RGD.L Regulatory News (RGD)

27 Mar 2006 07:02

Real Good Food Company Plc (The)27 March 2006 Date: 27 March 2006On behalf of: Real Good Food Company plc ("RGFC" or "the Company")Embargoed until: 0700hrs Real Good Food Company plcPreliminary Results 2005 Real Good Food Company plc, the food manufacturing group in ambient, chilled andfrozen products (AIM: RGD), today announces its preliminary results for thetwelve months to 31 December 2005. The highlights are: • Group sales on continuing activities up 228% to £116.4m (2004: £35.5m) • Reverse acquisition of Napier Brown Foods plc for £67.7m; • Normalised trading profit of £7.1m (2004: £0.4m); • Strong cashflow generation and net cash at the year end of £7.3m (2004 £2.9m); Commenting on the results, Pieter Totte, Non-executive Chairman of Real GoodFood Company plc, said: "Strong progress on a number of fronts has been achieved in building a robustplatform for future growth including strengthening and deepening the managementteams across all the operating divisions, in particular the Renshaw business,and creating a new plc Board. We are now in the best shape to take the Groupforward. We have achieved an important scale in each of our divisions and we arealso beginning to yield the benefits of cross divisional initiatives in terms ofcost reduction, purchasing economies and sales opportunities. "Our focus for the coming financial year will be to concentrate on developingour assets to their maximum potential and to exploit all commercialopportunities whilst continuing to identify small bolt-on targets to supplementand develop the activities of our operating companies. We are happy with thestart to the current financial year, albeit with a slow start for the sugardivision reflecting market volatility and a late Easter. We look forward to thecoming year with enthusiasm." Enquiries to: The Real Good Food Company plc Tel: 020 7234 0570Pieter Totte www.realgoodfoodplc.co.uk Redleaf Communications Tel: 020 7955 1410Emma Kane/Duncan McCormick CHAIRMAN'S STATEMENT Introduction and Overview I am pleased to report the Group's Preliminary Results for the twelve months to31 December 2005. The key highlight of the year was the Group's reverseacquisition for £67.7m of Napier Brown Foods plc ("NBF plc"), completed on 1September 2005, which has enabled the Group to achieve critical mass. The Groupnow comprises four divisions - Fish, Bakery, Baking Ingredients and Sugar,manufacturing ambient, chilled and frozen products for the retail, foodserviceand industrial sectors. Strong progress on a number of fronts has been achieved in building a robustplatform for future growth including strengthening and deepening the managementteams across all the operating divisions, in particular the Renshaw business,and creating a new plc Board. The Group achieved normalised trading profit of £7.1m compared with a loss of£0.4m for the comparable period in 2004. This record result was achieved bydriving forward organic growth, the resultant benefits of restructuring theoperating companies and the contribution from the acquired business. The Groupalso exited its loss making operations of sandwich making and nut processing(acquired with the acquisition of NBF plc). The divisional highlights are: • Fish - Five Star Fish exceeded the earn-out targets set at the time of its acquisition in May 2004; • Bakery - Hayden's growth continued during 2005 with record sales levels achieved over the pre-Christmas period; Seriously Scrumptious was successfully integrated into the Devizes site; • Baking Ingredients - a new management team was put in place and operational processes refined; • Sugar - the business was restructured to give the division more direct responsibility for managing its day-to-day affairs. Despite reduced sales as a result of a customer margin review, profitability was maintained. Strategy The core of The Real Good Food Company's corporate strategy is to deliver thehighest levels of quality and customer satisfaction. Externally, the focus isfor each of the four divisions to be regarded as a premium provider to eachnominated market whether it is for ready prepared frozen fish for retail pubchains or yum yums for Marks & Spencer. Internally, we provide each of thedivisions with the required resources to deliver above average returns, howeverthe local managers are empowered, thus accountable, for their actions andmandated to drive organic growth. With a devolved divisional structure, aided bya small experienced central team; we can respond faster to customer and marketdemands. Cross marketing opportunities