RGD.L Regulatory News (RGD)

 

 

28 September 2018

 

Real Good Food plc

 

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

 

Final results for the year ended 31 March 2018

 

Real Good Food plc, (AIM: RGD) the diversified food business, today announces its final results for the year ended 31 March 2018.

 

Financial highlights

· Revenue increased by 20% from £107.7 million to £129.8 million.

· Adjusted EBITDA* reduced from a profit of £1.4 million to a loss of £2.6 million, leading to an operating loss of £23.2 million(2017: loss of £5.6 million).

· Loss before tax was £25.2 million, after impairment charges of £10.5 million and significant items of £5.0 million, with an underlying loss before tax of £9.7 million (2017: loss of £6.2 million).

· Losses reflect the recognition of asset values and historic disruption caused by an intense period of ambitious investment, which led to an inflated overhead base.

· Since new management took control, some £2.8 million has been taken out of annualised central costs.

· Profitability was also affected by rising raw material costs and increased competition, exacerbating the impact of poor financial control of central costs.

· New management and a refreshed Board have brought rigour to corporate governance, accounting practices and commercial discipline over the period.

· The Company is now properly financed for the longer term, providing a platform to maximise earnings while also looking to optimise shareholder value, including, where appropriate, through managed disposals of constituent businesses.

Operational highlights and post period end

· Governance and control:

̶ A simple, clear objective and a turnaround strategy has been articulated and is well underway, focusing on core assets.̶ Significant Board changes made to improve corporate governance:

· Appointment of Hugh Cawley as CEO from 1 January 2018.

· Two new independent Non-Executive Directors appointed post-year end.

̶ Improvements to financial processes and procedures.̶ Corporate governance review carried out by Ernst & Young and all recommendations being implemented.̶ Continuing and enduring support of the Group's major shareholders.

· Operational:

̶ Disposal of two non-core businesses to focus more strongly on Cake Decoration and Food Ingredients, for a total consideration of £13.8 million.̶ Central costs now materially reduced.̶ Restructuring of financing undertaken raising up to £9.7 million post-year end to reduce debt and provide the platform for future growth and managed disposals where appropriate.

Current trading

· Trading is in line with our expectation for the year.

· Christmas period remains critically important for Renshaw, one of the Group's principal continuing businesses.

* Adjusted EBITDA represents earnings before depreciation, amortisation, impairments, significant items and finance costs 

 

Hugh Cawley, Chief Executive said:

 

"Last year was one which we will look back on with little pride or satisfaction. However, since the start of 2018, we have begun to take many of the remedial actions to turn around performance, continuing these steps beyond the financial year end. Moreover, we can now see the benefits of these actions in terms of having eliminated term bank debt, much reduced costs and a greater focus on our continuing businesses, all of which provide cause for optimism for the future.

"At the moment, underlying trading is in line with our modest expectations for the year, although the Christmas trading period remains a critically important one for Renshaw especially. Overall, the performance of, and prospects for, what is now a smaller and more focused Group, have improved considerably."

 

Enquiries:

Real Good Food plc Hugh Cawley, Chief Executive Harveen Rai, Finance Director	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 8100 rgf@mhpc.com

About Real Good Food

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

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

 

Strategic Review

Introduction

The year under review was one which the Company will look back on with little pride or satisfaction, but from which we believe many valuable lessons have been learnt which will stand us in good stead in the future. The importance of strong corporate governance and clear strategic direction, the ill-advisedness of investing before having secured the necessary funding and without having a clear, rational, unequivocal business case, and the enormous consequential direct and indirect cost of failings in these areas, all feature prominently in the reasons for our poor performance in this period.

However, the Board is pleased to report that since the start of 2018, we have begun to take many of the remedial actions to turn around the Group performance, continuing these steps beyond the financial year end. Moreover, we can now see the benefits of these actions in terms of having eliminated term bank debt, much reduced costs and a greater focus on our continuing core businesses, all of which provide optimism for the future.

2017/18 performance

Revenues from continuing businesses increased in the year from £107.7 million in 2016/17 to £129.8 million in 2017/18, reflecting not least the effect of the acquisition of Brighter Foods from April 2017, which added £16.1 million of revenue. Adjusted EBITDA* in the same period dropped, however, from a positive £1.4 million in 2016/17 to a negative £2.6 million in 2017/18, with a resulting operating loss. After taking account of the exceptional ("significant") items of £5.0 million, and impairment charges of £10.5 million, the statutory loss before tax totalled £25.2 million (2017: £6.2 million).

These significant losses arose from a number of issues. There was uncontrolled growth in the infrastructure and overhead base of the businesses and Head Office, in anticipation of significant, unprecedented and unrealised growth in revenues. It can be argued that these arose from a blurring of focus on the commercial imperatives of the businesses as sizeable capital investments were implemented in less than perfectly managed projects. We were also affected by the macro-economy with a variety of unfavourable movements in external influences, including commodity prices, exchange rates and litigation. Our inflexible and monolithic inability to adapt to these macro changes exacerbated an already complex situation. Change was required and the current Board has embraced the radical change and discipline necessary for a turnaround. In line with our review of corporate governance, we also appraised the accounting practices of the recent past and, of necessity, have subsequently made a variety of adjustments.

	31 March 2018£'000s	31 March 2017£'000s
Profit/(Loss) before taxation	(25,167)	(6,236)
Depreciation of property, plant and equipment	2,909	2,428
Impairment charge	10,494	4,109
Amortisation of intangibles	2,269	360
Significant Items	5,009	87
Finance Costs	1,756	427
Other Finance Costs	164	216
Adjusted EBITDA* Profit / (Loss)	(2,566)	1,391

* Adjusted EBITDA represents earnings before depreciation, amortisation, impairments, significant items and finance costs

Capital structure issues

Over the course of the financial year, and following the year end, our three major shareholders (Napier Brown, Omnicane and, from the second quarter onwards, Downing LLP client funds) were repeatedly called upon to support the Group's finances through a mixture of injections of loan capital and new equity. The requirement arose not just from the poor results of the business and the extensive capital programme, but also from having acquired Brighter Foods in April 2017, without having clearly identified the source of funds which would satisfy the acquisition funding. The details of the injection of this funding and how and when it was injected were included in the shareholder circular issued on 18th July 2018 and those details are in note 11.

The longer-term funding solution which was implemented, and concluded in August 2018 following the financial year end, was the investment by our three major supportive shareholders in the loan notes convertible into equity to replace the loan notes issued in respect of their last injection of up to £8.7 million. At the same time, to ensure that the minority shareholders were able to participate in a fundraising alongside the supportive major shareholders, an open offer was undertaken, which raised £1 million, at 5 pence per share, completed in August 2018. This financial restructuring was approved at the general meeting of shareholders held in London 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 is now restricted to asset backed finance with J F Renshaw and R&W Scott, and the invoice discount facility; today there is 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 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 future.

