RGD.L Regulatory News (RGD)

9 Jun 2009 07:00



The Real Good Food Company plc

Preliminary results for the year ended 31 December 2008

The Real Good Food Company plc ("the Group"), the sugars, ingredients and bakery company, today announces Preliminary Results for the year ended 31 December 2008

Highlights 

> Competitive market conditions continued to affect core Sugar Division 

> Improved sales in Bakery Ingredients and Bakery Divisions

> Total Group sales from continuing operations down 5.4% to £218.7m (2007: £231.1m)

> Profit before taxation and significant items of £0.89m (2007: £3.97m) 

> Significant exceptional costs of £1.96m relating to re-financing and business reorganisation 

> Continuing operations loss before taxation of £421,000 (2007: profit of £3.45m) 

> Loss per share (basic and diluted) of 1.7p (2007: earnings per share of 8.9p)

Pieter Totté, Chairman of The Real Good Food Company plc, comments:

"During the course of 2008, we continued to experience very difficult trading conditions, which deteriorated more significantly in the final quarter. Margins were continually under pressure from raw materials, fuel inflation and a very competitive market place.

"The Board looks forward to the rest of the year, and anticipates the benefits of its restructuring programme and low interest rate charges to deliver a result, which we anticipate will be reflected in an improved financial performance over the prior year."

9 June 2009 

ENQUIRIES:

  CHAIRMAN'S STATEMENT

Overview

During the course of 2008, we continued to experience very difficult trading conditions, which deteriorated more significantly in the final quarter. Margins were continually under pressure from raw materials, fuel inflation and a very competitive market place.

Total Group sales for the period fell by 5.4% to £219m, principally due to a 7% fall in revenues in our Sugar Division. By contrast, sales in our Bakery Ingredients Division rose by 9.2% to £35.0m, while we also achieved a marginal increase in revenue at our Bakery Division.

Our Sugar Division has continued to operate in a very competitive market, which is mostly due to the uncertainty created as the EU sugar regime undergoes reform. The commission has now confirmed that a total 5.65 million tonnes of sugar has been renounced out of the 6.0 million tonne target.

It is anticipated that there will be a small surplus in 2009 leading into the second reference price change in October 2009. We do, however, expect the market to be in equilibrium in fourth quarter of 2009 and possibly in deficit until the new importing regions are able to meet the demand. In theory, this should lead to an improvement in operating margins going forward. 

Board Change 

We have announced today that Lee Camfield has resigned from his position as Chief Financial Officer and will leave the Group in late summer in order to take up a role as Chief Operating Officer of a large privately-owned food group. On behalf of the Board, I would like to thank Lee for his commitment over the past five years and to welcome to the Board Mike McDonough, current Commercial Finance Director, who is appointed Group Finance Director, with effect from today.

Outlook

In January, following the conclusion of our strategic review, we decided to develop the two principal pillars of the group by consolidating the Renshaw and Napier Brown Foods businesses into one focused ingredients business. The new business will look to build and drive value from a broader portfolio of both raw and value added ingredients. I am pleased to say, the development of this new business is progressing in line with our plans and expectations, and we are beginning to see the benefits that we envisaged during the strategic review.

Whilst trading in this new division at the start of the year has been below that of the prior year, this to a degree was anticipated due to the current economic climate and, indeed, the division has been trading in line with our expectations for 2009, which is encouraging.

Sales in the Bakery Division are benefiting from our expansion into food service, which has seen an improvement in profitability over the prior year.

The Board anticipates that the benefits of its restructuring programme and lower interest rate charges during this financial year should be reflected in an improved financial performance over the prior year.

PIETER Totté

Chairman

9 June 2009

 OPERATIonal REVIEW

Reorganisation

As the Chairman has outlined in his statement, the past year has proved extremely challenging as we have faced pressure on margins through the competitive European sugar market, as well as the impact of raw material prices in our Bakery Ingredients and Bakery divisions.