are induced by regular divisionalmeetings chaired by the Chief Executive Officer -John Gibson. We have now assembled a strong team at both Board and divisional managementlevel and are now in the best shape to take the Group forward. We have achievedan important scale in each of our divisions and we are also beginning to yieldthe benefits of cross divisional initiatives in terms of cost reduction,purchasing economies and sales opportunities. Our focus for the coming financial year will be to concentrate on developing ourassets to their maximum potential and to exploit all commercial opportunitieswhilst continuing to identify small bolt-on targets to supplement and developthe activities of our operating companies. We look forward to the coming year with enthusiasm. Current Trading The Bakery division has made a promising start to the New Year with sales up 3%on the same period last year. Sales to Waitrose have been particularlyencouraging, whilst deliveries to a new grocery retail customer should commencein April. Despite market weakness, following some customer Christmas stock overhang, likefor like sales within Bakery Ingredients are marginally ahead of last year. There-focused management team is actively addressing efficiency improvementprogrammes and some delayed contracts have now come on stream. Five Star Fish has performed exceptionally well within its market place, withsales during the first nine weeks of the year up 15% year on year. The provisionof raw materials from a new supplier has been encouraging and the business iswell set to deliver another year of volume and profit growth. Trading in theSugar division has so far been subdued, particularly in the February period.This is likely explained by the result of the later than normal Easter and theimpact again of a post Christmas stock overhang. The expected uplift in volumeshas not yet occurred and this has had an effect on profitability for thisperiod. However, the sugar market remains very competitive and it will be some monthsbefore the actions taken in Brussels in both regime change, quota cuts andexport activity will give rise to a change in the competitive environment. We are happy with the start to the current financial year, albeit with a slowstart for the sugar division reflecting market volatility and a late Easter, welook forward to updating shareholders at the forthcoming AGM. FINANCIAL REVIEW Trading Results for the Year Group sales on continuing activities were up 228% reflecting year on yearorganic growth in both the Fish and Bakery divisions and the acquired revenue(£73.7m) from the NBF plc acquisition. Whilst Group gross margin percentageshave reduced by eight percentage points, reflecting the significantly changednature of the business incorporating NBF plc, margins in the Bakery divisionhave improved by one point six percentage points reflecting the improvedmaterial controls implemented during the year. Profit on ordinary activitiesbefore exceptional and goodwill amortisation was £7.1m (2004 £0.4m loss). Acquisition During the period under review, the Group completed the reverse acquisition ofNBF plc. The acquisition was completed via the issue of 1.6236 RGFC shares forevery NBF plc share. In addition £3.4m (net of expenses) was raised tocontribute to the costs incurred in conjunction with the acquisition. Followingthe acquisition, NBF plc was de-listed from the stock exchange and reregisteredas a limited company ("NBF Ltd"). During the four months following the merger ofthe two groups and after a strategic review, the plc Board has been restructuredalong with a number of activities within the operating divisions. In total 50,773,282 new shares were issued. Exceptional Costs During the year, the Group incurred £4.6m of exceptional costs (2004 £0.5m): - The closure of the loss making Sandwich Division incurred £0.8m of exceptional costs relating in the main to the write down of fixed assets, a further £0.8m of goodwill was also written down within amortisation costs; - The consolidation of the Bakery operations to our Devizes facility saw the closure of our Glastonbury site £0.9m; - The recently announced closure of the Runcorn nut business has also necessitated the provision of £1.2m relating to the written down of assets, site sale costs and redundancies; - Aborted acquisition costs of £0.3m were incurred in the first half; - Other exceptional costs of £1.4m relate to the operational management changes following the recent acquisitions and the restructuring of the plc Board. Cash Flow and Debt The size and nature of the