The Board is confident therefore that these steps, in combination with a variety of other corporate initiatives including the recently announced disposal of Haydens Bakery, have now established a solid financial footing from which the remaining constituent businesses of the Group are able to flourish.

Board changes

During the financial year, there were a number of Board changes, with further changes since the year end. On 1 August 2017, Peter Salter (Non-Executive Director) resigned and Pieter Totté (Executive Chairman) and Dave Newman (Finance Director and Company Secretary) resigned on 7 August 2017. There was no compensation for loss of office to these Directors.

The Board was strengthened by the appointment of three new Directors. Judith MacKenzie (non-independent Non-Executive Director from one of our three major shareholders, Downing LLP) was appointed on 21 July 2017 and Hugh Cawley (independent Non-Executive Director) joined on 7 August 2017. Harveen Rai was appointed as Finance Director and Company Secretary on 7 August 2017. On 8 August 2017 Christopher Thomas was appointed as Chief Executive (from Non-Executive Director) and Pat Ridgwell assumed the post of Interim Non-Executive Chairman (from Deputy Chairman).

These changes were made to improve the independence and corporate governance structure of the Board and to strengthen further the strategic and turnaround expertise for the Group in short order. In the light of the previous failings, the Board subsequently commissioned a full independent review of the Group's financial processes and procedures, corporate governance and controls to be carried out by specialists from Ernst & Young which has been completed and the recommendations are in the process of being implemented in full.

On 1 January 2018, Hugh Cawley was appointed Chief Executive, as Christopher Thomas stood down from the position to become Non-executive Deputy Chairman. Following the year end, we announced the appointments of, and are delighted to welcome to the Board as independent Non-Executive Directors, Mike Holt (also as Chair of the Audit & Risk Committee) and Steve Dawson. We are confident that their experience and fresh perspectives will add real value to the Board.

We have now completed the major planned changes to the Board's composition with a more appropriate mix of independent and non-independent Directors as well as Executives and Non-Executives.

Operating performance and outlook

Over the year and post-year end, the Board has dealt with a number of other challenges facing the Group, over and above the funding situation, such that the performance of, and prospects for, what is now a smaller and more focused Group, have improved considerably. The substantial investment in central cost has largely been unwound, for example, with the central headcount reduced from 47 to 12 as at the date of signing these accounts. This has reduced the central cost base by an annualised £2.8m before reinvesting a proportion of the savings to ensure the divisions have directly replaced as required the roles previously provided by Head Office.

Each business has now set its own objective and its strategy, defined what resources it requires to deliver those and then is shaping the organisation of its people accordingly. We have corporately learnt more about our own businesses, their strengths and weaknesses, and continue to do so, with the assistance of external perspectives where required.

We are very conscious, particularly following the shock of last year's poor Christmas trading period, that we cannot be complacent and must recognise the competitive pressures which are a relatively new feature for some of our businesses. At the moment, underlying trading is in line with our modest expectations for the year. The Christmas trading period remains a critically important one for Renshaw especially. Having had a year where we incurred significant one-off financial costs (principally significant items and impairments) our intention in the future is to report a far more straightforward Income Statement without excessive adjustments, thus enabling investors to value the Group more easily using standard metrics.

'So far so good' therefore aptly describes progress to date in this new financial year. The operational management teams and the employees of the Group have endured considerable challenges, as have other stakeholders. As is the nature of any turnaround, the pain comes before any benefit and we thank all our stakeholders for their patience and unstinting support thus far.

Group strategy

The Board's strategy has been to implement a turnaround plan for the Group by focusing on its core assets. Phase 1 of the plan has broadly been delivered (disposals, refinancing, cost reductions, normalised accounting policies). We are now moving onto Phase 2 to improve the profitability and cash generation of the core assets and place the Group in a stronger position to deliver shareholder value.

A basic tenet of the strategy required to deliver our objectives is to work appropriately with the management of each and every business to improve its performance, thus increasing the return on the considerable investment that has been made in recent years and thereby also increasing the inherent value of each business. Some of the businesses in the Group are further developed along that track than others.

Mindful that the Group has suffered historically from spreading its resources too thinly, the Board recognises that where the net value to shareholders of a business currently within the Group is demonstrably greater were it to be sold in the short term (as opposed to retained and turned around), then it must be considered a candidate for sale. Garrett Ingredients was an example just after the period under review. The recent disposal of Haydens also resulted from that recognition. As a result, the continuing material divisions of the Group comprise Food Ingredients and Cake Decoration, both of which are clearly profitable divisions.

Summary

The Group now principally comprises two excellent divisions, with clear objectives and strategies to achieve those objectives. We believe we have the leadership, the senior management and the resources capable of delivering the marked uplift in performance required of each of them, together with the solid financial foundation from which to do so. Indeed, there are signs of improvement already apparent in each business.

There have been marked strides made in the standards of corporate governance throughout and there is much firmer control over costs and capital. This is a significant improvement on the situation of just a year ago. We are grateful for the continued support of all the stakeholders who have shown confidence in the Group during some historically challenging times and we will strive to keep the positive momentum which has been built of late. The Board now has good reason to be more confident, but far from complacent, in the future prospects for the Company.

 

Hugh C L Cawley, Chief Executive Officer

 

Divisional Business Review

 

Real Good Food Cake Decoration

 

2017/18 Performance

This year's result for Cake Decoration was disappointing in one of the key businesses of the Group. Significant delays to the commissioning of new manufacturing equipment aimed at introducing new products, formats and a new brand, a delay in recovering commodity cost increases during the key sales period, and a significant increase in competitive intensity, particularly in the retail sector, were the most significant factors contributing to the performance.

A transformational capital investment programme started during the year, with a new line to produce convenience formats of Renshaw's core product, rolled icing, and a new soft icings plant; one line is now fully operational and the other is in the final stages of commissioning.

Consumer demand in the Cake Decoration category in the UK was largely flat, although consumer shopping behaviour continued to change, with footfall moving from Grocery Multiples to Discount & Bargain store channels where the range of homebaking products is more limited. During the key trading season for sweet homebaking, competitive intensity increased considerably resulting in lower selling prices across brand and own-label products. A delay in recovering commodity cost increases in sugar and dairy products further contributed to reduced margins.

Outside the UK, the establishment of a USA-based warehouse to fulfil orders for North America was completed, leading to a one-off reduction of stock within the supply chain but consumer demand remains strong. A review of the order fulfilment model for Continental Europe customers was initiated with the aim of ensuring the division is easier to do business with and the Europe-based personnel are focused on business development.

A product rebranding and relaunch exercise at Rainbow Dust was initiated with some delays experienced due to the scale and technical complexity of ensuring product compliance, particularly for export markets. The Preston manufacturing site made significant strides to ensuring it has the potential to distribute products into new channels and territories, achieving both FDA and BRC accreditations.

