Final Results

Real Good Food Company Plc (The) 08 April 2008 The Real Good Food Company Plc ('the Group') Final Results 2007 The Real Good Food Company plc, the sugars, ingredients and bakery company, today announces its Final Results for the year ended 31 December 2007. Highlights > Group sales from continuing operations increased to £231.1m (2006: £221.7m) > Total Group operating Profit before taxation and significant items of £9.6m (2006: £13.3m) > The sale of Five Star Fish was completed for a total consideration of £35.8m > Continuing operations (before significant items) basic and diluted profit per share 4.5p (2006: 6.4p) > Net debt levels have reduced to £25.9m (2006: £56.6m) Commenting on the results, Pieter Totte, Chairman of The Real Good Food, said: 'The past year has been a active one for the Group and a period which has seen much change. Five Star Fish was sold in July for £35.8 million whilst a great deal of management time and some modest cash investment has been made to improve the operational performance and competitive profile of our continuing businesses. 'The current year has started with the Group trading in line with the revised budget expectations produced at the end of 2007. Market challenges remain heightened by uncertainties in commodity, credit and consumer markets. The management's focus will remain on improved operational efficiency, inventory management, customer service and product innovation. For the full year the Board expects the Group to report stable profitability from continuing operations as raw material cost pressures are mitigated by the benefits accrued from both the efficiency improvement and cost recovery programmes initiated in 2007.' Enquiries: The Real Good Food Company plc Tel: 020 7335 2500 Stephen Heslop Chief Executive Lee Camfield Finance Director Shore Capital Tel: 020 7408 4090 Guy Peters College Hill Tel: 020 7822 0200 Anthony Parker Gareth David CHAIRMAN'S STATEMENT Introduction and Overview The past year has been an active one for the Group and a period which has seen much change. Five Star Fish was sold in July for £35.8 million whilst a great deal of management time and some modest cash investment has been made to improve the operational performance and competitive profile of our continuing businesses. The Group produced turnover of £246.1m (2006: £250.8m) whilst operating profit, before significant items, for the year amounted to £9.6m (2006: £13.3m) following the disposal of Five Star Fish. As always, there was pressure from other suppliers seeking additional market share and from customers seeking competitive prices. In addition, 2007 saw some major increases in the price of energy and commodities, both of which present challenges for the supply chains in which all of our divisions operate. However, we have continued to operate profitably and to produce positive operational cash flows. In July the Board appointed Stephen Heslop to be the Group's Managing Director, in succession to John Gibson, with day to day responsibility transferring in late September. Stephen has initiated a strategic review of the business, and this is expected to bring about further changes to the Group's operational activities, strategic focus and business culture. The Real Good Food Company was established with an entrepreneurial spirit at its heart, alongside a solid understanding of commercial realities. These values still hold true today. However, as time passes, our Group and its markets have changed. Five Star Fish, for example, had grown and matured to a size and scale where the Board was finding it increasingly difficult to find the next significant strategic step for its development. At the same time, the regulatory environment and structures of the European fish market were shifting, which was introducing uncertainty as to the future. Hence, a decision was taken to sell the business at a book profit. Whilst this has led to a significant reduction in terms of the Group's operating profitability, our net debt has been materially reduced; our corresponding interest bill has fallen, while our level of gearing is now less than 40%. Looking at the structure of the Group today, it is clear that, in terms of both revenue and profits, our Sugar Division has now become even more dominant. When we purchased Napier Brown in 2005 we were aware that both the structure of the Group's composition would be changed and also that regulatory change was underway in the European sugar market. After a slow initial response on the part of European sugar producers to provide voluntary cuts in production quotas, the EU Commission considerably revamped its restructuring scheme and has subsequently been able to announce that an additional 2.5 million tonnes of sugar quota has been relinquished from 2008-09. This brings the total of sugar quota permanently renounced so far, to close to 4.5 million tonnes (of the Commission's initial target of 6 million tonnes). The Commission, whilst being delighted by the recent cut backs, has taken the opportunity to remind European sugar producers that the market