RGD.L Regulatory News (RGD)

18 Sep 2006 07:01

Real Good Food Company Plc (The)18 September 2006 Date: 18 September 2006On behalf of: Real Good Food Company plc ("RGFC" or "the Company")Embargoed until: 0700hrs Real Good Food Company plcInterim Results 2006 Real Good Food Company plc, the food manufacturing group in ambient, chilled andfrozen products (AIM: RGD), today announces its interim results for the sixmonths to 30 June 2006. The key highlights include: • Group sales increased more than five fold to £113.4m (H1 2005: £21.4m), following the acquisition of Napier Brown Foods PLC. • Normalised operating profits increased to £4.7m compared to £0.8m in the previous year. • Sales in Napier Brown Foods (NBF), our sugar division, were £81.1m, with profits at £2.8m. • Five Star Fish again showed good growth with sales up 14% and operating profits of £1.8m. • Bakery Ingredients division reported sales of £13.8m and profits of £0.6m. • Sales in the Bakery division up 5% and profits in line with last year. • Transfer of various functions in NBF from London to Normanton virtually complete. • EPS (excluding exceptionals and goodwill amortisation) of 3.1 pence up from a (0.1) pence loss last year. Following the acquisition of NBF last September, considerable effort has beenput into managing our devolved business units in accordance with our companyethos of a decentralized accountable business reporting to a tightly controlledcentre. Management quality has been enhanced across the Group and I believe thatthis will deliver benefits in the years ahead. Much effort has been put into managing the issues arising from the delays in theintroduction of the new European Union sugar regime. While this has affectedprofitability in this period, I believe the business remains well set to takeadvantage of the liberalisation of sugar supplies in the European Union (EU). FINANCIAL INFORMATION SUMMARY The Group's profit and loss account summary for the six-month period ended 30June 2006 is detailed below: £'000s Total six months Total six months ending 30 June 2006 ending 30 June 2005 Turnover 113,372 21,402Gross margin 15,554 6,038Normalised profit 4,654 826Goodwill amortisation (2,301) (438)Exceptional costs (753) (2,406)Aborted acquisition costs - (304)Earnings before interest 1,600 (2,322)Net interest (2,149) (531)Tax (476) (2)Loss after tax (1,025) (2,855) The Company is not proposing a dividend for the period (2005, nil) Enquiries to: The Real Good Food Company plc Pieter Totte Non Executive Chairman Tel: 020 7234 0570John Gibson Chief Executive Officer www.realgoodfoodplc.co.uk Lee Camfield ChiefFinancial Officer RedleafCommunications Emma Kane Tel: 020 7822 0200Duncan McCormickSamantha Robbins Shore Capital Tel: 0207 468 7912 Guy Peters OPERATING REVIEW CONTINUING OPERATIONS Group sales increased more than five-fold to £113.4m and operating profitsnearly six times to £4.7m. These figures reflect the contribution from NBF andRenshaw. There was a small contribution to sales from the nut operation, whichwe closed in December 2005. Overall net debt levels at 30 June 2006 increased from £10.1m to £59.2m lastyear, reflecting the consolidation of facilities at the time of the NBFacquisition. During the period under review, a payment of £1.0m was made as thefinal element under the deferred consideration scheme for Five Star Fish. Apayment of £0.5m is due to the vendors of James Budget Sugars and this was paidshortly after the end of the period under review. There are no other deferredconsolidation payments to be made. Sugar Division £'000s 2006 Six Months Sales 81,083Operating profits * 2,814 *Normalised profit before exceptional items, goodwill amortisation and centralcosts*2005 comparative unavailable as no divisional breakdown within NBF plc The division supplies a range of sugar and dry ingredients to food manufacturersas well as packing sugar for retail grocery and food service customers,primarily from its site at Normanton near Leeds. The widely reported volatile market circumstances caused by surplus stocks ofsugar in the EU gave rise to competitive price pressures in the period. Thisimpacted sales volumes, particularly up to Easter, and also led to deteriorationin margins. Volumes improved significantly in the second quarter and