Forward plans

The business is implementing plans focused on streamlining processes and resources to ensure better coordination of activity across the Cake Decoration operating units and executing a growth strategy focused on increased supply of everyday usage and convenience products under its own and retailer brands, in the UK and in selected export markets.

The professional cake decorating community already holds Renshaw products in high esteem - we value and cherish that hard-won respect. The launch of the Simply CreateTM brand represents a real opportunity for Renshaw to encourage novice consumers to practise and expand their cake decorating skills. The range includes high-quality frostings in an easy-to-use tub, tasty icings in a carton and pourable icings, and it provides an easy excuse to create and enjoy a celebration cake, with professional-looking results. With the challenges over the past year, we held back the planned national launch of Simply CreateTM. During the current year, Simply CreateTM has been listed in Booths in the north-west of England and throughout the Co-op estate, with encouraging early results; wider national distribution is planned from early next year.

In business-to-business, the division sees significant opportunities to leverage its long-standing industry knowledge and expertise to help cake manufacturers, for example, by delivering better value core ingredients and some new innovative products, capitalising on current cake decorating trends.

Export growth is focused on North America where the division has identified significant potential to grow sales, and a plan has been developed which will see an increase in sales resource, a higher profile presence in the market and the acquisition of new customers.

Following its review of the order fulfilment model for Europe, the business has closed its Brussels warehouse and reverted to supplying product from the UK with no detriment to service levels. The Europe-based sales effort will now focus on existing and new business development.

Ensuring the supply of consistently high-quality product remains the key imperative for the division and, while it values the reputation it has and the accreditations achieved, it is implementing various initiatives to ensure product quality standards continue to improve and that it leads the industry in this respect.

12 Months to March	2018£m	2017£m
Revenue	47.7	47.0
Adjusted EBITDA*	2.6	6.5
Operating profit	0.5	5.5
Operating profit %	1.0%	11.7%

* Adjusted EBITDA represents earnings before depreciation, amortisation, impairments, significant items and finance costs

Food Ingredients

2017/18 Performance

The Food Ingredients division has undergone a fundamental transformation during the past two years, with the exciting, value-adding acquisition of 84.3% of Brighter Foods at the start of the financial year. Conversely, shortly after the end of the period, in line with our current strategy, we divested Garrett Ingredients, recognising that its net value to shareholders was better realised from a disposal than from continued ownership. The trading conditions faced by Garrett Ingredients in the year, resulted in recognising an impairment of £3.5 million. During the year to March 2018, there was also considerable investment in R&W Scott, where the acquisition of one multiple retailer's jam business added significant volume, though at lower than normal margins for this business. Brighter Foods performed well during the period and helped move the division into positive EBITDA (adjusted), although commodity prices were unhelpful for the trading business and for R&W Scott for much of the year.

12 Months to March	2018£m	2017**£m
Adjusted for:
Revenue	45.9	26.9
Adjusted EBITDA* profit/(loss)	2.3	(1.4)
Operating (loss)	(3.5)	(5.6)
Operating (loss) %	(7.6)%	(20.8)%

**2017 restated for continuing business only.

* Adjusted EBITDA represents earnings before depreciation, amortisation, impairments, significant items and finance costs

Forward plans

The acquisition of Brighter Foods transformed the scale and boosted the profitability of this division, establishing an important presence in the added value health sector. The performance of R&W Scott in the year was disappointing, notwithstanding it secured a major jam contract, and the returns from the investment made in plant and equipment did not start to show through until after the close of the year. The origins of the sugar trading dispute impacted the profitability of the division markedly during the year, particularly at Garrett Ingredients, and the resulting switch of suppliers helped margin recovery in the second half of the year. The dispute regarding the non-supply contracted sugar remains unresolved.

The acquisition of Brighter Foods has provided the Group with a robust and stable platform in the growing health food & wellness market.

Brighter Foods, acquired in April 2017, creates and manufactures snack bars for the healthy snacking market from its factories in Tywyn, Gwynedd in Mid Wales. This multi-award-winning company 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. As well as manufacturing partner-branded products, Brighter Foods has its own healthier brands such as Wild Trail, which is stocked in major retailers and health food stores.

Premium Bakery

2017/18 Performance

It is difficult to over-emphasise the disruptive effect of the extensive investment programme at Haydens during the year. As a result of the capital investment, however, the factory in Devizes now has significant extra capacity (one of the important features that made the business attractive to its recent acquirer) and is delivering enviable service levels. This has already allowed the business to attract Tesco and Sainsburys to join the growing customer list, utilising the equipment installed as part of the investment. Commodity prices were also very unhelpful over the year, with the cost of butter remaining at historically high levels and our commercial agreements at that time not tailored to recover any of the added cost. Projects are underway to improve the levels of waste and overall efficiency, seeking to extract maximum return from the new investment. Recruitment of high-calibre staff across the industry remains a key differentiator and with a project that also invested in staff and facilities, we have increased the attractiveness of the business for the future.

In the event, the planned move of the Chantilly Patisserie business to new premises was shelved, since, while it was of course intuitively right to expand and grow, given the relative scarcity of cash last year, the investment case for doing so simply could not be made; the business remains based in premises where growth will potentially be capacity-constrained, although this is not currently an issue.

The challenging trading conditions resulted in an impairment of fixed assets of £6.0 million for Haydens Bakeries, and an impairment charge to goodwill of £1.0 million for Chantilly Patisserie.

12 Months to March	2018£m	2017£m
Adjusted for:
Revenue	36.2	33.9
Adjusted EBITDA* profit/(loss)	(0.9)	1.2
Operating profit/(loss)	(10.2)	0.1
Operating profit/(loss) %	(28.2)%	0.3%

* Adjusted EBITDA represents earnings before depreciation, amortisation, impairments, significant items and finance costs

Forward plans

The Haydens business was sold in early September 2018, to Bakkavor Limited for £12 million, leaving Chantilly Patisserie as the only business in our Premium Bakery category. Commodity prices will continue to be a challenge, most particularly in the higher end of the market in which Chantilly operates but with excellent products and a strong pipeline of new product innovations, Chantilly's ability to stand alone in serving its foodservice customer base is well-established.

Finance Review

Overview

During the year to 31 March 2018, the finance team, supported by the Board, senior management, auditors, financial advisors and external consultants, carried out comprehensive reviews of financial controls and corporate governance.

The findings of the reviews set into motion a number of activities to improve financial controls and governance with all recommendations in the process of being implemented.

A number of accounting processes and procedures were reviewed which resulted in a number of negative adjustments within EBITDA (adjusted), and also profit before tax, and full reviews of all investments in light of projected future divisional performance saw material impairments of assets and goodwill, too.