Our response to the challenge of these difficult trading conditions has been to implement a reorganisation of the business, as indicated in our pre-close statement in December 2008 and confirmed on 13 January 2009. Following a strategic review, we have combined our Napier Brown Foods (sugar) and Renshaw (bakery ingredients) businesses into a single unit, Renshawnapier, which is based in Liverpool.

This new business unit is focused on building and driving value from a broader portfolio of both raw and value-added ingredients, and is run by a single management team in multiple channels and product sectors, giving added flexibility to deliver and meet the challenges ahead. 

Costs of this reorganisation are one of the significant exceptional costs reported in these results, but the results of the reorganisation are expected to be cash neutral during the current financial year, and thereafter to produce annualised cost savings in the region of £0.8m.

We now have two operating divisions: Ingredients (Renshawnapier) and Bakery. Renshawnapier is the UK's largest independent non-refining distributor of sugar, supplying customers throughout the industrial, retail and food service industry. It is a supplier of premium quality ingredients to the food industry and a leading manufacturer of marzipans, ready-to-roll icings, baking chocolate and jam for major cake manufacturers, high street bakers and retailers.

The separately-managed Bakery Division comprises Haydens Bakeries and Seriously Scrumptious, which produce chilled and ambient premium patisserie and dessert products for supply to retail grocery customers.

These result are therefore the last time that we will be reporting under the previous structure of three business divisions.  

Sugar Division

Napier Brown Foods supplies a range of sugar and dry ingredients to food manufacturers and packs sugar for retail grocery and foodservice customers from its facilities at Normanton, near Leeds.

¹ Including inter-company trading.

² Normalised operating profit before significant items and central costs.

Overall revenues in 2008 were down 7% on the prior year, primarily due to reduced sales in the industrial sector, which reflected reduced consumer spending and the impact of currency movements. Margins reduced by 1.4 points as a consequence of the competitive nature of the retail market.

Following two years of margin decline in the Industrial sector pre-regime changes, we are now seeing further evidence of improvement. Whilst the signs to date remain positive, we do not anticipate that the margins will improve to the levels prior to the announcements relating to regime changes.

Our blends operation has successfully integrated the new business secured in the early part of the year, with operating margins improving due to purchasing activity and some small price increases. Dairy trading proves resilient with both volume and margin in line with expectations despite the difficult market conditions.

Bakery Ingredients Division

Renshaw supplies a range of high quality food ingredients primarily to the bakery sector, comprising craft bakers and major cake manufacturers and also to grocery retailers. It operates two facilities, one in Liverpool and the other in Carluke, south-east of Glasgow.

¹ Including inter-company trading.

² Normalised operating profit before significant items and central costs.

Revenues in the year were up 9.2% on the prior year, reflecting growth in the retail sector, as the trend towards home baking continued and we secured additional retail listings. 

Compound sales in the second half recovered, with overall volume up 7.6% Margins were slightly down on the year, however, due to material price inflation during the prior year and the delay in implementing a number of price increases.

Customer Service in the year improved significantly on the prior year, reflecting the reorganisation and refocusing of the supply chain at the end of 2007. Whilst operational efficiency improved marginally, actual labour costs improved, particularly in Carluke. 

During the busy seasonal campaign, the Liverpool factory successfully made the transition to dual shift working to supply customer service initiatives and facilitate retail ordering patterns, which were skewed towards the year end.

Bakery Division

Hayden's Bakeries produces chilled and ambient premium patisserie and dessert products to retail grocery customers. It operates from a site in Devizes, Wiltshire.

¹ Including inter-company trading.

² Normalised operating profit before significant items and central costs.

Overall, this was a very poor year for our Bakery Division, which provided many challenges that we did not resolve to our satisfaction. Revenues were marginally ahead of the prior year, but profitability was well behind management expectations.

Material inflation continued to erode margins as we were unable to recover these through price increases. In line with our strategy to diversify our customer profile, we entered the Food service arena incurring some significant one off costs and operational issues further diluting margins on the new lines.

