878

23,044

81

70,862

The profile of the trade payables has been taken as being consistent with the Group's payment terms to suppliers.

Analysis of market risk sensitivity

Currency risks:

The Group is exposed to currency risks on purchases of commodities from USA and Europe. The risk associated with these purchases is mitigated by sales also made to customers in these countries, however, to the extent that these do not cover each other there is a risk of exposure to the Group.

The effect of the exposure is calculated as being:

•     With an excess of $ assets to $ liabilities, a 10% strengthening of the US dollar would result in an increase in pre-tax profits of £62k. A 10% weakening of the US dollar would result in a decrease of pre-tax profits of £51k.

•     With an excess of € assets to € liabilities a 10% strengthening of the Euro would result in an increase in pre-tax profits of £35k. A 10% weakening of the Euro would result in a decrease of pre-tax profits of £29k. 

Interest rate risks:

The Group has an exposure to interest rate risk arising from borrowings based upon the Bank of England base rate. However, at the balance sheet date, the Group did not have any outstanding balance on these borrowing facilities, and so the impact of an increase in the applicable interest rates would, all other factors remaining unchanged, not have impacted profits.

Obligation under finance leases

 

31 March 2019
Group

£'000s

31 March 2018
Group

£'000s

Finance lease liabilities - minimum lease payments

Due within one year

671

1,764

Due within one to five years

1,048

5,128

 

1,719

6,892

Future finance charges on finance leases

(83)

(486)

Present value of finance lease liabilities

1,636

6,406

The present value of finance lease liabilities is as follows:

Due within one year

619

1,548

Due within one to five years

1,017

4,858

 

1,636

6,406

It is the Group's policy to lease certain property, plant and equipment under finance leases. For the period ended 31 March 2019 the average effective borrowing rate was 4.0% (2018: 4.0%). Interest rates are fixed at the contract dates. All leases are on a fixed-repayment basis and no arrangements have been entered into for contingent rental payments. All lease obligations are denominated in sterling.

The fair value of the Group's lease obligations approximates to their carrying amount.

11. Pensions arrangements

Defined Contribution Scheme. The Group operates a defined contribution scheme for all employees, including provision to comply with auto-enrolment requirements laid down by law.

In addition, the Company operates one defined benefits scheme which was closed to new members in 2000 and closed to future accrual with effect from 5 April 2004. The Defined Benefit scheme is a funded arrangement, with assets held in a separate trustee-administered fund. Members of the Plan are entitled to retirement benefits based on their final salary at date of leaving the Plan (or 5 April 2004 if earlier), and length of service. From 1 April 2016 the Company annual contributions were agreed at £320k for 11 years and eight months, increasing at 4% per annum each April. The Company will pay £360k per annum pro-rata to the Plan for the period from 1 April 2019 (2018: £347k) until 1 August 2019. The defined benefit scheme is funded by the Company. The present value of future contributions is currently less than the net liability disclosed as at 31 March 2019, so no additional liability under IFRIC14 arises. A new arrangement has recently been agreed with the Trustee under which repayments will increase to £1 million per year with effect from 1 August 2019.

For the purposes of IAS 19 the data provided for the 31 March 2018 actuarial valuation, has been approximately updated to reflect defined benefit obligations on the accounting basis at 31 March 2019. This has resulted in a deficit in the Plan of £7,403k.

Present values of defined benefit obligations, fair value of assets and deficit

 

31 March 2019
£'000s

31 March 2018 (restated)*
£'000s

31 March 2017 (restated)*
£'000s

31 March 2016
£'000s

31 March 2015
£'000s

Present value of defined benefit obligation

 21,177

 21,448

 21,319

 21,094

 21,799

Fair value of Plan assets

(13,774)

(13,529)

(13,946)

(15,013)

(16,111)

Deficit/(surplus) in Plan

 7,403

 7,919

 7,373

 6,081

 5,688

Gross amount recognised

 7,403

 7,919

 7,373

 6,081

 5,688

Deferred tax **

(1,258)

(1,094)

(1,120)

(1,155)

(1,138)

Net liability

 6,145

6,825

6,253

 4,926

 4,550

*

Following legal advice taken at the time, the Group posted a past service credit into the accounts in the year ended 31 March 2017 in respect of certain pension increases being considered discretionary. Fresh legal advice clarifies these payments are mandatory and so £1.5 million has been added to the defined benefit obligation to cover this requirement. This correction has been adjusted via brought forward reserves from 2017, thus matching the cost and benefit, rather than taken in the current period accounts.

