RGD.L Regulatory News (RGD)

8 Apr 2008 07:01

Real Good Food Company Plc (The)08 April 2008 The Real Good Food Company Plc("the Group") Final Results 2007 The Real Good Food Company plc, the sugars, ingredients and bakery company,today announces its Final Results for the year ended 31 December 2007. Highlights > Group sales from continuing operations increased to £231.1m (2006: £221.7m) > Total Group operating Profit before taxation and significant items of £9.6m (2006: £13.3m) > The sale of Five Star Fish was completed for a total consideration of £35.8m > Continuing operations (before significant items) basic and diluted profit per share 4.5p (2006: 6.4p) > Net debt levels have reduced to £25.9m (2006: £56.6m) Commenting on the results, Pieter Totte, Chairman of The Real Good Food, said: "The past year has been a active one for the Group and a period which has seenmuch change. Five Star Fish was sold in July for £35.8 million whilst a greatdeal of management time and some modest cash investment has been made to improvethe operational performance and competitive profile of our continuingbusinesses. "The current year has started with the Group trading in line with the revisedbudget expectations produced at the end of 2007. Market challenges remainheightened by uncertainties in commodity, credit and consumer markets. Themanagement's focus will remain on improved operational efficiency, inventorymanagement, customer service and product innovation. For the full year the Boardexpects the Group to report stable profitability from continuing operations asraw material cost pressures are mitigated by the benefits accrued from both theefficiency improvement and cost recovery programmes initiated in 2007." Enquiries: The Real Good Food Company plc Tel: 020 7335 2500Stephen Heslop Chief ExecutiveLee Camfield Finance Director Shore Capital Tel: 020 7408 4090Guy Peters College Hill Tel: 020 7822 0200Anthony ParkerGareth David CHAIRMAN'S STATEMENT Introduction and Overview The past year has been an active one for the Group and a period which has seenmuch change. Five Star Fish was sold in July for £35.8 million whilst a greatdeal of management time and some modest cash investment has been made to improvethe operational performance and competitive profile of our continuingbusinesses. The Group produced turnover of £246.1m (2006: £250.8m) whilst operating profit,before significant items, for the year amounted to £9.6m (2006: £13.3m)following the disposal of Five Star Fish. As always, there was pressure fromother suppliers seeking additional market share and from customers seekingcompetitive prices. In addition, 2007 saw some major increases in the price ofenergy and commodities, both of which present challenges for the supply chainsin which all of our divisions operate. However, we have continued to operateprofitably and to produce positive operational cash flows. In July the Board appointed Stephen Heslop to be the Group's Managing Director,in succession to John Gibson, with day to day responsibility transferring inlate September. Stephen has initiated a strategic review of the business, andthis is expected to bring about further changes to the Group's operationalactivities, strategic focus and business culture. The Real Good Food Company was established with an entrepreneurial spirit at itsheart, alongside a solid understanding of commercial realities. These valuesstill hold true today. However, as time passes, our Group and its markets havechanged. Five Star Fish, for example, had grown and matured to a size and scalewhere the Board was finding it increasingly difficult to find the nextsignificant strategic step for its development. At the same time, the regulatoryenvironment and structures of the European fish market were shifting, which wasintroducing uncertainty as to the future. Hence, a decision was taken to sellthe business at a book profit. Whilst this has led to a significant reduction interms of the Group's operating profitability, our net debt has been materiallyreduced; our corresponding interest bill has fallen, while our level of gearingis now less than 40%. Looking at the structure of the Group today, it is clear that, in terms of bothrevenue and profits, our Sugar Division has now become even more dominant. Whenwe purchased Napier Brown in 2005 we were aware that both the structure of theGroup's composition would be changed and also that regulatory