A number of steps were taken to address these issues and as a consequence, margins have now stabilised and the business is now making a positive contribution to the Group.

STEPHEN HESLOP

Chief Executive

9 June 2009

FINANCIAL REVIEW

Revenue

Group revenue from continuing operations showed a decline of 5.4% to £218.7m (2007: £231.1m), largely reflecting a fall in revenues within our Sugar Division during the year. Sugar Division revenues were 7% behind the prior year reflecting reduced industrial sales, especially within the first half of the year and falling sugar prices relating to the sugar regime changes, these price reductions were partially offset by the stronger Euro which increased both revenue and cost of sales equally. 

Revenue at our Bakery Ingredients Division was 9.8% up on the prior year aided by both increasing sales prices and volumes which were 7% up on 2007. Sales volumes were aided by increased retail sales and higher intercompany sales of icing sugar.

Haydens Bakeries delivered a 0.7% increase in revenue in the year, boosted by new sales into the Foodservice sector in the last four months of the year. 

Margins

The reduction in continuing operations gross profit margin, before significant items, to 11.4% (2007: 12.8%) reflects the difficult trading conditions experienced across all three operating Divisions in 2008, where price increases and cost reduction initiatives have been unable to offset rising input costs. Margins were further hindered by one-off launch costs within our Bakery Division, associated with its expansion into the Foodservice sector.

Profit before tax and interest

Whilst combined distribution and administration costs reduced versus the prior year, the reductions were insufficient to avoid the reduction in gross profit margins from impacting the Group's operating profit where margins reduced to 1.6% (2007: 3.2%).

Financing costs

Continuing operations net finance costs, pre significant items and other finance income, for the year totalled £3.0m (2007: £3.7m) benefiting from the reduced debt of the Group following the disposal of Five Star Fish in June 2007, reducing market interest rates during the second half of 2008 and from our new financing arrangement from the middle of 2008, where the applicable interest rates are computed from base rates rather than LIBOR. 

The Group has previously entered into a number of interest rate swap deals to reduce its interest rate exposure. Under international accounting standards the Group has provided for a fair value charge in relation to these swaps of £613,000 (2007: gain of £22,000). 

Significant Items

During the year the Group incurred costs in relation to a number of significant items. The re-financing of the Group in the summer incurred break costs with our previous lender and the release of prepaid loan arrangement fees, in all totalling £0.8m; the merger of the Sugar and Bakery Ingredients divisions into Renshawnapier combined with earlier restructuring costs against a number of the Group operations totalled £0.9m, whilst £0.2m has been set aside as an increase in an onerous lease provision as we have been unable to sub-let the property.

  Cash Flow and Debt

The Group's total net debt as at 31 December was £31.5m (2007: £25.9m). The 2007 net debt is flattered by the deferred tax payment of £2.6m held on deposit relating to the sale of 5 Star Fish in the previous year, which was subsequently paid during the first half of 2008. 

The Group's borrowing facilities with KBC Business Capital comprise £37.9m of total facilities, of which £29.8m was utilised as at 31 December 2008, at a blended average cost of 2.78% over base rate. During the early part of the year the Group restructured part of its borrowings with its original lenders. This, combined with the re-financing with KBC Business Capital in July 2008, has resulted in our cashflow reflecting loan repayments of £51.8m and loan advances of £49.4m.

Reflecting the current economic climate, the Group has recently completed resetting its covenant levels with its bankers to provide a greater degree of headroom. 

Pensions

The subsidiaries of the Group, Napier Brown Foods Limited and Napier Brown and Company Limited, operate a defined benefit pension scheme. The scheme is closed to new members. The IAS 19 valuation of the scheme at the year end identified a £0.3m deficit, a deterioration of £2.0m on the prior year. During the year the Group contributed £95,000 (2007: £127,000) to the scheme.

Financial Reporting Review Panel

During 2008, the Financial Reporting Review Panel, in line with its policy to review the accounts of public and large private companies for compliance with the law and accounting standards, selected the Group's accounts for review. Following correspondence with the panel and the undertaking to incorporate some additional disclosures in our annual report, the panel have indicated that no amendments are required to our annual report which was issued last year.