Revenue

Group revenue for the 12 months ending 31 March 2018 was £129.8 million (2017: £107.7 million), an increase of 20% on the revenue to 31 March 2017. This results from growth in the Food Ingredients business of £19.1 million, in Premium Bakery of £2.3 million and a near-flat performance in Cake Decoration where sales YOY increased by £0.7 million. The increase in the Food Ingredients division was driven mainly by the acquisition of Brighter Foods in April 2017, the revenue from Brighter amounting to £16.1 million in the year. Premium Bakery also saw revenue growth following significant investment in the year in both the yum yum and tarts categories.

Profit measure on operations

Gross profit on the continuing businesses for the overall Group was £24.9 million (2017: £26.3 million). At 14.9%, the delivered margin in the year was below the prior year of 19.9%. This margin has been impacted by several factors including unfavourable commodity price increases, later than expected and limited price recovery, currency impact, and changes in accounting estimations within stock.

The operating loss in the year of £23.2 million is reported after an impairment charge of £10.5 million, depreciation and amortisation charge of £5.2 million and significant costs of £5.0 million. The impairment review resulted in an impairment of goodwill of £4.5 million, and impairment of fixed assets of £6.0 million.

This has resulted in a statutory loss before tax of £25.2 million (2017: loss of £6.2 million), giving a basic loss per share of 33.10 pence against a loss per share of 8.18 pence in 2017 (see note 10).

Cashflow and net debt

The significant capital investments, financial impact of poor governance and other factors affecting the operating loss described above, led to insufficient working capital. Shares issued in the year and additional loans to 31 March 2018 amounted to £24.2 million, of which £13.0 million of cash was used in investing activities and £6.6 million of cash was used in operating activities.

Refinancing and additional funds

During the year, and since 31 March 2018, significant funds were injected into the business by the major shareholders to support the working capital needs of the business. Agreed investor loans and equity placing total £27.0 million to the year end, and a further £9.7 million was agreed after the year end, of which £1.0 million was raised through the Open Offer in August 2018. The Group further increased its borrowings under hire purchase to £6.4 million and continued to utilise the invoice discounting facility. Further details of borrowings can be found in note 11. The total of borrowings saw interest charges in the year totalling £1.6 million.

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 2018 of £6.4 million (2017: £5.9 million). The Plan assets decreased by £0.4 million to £13.5 million (2017: £13.9 million) and the Plan liabilities are £19.9 million compared to £19.8 million at 31 March 2017. See note 12 for further details.

Dividend

The Directors, taking into account the Group's performance and cash resources, do not recommend the payment of a final dividend for the year ended 31 March 2018 (2017: £28k).

Outlook

Following a difficult year current trading is in line with our modest expectations for the year. The Group remains focused on continuing to improve its results and reduce net debt, as well as its corporate governance and internal controls to support the business strategy and increase shareholder value and returns.

Results of continuing operations

	31 March 2018 £'000s	31 March 2017 £'000s
Revenue	129,842	107,736
Gross profit	24,902	26,325
Delivered margin	19,443	21,410
Delivered margin %	14.9%	19.9%
EBITDA (adjusted) (loss)	(2,566)	1,391
Operating loss	(23,247)	(5,593)
Operating loss %	(17.9)%	(5.2)%
Loss before tax	(25,167)	(6,236)

 

Consolidated Statement of Comprehensive Income

Year ended 31 March 2018

		12 months ended 31 March 2018 £'000s	12 months ended 31 March 2017 £'000s
Revenue	2,3	129,842	107,736
Cost of sales		(104,940)	(81,411)
Gross profit		24,902	26,325
Distribution expenses		(5,459)	(4,915)
Administrative expenses		(27,187)	(22,807)
Impairment charge		(10,494)	(4,109)
Significant Items	4	(5,009)	(87)
Operating loss	5	(23,247)	(5,593)
Finance costs	6	(1,756)	(427)
Other finance costs	7	(164)	(216)
Loss before tax		(25,167)	(6,236)
Income tax (expense)/credit	9	(53)	483
Loss from continuing operations		(25,220)	(5,753)
Loss from discontinued operations		(1,345)	(226)
Net loss		(26,565)	(5,979)
Attributable to:
Owners of the parent		(27,099)	(5,979)
Non-controlling interests		534	-
Net loss		(26,565)	(5,979)
Items that will not be reclassified to profit or loss
Foreign exchange differences on translation of subsidiaries		61	(48)
Actuarial losses on defined benefit plan	12	(599)	(1,847)
Tax relating to items which will not be reclassified		100	351
Other comprehensive loss		(438)	(1,544)
Total comprehensive loss for the year		(27,003)	(7,523)
Attributable to:
Owners of the parent		(27,537)	(7,523)
Non-controlling interests		534	-
Total comprehensive loss for the year		(27,003)	(7,523)
Basic and diluted loss per share - continuing operations	10	(33.10)p	(8.18)p
Basic and diluted loss per share - discontinued operations	10	(1.76)p	(0.32)p

Note: The impairment charge comprises write downs of the plant and equipment of Haydens Bakery (£6.0 million) and of Goodwill in Garretts Ingredients (£3.5 million) and Chantilly Patisserie (£1.0 million)

 

Consolidated Statement of Changes in Equity

Year ended 31 March 2018

	Issued Share Capital £'000s	SharePremium Account £'000s	Other Reserves £'000s	Share Option Reserve £'000s	Foreign Translation Reserve £'000s	Retained Earnings £'000s	Total£'000s	Non- Controlling Interest £'000s	TotalEquity £'000s
Balance as at 31 March 2016	1,402	71,375	-	592	-	21,049	94,418	-	94,418
Total comprehensive loss for the year
Loss for the year	-	-	-	-	-	(5,979)	(5,979)	-	(5,979)
Other comprehensive loss for the year	-	-	-	-	(48)	(1,496)	(1,544)	-	(1,544)
Total comprehensive loss for the year	-	-	-	-	(48)	(7,475)	(7,523)	-	(7,523)
Transactions with owners of the Group, recognised directly in equity
Shares issued in the year	9	19	-	-	-	-	28	-	28
Deferred tax on share based payments	-	-	-	(177)	-	-	(177)	-	(177)
Dividends paid	-	-	-	-	-	(28)	(28)	-	(28)
Cancellation of share premium	-	(71,272)	-	-	-	71,272	-	-	-
Total contributions by and distributions to owners of the Group	9	(71,253)	-	(177)	-	71,244	(177)	-	(177)
Balance as at31 March 2017	1,411	122	-	415	(48)	84,818	86,718	-	86,718
Total comprehensive loss for the year
Loss for the year	-	-	-	-	-	(27,099)	(27,099)	534	(26,565)
Other comprehensive income 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 at31 March 2018	1,569	2,720	(4,796)	310	13	57,220	57,036	1,803	58,839

 

