RGD.L Regulatory News (RGD)

Real Good Food plc

 ("RGF" or "the Group")

Final Results for the Year Ended 31 March 2020

Real Good Food plc

Annual Report and Accounts

For the year ended 31 March 2020

Overview

Financial highlights

• Revenue from continuing businesses increased by 8.1% from £61.6 million to£66.6 million.

• During a period of transition, the Group delivered an adjusted EBITDA*on continuing businesses of £3.3 million against £1.9 million in the prior year.

• Following disposals in the prior year, the two remaining divisions, Cake Decoration and Food Ingredients are profitable (before impairment, depreciation, amortisation and significant items) and generated an adjusted EBITDA* of £6.8 million before central costs.

• Central costs have reduced by £0.4 million from £3.9 million to £3.5 million.

• Goodwill has been impaired this year by £12.6 million (2019: £18.7million), to reflect the value today of the continuing businesses; covid-19 impact has been reflected in the impairment.

• Net debt stood at £45.4 million (2019: £35.7 million), being predominantly shareholder loans, of which £12.3 million is in the form of convertible loan notes. The loan interest in the year is £5.0m, of which £0.5m has been paid.

Operational highlights

• The Group now constitutes two main divisions, Cake Decoration (trading under the brand names of Renshaw and Rainbow Dust Colours) and Food Ingredients (trading as Brighter Foods). Brighter Foods has made significant progress in earnings and revenue since March 2019 outperforming the Board's expectations. Meanwhile, Cake Decorations is still in the last phases of turnaround, demonstrating an ability to win new business from a streamlined cost base.

• Overall, the underlying adjusted EBITDA on continuing activities of the Group improved by £1.4 million, from £1.9 million to £3.3 million due to the headway gains in Brighter Foods and lower central costs more than offsetting the lower (short term) profits in Cake Decorations.

• Brighter Foods yielded significant benefits during the year to 31 March 2020. Revenue increased by £10.1 million (66%) to £25.3 million and operating profit more than doubled to £2.9 million during the year. More importantly this growth continued despite the set-back of covid-19 at the start of the current year.

• Cake Decoration had come under pressure owing to the UK declining market for sugar paste (-14.7%) and marzipan (-2.1%)1. However, Renshaw's sales outperformed the underlying market decline. Frostings are a growing market, and the business is well placed in this segment following recent investment. Renshaw also signed a new exclusive distribution agreement with Decopac, the largest distributor of cake supplies in the US to assist in growing their share of the US market.

Current Trading

• The impact of covid-19 was seen in the first quarter, as many customers felt the impact of lockdown. However, with lockdown restrictions easing, trading has improved in both divisions with quarter 3 (October 2020 to December 2020) sales in line with FY20 and in-line with Board expectations.

• Within Cake Decorations, where the operating structure has been significantly improved, the focus is on strengthening customer relationships, enhancing customer service and growing sales through new product launches and category expansion. There have been new client wins since the year end both in the Retail and B2B markets; overseas markets have recovered well. Since the start of the financial year, the business has successfully launched over 40 new products which generated over £2 million of sales on an annualised basis. 

• Brighter Foods, after the initial impact of the lockdown, has continued to grow its earnings from a wider customer base than this time last year. Q3 earnings are on target to be ahead of FY20.

• The Board is reviewing all initiatives to improve the capital structure of the Group.

1. Kantar data to Dec 19

Mike Holt, Executive Chairman commented:

"A lot has happened since March. Clearly, covid-19 has impacted financial performance in the current year, and the near-term outlook continues to hold challenges due to the pandemic. However, both businesses are getting stronger and more resilient. In particular, Brighter Foods continues to grow and has further strengthened its reputation for innovation and responsiveness. For the Group as a whole, Brexit ought to be more positive than negative.The Board is committed to reducing the Company's debt burden and normalising its capital structure as soon as possible."

Enquiries:

Chairman's Statement

Overview

I am pleased to report that Real Good Food has continued to make further progress in its journey of rebuilding shareholder value, with ongoing support from its principal investors.

The Group has faced a number of challenges. JF Renshaw, the main component of the Cake Decorations business unit, sells into mature markets with increasing competition, particularly within the retail sector, and operates out of an aged site in Liverpool with a higher than sector average wage bill. Despite this a re-vitalised management team led by Steve Moon is making good progress with tangible improvements being delivered in relation to customer service, product quality and product innovation. Some cost improvements have been achieved but more is needed to generate acceptable returns whilst remaining competitive. In summary, the Cake Decoration business is now more customer focused and is beginning to recreate and leverage the value of the Renshaw brand, albeit the progression is steady rather than transformational at this stage. Progress is being accelerated. For the year to 31 March 2020, results were impacted by declining sugar paste demand, but the business unit managed to make a modest profit at adjusted EBITDA level. Clearly, as noted in our AGM trading update on 23 September 2020, revenues and profits have been impacted by covid-19 during the current year due to the restrictions on social gatherings impacting the UK Wholesale market but progress is continuing to be made to make this business less dependent on the maturing sugar paste and marzipan markets through product innovation; new product launches having been made with Tesco, Waitrose and Marks & Spencer.