change wasunderway in the European sugar market. After a slow initial response on the part of European sugar producers to providevoluntary cuts in production quotas, the EU Commission considerably revamped itsrestructuring scheme and has subsequently been able to announce that anadditional 2.5 million tonnes of sugar quota has been relinquished from 2008-09.This brings the total of sugar quota permanently renounced so far, to close to4.5 million tonnes (of the Commission's initial target of 6 million tonnes). The Commission, whilst being delighted by the recent cut backs, has taken theopportunity to remind European sugar producers that the market is still over 1million tonnes short of the target reduction and an announcement regardingfurther renouncements made by the 31st March 2008 is expected from theCommission soon. Should there be no further quota renunciation then theCommission has announced in a revised timetable; that in February 2010 aunilateral permanent quota, without compensation, will be introduced across allmember states to make up any outstanding shortfall. Therefore, there appears to be some ground for optimism that the structuralsurplus, that has been overhanging the market in recent years, is diminishing.With demand for sugar in the EU expected to remain stable at approximately 16million tonnes, the end of the restructuring period (Q4 2010), should see some3.5 to 4.0 million tonnes of cane sugar begin to be imported into the EU, eitherfor refining or for direct consumption. Unless preferential suppliers in the Least Developed Countries (LDC) andAfrican, Caribbean and Pacific Countries (ACP), can significantly increase theiroutput of refined sugar, it seems likely that more refining capacity will berequired in the EU and to that end, in the past year industry plans to build twonew cane refineries have been announced with a combined capacity of 700,000tonnes. A number of beet processors have also indicated that they will beprocessing cane sugar through their beet plants during the closed season. The Group's Sugar Division is the UK's third largest trader in sugars andoperates within many niche areas. It is with this in mind that we are alreadyseeking to position the Group to its best advantage so as to maximise theopportunities arising from the sugar market's structural changes. The Board therefore expects that, during the next 18 months, the Group willannounce further important initiatives, which will help position the SugarDivision to take full advantage of future opportunities. Achieving success inthis activity is the most important task confronting the Board in 2008 andbeyond. Outlook The current year has started with the Group trading in line with the revisedbudget expectations produced at the end of 2007. Market challenges remainheightened by uncertainties in commodity, credit and consumer markets. Themanagement's focus will remain on improved operational efficiency, inventorymanagement, customer service, product innovation and tight cash management. Forthe full year the Board expects the Group to report stable profit before taxfrom continuing operations as raw material cost pressures are mitigated by thebenefits accrued from both the efficiency improvement and cost recoveryprogrammes initiated in 2007. P W TotteChairmanApril 2008 OPERATING DIVISION REVIEWS Sugar Division Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s Revenue(1) 190,084 180,053Operating profit(2) 6,390 7,368Operating profit % 3.4 4.1 (1) Including inter-company trading. (2) Normalised operating profit before significant items and central costs. Napier Brown Foods supplies a range of sugar and dry ingredients to foodmanufacturers and packs sugar for retail grocery and foodservice customers fromits facilities at Normanton, near Leeds. Overall revenues were ahead of last year by almost 6%, although behind ouroriginal expectations due to a more competitive market in the second half of theyear. Revenue growth was principally driven by strong retail volumes and higherindustrial sales in the first half of the year. As a consequence of lessfavourable market conditions in the second half, the volume gains from the earlypart of the year were not repeated. Operating efficiencies in the factory continued to improve throughout the yearresulting in an improved overhead position. Work continues with furthercommissioning of another high speed packing line which will create