acquisition enabled the Group to restructure itsexisting bank facilities and a new syndicated arrangement was entered into onthe 31 August 2005. The new facility comprised a term loan of £45m, a revolvingfacility of £20.5m and an overdraft facility of £4.0m. These facilities aresyndicated through RBS and Rabobank International. During the period followingthe acquisition of NBF plc, the freehold property of the former Sefcol businesswas sold for £1.9m, net of disposal costs, this was used to pay down part of theterm loan. As at the year-end, the Group had a net cash position of £7.3m (2004£2.9m). Net debt at the year end was £59.4m, incorporating £2.8m of loan notesdue to Napier Brown Holdings. The Group delivered a strong cashflow for the year generating £4.5m fromoperating activities, after incurring £4.6m of exceptional costs. Interestpayments were £2.0m, whilst the tax losses brought forward reduced the taxpayment to £0.4m. Capital expenditure was £1.2m whilst the sales of the Sefcolproperty mentioned above generated a £2.0m income (before disposal costs). Theacquisition of NBF plc along with the £3.4m of share placing, net of fundraising costs, combined with the refinancing of Group debt generated anadditional £5.7m, leaving total cash generation for the year at £10.3m. OPERATING COMPANY REVIEW Bakery Division £ '000s 2005 2004 12 months 12 monthsTurnover 16,196 14,788Operating Profit* 389 -388% OP 2.40% -2.60% * Normalised Profit before exceptional items, goodwill amortisation and centralcosts Hayden's Bakeries produces chilled and ambient premium patisserie and dessertproducts to retail grocery customers and Seriously Scrumptious supplies asimilar range frozen to foodservice customers. During the period under review, Hayden's continued to improve its profitability.Whilst the rate of sales growth slowed in the second half of the year, primarilydue to delays in product launches, overall the year on year sales improvementfor the division was close to 10%, following the 23% growth in the previousyear. Whilst Waitrose remains by some way the largest customer, selling to theirBakery, Chilled Prepared Food department and providing Distribution services,sales to Marks & Spencer have consolidated where progress has been made withCafe Revive. Budgens is also now purchasing from Hayden's and further newgrocery retail customer opportunities are in the pipeline for 2006. Progress continues to be made in reducing the cost of direct labour and afurther substantial investment was made during the year to increase themechanisation of fried products, yum yums and Doughnuts. Raw material controlalso remains a high priority and investment was undertaken in material controlsand handling. Both these areas have improved gross margins. The integration of Seriously Scrumptious, our foodservice are of the BakeryDivision, into the Devizes site was successfully completed in the late summer of2005 and both commercial and operational aspects of the businesses have beenintegrated. Margins have improved significantly benefiting from tighter controlin Devizes and the activity is establishing a meaningful position in thefoodservice patisserie and dessert sectors. Tony Harris, who had joined the division in the spring of 2005, was unable toremain with us for personal reasons. Following the integration of SeriouslyScrumptious, a new Managing Director, Phil Wicks, was appointed in the autumn of2005 and the commercial and operational teams combined. Significant additionalresource has been put into the commercial aspects of the business at the end ofthe financial year. Baking Ingredients Division £ '000s 2005 2004 4 monthsTurnover 15,703 n/aOperating Profit* 1,639 n/a% OP 10.4% n/a * Normalised Profit before exceptional items, goodwill amortisation and centralcosts Renshaw supplies a range of high quality food ingredients primarily to thebakery sector, comprising craft bakers and major cake manufacturers and also togrocery retailers. It operates two facilities, one in Liverpool and the other inCarluke, South-east of Glasgow. Sales for the period were below expectations in what is a key trading period forthe division. Prior to the acquisition, Renshaw had been through a period ofsignificant disruption as a result of the integration of the former Sefcolactivities into the Liverpool site. The caramel / mallow plant was transferred,responsibility for the nut business moved and the establishment of an armslength trading arrangement with Supercook, following the purchase from Hero atthe end of 2004, were all completed in the period. Consequently, there was