In contrast, recent investments to increase the production capacity of Brighter Foods yielded significant benefits during the year to 31 March 2020. Revenue increased by £10.1 million (66%) to £25.3m and profits more than doubled to £2.9 million during the year. More importantly this growth has continued despite the set-back of covid-19 at the start of the current year. The business has continued to gain traction with several new blue-chip customers leveraging its reputation and ability to introduce top quality new products quickly and effectively.

We have made an impairment charge of £12.6m in respect of the carrying value of Cake Decoration given lower profits in the year, the impact of covid-19 and improvement challenges at the Liverpool site. However, it is our belief that further impairments can be avoided given the current initiatives within JF Renshaw and the opportunity and need to accelerate progress.

Overall, the underlying adjusted EBITDA on continuing activities of the Group improved by £1.4 million, from £1.9 million to £3.3 million (see note 3) due to the headway gains in Brighter Foods and lower central costs more than offsetting the lower (short-term) profits in Cake Decorations. A lot of work is underway to build on this upward momentum.

The level of total indebtedness remains a matter of concern, net debt having risen from £35.7 million to £45.4 million largely as a result of the accrued redemption premium on investor loans and convertible loan notes which totalled £5.0 million. I am pleased to report that an agreement has been reached with the investors to extend the repayment date of these loans from 17 May 2021 to 19 May 2022 with no change to the interest rate payable on the loans. The convertible loan notes (CLNs) will reduce from 30% per annum to 12% per annum effective from 31 December 2020. The Independent Directors believe this to be appropriate given limited alternative forms of funding and finance at the present time.

Dividend

As with previous years, the Board is not recommending the payment of a dividend for the year. The focus is on investing in the growth of Brighter Foods and the turnaround of Cake Decoration in order to deliver the best possible returns for shareholders.

Board changes

There have been significant changes in the composition of the Board since April of last year. Anthony Ridgwell joined the Board in May 2019 as a Non-Executive Director replacing his father, Pat Ridgwell. Steve Dawson stepped down as a Non-Executive Director in August 2019, due to executive commitments elsewhere, and was replaced by Gail Lumsden who joined the Board in October 2019. After leading the divestment of a number of non-core businesses, Hugh Cawley stepped down from his role as Chief Executive Officer in September 2019. From October 2019, Paul Richardson served as a part-time Executive Director with responsibilities for Corporate Affairs and Governance until stepping down in March 2020 to pursue a full-time position in another company. I became Non-Executive Chairman in June 2019 after Pat Ridgwell stepped down. Following Paul Richardson's move, I effectively became Executive Chairman, and this was confirmed by the Board last month. The Managing Directors of the two business units report to me and are responsible for the delivery and execution of their respective business unit strategies.

Following these changes, the Board is now stable and, in my opinion, more aligned, effective, and focused on sorting things out to rebuild shareholder value and simplify the capital structure. I am also keen to engage with minority shareholders to ensure their voices are heard and that, notwithstanding the unusual composition of the Board, that the right decisions are made for all stakeholders.

Corporate Governance

The Board is very mindful of the issues and problems in relation to corporate governance during the period 2016 to early 2018 and is fully aligned with the importance of sound corporate governance. The Group is governed through the Board and its Committees, namely Audit Committee and the Remuneration Committee. Further details of the work carried out by these committees is in the Reports on pages 23 and 25.

Strategy

The Group's strategy is set out in more detail later in the Strategic Review, but, in summary, the Group has two autonomous business units which are leaders in their chosen markets and have the potential to deliver better quality profits and net cash inflows for the Group. Management actions have been taken within Cake Decoration to continue to work with customers on innovation and to build long term customer relationships, improving operational efficiencies further and growing sales in the UK and internationally. Food Ingredients has successfully scaled up its production capacity and will continue to broaden its customer base and seek profitable ways to grow its business further.

Outlook

We are fully committed to improving the Group's financial performance, reducing its debt burden, and normalising its capital structure. The Board is actively pursuing a range of options to restructure the Group and simplify its capital structure. Clearly, covid-19 has impacted financial performance, and some options, but both businesses have been reasonably resilient, albeit aided by the Government's Job Retention Scheme. The uncertainties of covid-19 remain, but they are expected to ease during 2021. Brexit ought to be more positive than negative for the Group as a whole.

Finally, I would like to thank our employees who have worked hard to overcome various challenges, during the covid-19 crisis, to ensure that products and customer service continued (and continue) to be delivered.

Strategic Review

2019/20 performance

Overall revenue from continuing businesses increased from £61.6 million to £66.6 million, with an increase of £10.1 million (66%) within Food Ingredients and Cake Decoration's sales being down by £5.2 million (11%). The increase within Food Ingredients reflects the increase in capacity from an additional production line installed during the year and sales to a new blue-chip customer gained in January 2020. Although Cake Decorations outperformed the sector, market demand for marzipan and sugar paste declined during the year. The delay in the launch of frostings also impacted FY20. However, with the new plant in Liverpool now fully operational, we will see the benefit of this growing market in FY21. The increase in sales by Food Ingredients was the main driver for the step-change in profitability, buoyed by improved operational efficiencies particularly in relation to waste levels; underlying adjusted EBITDA for Food Ingredients increased from £2.8 million to £5.0 million. In Cake Decoration, underlying adjusted EBITDA decreased from £3.0 million in 2019 to £1.8 million in 2020, owing to the reduced sales partly offset by the lower overhead costs; savings in overhead costs were £0.9 million.