 

**

Deferred tax rate 2016, 2017 & 2018: 17%, 2015: 20%

 

                 

 

Reconciliation of opening and closing balances of the present value of the defined benefit obligations

 

31 March 2019
£'000s

31 March 2018 (restated)*

£'000s

Defined benefit obligation at start of period

21,448

 21,319

Interest cost

 516

 553

Actuarial losses

 77

 367

Past service loss

 106

 115

Benefits paid

(970)

(906)

Defined benefit obligation at end of period

 21,177

 21,448

Reconciliation of opening and closing balances of the fair value of Plan assets

 

31 March 2019
£'000s

31 March 2018
£'000s

Fair value of Plan assets at start of period

 13,529

 13,946

Interest income on Plan assets

 350

 389

Return on assets less interest income

 518

(232)

Contributions paid by the Group

 347

 332

Benefits paid, death-in-service insurance premiums and expenses

(970)

(906)

Fair value of Plan assets at end of period

 13,774

 13,529

The actual return on the Plan assets over the period ended 31 March 2019 was £868k (2018 - £157k).

Total expense recognised in the Statement of Comprehensive Income within other finance income

 

31 March 2019
£'000s

31 March 2018
£'000s

Interest on liabilities

 516

 553

Interest on assets

(350)

(389)

Net interest cost

 166

 164

Past service cost

 106

 115

Total cost

 272

 279

Statement of recognised income and expenses

 

31 March 2019
£'000s

31 March 2018
£'000s

Actuarial gain/(loss) on the Plan assets

 518

(232)

Experience gains arising on the Plan liabilities

 427

-

Actuarial gains on the Plan liabilities arising from changes in demographic assumptions

 436

 114

Actuarial (losses) on the Plan liabilities arising from changes in financial assumptions

(940)

(481)

Total amount recognised in Statement of Other Comprehensive Income

 441

(599)

Assets

 

31 March 2019
£'000s

31 March 2018
£'000s

31 March 2017
£'000s

UK equity

 2,667

 1,511

 1,907

Overseas equity

-

 2,952

 4,120

Absolute return fund

 1,013

 3,136

 3,732

Corporate Bonds

 2,699

 1,105

 1,139

Gilts

 3,137

 945

 1,646

Multi-Asset Funds

 4,055

-

-

Property

-

 83

 152

Cash

 203

 1,122

 284

Alternative assets

_

 2,675

 2,671

Current assets

_

-

 610

Current liabilities

_

-

(2,315)

Total assets

 13,774

 13,529

 13,946

The investment strategy for the Plan is controlled by the Trustees, in consultation with the Company. None of the fair values of the assets shown above includes any of the Group's own financial instruments or any property occupied by, or other assets used by, the Group. Absolute return funds are invested in a diverse range of assets in order to achieve equity-like returns with reduced volatility. Alternative assets include infrastructure and derivatives. 

Assumptions

 

12 months ended

31 March 2019
%

12 months ended

31 March 2018
%

12 months ended

31 March 2017
%

12 months ended

31 March 2016
%

Inflation

 3.30

 3.10

 3.20

 2.80

Salary increases

-

-

-

-

Rate of discount

 2.40

 2.65

 2.85

 3.65

Allowance for pension in payment increases

  RPI max 5%

 3.10

 3.00

 3.10

 2.70

  RPI min 3% max 5%

 3.50

 3.40

 3.40

 3.30

Allowance for revaluation of deferred pensions

 2.30

 2.10

 2.20

 1.80

Allowance for commutation of pension for cash at retirement

90% of max allowance

90% of max allowance

90% of max allowance

90% of max allowance

The obligations of the Plan have been calculated by projecting forwards the figures from the initial results of the latest valuation as at 31 March 2019 and then making appropriate adjustments for known experience and for differences in assumptions.