Consolidated Statement of Financial Position

Year ended 31 March 2018

	Notes	31 March2018 £'000s	31 March2017 £'000s
NON-CURRENT ASSETS
Goodwill		69,955	69,416
Other intangible assets		3,247	1,155
Tangible fixed assets		30,098	23,932
Investments		81	-
Deferred tax asset		1,129	1,435
		104,510	95,938
CURRENT ASSETS
Inventories		10,582	13,323
Trade and other receivables		15,296	16,016
Current tax assets		27	233
Cash collateral	11	2,000	-
Cash and cash equivalents		2,731	464
		30,636	30,036
TOTAL ASSETS		135,146	125,974
CURRENT LIABILITIES
Bank overdrafts		-	619
Trade and other payables		22,486	15,243
Borrowings	11	24,160	11,375
Financial instrument		-	146
		46,646	27,383
NON-CURRENT LIABILITIES
Borrowings	11	16,390	4,701
Long-term liabilities - NCI put option		4,796	-
Deferred tax liabilities		2,035	1,278
Retirement benefit obligation	12	6,440	5,894
		29,661	11,873
TOTAL LIABILITIES		76,307	39,256
NET ASSETS		58,839	86,718
EQUITY
Share capital		1,569	1,411
Share premium account		2,720	122
Other reserve		(4,796)	-
Share option reserve		310	415
Foreign exchange translation reserve		13	(48)
Retained earnings		57,220	84,818
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT		57,036	86,718
Non-controlling interest		1,803	-
TOTAL EQUITY		58,839	86,718

 

Consolidated Cash Flow Statement

Year ended 31 March 2018

	Notes	2018 £'000s	31 March 2017 £'000s
CASH FLOW FROM OPERATING ACTIVITIES
Adjusted for:
(Loss)/profit before taxation		(26,512)	(6,462)
Finance and other finance costs	6, 7	1,805	643
FX movement		152	-
Share based payment expense		(5)	-
Loss on discontinued business		142	-
Loss on disposal of property, plant and equipment		107	-
Depreciation of property, plant and equipment		2,929	2,434
Impairment charge		10,494	4,109
Past service cost/(gain) on pension	12	115	(1,330)
Amortisation of intangibles		2,274	365
Operating cash flow		(8,499)	(241)
Decrease/(increase) in inventories		3,675	(963)
Decrease in receivables		1,641	1,021
Pension contributions		(942)	(310)
NCI put option		(4,796)	-
Increase in payables		3,155	1,497
Cash (used in)/generated by operations		(5,766)	1,004
Income taxes received/(paid)		1	(237)
Interest paid		(809)	(427)
Net cash (outflow)/inflow from operating activities		(6,574)	340
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of intangible assets		(249)	(686)
Purchase of property, plant and equipment		(10,961)	(10,820)
Acquisition of business, net of cash acquired		(1,781)	-
Net cash outflow from investing activities		(12,991)	(11,506)
CASH FLOW FROM FINANCING ACTIVITIES
Shares issued in year		2,756	28
Dividends paid		-	(28)
Repayment of loans		(750)	(688)
Inflow of investor loans		21,398	-
Drawdowns on revolving credit facilities		99,266	5,628
Repayment of revolving credit facilities		(99,930)	-
New finance leases acquired		1,008	4,074
Capital repayments on finance leases		(1,306)	-
Net cash inflow from financing activities		22,442	9,014
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		2,877	(2,152)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of period		(155)	1,997
Effects of currency translations on cash and cash equivalents		9	-
Net movement in cash and cash equivalents		2,877	(2,152)
Cash and cash equivalents at end of period	8	2,731	(155)
Cash and cash equivalents comprise:
Cash		2,731	464
Overdrafts		-	(619)
		2,731	(155)

 

Notes to the Financial Information

Year ended 31 March 2018

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 have 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 2018 or 2017. Statutory accounts for 2017 have been delivered to the Registrar of Companies, and those for 2018 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 28 September 2018.

Discontinued operations

A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification of a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative income statement is presented as if the operation had discontinued from the start of the comparative period. The disposal of the Garrett Ingredients Nutrition business in year to March 2018, gave rise to a discontinued operation.

2. Revenue

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

Cake Decoration £47.7million	Manufactures, sells and supplies cake decorating products and ingredients for the baking sector. The revenue from the Renshaw Academy is shown in Head Office and relates to the Cake Decoration division.
Food Ingredients £45.9million	Manufactures and supplies a range of food ingredients such as chocolate coatings, sauces, jams, dry powder blends and snack bars to the retail, wholesale and foodservice sectors.
Premium Bakery £36.2million	The manufacture and supply of high quality cakes and desserts to the retail and foodservice sectors.

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 three main divisions: cake decoration, food ingredients and premium bakery. The Head Officefunctions of Finance, Human Resources, Technical, Marketing and the Innovation Centre provide support to the divisions in varying scale.

12 months ended 31 March 2018	Cake Decoration £'000s	Food Ingredients £'000s	Premium Bakery£'000s	Head Office £'000s	Continuing Operations £'000s	Discontinued Operations £'000s	Total Group£'000s
Total revenue	55,175	50,641	36,206	61	142,083	284	142,367
Revenue - internal	(7,544)	(4,697)	-	-	(12,241)	-	(12,241)
External revenue	47,631	45,944	36,206	61	129,842	284	130,126
Underlying adjusted EBITDA (see table below)	2,597	2,344	(922)	(6,585)	(2,566)	(844)	(3,410)
Operating profit/(loss) before impairment & significant items	1,524	238	(2,439)	(7,067)	(7,744)	(869)	(8,613)
Impairment charge	-	(3,506)	(6,988)	-	(10,494)	-	(10,494)
Significant items	(1,060)	(275)	(731)	(2,943)	(5,009)	(476)	(5,485)
Operating profit/(loss)	464	(3,543)	(10,158)	(10,010)	(23,247)	(1,345)	(24,592)
Net finance costs	(214)	(127)	(205)	(1,210)	(1,756)	-	(1,756)
Other finance costs	-	-	-	(164)	(164)	-	(164)
Profit/(loss) before tax	250	(3,670)	(10,363)	(11,384)	(25,167)	(1,345)	(26,512)
Tax	1,364	(580)	99	(936)	(53)	-	(53)
Profit/(loss) after tax as per comprehensive statement of income	1,614	(4,250)	(10,264)	(12,320)	(25,220)	(1,345)	(26,565)

Included in the Premium Bakery segment, one single customer accounts for 17.2% (2017: 19.8%) of the continuing Group's external sales for the year ended 31 March 2018.

Geographical segments

The Group earns revenue from countries outside the United Kingdom, but as these only represent 9.8% of the total revenue of the Group (2017 : 11.6%), segmental reporting of a geographical nature is not considered relevant. The Cake Decoration segment accounts for the majority of this turnover.