Over the last two accounting periods, significant costs (both cash costs and non-cash costs) have been recognised in the turnaround of the Cake Decoration business; restructuring costs necessary to align overheads, for example, losses on disposal of non-core businesses and impairment charges where future forecast profitability could not sustain the value of goodwill recognised some years ago. There are a number of initiatives ongoing within the Cake Decorations business to make it stronger and more profitable. There are also a range of other options being evaluated to enhance returns from this business. The onset of the covid-19 crisis, forcing many countries into lockdown, impacted sales and profitability during the final quarter of FY20, and has continued throughout FY21. There will be further costs incurred in FY21 within the Cake Decorations business to ensure the infrastructure and operational facilities are able to deliver the sales growth and improved profitability that the Board believe is achievable.

The Group's central resources have been pared back and opportunities are continually sought to reduce these further, consistent with good governance. The Group retains higher levels of shareholder debt than is ideal, the coupon on which was determined in less profitable times. This interest burden, almost all of which is rolled-up, will remain for the foreseeable future.

Capital structure

The Group manages the capital structure and reviews the requirements in response to economic conditions.

During the course of the financial year, the Group secured a total credit facility of £8.87 million from Leumi ABL Limited, enabling RGF to repay certain debt facilities provided by the Company's three major shareholders, NB. Ingredients Limited, Omnicane International Investors Limited, and certain funds managed by Downing LLP. The facilities consisted of a £5.45m revolving credit facility, a £1.3m term loan both on 60 months ending August 2024, and a £2.12m plant and machinery facility on 36 months ending August 2022.

The maximum draw down value during FY20 occurred in September 2019, being £2.0m. This was used to build stock for the Christmas sales in Cake Decorations. The lowest month was August 2019, when no draw down was required, as there was a credit balance in the revolving credit facility of £0.4m.

The Board recognises that the Group's level of debt is higher than expected for a business like Real Good Food. However, given its business model, the presence of bank debt within the Group was restricted to asset-backed finance held by J F Renshaw and its revolving credit facility. As at 31 March 2020 there was no bank overdraft. At the same time, the Group's balance sheet retains a significant tangible asset base, goodwill that has been written down to realistic levels, and has net assets significantly in excess of the Group's current stock market capitalisation. This is an important measure in establishing the Group's financial worth in the future.

Operating performance and outlook

Having agreed budgets for the year, these quickly became obsolete before the start of FY21 owing to covid-19. The business set a new budget taking into account the impact of the lockdown in the UK and worldwide. The revised budget reduced sales by c.£9m from the original budget, as a result of our customer's clients having to close during lockdown. Brighter Foods' largest customer was required to close as part of the lockdown.

Both businesses being food manufacturers have remained open during the lockdown period. However, sales have been lower than would normally be the case. In common with other companies, RGF is reviewing all options to mitigate the impact of the reduced sales. Both businesses have taken advantage of the government job retention scheme and have deferred the repayment of the VAT to conserve cash. We prepare the business forecast on varying levels of revenues and have modelled the effect of these to ensure appropriate action can be taken if required. So far, the performance of each of the businesses is aligned with the Board's expectations and central costs are as expected. The Cake Decoration market in the UK, particularly in the retail sector, is proving increasingly competitive, but we are confident that we can leverage experience and expertise to deliver what our customers need and want. The Food Ingredients division's growth plans are well-established, with a focus on innovative bars that exceed customer expectations. The future for both businesses is positive. However, the recovery from covid-19 is impacting the Group for the FY21 financial year. The Group is working to ensure that both divisions have a strong sustainable base to capitalise on opportunities that may arise from the current situation. There are also the uncertainties of Brexit and we are mindful that both businesses serve Europe with the Cake Decoration business having a European operation which may be impacted and Brighter Foods having key customers in Europe. The Group is preparing for Brexit as best it can given the uncertainty around the government negotiations for a trade deal with Europe.

After another challenging year in the period to 31 March 2020, the Board wishes to thank all the Group's and businesses' stakeholders for their understanding and continued support. Although covid-19 will impact FY21, the expectation is that the Group sales performance in quarter 4 FY21 will be in line with pre Covid 19 sales; this is dependent on no further lockdown measures being imposed.

Group strategy

The Board's strategy is to have two profitable cash generative businesses. The turnaround plan in Cake Decorations continues to build on the work undertaken last year and setting a refreshed and invigorated strategy for the business. There have been some key changes in the Cake Decoration business following an in-depth review to identify functions that would be better carried out by a specialist provider. Consequently, a decision was taken to outsource warehousing and distribution to a first-class third-party provider and as a result the business is already seeing the improvements in customer service. The business has also strengthened its senior team in New Product Development (NPD) and Marketing to drive greater focus on innovation and sales growth. The strategy for the Food Ingredients division continues to be focused on delivering great products for our customers, as evidenced by the significant growth in that business. The investment in a new production plant of £3.2 million has resulted in an increase in sales of £10.1m this year. 

The Group central resources have reduced significantly. Central resources are now limited to functions that relate to finance and general management.

Summary and Outlook

We believe we now have the leadership, the senior management, and the resources capable of delivering a further uplift in performance from both businesses, and a substantially lower central cost base that is more fit for purpose. The Board is also actively evaluating a range of options, for both businesses, to maximise shareholder returns.