is still over 1 million tonnes short of the target reduction and an announcement regarding further renouncements made by the 31st March 2008 is expected from the Commission soon. Should there be no further quota renunciation then the Commission has announced in a revised timetable; that in February 2010 a unilateral permanent quota, without compensation, will be introduced across all member states to make up any outstanding shortfall. Therefore, there appears to be some ground for optimism that the structural surplus, that has been overhanging the market in recent years, is diminishing. With demand for sugar in the EU expected to remain stable at approximately 16 million tonnes, the end of the restructuring period (Q4 2010), should see some 3.5 to 4.0 million tonnes of cane sugar begin to be imported into the EU, either for refining or for direct consumption. Unless preferential suppliers in the Least Developed Countries (LDC) and African, Caribbean and Pacific Countries (ACP), can significantly increase their output of refined sugar, it seems likely that more refining capacity will be required in the EU and to that end, in the past year industry plans to build two new cane refineries have been announced with a combined capacity of 700,000 tonnes. A number of beet processors have also indicated that they will be processing cane sugar through their beet plants during the closed season. The Group's Sugar Division is the UK's third largest trader in sugars and operates within many niche areas. It is with this in mind that we are already seeking to position the Group to its best advantage so as to maximise the opportunities arising from the sugar market's structural changes. The Board therefore expects that, during the next 18 months, the Group will announce further important initiatives, which will help position the Sugar Division to take full advantage of future opportunities. Achieving success in this activity is the most important task confronting the Board in 2008 and beyond. Outlook The current year has started with the Group trading in line with the revised budget expectations produced at the end of 2007. Market challenges remain heightened by uncertainties in commodity, credit and consumer markets. The management's focus will remain on improved operational efficiency, inventory management, customer service, product innovation and tight cash management. For the full year the Board expects the Group to report stable profit before tax from continuing operations as raw material cost pressures are mitigated by the benefits accrued from both the efficiency improvement and cost recovery programmes initiated in 2007. P W Totte Chairman April 2008 OPERATING DIVISION REVIEWS Sugar Division Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s Revenue(1) 190,084 180,053 Operating profit(2) 6,390 7,368 Operating profit % 3.4 4.1 (1) Including inter-company trading. (2) Normalised operating profit before significant items and central costs. Napier Brown Foods supplies a range of sugar and dry ingredients to food manufacturers and packs sugar for retail grocery and foodservice customers from its facilities at Normanton, near Leeds. Overall revenues were ahead of last year by almost 6%, although behind our original expectations due to a more competitive market in the second half of the year. Revenue growth was principally driven by strong retail volumes and higher industrial sales in the first half of the year. As a consequence of less favourable market conditions in the second half, the volume gains from the early part of the year were not repeated. Operating efficiencies in the factory continued to improve throughout the year resulting in an improved overhead position. Work continues with further commissioning of another high speed packing line which will create additional capacity and operational benefits. During the year we were able to extend our sourcing arrangements for special sugars as we continue to offer the broadest range of materials. Distribution costs during the year were adversely affected by a number of factors. The key drivers being increased fuel costs, international freight and longer journeys in relation to local sourcing arrangements. A number of management changes are currently underway to further strengthen the team going forward. Bakery Ingredients Division Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s Revenue(1) 31,920 33,183 Operating profit(2) 2,350 3,092 Operating profit % 7.4 9.3 (1) Including inter-company trading. (2) Normalised operating profit before significant items and central costs. Renshaw supplies a range of high quality food ingredients primarily to 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. Revenues in the year were in line on a like for like basis, having been adjusted for the discontinued nut activity and £395k of non recurring income in relation to a Supply Agreement. Gross margins were steady despite significant raw material price inflation as operational performance improved during the year. Overheads increased year on year reflecting the full year effect of the