The mortality assumptions adopted at 31 March 2019 and 31 March 2018 imply the following life expectancies from age 65:

                                                                               31 March 2019          31 March 2018

Male retiring at age 65 in current year                     21 years                     22 years

Female retiring at age 65 in current year                 23 years                     24 years

Male retiring at age 65 in 20 years' time                  22 years                     23 years

Female retiring at age 65 in 20 years' time             24 years                      25 years

The weighted-average duration of the defined benefit obligation at 31 March 2019 was 15 years (2018: 15 years).

Historic funding positions

The funding positions applicable at the start of each period are as follows:

 

12 months ended

31 March 2019
£'000s

12 months ended

31 March 2018

(restated)*
£'000s

12 months ended

31 March 2017

(restated)*
£'000s

12 months ended

31 March 2016
£'000s

12 months ended

31 March 2015
£'000s

Fair value of assets

 13,774

 13,529

 13,946

 15,013

 16,111

Defined benefit obligation

(21,177)

(21,448)

(21,319)

(21,094)

(21,799)

(Deficit) in scheme

(7,403)

(7,919)

(7,373)

(6,081)

(5,688)

Experience adjustment on scheme assets

 518

(232)

 652

(1,122)

 885

Experience adjustment on scheme liabilities

 427

-

(103)

-

-

*

Following legal advice taken at the time, the Group posted a past service credit into the accounts in the year ended 31 March 2017 in respect of certain pension increases being considered discretionary. Fresh legal advice clarifies these payments are mandatory and so £1.5 million has been added to the defined benefit obligation to cover this requirement. This correction has been adjusted via brought forward reserves from 2017, thus matching the cost and benefit, rather than taken in the current period accounts.

 

                 

 

Risks

The scheme is exposed to a number of risks, including:

Asset volatility: The Plan's defined benefit obligation is calculated using a discount rate set with reference to corporate bond yields; however, the Plan invests significantly in equities. These assets are expected to outperform corporate bonds in the long-term but provide volatility and risk in the short term.

Changes in bond yields: a decrease in corporate bond yields would increase the Plan's defined benefit obligation; however, this would be partially offset by an increase in the value of the Plan's bond holdings.

Inflation risk: a proportion of the Plan's defined benefit obligation is linked to inflation; therefore, higher inflation will result in a higher defined benefit obligation (subject to the appropriate caps in place). The majority of the Plan's assets are either unaffected by inflation, or only loosely correlated with inflation, therefore an increase in inflation would also increase the deficit. 

Life expectancy: if Plan members live longer than expected, the Plan's benefits will need to be paid for longer, increasing the Plan's defined benefit obligation.

The Trustees and Company manage risks in the Plan through the following strategies:

Diversification: In order to counter asset volatility and changes in bond yields, investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets.

Investment Strategy: The Trustees are required to review their investment strategy on a regular basis and consult with the Company on any changes. The Trustees' investment strategy is set out in the Statement of Investment Principles.

Funding positions: The Trustees are required to assess the funding position annually by means of a formal actuarial report which must be shared with the Company.

Sensitivity analysis

The impact to the value of the defined benefit obligation of a reasonably possible change to one actuarial assumption, holding all other assumptions constant, is presented in the table below:

Actuarial Assumption

Reasonably

Possible Change

Obligation

Increase

Obligation

Decrease

Discount Rate

(+/- 0.5%)

8%

7%

RPI Inflation

(+/- 0.5%)

3%

3%

Assumed Life expectancy

(+/-) 1 Year

5%

5%

Small changes to other assumptions, such as the allowance for commutation of pension for cash at retirement, and the proportion of members assumed to be married at retirement, do not have such a significant effect on the obligations of the Plan.