additionalcapacity and operational benefits. During the year we were able to extend our sourcing arrangements for specialsugars as we continue to offer the broadest range of materials. Distributioncosts during the year were adversely affected by a number of factors. The keydrivers being increased fuel costs, international freight and longer journeys inrelation to local sourcing arrangements. A number of management changes are currently underway to further strengthen theteam going forward. Bakery Ingredients Division Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s Revenue(1) 31,920 33,183Operating profit(2) 2,350 3,092Operating profit % 7.4 9.3 (1) Including inter-company trading. (2) Normalised operating profit before significant items and central costs. 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. Revenues in the year were in line on a like for like basis, having been adjustedfor the discontinued nut activity and £395k of non recurring income in relationto a Supply Agreement. Gross margins were steady despite significant rawmaterial price inflation as operational performance improved during the year.Overheads increased year on year reflecting the full year effect of the newmanagement team, technical support and additional marketing support in our coreareas. Reflecting consumer trends the business has developed our full range ofproducts in non-hydrogenated variants. Plans to further advance performance are now established and we are wellpositioned to maximise new business opportunities, which include a new range ofsyrups for consumption in coffee shops and new business lines being developedwith Marks & Spencer. Bakery Division Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s Revenue(1) 18,217 17,174Operating profit(2) 71 68Operating profit % 0.4 0.4 (1) Including inter-company trading. (2) Normalised operating profit before significant items and central costs. Hayden's Bakeries produces chilled and ambient premium patisserie and dessertproducts to retail grocery customers. It operates from a site in Devizes,Wiltshire. The business continued to see strong revenue growth in the year of 6% driven bygood progress in the chilled desserts sector. Overall gross margins were dilutedas a consequence of higher raw material costs and the introduction of revisedtrading terms in the first quarter. Overheads were in line with the previousyear and as a result of these factors profitability remained flat in the period. The second frying line was successfully commissioned in the late summer whichhas allowed us to reduce premium working in this area. Following the businessreview, announced in the Group's pre-close statement in December, a number ofinitiatives to improve factory efficiency and reduce cost have been identified;these will be progressed and are expected to improve gross margins in the secondhalf of 2008. Fish Division Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s Revenue(1) 14,962 29,075Operating profit(2) 2,158 4,011Operating profit % 14.4 13.8 (1) Including inter-company trading. (2) Normalised operating profit before significant items and central costs. The sale of Five Star Fish was completed on 12 June 2007 for a grossconsideration of £35.8m. Tax charges on the disposal were £6.2m. At the time ofthe disposal revenue was ahead of the previous year, due to the combination ofraw material price inflation being passed on in price increases to customers andimprovements in sales volumes. FINANCE DIRECTOR'S REPORT Revenue Group revenue from continuing operations was up 4.2% to £231.1m, primarilyreflecting, as already reported, increased industrial revenue within our SugarDivision, where revenue was 5.6% ahead of the prior year. Revenue within our Bakery Ingredients Division was 3.8% behind 2006, althoughonce adjusted for discontinued nut activity and a non-recurring revenue item,relating to our supply agreement in 2006, revenue was in line with the prioryear. At our Bakery Division revenue increased by 6.1%, a fourth successive year ofgrowth driven by organic growth with our primary customers and a number of newproduct launches. Margins Continuing operations gross profit margins of 12.8% (2006: 13.1%) largelyreflect increased sales of low margin business within our Sugar Division anddelays in recovering raw material cost inflation from our customer base withinour Bakery Ingredients and Bakery Divisions. Profit before tax Group operating