Reconciliation of underlying EBITDAto operating profit	Cake Decoration £'000s	Food Ingredients £'000s	Premium Bakery£'000s	Head Office£'000s	Continuing Operations £'000s	Discontinued Operations £'000s	Total Group £'000s
Operating profit/(loss)	464	(3,543)	(10,158)	(10,010)	(23,247)	(1,345)	(24,592)
Significant items	1,060	275	731	2,943	5,009	476	5,485
Impairment charge	-	3,506	6,988	-	10,494	-	10,494
Depreciation	797	693	994	425	2,909	20	2,929
Amortisation	276	1,413	523	57	2,269	5	2,274
Underlying adjusted EBITDA	2,597	2,344	(922)	(6,585)	(2,566)	(844)	(3,410)

 

31 March 2018	Cake Decoration £'000s	Food Ingredients £'000s	Premium Bakery£'000s	Head Office£'000s	Continuing Operations £'000s	Discontinued Operations £'000s	Total Group£'000s
Segment assets	110,146	24,615	17,337	(16,952)	135,146	-	135,146
Segment liabilities	26,219	18,449	27,097	4,542	76,307	-	76,307
Net operating assets	83,927	6,166	(9,760)	(21,494)	58,839	-	58,839
Non-current asset additions	2,646	4,206	8,169	2,087	17,108	-	17,108
Depreciation	(797)	(693)	(994)	(425)	(2,909)	(20)	(2,929)
Amortisation	(276)	(1,413)	(523)	(57)	(2,269)	(5)	(2,274)

 

12 months ended 31 March 2017	Cake Decoration £'000s	Food Ingredients £'000s	Premium Bakery£'000s	HeadOffice£'000s	Continuing Operations £'000s	Discontinued Operations £'000s	Total Group£'000s
Total revenue	51,042	31,195	33,892	-	116,129	472	116,601
Revenue - internal	(4,053)	(4,340)	-	-	(8,393)	-	(8,393)
External revenue	46,989	26,855	33,892	-	107,736	472	108,208
Underlying adjusted EBITDA(see table overleaf)	6,528	(1,352)	1,167	(4,952)	1,391	(212)	1,179
Operating profit/(loss) before impairment & significant items	5,758	(1,823)	192	(5,524)	(1,397)	(226)	(1,623)
Impairment charge	-	(3,589)	-	(520)	(4,109)	-	(4,109)
Significant items	(264)	(141)	(95)	413	(87)	-	(87)
Operating profit/(loss)	5,494	(5,553)	97	(5,631)	(5,593)	(226)	(5,819)
Net finance costs	(129)	(34)	(83)	(181)	(427)	-	(427)
Other finance costs	-	-	-	(216)	(216)	-	(216)
Profit/(loss) before tax	5,365	(5,587)	14	(6,028)	(6,236)	(226)	(6,462)
Tax	(1,280)	763	(29)	1,029	483	-	483
Profit/(loss) after tax as per comprehensive statement of income	4,085	(4,824)	(15)	(4,999)	(5,753)	(226)	(5,979)

 

Reconciliation of underlying EBITDA (adjusted) to operating profit	Cake Decoration £'000s	Food Ingredients £'000s	Premium Bakery£'000s	Head Office £'000s	Continuing Operations £'000s	Discontinued Operations £'000s	Total Group£'000s
Operating (profit)/loss	5,494	(5,553)	97	(5,631)	(5,593)	(226)	(5,819)
Significant items	264	141	95	(413)	87	-	87
Impairment charge	-	3,589	-	520	4,109	-	4,109
Depreciation	719	463	696	550	2,428	6	2,434
Amortisation	51	8	279	22	360	8	368
Underlying adjusted EBITDA	6,528	(1,352)	1,167	(4,952)	1,391	(212)	1,179

4. Significant items

	Commentary Notes	12 months ended 31 March 2018 £'000s	12 months ended 31 March 2017 £'000s
Disruption/abnormal wastage costs relating to ongoing capital projects	1	(885)	-
Investigation work	2	(1,207)	-
Professional fees in relation to refinancing costs	3	(553)	-
Discontinued operations and asset write-off	4	(920)	-
Commercial disputes	5	(355)	-
Past service gain on pensions §		-	1,155
Management restructuring	6	(1,254)	(419)
Acquisition and legal costs	7	(311)	(823)
Significant items		(5,485)	(87)
Continuing business		(5,009)	(87)
Discontinued business		(476)	-
Total significant items		(5,485)	(87)

§ Historically, an allowance for future pension increases of 3% has been included in the defined benefit obligation. The past service gains of £1,155k reflect the value of this discretionary option, rather than the 3% assumed historically.

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 March 2018 has been one of significant corporate change, upheaval and challenge and the excluded items, explained in the notes below, have been commensurately large.

1. Disruption/abnormal wastage 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 unusual costs associated with abnormal disruption, which arose on the capital projects in Haydens, Renshaw and R&W Scott, have been separately tracked in the P&L.

2. Investigation work 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 costs required. 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 negotiated.

4. Close of business transaction and asset write-offs. During the year, we closed the Garrett Ingredients Nutrition business (£476k), a business that we had bought out of administration, to avoid incurring continuing losses and to avoid the distraction that managing a distressed business inevitably entails. The remaining costs relate to capital expenditure projects which are no longer being pursued.

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. One claim is now settled, the other continues and is not yet resolved.

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 12 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 overview of marketing, operations, or HR. The costs of severance for these staff members have been separately identified and disclosed here.

7. The Company incurred further legal fees in 2018 relating to the successful acquisition of Brighter Foods in April 2017.

5. Operating profit

Operating profit for continuing operations

	Notes	12 months ended 31 March 2018 £'000s	12 months ended 31 March 2017 £'000s
External sales		129,842	107,736
Staff costs		(40,732)	(31,070)
Inventories:
- cost of inventories as an expense (included in cost of sales)		(70,591)	(53,317)
Depreciation of property, plant and equipment		(2,909)	(2,428)
Amortisation of intangible assets		(2,269)	(360)
Significant items	4	(5,009)	(87)
Impairment charge		(10,494)	(4,109)
Operating lease payment:
- land and buildings		(1,161)	(409)
- other assets		(269)	(436)
Research and development expenditure		(1,795)	(1,839)
Impairment of trade receivables		(146)	92
Foreign exchange losses/(gains)		289	(19)
Other net operating expenses		(18,003)	(19,347)
Total		(153,089)	(113,329)
Operating loss		(23,247)	(5,593)

Note: The impairment charge comprises write downs of the plant and equipment of Haydens Bakery (£6.0 million) and of Goodwill in Garrett Ingredients (£3.5 million) and Chantilly Patisserie (£1.0 million)

 

6. Finance costs

	12 months ended 31 March 2018 £'000s	12 months ended 31 March2017 £'000s
Interest on bank loans, overdrafts and investor loans	(1,311)	(409)
Interest on obligations under finance leases	(330)	(18)
Past service cost on pension	(115)	-
	(1,756)	(427)
Continuing business	(1,756)	(427)
Discontinued business	-	-

 

7. Other finance costs

	12 months ended 31 March 2018 £'000s	12 months ended 31 March 2017 £'000s
Interest on pension scheme liabilities (note 12)	(553)	(754)
Interest on pension scheme assets (note 12)	389	538
	(164)	(216)

 

8. Notes supporting the cash flow statement

The cash collateral figure for the Group is £2 million. This has been provided to Lloyds Banking Group as security for the liabilities of the Group. The £2 million has been supplied as investor loans by Omnicane and Napier Brown and attracts interest. This amount is not included in the cashflow.