were up 14%on the first quarter but at a cost in terms of margin. The key focus of management during the period has been the maintenance of keycustomer/sector volumes, cost reduction in administration and increasedefficiency in production and distribution. In all those areas we have seensignificant improvements. Fish Division £'000s 2006 2005 Six months Six months Sales 14,024 12,313Operating profit * 1,821 1,650 * Normalised profit before exceptional items, goodwill amortisation and centralcosts. Five Star Fish is a leading supplier of added-value prepared frozen fish to thefood service sector based in Grimsby. Sales were ahead of last year by nearly 14%. This is partly due to priceincreases caused by a tightening on the supply of raw materials. However, salesvolumes were up by 9% in a relatively flat food service market. The trendtowards increased added value sales has continued and new customers continue tofuel growth. Export sales have been particularly strong. Margins have been affected to some degree as a result of raw material inflationand the additional manufacturing workload. The management team has secured anumber of price increases to address this issue. Investments in additional frying and battering facilities along with new coatingtechnology were made in the period. These will should the business to move intomore value added coatings, batters and flavourings. Bakery Ingredients £'000s 2006 Six Months Sales 13,767Operating profit * 648 * Normalised profit before exceptional items, goodwill amortisation and centralcosts.*2005 comparative unavailable as no divisional breakdown within NBF plc Renshaw supplies a range of high quality food ingredients, primarily to thebakery sector, comprising major cake manufacturers, grocery retailers, wholesaledistributors and craft bakers. It operates two facilities, one in Liverpool andthe other in Carluke, south east of Glasgow. The new Management Team has invested significant time and resource in addressingthe issues that had a negative impact on profitability at the end of 2005.Virtually the entire management structure has been overhauled withaccountabilities now more clearly defined. The sales team has successfully regained much of the business that was lost lastyear and has put into place well structured development plans with a number ofblue-chip customers. Improvements in both service and efficiency have beenrealised, providing a good platform for the stock build programme for the "Christmas period", the planning for which has now been completed. The introduction of modern manufacturing techniques and new operating procedureshas been a little slower than anticipated due to the magnitude of changerequired. During this period, the Runcorn nut plant was closed down in line with ourexpectations and plans are in progress for the disposal of the un-requiredfreehold property. Bakery Division £'000s 2006 2005 Six months Six months Sales 8,234 7,841Operating profit * 33 4 * Normalised profit before exceptional items, goodwill amortisation, centralcosts and discontinued operations. Haydens Bakeries produces chilled and ambient premium patisserie and dessertproducts for retail grocery customers; while Seriously Scrumptious supplies arange of similar products to food service customers from our factory in Devizes,Wiltshire. Sales grew by 5% in the period as a result of both new customer wins andadditional sales to Waitrose. Operating profit improved marginally compared to last year. However, it wouldhave been more, save for the investment in increased resources, particularly inthe senior commercial management team and new product development areas. Marginsand direct labour costs stabilised over the period but services costs increasedas a result of higher energy costs. Progress in sales in the food service sector has been slower than anticipated.This is because products supplied to retail customers differ from those in foodservice as a consequence of the frozen distribution network. The business, as aresult, is taking a longer time than we expected to come to through. EXCEPTIONAL ITEMS The Group has incurred £0.7m of exceptional costs during the period as aconsequence of the transfer of activities in finance administration andinformation technology for the Sugar Division