margins for continuing operations (before significant items)reduced by one percentage point to 3.2%, driven by; the lower margin business;increased distribution costs reflecting fuel increases and longer journeys; andinvestment within the Bakery Ingredients Division in the management team,marketing support and technical teams. Resultant Profit before tax was £4.0m(2006: £5.6m). Discontinued Operations In the early part of 2007 the Group agreed to sell the trade and assets of itsFish Division, Five Star Fish, for a gross consideration of £35.0m, subsequentlyincreased to £35.8m upon finalisation of the completion balance sheet. Taxcharges arising as a result of the disposal amount to £6.2m. The divisionachieved £2.1m operating profit before tax, whilst the sale generated a profiton disposal of £1.9m after tax. Significant Items During the year the Group incurred continuing operations significant itemscharges of £0.5m. These largely relate to payments to the Group's former GroupManaging Director for his loss of office and further restructuring chargesrelating to the re-organisation of the divisional executive teams. As already mentioned the Group disposed of its Fish Division, Five Star Fishduring the first half of the year. The profit on disposal was: £MsDisposal proceeds 35.8Net assets sold (10.5)Goodwill sold (15.5)Costs (1.7) Pre tax profit on disposal 8.1Tax on disposal (6.2)Net profit on disposal 1.9 Cash Flow and Debt Net debt at the year end was £25.9m a reduction of £30.7m from the position atthe end of 2006. The majority of the reduction in debt is attributable to thedisposal proceeds of the sale of Five Star Fish. It should be noted that of thetax relating to the disposal, £2.6m will be paid in the first half of 2008. Pensions The subsidiaries of the Group, Napier Brown Foods Limited and Napier Brown andCompany Limited, operate a defined benefit pension scheme. The scheme is closedwith benefits no longer accruing. The IAS 19 valuation of the scheme at the yearend identified a £1.8m surplus, an improvement of £3.0m on the prior year.During the year the Group contributed £127k to the scheme. CONSOLIDATED INCOME STATEMENT YEAR ENDED 31 DECEMBER 2007 Notes Year ended 31 December 2007 Year Ended 31 December 2006 Before Significant Before Significant Significant Items Significant Items Items (Note 2) Total Items (Note 2) Total CONTINUING OPERATIONS £'000s £'000s £'000s £'000s £'000s £'000s REVENUE 231,144 - 231,144 221,736 - 221,736Cost of sales (201,508) - (201,508) (192,659) (243) (192,902) GROSS PROFIT 29,636 - 29,636 29,077 (243) 28,834Distribution costs (10,367) (10,367) (8,052) (8,052)Administration expenses (11,829) (523) (12,352) (11,714) (858) (12,572) OPERATING PROFIT 7,440 (523) 6,917 9,311 (1,101) 8,210 Finance income 500 - 500 284 - 284Finance costs (4,151) - (4,151) (4,358) - (4,358)Other finance income 184 - 184 372 - 372 PROFIT/(LOSS) BEFORE TAXATION 3,973 (523) 3,450 5,609 (1,101) 4,508 Income tax expense 3 (1,047) 157 (890) (1,489) 292 (1,197) PROFIT/(LOSS) FROMCONTINUING OPERATIONS 2,926 (366) 2,560 4,120 (809) 3,311 DISCONTINUED OPERATIONS REVENUE 14,962 - 14,962 29,075 - 29,075Operating expenses (12,803) - (12,803) (25,064) - (25,064)OPERATING PROFIT 2,159 - 2,159 4,011 - 4,011Finance costs (96) (96) (209) - (209) Profit on sale of division - 8,070 8,070 - - - PROFIT/(LOSS) BEFORE TAXATION 2,063 8,070 10,133 3,802 - 3,802 -Income tax expense 3 (690) (6,210) (6,900) (1,082) - (1,082) PROFIT FROMDISCONTINUEDOPERATIONS 1,373 1,860 3,233 2,720 - 2,720 PROFIT FOR THE YEAR 4,299 1,494 5,793 6,840 (809) 6,031Basic and diluted profit per share 8.9p 9.3pAdjusted profit per share 6.6p 10.5pContinuing operations basic and dilutedprofit per share 4.5p 6.4pDiscontinued operations basic and dilutedprofit per share 2.1p 5.0p 4.2p 4.2p CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 Issued Share Share Premium Share Option Retained Capital Account Reserve earnings Total £'000s £'000s £'000s £'000s £'000s Balance as at 1 January 2006 1,297 68,773 34 (3,062) 67,042 Shares options to be issued - - 19 - 19 Profit for the year - - - 6,031 6,031 Actuarial loss related to pension - - - (620) (620)scheme Deferred tax attributable to actuarial loss - - - 186 186 Total recognised income and expense for the year - - 19 5,597 5,616 Balance as at 31 December 2006 1,297 68,773 53 2,535 72,658 Balance as at 1 January 2007 1,297 68,773 53 2,535 72,658 Shares