new management team, technical support and additional marketing support in our core areas. Reflecting consumer trends the business has developed our full range of products in non-hydrogenated variants. Plans to further advance performance are now established and we are well positioned to maximise new business opportunities, which include a new range of syrups for consumption in coffee shops and new business lines being developed with Marks & Spencer. Bakery Division Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s Revenue(1) 18,217 17,174 Operating profit(2) 71 68 Operating profit % 0.4 0.4 (1) Including inter-company trading. (2) Normalised operating profit before significant items and central costs. Hayden's Bakeries produces chilled and ambient premium patisserie and dessert products to retail grocery customers. It operates from a site in Devizes, Wiltshire. The business continued to see strong revenue growth in the year of 6% driven by good progress in the chilled desserts sector. Overall gross margins were diluted as a consequence of higher raw material costs and the introduction of revised trading terms in the first quarter. Overheads were in line with the previous year and as a result of these factors profitability remained flat in the period. The second frying line was successfully commissioned in the late summer which has allowed us to reduce premium working in this area. Following the business review, announced in the Group's pre-close statement in December, a number of initiatives to improve factory efficiency and reduce cost have been identified; these will be progressed and are expected to improve gross margins in the second half of 2008. Fish Division Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s Revenue(1) 14,962 29,075 Operating profit(2) 2,158 4,011 Operating profit % 14.4 13.8 (1) Including inter-company trading. (2) Normalised operating profit before significant items and central costs. The sale of Five Star Fish was completed on 12 June 2007 for a gross consideration of £35.8m. Tax charges on the disposal were £6.2m. At the time of the disposal revenue was ahead of the previous year, due to the combination of raw material price inflation being passed on in price increases to customers and improvements in sales volumes. FINANCE DIRECTOR'S REPORT Revenue Group revenue from continuing operations was up 4.2% to £231.1m, primarily reflecting, as already reported, increased industrial revenue within our Sugar Division, where revenue was 5.6% ahead of the prior year. Revenue within our Bakery Ingredients Division was 3.8% behind 2006, although once adjusted for discontinued nut activity and a non-recurring revenue item, relating to our supply agreement in 2006, revenue was in line with the prior year. At our Bakery Division revenue increased by 6.1%, a fourth successive year of growth driven by organic growth with our primary customers and a number of new product launches. Margins Continuing operations gross profit margins of 12.8% (2006: 13.1%) largely reflect increased sales of low margin business within our Sugar Division and delays in recovering raw material cost inflation from our customer base within our Bakery Ingredients and Bakery Divisions. Profit before tax Group operating margins for continuing operations (before significant items) reduced by one percentage point to 3.2%, driven by; the lower margin business; increased distribution costs reflecting fuel increases and longer journeys; and investment within the Bakery Ingredients Division in the management team, marketing support and technical teams. Resultant Profit before tax was £4.0m (2006: £5.6m). Discontinued Operations In the early part of 2007 the Group agreed to sell the trade and assets of its Fish Division, Five Star Fish, for a gross consideration of £35.0m, subsequently increased to £35.8m upon finalisation of the completion balance sheet. Tax charges arising as a result of the disposal amount to £6.2m. The division achieved £2.1m operating profit before tax, whilst the sale generated a profit on disposal of £1.9m after tax. Significant Items During the year the Group incurred continuing operations significant items charges of £0.5m. These largely relate to payments to the Group's former Group Managing Director for his loss of office and further restructuring charges relating to the re-organisation of the divisional executive teams. As already mentioned the Group disposed of its Fish Division, Five Star Fish during the first half of the year. The profit on disposal was: £Ms Disposal proceeds 35.8 Net assets sold (10.5) Goodwill sold (15.5) Costs (1.7) Pre tax profit on disposal 8.1 Tax on disposal (6.2) Net profit on disposal 1.9 Cash Flow and Debt Net debt at the year end was £25.9m a reduction of £30.7m from the position at the end of 2006. The majority of the reduction in debt is attributable to the disposal proceeds of the sale of Five Star Fish. It should be noted that of the tax relating to the disposal, £2.6m will be paid in the first half of 2008. Pensions The subsidiaries of the Group, Napier Brown Foods Limited