from London to Normanton. Themajority of this relates to staff costs, redundancy and the remaining leaseholdcost of the St Katherine's Dock office. There is a small additional elementrelating to the exceptional cost of closing the nut plant provided for in the2005 results. OUTLOOK/CURRENT TRADING The Company issued a trading update on 24 May 2006 indicating that profitabilitythis year would be affected by the volatile nature of the sugar market. Sincethen volumes and margins for NBF have been broadly in line with ourexpectations. New wins in the retail sector have come on stream and our majorinvestment in packing is being commissioned. There is some evidence that theEuropean sugar market is stabilising although we believe that it remainssensible for us to wait for improving conditions before commenting morepositively. In Five Star Fish, volumes are in line with expectations and considerable effortis being put into securing price increases. New supplier relationships are beingformed and this should help us rebalance our raw materials plans for 2007.Profits are in line with expectations and this should be the case for theremainder of this year. With Bakery Ingredients, the critical trading time is the "Christmas Production"period - generally September to December. As may be expected, sales in the verywarm July were poor across the bakery sector but despite this Renshaw appears tohave come through this satisfactorily and the business is well set to hitexpectations. In Bakery, sales to date in the second half of the year are 7% up on the prioryear, however, higher material and direct labour costs are impacting upon thedivision's profit performance. The performance mix of our business units differs slightly from where we were atthe time of our pre-close statement in July. However, netting off the currentperformance of our businesses we expect to meet market expectations for thegroup. Pieter Totte Chairman Horwath Clark Whitehill Introduction We have been instructed by the company to review the financial information setout in these interim financial statements and we have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. Directors' Responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The continuingobligations of the AIM rules require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. Review Work Performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board. A review consists principally of makingenquiries of management and applying analytical procedures to the financialinformation and underlying financial data and based thereon, assessing whetherthe accounting policies and presentation have been consistently applied unlessotherwise disclosed. A review excludes audit procedures such as tests ofcontrols and verification of assets, liabilities and transactions. It issubstantially less in scope than an audit performed in accordance with AuditingStandards and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review Conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. HORWATH CLARK WHITEHILL LLP Chartered Accountants 10 Palace Avenue Maidstone Kent ME15 6NF As restated As restated 6 months 6 months 12 months Notes Period ended 30 Period ended Year Ended June 2006 30 June 2005 31st Dec 2005 £'000s £'000s £'000s (Un-audited) (Un-audited) (Audited) TURNOVER 113,372 21,402 117,650 Cost of sales (97,818) (15,364) (93,378) GROSS PROFIT 15,554 6,038 24,272 Distribution costs (4,047) (1,157) (6,854) Administration expenses (6,853) (4,359) (8,660) OPERATING PROFIT BEFORE GOODWILL AMORTISATION 4,654 522 8,758 Goodwill Amortisation (2,301) (438) (2,874) OPERATING PROFIT 2,353 84 5,884 EXCEPTIONAL ITEMS Reorganisation costs 7 (753) (874) (3,277) Termination of an operation 7 - (1,532) (1,025) PROFIT/(LOSS) ON ORDINARY ACTIVITIESBEFORE INTEREST AND TAXATION 1,600 (2,322) 1,582 Interest receivable 128 - 209 Interest payable (2,277) (531) (2,152) Net finance income 8 199 - - (LOSS) ON ORDINARY ACTIVITIESBEFORE TAXATION (350) (2,853) (361) Taxation (476) (2) (1,871) (LOSS) FOR THE PERIOD (826) (2,855) (2,232) Basic loss per share 3 (1.3) (20.3) (7.2) Diluted loss per share 3 (1.3) (20.3) (7.2) Adjusted profit per share 3 3.1 (0.10) 16.0 As restated As restated 30th June 2006 30th June 2005 31st Dec 2005 (Un-audited) (Un-audited) (Audited) £'000s £'000 £'000sFIXED ASSETSIntangible assets 86,455 15,098 88,724Tangible assets 18,638 6,330 18,451 105,093 21,428 107,175CURRENT ACCOUNTSStock 15,226 4,062 14,390Deferred tax asset 1,967 1,193 253Debtors 28,184 6,139 29,828Cash at bank and in hand 8,987 1,986 11,999 54,364 13,380 56,470CREDITORS:amounts falling due within one year (31,646) (18,160) (34,744) NET CURRENT ASSETS/(LIABILITIES) 22,718 (4,780) 21,726 TOTAL ASSETS LESS CURRENTLIABILITIES 127,811 16,648 128,901 CREDITORS:amounts falling due after more than one year (60,514) (6,508) (60,413) Provision For Liabilities (671) - (746)Net Assets excluding Pension Deficit 66,626 10,140 67,742 Pension Scheme Deficit 8 (36) - (806) NET ASSETS including Pension Deficit 66,590 10,140 66,936 CAPITAL AND RESERVESCalled up share capital 1,297 282 1,297Share premium account 68,773 13,643 68,773Profit and loss account (3,480) (3,785) (3,134) SHAREHOLDERS' FUNDS 66,590 10,140 66,936 6 month 6 month 12 month Note Period ended Period ended Period ended 30 June 30 June 31 December 2006 2005 2005 £'000s £'000s £'000s Net cash inflow from operating activities A 5,709 841 4,468 Returns on investment and servicing of financeInterest received 128 - 209Interest element of finance lease repayments (22) (15) (29)Interest paid on bank loans and overdrafts (1,452) (270) (2,145) Net cash outflow from returns on investmentsand servicing of finance (1,346) (285) (1,965) Taxation paid (359) - (482) Capital expenditurePurchase of tangible fixed assets (1,148) (232) (1,172)Sale of tangible fixed assets 137 22 2,059 (1,011) (210) 887 Acquisitions and disposals (1,912) (1,280) (54,849) Net cash outflow before use of liquid resourcesand financing 1,081 (934) (51,941) Financing B (1,751) 472 62,229 Decrease in cash (670) (462) 10,288 A. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES As restated As restated 6 month 6 month 12 month Period ended Period ended Period ended 30 June 30 June 31 December 2006 2005 2005 £'000s £'000s £'000s Operating profit 2,353 84 5,884Amortisation of goodwill 2,301 438 2,874Depreciation 916 399 1,164Exceptional items (excluding goodwill write-off) (255) (1,628) (4,302)(Profit)/Loss on disposal 27 (11) 475Movement in working capital:(Increase)/Decrease in stocks (836) 156 (157)Decrease in debtors 711 176 3,215(Decrease)/increase in creditors 492 1,227 (4,685) 5,709 841 4,468 B. FINANCING 6 month 6 month 12 month Period ended Period ended Period ended 30 June 30 June 31 December 2006 2005 2005 £'000s £'000s £'000s Issue of ordinary share capital - - 5,577Expenses paid in connection with share issues - - (870)Debt due beyond a year:New secured loan - 1,100 65,500Repayment of secured loan - (500) (7,690)Repayment on Revolving Credit Agreement (1,600) - -Capital element of finance leases (151) (128) (288) (1,751) 472 62,229 C. RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET DEBT (NOTE D) 6 month 6 month 12 month Period ended Period ended Period ended 30 June 30 June 31 December 2006 2005 2005 £'000s £'000s £'000s Increase/(Decrease) in cash in the period (670) (462) 10,288Cash flow from increase in debt and lease financing 1,751 (472) (57,522) Change in net debt resulting from cashflows 1,081 (934) (47,234) Loans and finance leases acquired with subsidiary - - (2,774)New finance leases (129) (133) (375) Changes in Net Debt from non-cash movementsAccrued interest on Bank Loan (828) - - Movement in net debt in the period 124 (1,067) (50,383) Net debt brought forward (59,390) (9,007) (9,007) Net debt carried forward (59,266) (10,074) (59,390) D. ANALYSIS OF changes in NET DEBT As at As at At 30 June Cash Non-cash 31 December Cash Non-cash 30 June 2005 Flow Movement 2005 Flow Movement 2006 £'000s £'000s £'000s £'000s £'000s £'000s £'000s Cash at bank and in hand 1,986 10,013 - 11,999 (3,012) - 8,987 Overdraft (1,970) (2,682) - (4,652) 2,342 - (2,310) Invoice discounting (3,419) 3,419 - - - - - (3,403) 10,750 - 7,347 (670) - 6,677 Bank loan (6,325) (57,210) (63,535) 1,600 (828) (62,763) Other loan (2774) (2,774) (2,774) Hire purchase (346) 160 (242) (428) 151 (129) (406) NOTE C (10,074) (46,300) (3,016) (59,390) 1,081 (957) (59,266) NOTES TO THE INTERIM RESULTS 1. BASIS OF PREPARATION The results for the six months ended 30th