The lockdowns since late March 2020 in the UK and elsewhere have had a significant impact on our sales in FY21. The businesses have continued to operate and work with customers to deliver products. The Group sales are ahead of the covid-19 budget prepared in March and we continue to see sales returning to pre covid-19 times. However, with the possibility of new lockdown restrictions, this is under constant review. The Board have taken actions to conserve cash and have also used the government furlough scheme. The Group remains focused on continuing to improve its performance, reduce net debt and thereby increase shareholder value and returns.

The Board is grateful for the continued support of all stakeholders who have shown confidence in the Group during the past year and will make every effort to retain the positive momentum which is now clearly evident in the underlying businesses. The Board is confident in the future prospects for the Group as a whole.

Divisional Business Review

Real Good Food

Cake Decoration

2019/20 Performance

In a transitional year, the result for Cake Decoration was disappointing with an adjusted EBITDA lower than the previous year. This was driven by a slower than expected completion of the investment in the soft icing plant which went into production in quarter three. This production line gives additional, large scale, manufacturing capability for frostings and other soft icing products which are becoming increasingly popular due to their ease of use for the novice baker and decorator.

UK sales came under pressure owing to the declining market for sugarpaste (-14.7%) and marzipan (-2.1%)1. Although Renshaw's sales outperformed the underlying market decline, there were reduced sales in the Retail and Wholesale sectors. The manufacturing sector, although slightly behind, was showing a growing momentum in the final quarter. The International market decline was owing to one customer who reduced volumes in FY20 owing to uncertainty with Brexit. Sales to the US are down year on year owing to a change in stocking policy with a major customer.

In line with the company strategy, an agreement was signed in October 19 with Decopac, the largest distributor of cake supplies in the US, for the sole distribution rights for the US market. The Board understand that the agreement implies significant sales targets in what we consider an important market for Renshaw in the future.

During the year, changes have been made to the Senior Management structure as well as strengthening the Marketing function to ensure the customer is at the heart of the business. Although there remain further opportunities for improvement, Renshaw remains a strong brand in the sector.

Further work and efforts will continue throughout FY21 to enhance products, develop new products which delight our customers and streamline our sales and operational processes.

Forward plans

The business continues a growth strategy focused on increased supply of everyday convenience products under its own and customers' brands. The investment in the soft icings plant will benefit from the growing frostings market which is expected to grow by c5%1. Export growth is focused on North America where the company has identified the greatest potential to grow sales. Following the successful closure of the Brussels warehouse in FY19 and fulfilling European sales from the UK, the closure of the US based warehouse will be undertaken in FY21 with sales being shipped directly from the factory in Liverpool to the US. The business continues to implement organisational changes that will result in a more streamlined business which is focused on growth opportunities, efficiency savings and an improvement in overall performance.

Covid-19

As a food manufacturer, the business has remained open during the lockdown period. Our priority is the safety of our staff whilst supplying our customers with the highest quality product. All required changes to meet covid-19 requirements have been carried out at the sites.

The impact in FY20 has been limited with a reduction in sales in the final few weeks of FY20, across all sectors. Some specialist retailers closed, and the major retailers were focussed on getting core commodities into the stores whilst the Wholesale Sector saw many of their own clients having to close. An updated forecast has been prepared in light of the lockdown restrictions. The business is currently operating in line with this forecast.

1. Kantar data to Dec 19

*See note 3 for reconciliation

Real Good Food

Food Ingredients

2019/20 Performance

Brighter Foods creates, develops, and manufactures snack bars for the healthy snacking market from its factories in Tywyn, Gwynedd in mid Wales. Brighter Foods is a multi-award-winning company which produces snacks which are targeted at areas such as diet control, gluten free, lactose free, low or no added sugar, sports nutrition, organic and fair trade and its manufacturing capabilities, even before recent expansion, are highly regarded throughout the industry. As well as manufacturing partner-branded products, Brighter Foods has its own healthier brands such as Wild Trail, which is stocked in retailers and health food stores.

Brighter Foods itself also saw significant change in growing its sales by 66% in the year ended 31 March 2020 owing to the new B3 plant that started production in March 2019. The investment of £3.2 million to increase the capacity resulted in an increase in sales of c£10 million. There were some challenges during the early period of production that had a negative impact onthe EBITDA of c£0.5 million owing to levels of excess waste, however the waste isnow in line with expectations. The new equipment gave Brighter Foods the capacity to bring on board a new blue-chip customer in January 2020.

Forward plans

Following the covid-19 government lockdown, some of the areas that Brighter Food customers trade in have been impacted, such as the travel industry and the 'food on the go' culture. This has resulted in new product launches being delayed until later in the year, this will impact sales in FY21, however the customers will remain, albeit with lower sales owing to covid-19 impact in the first quarter. The business is known for its innovation and this is continuing in FY21.

Once the lockdown position is eased in Wales, Brighter Foods is well-positioned as it is in the health and wellness market, to continue the growth in revenue which has characterised every other year of the business since its formation in 2014.

Covid-19

As a food manufacturer, the business has remained open during the lockdown period. Our priority is the safety of our staff whilst supplying our customers with the highest quality product. The business has made the required changes to comply with all covid-19 restrictions. The impact in FY20 has been minimal owing to the communications with customers and production planning, however there will be an impact on sales in FY21. The business has used the government furlough scheme to offset the lower sales and retain staff. A new forecast was prepared following the covid-19 impact, and the business is currently ahead of the plan.