12. Goodwill

Goodwill acquired on business combinations is allocated at acquisition to the cash generating units that are expected to benefit from that business combination. The carrying amount of goodwill has been allocated as follows:

 

 

 

Group £’000s

Cost

 

 

Carried forward balance 31 March 2018

 

69,955

Impairment Cake Decoration

 

(18,675)

Disposal of Real Good Food Ingredients

 

(905)

Carried forward balance 31 March 2019

 

50,375

 

 

 

 

31 March 2019

£’000s

31 March 2019

£’000s

Real Good Food Ingredients (formerly Garrett Ingredients)

-

905

Cake Decoration

45,344

64,019

Brighter Foods

5,031

5,031

Carried forward

50,375

69,955

         

 

Assumptions:

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill may be impaired. The recoverable amount of any cash generating unit is determined based on the higher of fair value less costs of disposal and value-in-use calculations. The cashflows used in the value-in-use calculation are EBITDA (adjusted) performance less capital expenditure based on the latest Board approved forecasts in respect of the following three years.

 

Long-term growth rate assumptions:

For the purposes of impairment testing, the cashflows are extrapolated over 5 years with a terminal value applied to the fifth year. The

terminal value is calculated using the fifth year forecasted EBITDA (adjusted) performance and applying a 2% growth rate.

 

Discount rate assumptions:

The discount rate applied to the cash flows is 10% (2018: 11%). This rate is in line with the Company's actual weighted average cost

of capital of 9.67% which takes account of the increased risk of being listed on AIM rather than the main market. It is representative of

businesses operating within the food sector.

 

Impairment charge:

The impairment review resulted in an impairment of the goodwill held for Cake Decoration of £18.7m (2018: impairment of £4.5m in

relation to Garrett Ingredients and Chantilly Patisserie). Cake Decoration is a core division for the Group and is currently in turnaround. The investments made in manufacturing capability in the last couple of years have not yet started to deliver the returns that could be expected, for example, and the Board believes that the current valuation, reflected here, necessarily and materially underplays the potential value of this division. Plans to improve the strategic positioning, service delivery and commercial performance of this business are also in progress.

Following the sale of the trade and assets of Garrett Ingredients Ltd, the £0.9m goodwill held in relation to this cash generating unit has

been written off, as the renamed entity Real Good Food Ingredients Ltd, is no longer a cash generating unit.

 

Sensitivity analysis:

An illustration of the sensitivity to reasonable possible changes in the discount rate assumption or the long-term growth rate are shown

below:

An increase of 0.5% in the Group's weighted average cost of capital of 10% to 10.5% would cause a further impairment of £3.6 million on the carrying value of goodwill on Cake Decoration.

A reduction of 0.5% to the growth rate from 2.0% to 1.5% would cause an impairment of £2.8 million on the carrying value of goodwill on Cake Decoration.

 

The Board has considered these sensitivities and believe that, owing to trading expectations and a strong brand, the recoverable amount would support the value.

 

 

13. Post-year end activities

1.   On 30 May 2019, London Stock Exchange determined a public censure of the Company and a fine of £450,000, discounted to £300,000 for early settlement. The public censure related to breaches of the AIM Rules for Companies ("AIM Rules") 10, 13, 17, 19, 21 and 31 which occurred in the period to July 2017. The fine was settled in early June 2019.

2.   On the same day, the following Board changes were made:

•     The Interim Non-Executive Chairman, Patrick Ridgwell, retired from the Board, and Mike Holt, Independent Non-Executive Director, was appointed Non-Executive Chairman, relinquishing his role as Chair of the Audit Committee;

•     Judith MacKenzie, Non-Executive Director, was appointed as Chair of the Audit Committee, relinquishing her role as Chair of the Remuneration Committee;

•     Steve Dawson, Non-Executive Director, became Chair of the Remuneration Committee; and

•     Anthony Ridgwell, the principal beneficiary of Napier Brown's holding in the Company, joined the Board as a Non-Executive Director.

3.   On 15 July 2019, Maribeth Keeling was appointed as Chief Financial Officer.

4.   On 31 July 2019, Christopher Thomas, Non-Executive Deputy Chairman retired from the Board.

5.   On the 9 August 2019 the Shareholder Loans were extended to 17 May 2021.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
FR UVSKRKRAWAAR

Quick facts: Real Good Food PLC

Price: 6.05

Market: LSE
Market Cap: £6.02 m
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