June 2006 which are unaudited, havebeen prepared in accordance with applicable accounting standards and under thehistorical cost convention. The financial information set out in this document does not comprise of thestatutory accounts of the Company within the meaning of section 240(5) of theCompanies Act 1985. Cost of share options Effective from 1st January 2006 the company implemented Financial ReportingStandard 20 - Accounting for Share Options. The share option expense has beendetermined by using the Black-Scholes option-pricing model, the most widely usedbasis of share option fair values. This model requires the use of subjectiveassumptions, which can materially affect fair value estimates. The followingassumptions were used to determine the fair value of employee share options: Risk Free interest rates 4.68% Expected volatility 35% Expected lives of options 3-4yrs 2. CASH AND LIQUID RESOURCES Cash, for the purposes of the cash flow statement, comprises cash in hand, anyoverdraft facility and deposits repayable on demand. Liquid resources are current asset investments which are disposable withoutcurtailing or disrupting the business and are either readily convertible intocash or are traded in an active market. Liquid resources comprise term depositsof less than one year. 3. EARNINGS PER ORDINARY SHARE The calculation of the loss per share is based on the loss on ordinaryactivities for the six month period ended 30th June 2006 of £826,000 (2005 -£2,855,000) and the weighted average number of ordinary shares in issue duringthe period of 64,866,749 (2005 - 14,093,467). As the group incurred a loss there is no difference between the basic loss pershare and the diluted loss per share. The calculation of adjusted earnings per share is based on adjusted profits of£2,029,000 (2005 - adjusted loss of £11,125) being the loss after taxation of£826,000 (2005 - £2,855,000) but before goodwill amortisation of £2,301,000(2005 - £438,000), exceptional items of £753,000 (2005 - £2,405,875) and netfinance income relating to FRS 17 of £199,000 (2005 - £Nil) and on the weightedaverage number of shares in issue of 64,866,749 (2005 - 14,093,467). Theadjusted earnings per share figure is included because, in the opinion of thedirectors, it provides a better understanding of the underlying tradingperformance of the group. 4. DIVIDENDS No dividend is proposed for the six months ended 30th June 2006 (June 2005 -£Nil; December 2005 £Nil). 5. MAJOR NON-CASH TRANSACTIONS During the period the group entered into new finance lease arrangements inrespect of assets with a total capital value at the inception of the lease of£129,000. (June 2005 - £133,000; December 2005 £375,000). 6. TAXATION The charge for taxation is based on the results for the period and takes intoaccount taxation deferred because of timing differences between the treatment ofcertain items for taxation and accounting purposes. Provision is made in full for taxation deferred in respect of timing differencesthat have originated but not reversed by the balance sheet date, except forgains on disposal of fixed assets which will be rolled over into replacementassets. No provision is made for taxation on permanent differences. Deferredtax is not discounted. Deferred tax assets are recognised to the extent that it is more likely than notthat they will be recovered. 7. EXCEPTIONAL COSTS 6 month 6 month 12 month Period ended Period ended Period ended 30 June 30 June 31 December 2006 2005 2005Exceptional costs*:- Reorganisation costs 753 874 3,277Termination of an operation - 1,532 1,025 753 2,406 4,302Other exceptional costs andamortisation**:- Amortisation - 438 2,874Redundancy costs - 12 -Abortive acquisitions - 304 274 - 754 3,148 * Costs in respect of reorganisation costs and on the termination of anoperation have been classified as exceptional costs in accordance with FRS 3 'Reporting Financial Performance'. As such these costs have been shown separatelyas exceptional items on the face of the profit and loss account after operatingprofit/(loss) and before interest. These costs have been partly allowed fortaxation purposes which has resulted in an overall reduction of the tax chargeof £225,900. (June 2005 £339,000) ** In the opinion of the directors the abortive acquisition costs wereexceptional due to their size and nature. However, they did not fall into thecategory of exceptional items to be disclosed on the face of the profit and lossaccount as described under FRS 3 'Reporting Financial Performance'. These costswere therefore been included within administration costs in accordance with FRS3 'Reporting Financial Performance'. 