someloss of focus on the key elements of performance delivery in 2005, whichimpacted on performance during the last trimester of the year. As part of the strategic review of NBF Ltd, the Group decided to significantlyimprove the quality of the senior management team and have now put in place anew Managing Director, Stephen Heslop, who has appointed new Commercial andOperations Directors. We believe that the team, supplemented by Mike McDonough,Finance Director, are more than capable of meeting the challenges ahead inmaintaining Renshaw's position as the leading supplier in the sector. The announcement of the closure of the nut plant was made in December and onlysmall quantities of products were produced in January 2006. The entire activitywill be exited by the end of April 2006. A number of efficiency projects were started at the end of the year to improveoperational efficiency, particularly, at the Liverpool site and external supporthas been retained to ensure timely delivery. Working practices will have toreflect the competitive environment in the food sector in the twenty-firstcentury. Business planning and raw material cost reduction programmes have also been putin place to improve our service to customers and contribute to profit delivery.We believe we now have the processes and management team capable of deliveringworld class performance. Fish Division £ '000s 2005 2004 12 months 12 monthsTurnover 25,561 23,672Operating Profit* 3,788 3,492% OP 14.8% 14.8% * Normalised Profit before exceptional items, goodwill amortisation and centralcosts Five Star Fish is a leading supplier of added-value, prepared frozen fish to thefoodservice sector. We are delighted to confirm that the business has exceeded its second yearearn-out target agreed at the time of acquisition in May 2004. Proforma year onyear sales growth was 8%, some of which was due to raw material inflation, butthe majority was down to winning business with new customers and increasingsales of added-value products. As expected, sales of lower value commodity linesfell year on year. Two new product ranges, "Fish Shop" and "Coddies", werelaunched in the year and have been well received by the market. The businesscontinues to increase its sales, broaden its customer base, increase sales ofadded-value lines and maintain margins in the light of some raw materialinflation. An investment in increased in line freezing capacity was undertaken towards theend of the year and this has raised throughput and aided operational efficiency.Plans for additional capacity in dusting and breading are in place for 2006 withmore battering and frying capacity at the end of the year. Whilst capacity hasreduced as a consequence of additional sales, these investments will providesignificant further scope for growth in the years ahead. During the course of the year, raw material and finished goods stocks weremanaged carefully to ensure both excellent availability for customer orders andto achieve increased operational efficiency. To facilitate this and to ensure acontinuous flow of high quality raw material, a procurement review wasundertaken during the year and some new suppliers brought on stream in December.The business remains committed to working with established suppliers and tosourcing from stable and reliable fishing fleets. At the end of the year John Fenty, Chairman and majority shareholder of FiveStar at the time of acquisition, indicated that he would like to reduce hisday-to-day involvement in the business but remain a part of the team.Consequently, John has become a part-time Executive Consultant to the business,reporting to Danny Burton, Managing Director. To supplement the seniormanagement team Pete Tiffney has been appointed Technical Director, after havingworked for the business in a consulting capacity for a number of years. There remain a number of small to medium sized companies that compete with FiveStar and we believe some of these are likely to exit the sector. Five Star Fishis in an ideal position to take advantage of any sector restructuring either towiden customer base or product range. Sugar Division £ '000s 2005 2004 4 monthsTurnover 61,942 n/aOperating Profit* 4,486 n/a% OP 7.2% n/a Normalised Profit before exceptional items, goodwill amortisation and centralcosts NBF Ltd supplies a range of sugar and dry ingredients to food manufacturers andpacks sugar for retail grocery and foodservice customers. Sales revenue at £61.9m for the period September to December was belowexpectations but this was a consequence of price deflation in a very competitivemarket