*See note 3 for reconciliation

Finance Review

Revenue

Group revenue of the continuing businesses for the 12 months ending 31 March 2020 is £66.6 million (2019: £61.6 million), an increase of 8.1% on the revenue to31 March 2019. This results from an increase in Brighter Foods of £10.1m (66%) and a decline in Cake Decoration of £5.2m (11%). The decrease in Cake Decoration is a result of the declining market in sugarpaste and marzipan, and the delay in the production of frostings that is a growing market in the cake decorations business. The Brighter Foods increase was driven from securing a new Blue-Chip customer in January 2020 and sales were generated in the final quarter of the financial year as well as organic growth from existing customers.

Profit measure on operations

Gross profit on the continuing businesses for the overall Group was £27.0 million (2019: £18.0 million). At 35.4%, the delivered margin in the year, was significantly above the prior year of 23.7%, strongly indicative of the improved quality of earnings for the Group as a whole. Delivered margin is defined as gross profit less costs of delivery.

The operating loss in the year of £14.5 million is reported after an impairment charge on goodwill of £12.6 million, depreciation and amortisation charge of £3.9 million and significant costs of £1.0 million.

The EBITDA for the Group is a loss of £10.6m. The adjusted EBITDA is the underlying continuing business profitability of £3.3m.

The two items that are adjusted for are :

Impairment charge: £12.9m

Significant Items: £1.0m

The significant costs incurred relate to the Cake Decoration business and are predominantly for redundancy costs as part of the turnaround. The number of indirect employees reduced year on year is 17 across the business.

The impairment charge is against JF Renshaw. The Board, having considered the trading expectations, are happy that the recoverable amount would support the revised value in the accounts. 

After finance costs of £5.6 million, this resulted in a loss before tax for the year of £20.1 million (2019: loss of £26.1 million) for continuing businesses. This equates to a basic loss per share of 19.22 pence on continuing operations (28.64 pence in 2019), (see note 9).

Cash flow and net debt

Conserving cash is a key measure for the Group. Covid-19 of course heightened the focus with the UK lockdown in March 2020. The business modelling includes looking at varying levels of revenues and the effect of movements on cash planning to ensure appropriate action can be taken if required.

As part of the cash planning, the Group increased the current revolving credit facility by £2m, this was completed in August 2020.

The Group board increased the meetings to a weekly call in the immediate term, moving to bi-weekly after the initial lockdown ended. The main purpose was to review cash and trading for the following months.

The Group has used the Government furlough scheme, (£1.3m), deferred VAT (£1.0m) and PAYE payments (£0.9m) to conserve cash during the lockdown period. Repayments of the VAT and PAYE are being made in line with the government 'time to pay' plan.

Shares issued in the year and additional loans to 31 March 2020 amounted to £35k. The net debt at the end of FY20 stood at £45.4m versus £35.7m in FY19, this is predominantly shareholder loans of which £12.3m is in the form of convertible loan notes.

The Group extended the revolving credit facility in the early part of FY21 to include Brighter Foods debtors and the US debtor in response to covid-19.

All figures refer to continuing businesses.

*See note 3 for reconciliation

Going Concern and Post Balance Sheet Events

The Directors have considered the Group's business activities together with the factors likely to affect its planned future performance including covid-19 and Brexit and are taking appropriate action. RGF has a robust crisis management plan that is being implemented, including taking action to mitigate risks and conserve cash.

The sectors we serve have and will continue to be impacted whilst the country is in a state of lockdown, particularly the wholesale market and 'food on the go'. The Board consider the revised covid-19 budget to be reasonable and these assumptions have been projected and shared with the Group's auditors.

The forecasts agreed with the businesses have been adjusted for the covid-19 impact. The Board reviewed the sensitivity of the sales and have modelled the effects of these, whilst reviewing all the measures to have a sustainable business model post covid-19. RGF is using all options to mitigate the impact of reduced sales, including the job retention programme and has furloughed staff at both businesses. 

The Directors considered the following scenarios:

Scenario 1: Reduction in revenue of 12% and

Scenario 2: Reduction in EBITDA of 35%

In both stressed scenarios the Group has sufficient liquidity headroom until August 2021, when cash becomes tighter coinciding with the stock build for Christmas and the expected PUT option payment. 

The Group has various levers that it can use to mitigate the shortfall including:

Additional asset backed funding

Cessation of non-essential spend

The Group will take action as appropriate, should sales not be in line with expectations.

The banking covenants in place being positive 3 month rolling EBITDA and positive tangible net worth are not breached on the stressed scenarios referred to above.

In June 20, the Directors approved the increase in funding with ABL Leumi, increasing the facility by £2m. This was a result of covid-19 to ensure that the Group had adequate facilities in place should the lockdown last longer than expected.

The principal shareholders of the Group have shown considerable support for the working capital requirements and as a result have extended the repayment period of the current loans from 17 May 2021 to 19 May 2022.

A further deed of amendment was entered into with the Brighter Foods minority shareholders to amend the terms of the Put option. The Board of RGF believe that the Deed is in the best interest of all stakeholders as it reduces the immediate cash outflow of the Group and aligns the interests of the Minority Shareholders (who form part of the core management team of Brighter Foods) with RGF in improving earnings and ultimately maximising the value of the business to RGF.