Group

	Non-current Loans and Borrowings £000's	Current Loans and Borrowings £000's	Total £000's
At 31 March 2017	4,701	11,375	16,076
Cash flows	12,562	7,124	19,686
Non-cash flows
− Cash collateral	-	2,000	2,000
− Loans and borrowings classified as non-current at 31 March 2017 becoming current before 31 March 2018	(3,157)	3,157	-
− Hire purchase assets procured by lender	2,006	455	2,461
− Government grant	278	49	327
At 31 March 2018	16,390	24,160	40,550

Company

	Non-current Loans and Borrowings £000's	Current Loans and Borrowings £000's	Total £000's
At 31 March 2017	1,500	1,000	2,500
Cash flows	11,254	9,394	20,648
Non-cash flows
Cash collateral	-	2,000	2,000
− Loans and borrowings classified as non-current at 31 March 2017 becoming current before 31 March 2018	(1,500)	1,500	-
At 31 March 2018	11,254	13,894	25,148

 

9. Taxation

Group

	31 March 2018 £'000s	31 March 2017 £'000s
Current tax
UK current tax on profit of the period	(58)	(84)
UK current tax on significant items	-	84
Adjustments in respect of prior years	196	134
Total current tax	138	134
Origination and reversal of timing differences	(213)	377
Adjustments in respect of prior years	22	(28)
Total deferred tax	(191)	349
Tax - continuing operations	(53)	483
Tax - discontinued operations	-	-
Total tax	(53)	483
Tax (expense)/credit on loss	(53)	483

Factors affecting tax charge for the period:

The tax assessed for the period differs from the standard rate of corporation tax in the UK of 19% (2017 : 20%).

The differences are explained below:

	31 March 2018 £'000s	31 March 2017 £'000s
Tax reconciliation
Loss per accounts before taxation	(26,512)	(6,462)
Tax on loss on ordinary activities at standard tax rate of 19% (2017: 20%)	5,037	1,292
Expenses not deductible for tax purposes	(2,191)	(709)
Share option relief	-	26
Current year losses not recognised - deferred tax	(3,202)	(204)
Adjustments in respect of change in deferred tax rate	85	(28)
Adjustments to tax in respect of prior years	218	106
Total tax	(53)	483
Tax on continuing operations	(53)	483
Tax on discontinued operations	-	-
Tax (expense)/credit for the period	(53)	483

 

The Finance (No. 2) Act 2015 introduced a reduction in the main rate of corporation tax from 20% to 19% from 1 April 2017 and from 19% to 18% from 1 April 2020. These reductions were substantively enacted on 26 October 2015.

The Finance Act 2016 introduced a further reduction in the main rate of corporation tax to 17% from 1 April 2020. This was substantively enacted on 6 September 2016. Accordingly, deferred tax balances that are expected to reverse after 1 April 2020 have been valued at the lower rate of 17%.

10. 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 March2018 Continuing Operations	12 months ended 31 March2018 Discontinued Operations	12 months ended 31 March2017 Continuing Operations	12 months ended 31 March2017 Discontinued Operations
Loss after tax attributable to ordinary shareholders (£'000s)	(25,220)	(1,345)	(5,753)	(226)
Weighted average number of shares in issue for basic EPS ('000s)	76,179	76,179	70,272	70,272
Employee share options ('000s)	1,790	1,790	4,234	4,234
Weighted average number of shares in issue for diluted EPS ('000s)	77,969	77,969	74,506	74,506
Basic and diluted loss per share	(33.10)p	(1.76)p	(8.18)p	(0.32)p

The total loss per share (continuing and discontinued operations) for 2018 is (34.86)p (2017: (8.50)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 antidilutive as they decrease the loss per share. Therefore, diluted EPS is the same as basic.

The weighted average number of shares in issue for the year was 76,179,123 and the number of options outstanding was 6,930,748. If these were all exercised the cash raised would be equivalent to that which would be raised by issuing 1,789,851 shares at the average share price during the year. The difference between these figures is the weighted average number of dilutive potential ordinary shares of 77,968,974.

Adjusted earnings per share

An adjusted earnings per share and a diluted adjusted earnings per share, which exclude significant items, have also been calculated as in the opinion of the Board this allows shareholders to gain a clearer understanding of the trading performance of the Group.

	12 months ended 31 March 2018 Continuing Operations	12 months ended 31 March 2018 Discontinued Operations	12 months ended 31 March 2017 Continuing Operations	12 months ended 31 March 2017 Discontinued Operations
Loss after tax attributable to ordinary shareholders (£'000s)	(25,220)	(1,345)	(5,753)	(226)
Add back significant items (£'000s) (note 4)	5,009	476	87	-
Adjusted loss after tax attributable to ordinary shareholders (£'000s)	(20,211)	(869)	(5,666)	(226)
Weighted average number of shares in issue for basic EPS ('000s)	76,179	76,179	70,272	70,272
Weighted average number of shares in issue for diluted EPS ('000s)	77,969	77,969	74,506	74,506
Adjusted loss per share	(26.53)p	(1.14)p	(8.06)p	(0.32)p

* Prior year basic and diluted loss per share was (8.16)p after adjusting for tax on significant items

The total adjusted loss per share (continuing and discontinued operations) for 2018 is (27.67)p (2017: (8.38)p).

11. Borrowings and capital management

	31 March 2018 Group £'000s	31 March 2018 Company £'000s	31 March 2017 Group £'000s	31 March 2017 Company £'000s
Secured borrowings at amortised cost
Bank term loans	1,750	1,750	2,500	2,500
Revolving credit facilities	8,669	-	9,333	-
Hire purchase	6,406	-	4,243	-
Investor loans*	21,398	21,398	-	-
Investor loans - cash collateral	2,000	2,000	-	-
Government grants	327	-	-	-
	40,550	25,148	16,076	2,500
Amount due for settlement within 12 months	24,160	13,894	11,375	1,000
Amount due for settlement after 12 months	16,390	11,254	4,701	1,500
Total	40,550	25,148	16,076	2,500

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

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.

Features of the Group's borrowings are as follows:

The Group's financial instruments comprised cash, a term loan, 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 ofthe Directors.

During the year ended 31 March 2018 the Group continued with the borrowing facilities in place and secured loans from investors. The borrowings comprised:

· A term loan with Lloyds Banking Group ("LBG") repayable in quarterly instalments of £250k with a final repayment in October 2018. Interest on this loan is charged at 2.75% above Bank of England base rate (Base Rate).