and the decision to exit a number of very low margin contracts. At thesame time, it became possible to take advantage of cheaper raw materials andwiden the division's sourcing arrangements. Consequently, while revenue wasdown, overall profitability was maintained. Prior to RGFC's ownership, NBF plc had completed the acquisition of James BudgetSugars during 2004 from Messers ED&F Man and Greencore plc. This transaction wasreferred to the Competition Commission in September 2004, but subsequentlycleared in March 2005. However, this decision caused considerable disruption tothe business in the light of these uncertainties and in a very competitivemarket place the trading result was highly creditable. During the second half of the year, the European Commission tabled and hadratified by the Council of Ministers, a package of wide ranging regime reformsto reduce the quality of sugar produced from beet and to bring EU prices moreclosely in line with world market prices. We commented on this on 1 December2005 and believe that in the medium term these new arrangements willsignificantly benefit NBF Ltd. As a flexible non-refiner, we believe we will bewell placed to take advantage of the new supply arrangements and provide ourcustomers with high quality products from a range of sources. However, theimplementation of the reform proposals have been delayed for two years and thishas clearly had some impact on the market in the short term. In the trading area, the decision to integrate the Garrett dairy productswholesaling activity and Sefcol's dry blending facilities into NBF Ltd began toshow positive results as major customers saw the benefit of buying a range ofdry ingredients from a single reliable and competitive source. We believe thatthis will become a significant point of difference from other suppliers. At the end of the year, a significant contract was won with Wm Morrison plcfollowing consolidation of their sugar purchasing arrangements. NBF Ltd will besupplying sugars across the range to all of their depots. To enable this additional volume to be packaged efficiently, the Board haveauthorised the expenditure of £1.6m on new packaging and material handlingprojects. These will come on stream in the third quarter of 2006. Following the strategic review of NBF's trading activity, the NBF Ltd businessunit was established in October 2005 and the senior management teamrestructured. The decision to relocate the Finance team from London to Normantonwas announced on 25 February 2006, as a consequence, Richard Broadley will bejoining in April 2006 as Divisional Finance Director. Pieter Totte Chairman 27 March 2006 THE REAL GOOD FOOD COMPANY PLCCONSOLIDATED PROFIT AND LOSS ACCOUNTYEAR ENDED 31 DECEMBER 2005 Year ended 31 December 2005 Year ended 31 December 2004 £'000s £'000s Before Before Goodwill Goodwill goodwill Goodwill amortisation amortisation amortisation amortisation and and and and exceptional exceptional exceptional exceptional items items Total items items Total TURNOVER Continuing operations 43,017 - 43,017 28,813 - 28,813Acquisitions 73,373 - 73,373 15,795 - 15,795Discontinued 1,260 - 1,260 - - -Operations 117,650 - 117,650 44,608 - 44,608 Cost of sales (93,378) - (93,378) (31,826) - (31,826) -GROSS PROFIT 24,272 - 24,272 12,782 - 12,782Distribution costs (6,854) - (6,854) (3,185) - (3,185)Administration (8,369) (3,148) (11,517) (9,641) (666) (10,307)expensesOther operating income - - - 54 - 54 OPERATING PROFIT/ 9,049 (3,148) 5,901 10 (666) (656)(LOSS)Continuing operations 3,604 (1,892) 1,712 (2,008) (666) (2,674)Acquisitions 5,785 (1,256) 4,529 2,018 - 2,018Discontinued (340) - (340) - - -operations EXCEPTIONAL ITEMSReorganisation costs - (3,277) (3,277) - (440) (440)Termination of an - (1,025) (1,025) - - -operation PROFIT/(LOSS) ON ORDINARY ACTIVITIESBEFORE INTEREST & 9,049 (7,450) 1,599 10 (1,106) (1,096)TAXATION Interest receivable 209 - 209 59 - 59Interest payable (2,174) - (2,174) (494) - (494) LOSS ON ORDINARY ACTIVITIESACTIVITIES BEFORE 7,084 (7,450) (366) (425) (1,106) (1,531)TAXATION Taxation (1,871) - (1,871) 533 300 833 LOSS FOR THE FINANCIAL 5,213 (7,450) (2,237) 108 (806) (698)YEAR Basic and diluted loss (0.072) (0.064)per share There are no recognised gains and losses other than those shown in the aboveprofit and loss account. THE REAL GOOD FOOD COMPANY PLCCONSOLIDATED BALANCE SHEET31 DECEMBER 2005 2005 2004 £'000s £'000s FIXED ASSETSIntangible assets:-Negative goodwill (410) (433)Positive goodwill 89,134 16,737 Tangible fixed assets 18,451 6,377 107,175 22,681 CURRENT ASSETSStock 14,390 