and Napier Brown and Company Limited, operate a defined benefit pension scheme. The scheme is closed with benefits no longer accruing. The IAS 19 valuation of the scheme at the year end identified a £1.8m surplus, an improvement of £3.0m on the prior year. During the year the Group contributed £127k to the scheme. CONSOLIDATED INCOME STATEMENT YEAR ENDED 31 DECEMBER 2007 Notes Year ended 31 December 2007 Year Ended 31 December 2006 Before Significant Before Significant Significant Items Significant Items Items (Note 2) Total Items (Note 2) Total CONTINUING OPERATIONS £'000s £'000s £'000s £'000s £'000s £'000s REVENUE 231,144 - 231,144 221,736 - 221,736 Cost of sales (201,508) - (201,508) (192,659) (243) (192,902) GROSS PROFIT 29,636 - 29,636 29,077 (243) 28,834 Distribution costs (10,367) (10,367) (8,052) (8,052) Administration expenses (11,829) (523) (12,352) (11,714) (858) (12,572) OPERATING PROFIT 7,440 (523) 6,917 9,311 (1,101) 8,210 Finance income 500 - 500 284 - 284 Finance costs (4,151) - (4,151) (4,358) - (4,358) Other finance income 184 - 184 372 - 372 PROFIT/(LOSS) BEFORE TAXATION 3,973 (523) 3,450 5,609 (1,101) 4,508 Income tax expense 3 (1,047) 157 (890) (1,489) 292 (1,197) PROFIT/(LOSS) FROM CONTINUING OPERATIONS 2,926 (366) 2,560 4,120 (809) 3,311 DISCONTINUED OPERATIONS REVENUE 14,962 - 14,962 29,075 - 29,075 Operating expenses (12,803) - (12,803) (25,064) - (25,064) OPERATING PROFIT 2,159 - 2,159 4,011 - 4,011 Finance costs (96) (96) (209) - (209) Profit on sale of division - 8,070 8,070 - - - PROFIT/(LOSS) BEFORE TAXATION 2,063 8,070 10,133 3,802 - 3,802 - Income tax expense 3 (690) (6,210) (6,900) (1,082) - (1,082) PROFIT FROM DISCONTINUED OPERATIONS 1,373 1,860 3,233 2,720 - 2,720 PROFIT FOR THE YEAR 4,299 1,494 5,793 6,840 (809) 6,031 Basic and diluted profit per share 8.9p 9.3p Adjusted profit per share 6.6p 10.5p Continuing operations basic and diluted profit per share 4.5p 6.4p Discontinued operations basic and diluted profit per share 2.1p 5.0p 4.2p 4.2p CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 Issued Share Share Premium Share Option Retained Capital Account Reserve earnings Total £'000s £'000s £'000s £'000s £'000s Balance as at 1 January 2006 1,297 68,773 34 (3,062) 67,042 Shares options to be issued - - 19 - 19 Profit for the year - - - 6,031 6,031 Actuarial loss related to pension - - - (620) (620) scheme Deferred tax attributable to actuarial loss - - - 186 186 Total recognised income and expense for the year - - 19 5,597 5,616 Balance as at 31 December 2006 1,297 68,773 53 2,535 72,658 Balance as at 1 January 2007 1,297 68,773 53 2,535 72,658 Shares options to be issued - - 20 - 20 Share options exercised in year 3 97 (7) - 93 Profit for the year - - - 5,793 5,793 Actuarial gain related to pension scheme - - - 911 911 Deferred tax attributable to actuarial gain - - - (274) (274) Total recognised income and expense for the year 3 97 13 6,430 6,543 Balance as at 31 December 2007 1,300 68,870 66 8,965 79,201 CONSOLIDATED BALANCE SHEET 31 DECEMBER 2007 Year ended Year ended 31 December 31 December 2007 2006 Notes £'000s £'000s NON CURRENT ASSETS Goodwill 75,796 90,611 Other intangible assets 547 532 Property, plant and equipment 16,721 18,186 93,064 109,329 CURRENT ASSETS Inventories 9,353 14,685 Trade and other receivables 24,784 29,224 Derived financial instruments 4 113 63 Cash and cash equivalents 13,780 12,412 48,030 56,384 TOTAL ASSETS 141,094 165,713 CURRENT LIABILITIES Trade and other payables 17,289 20,221 Borrowings 22,479 10,235 Derived financial instruments 4 81 18 Current tax liabilities 4 3,615 628 43,464 31,102 NON CURRENT LIABILITIES Borrowings 4 17,161 59,207 Deferred tax liabilities 912 1,124 Provisions 356 766 Retirement benefit obligations - 856 18,429 61,953 TOTAL LIABILITIES 61,893 93,055 NET ASSETS 79,201 72,658 EQUITY Share capital 1,300 1,297 Share premium account 68,870 68,773 Share option reserve 66 53 Retained earnings 8,965 2,535 TOTAL EQUITY 79,201 72,658 These financial statements were approved by the Board of Directors and authorised for issue on 3 April 2008. They were signed on its behalf by: P W Totte L M Camfield Chairman Director CONSOLIDATED CASH FLOW STATEMENT YEAR ENDED 31 DECEMBER 2007 Year ended Year ended 31 December 2007 31 December 2006 £'000s £'000s CASH FLOW FROM OPERATING ACTIVITIES Adjusted for: Profit before taxation 13,583 8,310 Finance costs 4,247 4,567 Finance income (500) (284) IAS 19 income (184) (372) Depreciation of property, plant & equipment 1,645 1,834 Amortisation of intangibles 148 91 (Profit)/Loss on disposal of fixed assets - (175) Share based payment expense 13 19 Gain on disposal of discontinued operation (8,070) - Operating Cash Flow 10,882 13,990 Increase in inventories (2,168) (296) (Increase)/Decrease in receivables (511) 1,117 Increase/(Decrease) in payables 484 (2,351) Cash generated from operations 8,687 12,460 Income taxes paid (1,607) (660) Interest paid (3,960) (4,567) Net cash from operating activities 3,120 7,233 CASH FLOW FROM INVESTING ACTIVITIES Interest received 409 300 Disposal of division 34,333 - Cost of acquisition - (2,489) Income tax paid on disposal of division (3,410) - Proceeds on disposal of property, plant & equipment 113 630 Purchase of intangible assets (163) (237) Purchase of property, plant & equipment (3,067) (2,633) Net cash (used in)/from investing activities 28,215 (4,429) CASH FLOW USED IN FINANCING ACTIVITIES Repayment of borrowings (27,476) (3,890) Repayment of obligations under finance leases (362) (279) Hire purchases advances 263 943 Proceeds on issue of shares 100 - Net cash used in financing activities (27,475) (3,226) 3,860 (422) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year 6,925 7,347 Net movement in cash and cash equivalents 3,860 (422) Cash and cash equivalents at end of year 10,785 6,925 Cash and cash equivalents comprise: 13,780 12,412 Cash (2,995) (5,487) Overdrafts 10,785 6,925 NOTES TO THE FINANCIAL STATEMENTS YEAR ENDED 31 DECEMBER 2007 1. PRESENTATION OF FINANCIAL STATEMENTS General Information The Real Good Food Company plc is a public limited company incorporated in the United Kingdom under the Companies Act 1985 (registered number 4666282). The company is domiciled in the United Kingdom and its registered address is International House, 1 St Katharine's Way, London, E1W 1XB. 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 for the first time on the basis of International Financial Reporting Standards (IFRS) as adopted by the European Union. These standards have been adopted with effect from 1 January 2006 as required under AIM rules and therefore the comparative figures for year ended 31 December 2006 have been restated to include the effect of this adoption. An explanation of the effect this has had on the 2006 figures is included in the Appendix to these financial statements. 2. SIGNIFICANT ITEMS Notes Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s Profit on disposal of division 26 8,070 - Management restructuring costs (523) (1,101) 7,547 (1,101) Taxation (charge)/credit on significant items (6,053) 292 1,494 (809) 3. TAXATION Year ended Year ended 31 December 31 December 2007 2006 £'000s £'000s CURRENT TAX UK Current tax on profits of the period 890 1,588 UK Corporation tax on discontinued activities 690 - Exceptional items 6,329 - Adjustments in respect of prior periods - (409) Total current tax 7,909 1,179 Deferred Tax Deferred tax charge re pension scheme 93 164 Origination and reversal of timing differences (137) 936 Effect of tax rate change on deferred tax (75) - Total deferred tax (119) 1,100 Tax on profit on ordinary activities 7,790 2,279 4. BORROWINGS Year ended Year ended 31 December 2007 31 December 2006 Group Company Group Company £000's £000's £000's £000's Unsecured borrowings at amortised cost Bank overdrafts 2,995 860 5,487 656 Loan notes 3,422 - 3,158 - Secured borrowings at amortised cost Bank loans 32,169 32,169 59,645 59,645 Hire purchase 1,054 428 1,152 364 39,640 33,457 69,442 60,665 Amounts due for settlement within 12 months 22,479 20,234 10,235 5,257 Amounts due for settlement after 12 months 17,161 13,223 59,207 55,408 39,640 33,457 68,998 60,665 Features of the Group's borrowings are as follows: The Group's financial instruments comprise cash, a term loan, hire purchase 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. The Board reviews and agrees policies, which have remained substantially unchanged for the year under review, for managing these risks. 5. SEGMENT REPORTING Primary Format - 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. This is consistent with the previous Divisional reporting that the Group previously published and therefore the information is consistent with that of previous financial statements. 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. Year ended 31 December 2007 Head Office & Continuing Bakery Consolidation Operations Discontinued Total Sugar Ingredients Bakery Adjustment Total Operations Group Revenue - External 181,831 31,096 18,217 - 231,144 14,962 246,106 Revenue - Internal 8,253 824 - (9,077) - - - Total revenue 190,084 31,920 18,217 (9,077) 231,144 14,962 246,106 Operating Profit 6,390 2,350 71 (1,371) 7,440 2,159 9,599 Significant items (523) - (523) Profit on sale of division - 8,070 8,070 Earnings before interest and tax 6,917 10,229 17,146 Net interest (3,651) (96) (3,747) Pension finance income 184 - 184 Tax (890) (6,900) (7,790) Profit after tax 2,560 3,233 5,793 Inter-segment sales are charged at prevailing market rates. The group operates a central function, finance costs cannot be meaningfully allocated to individual operating divisions. 6. DISTRIBUTION OF THE ANNUAL REPORT AND ACCOUNTS TO SHAREHOLDERS The announcement set out above does not constitute a full financial statement of the company's affairs for the year ended 31 December 2007. 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. This 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, International House, 1 St Katharine's Way, London, E1W 1XB. This information is provided by RNS The company news service from the London Stock Exchange
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