Having carefully considered the liquidity of the Group and Company in line with the current strategy and future performance, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the next 12 months and therefore continue to adopt the going concern basis in preparing the consolidated financial statements.

New Standards

New standards and amendments which are effective from 1 January 2019 and have been adopted within the Group's accounting policies are:

IFRS 16 Leases (effective for periods beginning after 1 January 2019) replacing IAS 17 Leases and IFRIC 4 determining whether an arrangement contains a Lease. The Group has adopted IFRS 16 applying the modified retrospective method with no changes to the comparative accounting periods.

Amendments to IFRS 9 Prepayment Features with negative Compensation (effective 1 January 2019); and

Amendments to IAS 28: Long term interests in Associates and Joint ventures (effective 1 January 2019). 

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 scheme valuation reported a gross deficit at 31 March 2020 of £7.9 million (2019: restated to £7.4 million). The Plan assets decreased by£0.1 million to £13.7 million (2019: £13.8 million) and the Plan liabilities are£20.8 million compared to £21.2 million at 31 March 2019.

Dividend

The Directors, considering the Group's performance and cash resources, do not recommend the payment of a final dividend for the year ended 31 March 2020 (2019: nil).

Consolidated Statement of Comprehensive Income

Year ended 31 March 2020

The notes on pages 37 to 73 form part of these financial statements.

Consolidated Statement of Changes in Equity

Year ended 31 March 2020

Consolidated Statement of Financial Position

Year ended 31 March 2020

Consolidated Cash Flow Statement

Year ended 31 March 2020

Notes to the Financial Information

Year ended 31 March 2020

1. Presentation of financial information

General information

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

Basis of preparation

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

The financial information set out in this preliminary statement does not constitute the Group's statutory accounts for the years ended 31 March 2020 or 2019. Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 will be delivered in due course. The auditor has reported on those accounts; their report was (i) qualified - due to Covid-19 restrictions the auditor was not able to observe the counting of physical inventories at the end of the year for inventories held by Brighter Foods Limited, a subsidiary and significant component of Real Good Food plc, due to restrictions in the attendance of external visitors at company and third-party premises, specifically as a result of Covid-19. They were, unable to satisfy themselves by alternative means concerning the inventory quantities held by that component at 31 March 2020, which are included in the consolidated statement of financial position at £2,574,000. They were therefore unable to determine whether any adjustment to this amount was necessary, or what the impact of any such adjustment would be on the consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of financial position or consolidated cash flow statement. (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 18 December 2020.

Discontinued operations

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

During the twelve months to 31 March 2020, the Group did not dispose of any major lines or businesses. At 31 March 2020, some remaining assets in relation to the disposed businesses are classed as held for sale.

IFRS standards and interpretations adopted

New standards and amendments which are effective from 1 January 2019, and have been adopted within the Group's accountingpolicies are:

• IFRS 16 Leases (effective for periods beginning after 1 January 2019) replacing IFRS 17 Leases and IFRIC 4 determining whether an arrangement contains a Lease.

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

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

The Group has adopted IFRS 16 applying the modified retrospective method with no changes to the comparative accounting periods. There was no impact on opening reserves.

The Group has applied the following transitional provisions for leases which were previously classified as operating leases:

• Lease liabilities have been measured at the present value of the remaining lease payments on transition, discounted at a weighted average incremental borrowing rate of 4.41%; and

• Right of use assets have been measured at an amount equal to the lease liability at the transition date.

• Because the adoption of IFRS16 leases has increased EBITDA, it has had the effect of reducing the loss per share by 0.52p and the diluted loss per share by 0.17p.

The Group has applied the following recognition exemptions and practical expedients:

• Contracts have not been reassessed in relation to whether they are or contain a lease at the date of initial application;

• Initial direct costs have been excluded from the measurement of the right of use asset at the date of initial application;

• Leases which are short term or low value have not been accounted for according to IFRS 16, and instead lease payments have been expensed on a straight-line basis over the lease term;

• Leases for which the lease term ends within 12 months of initial application have not been accounted for according to IFRS 16, and instead lease payments have been expensed on a straight-line basis over the lease term;

• Single discount rates are used for portfolios of leases with reasonably similar characteristics; and

• Hindsight has been used in the determination of the lease term where options to extend or terminate the lease exist.

Further detail in relation to the leases accounting policy under IFRS 16 has been included in note 2.

The adoption of the amendments to IFRS 9 and IAS 28 have not had an impact on the financial statements of the Group.

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

2. Revenue

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

3. Segment reporting

Business segments

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

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

Geographical segments

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

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

The Group has two customers which constitute over 10% of revenue: one providing 21% of revenue, and the other 10%.

In line with the Group strategy of allowing each business to understand its true cost base as a stand-alone business, during the 12 months ended 31 March 2020, Head Office costs of £1.1 million (2019 £1.4m) have been re-allocated to the Cake Decoration division.

4. Significant items

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

The year to 31 March 2020 has seen a lower level of significant items than in the previous year. They are explained in the notes below:

1 The fair value of the CLNs was reduced in FY20 from the FY19 estimate. This was shown as a significant item in the accounts.

2 Restructure costs relating to the Cake Decorations business and Head Office infrastructure

The year to 31 March 2019 had the following significant costs

1. Abnormal costs during improving capacity of business units. Considerable funds have been invested throughout the Group in the past two years in capital projects, to improve the capacity and operating efficiency of the Group.