options to be issued - - 20 - 20 Share options exercised in year 3 97 (7) - 93 Profit for the year - - - 5,793 5,793 Actuarial gain related to pension scheme - - - 911 911 Deferred tax attributable to actuarial gain - - - (274) (274) Total recognised income and expense for the year 3 97 13 6,430 6,543 Balance as at 31 December 2007 1,300 68,870 66 8,965 79,201 CONSOLIDATED BALANCE SHEET 31 DECEMBER 2007 Year ended Year ended 31 December 31 December 2007 2006 Notes £'000s £'000s NON CURRENT ASSETSGoodwill 75,796 90,611Other intangible assets 547 532Property, plant and equipment 16,721 18,186 93,064 109,329CURRENT ASSETSInventories 9,353 14,685Trade and other receivables 24,784 29,224Derived financial instruments 4 113 63Cash and cash equivalents 13,780 12,412 48,030 56,384 TOTAL ASSETS 141,094 165,713 CURRENT LIABILITIESTrade and other payables 17,289 20,221Borrowings 22,479 10,235Derived financial instruments 4 81 18Current tax liabilities 4 3,615 628 43,464 31,102 NON CURRENT LIABILITIESBorrowings 4 17,161 59,207Deferred tax liabilities 912 1,124Provisions 356 766Retirement benefit obligations - 856 18,429 61,953 TOTAL LIABILITIES 61,893 93,055 NET ASSETS 79,201 72,658 EQUITYShare capital 1,300 1,297Share premium account 68,870 68,773Share option reserve 66 53Retained earnings 8,965 2,535 TOTAL EQUITY 79,201 72,658 These financial statements were approved by the Board of Directors andauthorised for issue on 3 April 2008. They were signed on its behalf by: P W Totte L M CamfieldChairman Director CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 31 DECEMBER 2007 Year ended Year ended 31 December 2007 31 December 2006 £'000s £'000sCASH FLOW FROM OPERATING ACTIVITIESAdjusted for:Profit before taxation 13,583 8,310Finance costs 4,247 4,567Finance income (500) (284)IAS 19 income (184) (372)Depreciation of property, plant & equipment 1,645 1,834Amortisation of intangibles 148 91(Profit)/Loss on disposal of fixed assets - (175)Share based payment expense 13 19Gain on disposal of discontinued operation (8,070) -Operating Cash Flow 10,882 13,990 Increase in inventories (2,168) (296)(Increase)/Decrease in receivables (511) 1,117Increase/(Decrease) in payables 484 (2,351)Cash generated from operations 8,687 12,460 Income taxes paid (1,607) (660)Interest paid (3,960) (4,567)Net cash from operating activities 3,120 7,233 CASH FLOW FROM INVESTING ACTIVITIESInterest received 409 300Disposal of division 34,333 -Cost of acquisition - (2,489)Income tax paid on disposal of division (3,410) -Proceeds on disposal of property, plant & equipment 113 630Purchase of intangible assets (163) (237)Purchase of property, plant & equipment (3,067) (2,633)Net cash (used in)/from investing activities 28,215 (4,429) CASH FLOW USED IN FINANCING ACTIVITIESRepayment of borrowings (27,476) (3,890)Repayment of obligations under finance leases (362) (279)Hire purchases advances 263 943Proceeds on issue of shares 100 -Net cash used in financing activities (27,475) (3,226) 3,860 (422) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTSCash and cash equivalents at beginning of year 6,925 7,347Net movement in cash and cash equivalents 3,860 (422) Cash and cash equivalents at end of year 10,785 6,925 Cash and cash equivalents comprise: 13,780 12,412Cash (2,995) (5,487)Overdrafts 10,785 6,925 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2007 1. PRESENTATION OF FINANCIAL STATEMENTS General Information The Real Good Food Company plc is a public limited company incorporated in theUnited Kingdom under the Companies Act 1985 (registered number 4666282). Thecompany is domiciled in the United Kingdom and its registered address isInternational House, 1 St Katharine's Way, London, E1W 1XB. The Company's sharesare traded on the Alternative Investment Market (AIM). The principal activities of the Group are the sourcing, manufacture anddistribution of food to the retail and industrial sectors. Basis of preparation These consolidated financial statements are presented for the first time on thebasis of International Financial Reporting Standards (IFRS) as adopted by theEuropean Union. These standards have been adopted with effect from 1 January2006 as required under AIM rules and therefore the comparative figures for yearended 31 December 2006 have been restated to include the effect of thisadoption. An explanation of the effect this has had on the 2006 figures isincluded in the Appendix to these financial statements. 