8. PENSION ARRANGEMENTS A subsidiary of the Group, Napier Brown Foods Limited operates a defined benefitpension scheme, The Napier Brown retirement Benefits scheme. The assets of thescheme are held separately from those of the Group in an independentlyadministered fund. The contributions made by the employer over the six monthperiod have been £87,500. This contribution rate of £175,000 per annum is tocontinue until reviewed following the triennial valuation of the scheme due asat 1st April 2006. The last full actuarial valuation of this scheme was carried out by anindependent qualified actuary as at 1st April 2003, and was updated on anapproximate basis to 31st August 2005, 31st December 2005 and 30th June 2006. The scheme is a closed scheme and therefore under the projected unit method thecurrent service cost would be expected to increase as the members of the schemeapproach retirement. Assumptions The assets of the scheme have been taken at market value and the liabilitieshave been calculated using the following principal actuarial assumptions: 30 June 2006 31 December 2005 % per annum % per annumInflation 3.10 2.85Discount rate 5.20 4.75Pension in payment increases 3.00 3.00Revaluation rate for deferred pensions 3.10 2.85 The fair value of the assets in the scheme, the present value of the liabilitiesin the scheme and the expected rate of return at each balance sheet date were: Expected long term rate of return 30 June 2006 31 December 2005 % %Equities 8.5 8.5Bonds 4.5 4.5Cash 4.0 4.0 Fair value of assets and present value of liabilities 30 June 2006 31 December 2005 £'000s £'000sTotal fair value of assets 16,422 16,079Present value of scheme liabilities (16,473) (17,230)Deficit in the scheme (51) (1,151)Related deferred tax asset 15 345 (36) (806) Net Finance charge 30 June 2006 31 December 2005 £'000s £'000sInterest on Pension scheme liabilities (406) (340)Expected return on pension scheme assets 605 265 199 75 9. DIVISIONAL INFORMATION Head Bakery Bakery Fish Sugar Consolidation Total Office Ingredients Adjustments Turnover - 8,234 13,767 14,024 81,063 (3,716) 113,372 Cost of sales - (6,329) (10,902) (11,229) (73,064) 3,706 (97,818) Gross Profit - 1,905 2,865 2,795 7,999 (10) 15,554 Distribution costs - (168) (763) (383) (2,733) - (4,047)Administration costs (680) (1,704) (1,454) (613) (2,451) 49 (6,853) Normalised Profit / (680) 33 648 1,799 2,815 39 4,654(loss) Goodwill amortisation (2,301)Exceptional costs (753) Earnings before interest& Tax 1,600 Interest (2,149)Net finance income 199 Tax (476) (Loss) after Tax (826) 10. PRIOR YEAR ADJUSTMENT The financial statements have been prepared in accordance with FinancialReporting Standard 20 (FRS 20) "Share Based Payments", FRS 25 "FinancialInstruments: disclosure and presentation" and FRS 26 "Financial Instruments:recognition and measurement". This represents a change in the groups accountingpolicy and therefore a prior year adjustment has been made in accordance withFRS 3 "Reporting Financial Performance". The adjustments to the comparative figures for the six months ended 30 June 2005are were follows: Financial Reporting Standard Effect on retained profit Effect on net assets Increase/(decrease) Increase/(decrease) £ £ Financial Reporting Standard 20 (8,717) (8,717)Financial Reporting Standard 25 and 26 (153,408) (153,408) The adjustments to the comparative figures for the year ended 31 December 2005are as follows: Financial Reporting Standard Effect on retained profit Effect on net assets Increase/(decrease) Increase/(decrease) £ £ Financial Reporting Standard 20 (17,433) (17,433)Financial Reporting Standard 25 and 26 21,764 21,764 11. ENQUIRIES Pieter Totte/John Gibson/Lee Camfield The Real Good Food Company Plc(DEL::DEL) International House 1 St Katharines' Way London E1W 1XB 020 7335 2500(DEL::DEL) (DEL::DEL) This information is provided by RNS The company news service from the London Stock Exchange