LEE CAMFIELD

Chief Financial Officer

9 June 2009

CONSOLIDATED INCOME STATEMENT 

for the year ended 31 December 2008

  CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

for the year ended 31 December 2008

year ended 31 December 2008

These financial statements were approved by the Board of Directors and authorised for issue on 

9 June 2009. They were signed on its behalf by:

  CONSOLIDATED CASH FLOW STATEMENT

year ended 31 December 2008

  NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2008

1. PRESENTATION OF FINANCIAL STATEMENTS

General Information

The Real Good Food Company plc is a public limited company incorporated in the United Kingdom under the Companies Act 1985 (registered number 4666282). The Company is domiciled in the United Kingdom and its registered address is 229 Crown Street, Liverpool, Merseyside, L8 7RF. The Company's shares are traded on the Alternative Investment Market (AIM).

The principal activities of the Group are the sourcing, manufacture and distribution of food to the retail and industrial sectors.

Basis of preparation

These consolidated financial statements are presented on the basis of International Financial Reporting Standards (IFRS) as adopted by the European Union and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) and have been prepared in accordance with AIM rules and the Companies Act 1985, as applicable to companies reporting under IFRS.

These consolidated financial statements have been prepared in accordance with the accounting policies set out in Note 2 and under the historical cost convention, except where modified by the revaluation of certain financial instruments and commodities.

2. SIGNIFICANT ITEMS

During the year the Group incurred a number of significant items as detailed above. The management restructuring costs reflect a number of fundamental reorganisations within our operating divisions during the year, including the formation of Renshawnapier, the restructuring of the night shift operations at our Bakery Division along with a number of other material changes to the operations of the Divisions. 

The Group also incurred costs associated with the re-financing during the summer including bank break costs and the release of the associated prepaid loan arrangement fees.

The onerous lease provision relates to a vacant property that the Group has been unable to re-lease.

The write back of accrued interest relates to an outstanding loan note.

3. TAXATION

4. BORROWINGS

  Features of the Group's borrowings are as follows:

The Group's financial instruments comprise cash, a term loan, hire purchase and finance leases, revolving credit facility, overdraft 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 main risks from the Group's financial instruments are interest rate risk and liquidity risk. The Group also has some currency exposure in relation to its sugar trade but the majority of this risk is hedged, and also some currency exposure in relation to the purchase of Almonds from the United States, however this is mitigated by the use of forward exchange contracts. The Board reviews and agrees policies, which have remained substantially unchanged for the year under review, for managing these risks.

5. SEGMENT REPORTING

Business segments

The Group has adopted IFRS 8 'Operating segments' in advance of its effective date, with effect from 1 January 2006. IFRS 8 requires that operating segments be identified on the basis of internal reporting and decision-making. The Group's operating segments are Sugar, Bakery Ingredients and Bakery as the Group's management and reporting structure is set out along these lines.

The following table shows the Group's revenue and results for the year under review analysed by operating segment. Segment profit represents the trading profit after depreciation but before any interest and significant items. 

Inter-segment sales are charged at prevailing market rates. 

The Group operates a central function, finance costs cannot be meaningfully allocated to individual operating segments.

6. DISTRIBUTION OF THE ANNUAL REPORT AND ACCOUNTS TO SHAREHOLDERS

The announcement set out above does not constitute a full financial statement of the company's affairs for the year ended 31 December 2008. The company's auditors have reported on the full accounts of the said years and have accompanied them with an unqualified report. The accounts have yet to be delivered to the Registrar of Companies.

The annual report and accounts will be posted to all shareholders of the Company, and will be available on our web site www.realgoodfoodplc.com and for inspection by the public at the registered office of the Company during normal business hours on any weekday. Further copies will be available on request from The Real Good Food Company plc, 229 Crown Street, Liverpool L8 7RF