2. Investigation work and penalties relating to corporate governance failings. There were well-publicised failings in the area of corporate governance. The costs incurred related to external agencies sufficiently experienced and qualified to ensure all failings investigated and identified and remedial actions highlighted.

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

4. Asset write-offs. The costs incurred in the year relate to inventory and intangible asset write-offs in relation to an abandoned product launch.

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. All claims are now settled

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

5. Operating profit

Operating profit for continuing operations

6. Finance costs

7. Other finance costs

8. Notes supporting the cash flow statement

The cash collateral figure for the Group is £0.2million (FY19 £2.0m). This has been provided to Lloyds Bank plc as security for insurance claims of the Group. This amount is not included in the cash flow.

Group

Net Debt

Net debt is a key performance indicator for the Group. It is defined as short term and long term borrowings less cash. See table below:

Group

9. Earnings per share

Basic earnings per share

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

The total loss per share for 2020 is (19.22)p (2019 continuing and discontinued operations: (35.49)p).

Diluted earnings per share

The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of all outstanding share options. The potential ordinary shares are considered anti-dilutive as they decrease the loss per share. Therefore, diluted EPS is the same as basic. If all of the share options had been exercised before the period end, the earnings per share would then have been a loss per share of 6.33p (2019: loss of 11.05p on the continuing operations and a loss per share of 2.64p on the discontinued operations).

The weighted average number of shares in issue for the year was 99,504,581 and the number of options outstanding was 4,060,835.If these were all exercised the cash raised would be equivalent to that which would be raised by issuing 1,830,303 shares at the average share price during the year. There were also 211,924,421 convertible loan notes outstanding, of which the weighted average number of shares was 200,571,327. Therefore, the weighted average number of dilutive potential ordinary shares is 301,906,212.

Because the adoption of IFRS 16 Leases has increased EBITDA, it has had the effect of reducing the loss per share by 0.52p and the diluted loss per share by 0.17p.

10. Borrowings and capital management

*Accrued interest of £2.9 million at 31 March 2019 is not shown in the above Investor loans, this is shown within accruals in payables. The investor loans shown consists of £20.6 million principal amount, £4.6 million accrued interest up to 31 March 2020 and redemption premiums of £3.1 million.

**Convertible loan notes shown at 31 March 2020 consist of £8.8 million investment (2019: £8.8 million), £3.6 million accrued interest (2019: £1.4 million), £nil fair value adjustment (2019: £(0.3) million) and £(0.1 million) of transaction costs (2019: £(0.3) million) being spread over the remaining life of the liability.

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

All existing shareholder loans were renegotiated in December 2020 to require repayment in May 2022.

Convertible loan notes

In May 2018, the Company secured further funding from each of its major shareholders totalling £8.8 million. NB Holdings Ltd and Omnicane Investors Ltd each providing £3.4 million and funds managed by Downing LLP provided £1.9 million. This instrument has since, with shareholder approval, been replaced with convertible loan notes of £8.8 million with a conversion price of 5 pence. The loan is repayable in 3 years from the date of issue or can be converted at any time into shares at the holder's option. In December 2020, the shareholders agreed to amend the repayment date of the loans to the 19 May 2022. Also, the Amendment Deed amends the CLNs minimum annual return from 30% per annum to 12% per annum, effective from 31 December 2020

The instrument accrues interest at a rate of 12 percent per annum accruing daily and will mature and be due for repayment in full on 19 May 2022, unless they are redeemed before that date. On that date, unless the convertible loan notes are converted into ordinary shares on the conversion date, a redemption premium fee will be payable. The redemption fee will be an amount which, when added to the interest accrued on the relevant notes, provides a total return equal to the amount which would have accrued in respect of such notes from the date of the convertible loan note instrument until and including the date the notes are redeemed in full had the interest rate been 30 percent per annum.

A host loan at amortised cost and an embedded derivative liability, being measured at fair value with changes in value being recorded in profit or loss, have been recognised. At 31 March 2020, the derivative liability was valued at £nil (2019: £0.3 million)

The convertible loan notes shown consist of a host loan at amortised costs of £8.8 million and £4.3 million accrued interest up to31 March 2020.

10. Borrowings and capital management (continued)

Features of the Group's borrowings are as follows:

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

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

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

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

During the year ended 31 March 2020 the Group continued with the borrowing facilities in place and secured loans from investors. As at31 March 2020, the borrowings comprised:

• revolving credit facility of £5.45 million with Leumi ABL Limited on a revolving basis with a term of 60 months. This facility is secured against the debtors of JF Renshaw Ltd and Rainbow Dust Colours Ltd with an interest rate of 2.25% above 3-month LIBOR. Because the group retains the risks and rewards of ownership of the underlying debts, these continue to be recognised in these financial statements.

• The Group secured facilities against specific plant and machinery with Leumi ABL Limited £2.1 million. The facilities interest payable is 2.75% above LIBOR.

• The Group secured a £1.3m term loan facility with the term being 60 months.

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

The loans at 31 March 2020 were as follows:

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

At 31 March 2020 Leumi ABL Limited had a debenture incorporating a floating charge over the undertaking and all property and assets present and future including goodwill, book debts, uncalled capital, buildings, fixtures, intangible assets, fixed plant, and machinery. In addition, the banking arrangements with Lloyds Bank plc had a guarantee over the Brighter Foods debtors.