· Invoice discount facility of £20 million with LBG on a revolving basis with a minimum term of 12 months and a six-month notice period. This facility is secured against the debtors across the whole of the Group's UK businesses (excluding Brighter Foods) with an interest rate of 1.5% above Base Rate.

· An overdraft facility with LBG of up to £2.0m with two major shareholders (Napier Brown Holdings and Omnicane Limited) each putting £1.0m into an account as security. The interest rate on the overdraft is at 3.5% above Base Rate.

· The Group also secured facilities against specific plant and machinery with LBG 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 Limited, Omnicane Investors Limited and certain funds managed by Downing LLP, supported the business and provided significant funding to the Group by way of loans.

The loans are summarised as follows:

Date	Amount	Method of Funding	Major Shareholder(s)
March 2018	£4.0m*	Unsecured loan notes	NB (£1.7m), Omnicane (£1.7m)Downing (£0.6m)
January 2018	£3.0m	Unsecured loan notes	NB (£1.3m), Omnicane (£1.3m) Downing (£0.4m)
September 2017	£4.0m	Loan Facility & loan notesSecured on specific chattel assets	NB (£1.3m), Omnicane (£1.3m) Downing (£1.3m)
August 2017	£2.0m	Loan facility(applied as collateral for bank overdraft)	NB (£1.0m), Omnicane (£1.0m)
June 2017	£4.0m	Investor loans	NB (£2.0m), Omnicane (£2.0m)
June 2017	£7.3m**	Loan notes	Downing
TOTAL	£24.3m

* £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

Lloyds Bank plc has 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.

Post-year end borrowings

· In May 2018 the Company secured further funding from each of its major shareholders totalling £8.5m. NB and Omnicane each provided £3.3m and Downing provided £1.9m (with a further £0.2m to be provided at the sole discretion of Downing prior to 30 September 2018). This instrument has since, with shareholder approval, been converted into a "Convertible Loan Note" instrument with a conversion price of 5 pence. This instrument accrues interest at 12%, maturing in full on 17 May 2021, unless converted before that date. Should the shareholders exercise the right to convert the "CLN" into Ordinary shares, this would result in dilution of current shareholdings.

· A further £1.0m was raised through an Open Offer in August 2018, with a further 20,115,190 shares admitted on 17 August 2018.

· Following the sales of Garrett Ingredients Limited and Haydens Bakeries Limited the invoice discount facility with LBG was reduced to £10 million.

· The residue of the term loan of £1.8 million at 31 March 2018 was repaid in full in September 2018 with the proceeds of the Haydens disposal.

· The terms of the investor loans were amended post the year end subject to the "Amendment Deed" with all loans (except the Convertible Loan Notes) accruing interest at a rate of 10%, repayable with the principal amount on 30 June 2020.

 

12. 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 benefit scheme which was closed to new members in 2000. 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 expects to pay £346k to the Plan for the year commencing 1 April 2018 (2018: £333k). The defined benefit scheme is funded by the Company.

For the purposes of IAS 19 the data provided for the 31 March 2015 actuarial valuation has been approximately updated to reflect defined benefit obligations on the accounting basis at 31 March 2018. This has resulted in a deficit in the Plan of £6,440k.

It is the policy of the Company to recognise all actuarial gains and losses in the year in which they occur in the Statement of Comprehensive Income.

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

	31 March 2018 £'000s	31 March 2017 £'000s	31 March 2016 £'000s	31 March 2015 £'000s	31 March 2014 £'000s
Present value of defined benefit obligation	19,969	19,840	21,094	21,799	19,033
Fair value of Plan assets	(13,529)	(13,946)	(15,013)	(16,111)	(15,360)
Deficit/(surplus) in Plan - Gross amount	6,440	5,894	6,081	5,688	3,673
Deferred tax at 17%*	(1,095)	(1,120)	(1,155)	(1,138)	(735)
Net liability	5,345	4,774	4,926	4,550	2,938

* Deferred tax rate 2016 & 2017: 19%, 2014 & 2015: 20%

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

	31 March 2018 £'000s	31 March 2017 £'000s
Defined benefit obligation at start of period	19,840	21,094
Interest cost	553	754
Actuarial (gains)/losses	367	2,499
Settlements	-	(2,060)
Past service loss/(gain)	115	(1,584)
Benefits paid	(906)	(863)
Defined benefit obligation at end of period	19,969	19,840

 

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

	31 March 2018 £'000s	31 March 2017 £'000s
Fair value of Plan assets at start of period	13,946	15,013
Interest income on Plan assets	389	538
Actuarial (losses)/gains	(232)	652
Contributions paid by the Group	332	920
Settlements	-	(2,314)
Benefits paid, death in service insurance premiums and expenses	(906)	(863)
Fair value of Plan assets at end of period	13,529	13,946

The actual return on the Plan assets over the period ended 31 March 2018 was £157k (2017: £1.2m).

 

13. Post year-end activities

1. On 23 April 2018, a sale of assets was completed for Garrett Ingredients Limited, for a consideration of £1.8 million payable in cash, on a debt free/cash free basis. In the Group's financial year ended 31 March 2017, Garretts contributed £21.3m of revenues and an operating loss of £0.9m. It had net assets of £1.9m.

2. On 6 September 2018 the sale of Haydens Bakery Limited to Bakkavor Group plc was completed for a consideration of £12m, payable by means of a cash payment of £9.6m and the assumption by the buyer of £2.4m of third-party debt. The cash funds received were used to reduce the Group's indebtedness, first settling the lending secured against Haydens' assets (£2.3m), then repaying in full the outstanding term loan with the Group's bankers (£1.3m). In the Group's financial year ended 31 March 2017, Haydens (excluding the Chantilly Patisserie business which is not a part of this transaction) contributed £31.3m of revenue, and broke even at profit before tax, closing that year with net liabilities of £0.8m.

3. Further borrowings of up to £8.7 million in the form of Convertible Loan Notes were secured in May 2018(see note 11).

4. Open offer was executed for £1.0 million at a share price of 5 pence per share. (see note 11).

5. The bank term loan was fully repaid in September 2018. (See note 11).

6. Chantilly Patisserie (formerly part of Haydens Bakery Ltd) was incorporated as a new separate legal entity on 31 July 2018 with the name RGF Patisserie Ltd. Real Good Food plc has one Ordinary £1 share in RGF Patisserie.

7. Name changes post year-end. Garretts Ingredients Limited was changed to Real Good Food Ingredients Limited. Haydens Bakeries Limited (dormant) was changed to RGF Devizes Limited.

8. Following the closure of the London office, the registered office of Real Good Food plc was changed to 61 Stephenson Way, Wavertree, Liverpool L13 1HN on 12 July 2018. This change was also reflected in the UK subsidiaries of the Group (except Brighter Foods Limited), details of which are available on the Group's website

END