4,218Deferred tax asset 253 914Debtors 29,828 6,315Cash at bank and in hand 11,999 1,420 56,470 12,867 CREDITORS:Amounts falling due within one year (34,748) (16,132) NET CURRENT ASSETS / (LIABILITIES) 21,722 (3,265) TOTAL ASSETS LESS CURRENT LIABILITIES 128,897 19,416 CREDITORS:Amounts falling due after more than one (60,413) (6,421)year PROVISIONS FOR LIABILITIES (746) - NET ASSETS EXCLUDING PENSION DEFICIT 67,738 12,995 PENSION SCHEME DEFICIT (806) - NET ASSETS INCLUDING PENSION DEFICIT 66,932 12,995 CAPITAL AND RESERVESCalled up share capital 1,297 282Share premium account 68,773 13,643Profit and loss account (3,138) (930) SHAREHOLDERS' FUNDS - ALL EQUITY 66,932 12,995 THE REAL GOOD FOOD COMPANY PLCCONSOLIDATED CASH FLOW STATEMENTYEAR ENDED 31 DECEMBER 2005 2005 2004 £'000s £'000s Net cash Inflow/(outflow) fromoperating activities 4,468 (1,354) Returns on investment and servicing offinanceInterest received 209 59Interest element of finance lease (29) -repaymentsInterest paid on bank loans, overdraftsand loan stock (2,145) (391) Net cash outflow from returns oninvestmentsand servicing of finance (1,965) (332) Taxation paid (482) (10) Capital expenditurePurchase of tangible fixed assets (1,172) (1,934)Sale of tangible fixed assets 2,059 24 887 (1,910)Acquisitions and disposals (54,849) (15,966) Net cash outflow before use ofliquid resources and financing (51,941) (19,572) Financing 62,229 17,127 Increase / (Decrease) in cash 10,288 (2,445) THE REAL GOOD FOOD COMPANY PLCNOTES TO THE FINANCIAL STATEMENTSYEAR ENDED 31 DECEMBER 2005 1. ACCOUNTING POLICIES The following accounting policies have been applied consistently in dealing withitems which are considered material in relation to the Group's financialstatements. a) Basis of Preparation The financial statements have been prepared in accordance with applicableaccounting standards under the historical cost convention. b) Basis of Consolidation The Group financial statements consolidate the financial statements of theCompany and its subsidiary undertakings. The acquisition method of accountinghas been adopted. Under this method the results of all the subsidiaryundertakings are included in the consolidated profit and loss account from thedate of acquisition or up to the date of disposal. Intra-group sales and profitsare eliminated on consolidation and all sales and profit figures relate toexternal transactions only. Under Section 230 of the Companies Act 1985 the Company is exempt from therequirement to present its own profit and loss account. The loss for thefinancial period, of the holding Company, as approved by the Board, was£2,212,000 (2004 - £799,000). c) Goodwill Purchased goodwill (both positive and negative, representing the excess ordiscount of the fair value of the consideration given over the fair value of theseparable net assets acquired) arising on consolidation in respect ofacquisitions is capitalised. Positive Goodwill is fully amortised by equalannual instalments over its estimated useful life. The estimated useful life iscalculated separately for each acquisition. The estimated useful economic life of each acquisition has been estimated at 20years. Negative goodwill up to the fair values of the associated non-monetary assetsacquired is released to the profit and loss account over the period in which thenon-monetary assets are recovered. Any negative goodwill in excess of this isrecognised through the profit and loss account in the period expected to bebenefited. The estimated useful economic life of the current negative goodwillrelates to 1 acquisition and has been estimated at 20 years. THE REAL GOOD FOOD COMPANY PLCNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)YEAR ENDED 31 DECEMBER 2005 DIVISIONAL INFORMATION Operating divisions Head Bakery Bakery Fish Sugar Consolidation Continuing Euro Total Office Ingredients adjustments operations Foods Turnover - 16,196 15,703 25,561 61,942 (3,139) 116,263 1,386 117,650 Cost of sales 41 (11,233) (11,735) (19,432) (52,825) 3,012 (92,171) (1,207) (93,378) Gross Margin 41 4,963 3,968 6,129 9,117 (127) 24,092 179 24,272 Distribution - (308) (639) (642) (2,037) - (3,626) (153) (3,778)costsAdministration (963) (4,267) (1,691) (1,699) (2,586) 127 (11,078) (367) (11,445)costs Normalised (922) 388 1,638 3,788 4,494 - 9,388 (341) 9,049Profit / (loss) Goodwill (2,874)amortisationExceptional (4,302)costsAbortive (274)acquisitioncosts Earnings beforeinterest& Tax 1,599 Interest (1,965) Tax (1,871) (Loss) after Tax (2,237) This information is provided by RNS The company news service from the London Stock Exchange