Liquidity risk management

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

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

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

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

Analysis of market risk sensitivity

Currency risks:

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

The effect of the exposure is calculated as being:

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

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

Interest rate risks:

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

11. Pensions arrangements

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

In addition, the Company operates one defined benefits scheme which was closed to new members in 2000 and closed to future accrual with effect from 5 April 2004. The Defined Benefit scheme is a funded arrangement with assets held in a separate trustee-administered fund. Members of the Plan are entitled to retirement benefits based on their final salary at the date of leaving the Plan (or 5 April 2004 if earlier), and length of service.

An arrangement was previously agreed with the Trustees under which employer contributions to the scheme are £1 million per year from1 August 2019. For the purposes of IAS 19 the data provided for the 31 March 2018 actuarial valuation, has been approximately updated to reflect defined benefit obligations on the accounting basis at 31 March 2020. This has resulted in a deficit in the Plan of £7,936k. The present value of contributions payable exceeds the net liability and, in accordance with IFRIC14, the additional liability has been recognised.

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

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

** Deferred tax rate 2020: 19%, 2016, 2017, 2018 & 2019: 17%

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

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

The actual return on the Plan assets over the period ended 31 March 2020 was £(82)k (2019: £868k).

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

Statement of recognised income and expenses

11. Pensions arrangements (continued)

Assets

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

Assumptions

The obligations of the Plan have been calculated by projecting forwards the figures from the initial results of the latest valuation as at 31 March 2020 and then making appropriate adjustments for known experience and for differences in assumptions.

The mortality assumptions adopted at 31 March 2020 and 31 March 2019 imply the following life expectancies from age 65:

The weighted-average duration of the defined benefit obligation at 31 March 2020 was 15 years (2019: 15 years).

Historic funding positions

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

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

Risks

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

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

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

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

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

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

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

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

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

Sensitivity analysis

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

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

12. Post-year end activities

1. An increase in the Leumi revolving credit facility was agreed on the 28 July 2020, increasing the facility by £2m, taking the overall facility to £10.87m. This action formed part of the covid-19 response to cash management. The funding was against Brighter Foods debtors.

2. Mike Holt, Non-Executive Chairman of the Company agreed to become the Executive Chairman of the Group from the 21 October 2020, a position he previously held following the departure of Hugh Cawley in September 2019. This change reflects the increased work being undertaken since the departure of Paul Richardson in 6 April 2020.

3. Amendment to shareholders' Agreement: on the 19 October 2020 RGF announced that it has entered into a Deed of Amendment amending the terms of the shareholders' agreement dated 4 April 2017 (the "SHA") between, amongst others the Group and the "Minority Shareholders" that regulates their relationship in relation to Brighter Foods Limited - the Group holds 84.34% and the Minority Shareholders hold 15.66% of the issued share capital of Brighter Foods. The Board of RGF believe that the Deed is in the best interest of all stakeholders as it reduces the immediate cash outflow of the Group and aligns the interests of the Minority Shareholders (who form part of the core management team of Brighter Foods) with RGF in improving earnings and ultimately maximising the value of the business to RGF. Under the terms of the SHA, a put option pursuant to which the Minority Shareholders can compel the Group to acquire 50% of the Minority Interest has become exercisable (the "2020 Option"). The price to be paid by the Group based on EBIT and cash flows of Brighter Foods for the year ended 31 March 2020 is approximately £2.8m. Pursuant to the Deed the Minority Shareholders have agreed, to forego their right to exercise the 2020 Option, with the SHA being amended such that the Minority Shareholders will now have a put option over the whole of the Minority Interest exercisable following the agreement of the audited accounts of Brighter Foods for the year ending 31 March 2021. The Group retains its call option over the whole of the Minority Interest, exercisable should the 2021 Option not be exercised. In consideration for the changes to the SHA being made by the Deed, the Group has agreed to pay the Minority Shareholders £1.0m on the date the Deed is entered into and a further £500,000 on 20 November 2020. The outstanding balance of the 2020 Payment, approximately £1.3m, has been deferred until the exercise of the 2021 Option. Interest becomes payable on the £1.3m at the rate of 10% from March 2021.

4. The Company's three major shareholders, NB. Ingredients Limited ("Napier Brown"), Omnicane International Investors Limited ("Omnicane"), and certain funds managed by Downing LLP ("Downing") (together the "Major Shareholders"), have finalised an amendment deed relating to the funding agreements. The Agreements have been amended such that the final repayment dates of each of the Agreements have been extended to 19 May 2022 (the "Final Repayment Date") with no change to the interest rate payable by the Company pursuant to each Agreement. In addition, the Amendment Deed amends the convertible loan notes ("CLNs") such that the minimum annual return on the CLNs will reduce from 30% per annum to 12% per annum, effective from 31 December 2020. Amounts due in respect of the period up to, and including, 31 December 2020 remain unchanged. For the avoidance of doubt, the redemption premium on the Loan Notes instruments remains payable at 15%. As part of entering into the Amendment Deed the Company has undertaken that it will not enter into any transaction (or transactions in aggregate) that would result in a fundamental change of business of the Company without the prior consent of each of the Major Shareholders. This obligation would cease in the event of the repayment of the outstanding facilities with the Major Shareholders.