2. SIGNIFICANT ITEMS Notes Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s Profit on disposal of division 26 8,070 -Management restructuring costs (523) (1,101) 7,547 (1,101)Taxation (charge)/credit on significant items (6,053) 292 1,494 (809) 3. TAXATION Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000sCURRENT TAXUK Current tax on profits of the period 890 1,588UK Corporation tax on discontinued activities 690 -Exceptional items 6,329 -Adjustments in respect of prior periods - (409) Total current tax 7,909 1,179 Deferred TaxDeferred tax charge re pension scheme 93 164Origination and reversal of timing differences (137) 936Effect of tax rate change on deferred tax (75) -Total deferred tax (119) 1,100 Tax on profit on ordinary activities 7,790 2,279 4. BORROWINGS Year ended Year ended 31 December 2007 31 December 2006 Group Company Group Company £000's £000's £000's £000'sUnsecured borrowings at amortised costBank overdrafts 2,995 860 5,487 656Loan notes 3,422 - 3,158 - Secured borrowings at amortised cost Bank loans 32,169 32,169 59,645 59,645 Hire purchase 1,054 428 1,152 364 39,640 33,457 69,442 60,665 Amounts due for settlement within 12 months 22,479 20,234 10,235 5,257 Amounts due for settlement after 12 months 17,161 13,223 59,207 55,408 39,640 33,457 68,998 60,665 Features of the Group's borrowings are as follows: The Group's financial instruments comprise cash, a term loan, hire purchase andfinance leases, revolving credit facility, overdraft and various items arisingdirectly from its operations such as trade payables and receivables. The mainpurpose of these financial instruments is to finance the Group's operations. The main risks from the Group's financial instruments are interest rate risk andliquidity risk. The Group also has some currency exposure in relation to itssugar trade but the majority of this risk is hedged. The Board reviews andagrees policies, which have remained substantially unchanged for the year underreview, for managing these risks. 5. SEGMENT REPORTING Primary Format - Business segments The Group has adopted IFRS 8 'Operating segments' in advance of its effectivedate, with effect from 1 January 2006. IFRS 8 requires that operating segmentsbe identified on the basis of internal reporting and decision-making. This isconsistent with the previous Divisional reporting that the Group previouslypublished and therefore the information is consistent with that of previousfinancial statements. The following table shows the Group's revenue and results for the year underreview analysed by operating segment. Segment profit represents the tradingprofit after depreciation but before any interest and significant items. Year ended 31 December 2007 Head Office & Continuing Bakery Consolidation Operations Discontinued Total Sugar Ingredients Bakery Adjustment Total Operations Group Revenue - External 181,831 31,096 18,217 - 231,144 14,962 246,106Revenue - Internal 8,253 824 - (9,077) - - - Total revenue 190,084 31,920 18,217 (9,077) 231,144 14,962 246,106 Operating Profit 6,390 2,350 71 (1,371) 7,440 2,159 9,599 Significant items (523) - (523)Profit on sale of division - 8,070 8,070 Earnings before interest and tax 6,917 10,229 17,146 Net interest (3,651) (96) (3,747)Pension finance income 184 - 184 Tax (890) (6,900) (7,790) Profit after tax 2,560 3,233 5,793 Inter-segment sales are charged at prevailing market rates. The group operates a central function, finance costs cannot be meaningfullyallocated to individual operating divisions. 6. DISTRIBUTION OF THE ANNUAL REPORT AND ACCOUNTS TO SHAREHOLDERS The announcement set out above does not constitute a full financial statement ofthe company's affairs for the year ended 31 December 2007. The company'sauditors have reported on the full accounts of the said years and haveaccompanied them with an unqualified report. The accounts have yet to bedelivered to the Registrar of Companies. This annual report and accounts will be posted to all shareholders of theCompany, and will be available on our web site www.realgoodfoodplc.com and forinspection by the public at the registered office of the Company during normalbusiness hours on any weekday. Further copies will be available on request fromThe Real Good Food Company plc, International House, 1 St Katharine's Way,London, E1W 1XB. This information is provided by RNS The company news service from the London Stock Exchange