Final Results

RNS Number : 8544H

Real Good Food Company Plc (The)

26 June 2013

 



The Real Good Food Company plc (AIM:RGD)

Final Results for the 12 months ended 31 March 2013 

The Real Good Food Company plc ("the group" or "RGFC") is a diversified food group, which owns Napier Brown (Europe's biggest non-refining sugar distributor), as well as Renshaw and R&W Scott (bakery ingredients), Garrett Ingredients (dairy ingredients) and Haydens Bakery (patisserie and desserts).

HIGHLIGHTS	12 months ended 31 March 2013 £'000s	12 months ended 31 March 2012 £'000s	15 months ended 31 March 2012 £'000s
Revenue	265,754	258,573	305,529
EBITDA	10,466	8,455	9,185
Profit before taxation1	6,765	4,925	4,910
EPS:
Basic (adjusted)	7.8p	5.4p	6.2p
Diluted (adjusted)	7.2p	4.9p	5.7p
Working Capital (Fixed Assets/Stock/Trade Debtors & Trade Creditors)	42,555	38,750	38,750
Net Borrowings (Incl Cash)	24,952	28,655	28,655
Net Debt/EBITDA	2.4	3.3*	3.3*

¹ before restructuring costs

§  Further improvement over last year's strong performance, driven by significant EBITDA increases  at Haydens and R&W Scott

§  EBITDA up 24% to £10.5m, compared to £8.5m in the 12 months ended 31 March 2012

§  All trading divisions now have positive EBITDA following the improvements at Haydens and R&W Scott

§  Significant improvement in EPS adjusted (fully diluted excluding significant items) at 7.2p this year,  up 50% on 4.9p for 12 months ended  31 March 2012

§  Significant improvement in debt serviceability with  Net Debt / EBITDA ratio down from 3.3x at 31 March 2012 to 2.4x currently

§  Net Borrowings of £25.0m at 31 March 2013, down £3.7m from £28.7m in March 2012

Pieter Totté, Executive Chairman, comments:

"I am delighted to be able to report on a year of steady progress by the group, when we achieved a significant increase in earnings despite only recording a modest increase in overall revenue. We continued to invest in the development of our five businesses, but were still able to reduce total borrowings and secured new financing facilities for future expansion.     

"While the outlook for the economy and consumers' disposable income is likely only to improve gradually, I am confident that we have a strong platform for long term, sustainable growth, based on sound plans. I would like to thank colleagues across all the businesses for all the hard work which lies behind these results."

ENQUIRIES:

Real Good Food
Pieter Totté, Chairman	Tel: [phone]
Mike McDonough, Finance Director	Tel: [phone]
Shore Capital & Corporate	Tel: [phone]
Stephane Auton Patrick Castle
Cubitt Consulting	Tel: [phone]
Gareth David Cebuan Bliss

Change of Accounting Reference Date

This year's Annual Report covering the 12 months ended 31 March 2013 will in all financial schedules and supporting notes be tabled alongside the 15 month period ended 31 March 2012 as required in statutory reporting. However, where appropriate and relevant, the 12 month period ended 31 March 2012^* will be included and commented on in order to present like for like visibility and demonstrate the underlying performance year on year. All references to last year in this report refer to the 12 months trading to the 31 March 2012

^*     This will be on a "proforma basis" as, whilst this period has been audited as part of the 15 month period ended 31 March 2012, it hasn't been audited as a 12 month period in its own right. The Board is confident that this will present a reliable comparison.

CHAIRMAN'S STATEMENT

I am delighted to be able to report on a year of steady progress by the group, when we achieved a significant increase in earnings despite only recording a modest increase in overall revenue. We continued to invest in the development of our five businesses, but were still able to reduce total borrowings and secured new financing facilities for future expansion.      

EBITDA, at £10.5 million, is £2 million (+24%) up on last year's £8.5 million for the 12 months ended March 2012, despite a difficult trading environment. The unexpected contraction of the economy in the last quarter of 2012 was a challenge. It is clear that the pressure on household incomes, with wage rises lagging behind inflation, is real and inevitably hitting many markets for non-essential items.

In this context, our trading performance was encouraging and demonstrates the robustness of our plans. All five Divisions recorded a positive EBITDA in the year, with the improved performances achieved at both R&W Scott and Haydens being particularly pleasing. This improved profit performance was also accompanied by a reduction of £3.7 million in our Net Debt position at the end of March 2013 which stood at £25.0 million.

In December we secured a new five year banking arrangement which will support the business as we progress our ambitious growth plans. We were delighted that we were able to continue our relationship with PNC and the new facility of £50 million, an increase of £10 million, gives us a strong platform for the next five years. We also started working with Lloyds TSB during the year who provide clearing and ancillary facilities.

Finally, we have now fully implemented the management structure which we have been working towards and which now reflects our targeted business model. We have Managing Directors and full management teams in all five businesses, which enables each one to operate as a stand-alone unit.

At the same time we have a strong central team, able to support these local teams as required. Formal business plans have been prepared for each business with the central executive team prioritising support and investment plans. I am confident that from a management perspective the business is better equipped than ever.

Forward plans

We have undertaken full strategic reviews across each of the divisions and have agreed three year business plans. We have re-orientated each business to become commercially-led and market-driven which is a significant change from three years ago. We have invested in marketing resource across the group and also in retail category management, functions where we historically had little or no expertise. We are also fortunate to operate mainly in growth markets while, in some businesses (Renshaw, in particular), export represents a significant opportunity.

I would like to highlight in particular three major initiatives; developments in our sugar sourcing and the investment we are making near Immingham, brand marketing and sales.

Clearly sourcing more sugar is critical to us achieving our corporate objectives. It became evident to us that, alongside developing relationships with sugar producers, we need to invest in order that we can handle large quantities of imported sugars cost effectively, wherever they come from. Our new site at Stallingborough, next to the deep sea port of Immingham, will receive bulk sugar, quality check and transfer it into road tankers for onward distribution, either to our own packing or manufacturing sites or directly to third party customers.

The major UK sugar customers are very supportive of this move as they recognise the need for more supply options within the UK. Meanwhile, in conjunction with our partner Omnicane, we continue to look at opportunities for long term, sustainable supply arrangements, not only in Mauritius, but also on the African continent.

Three of our businesses in particular are investing significantly in their brands; Napier Brown (with Whitworths), Renshaw and R&W Scott. These brands were assets which we owned, but were not utilising. In each case we have undertaken a formal review, developed a new brand vision and invested in high quality design, alongside consumer research and product development.

We are already seeing the results, with Whitworths successfully bringing some long overdue innovation to the baking sugars market and Renshaw beginning to leverage the strength of its reputation across all its sales channels. R&W Scott will also be launching a number of new products during the course of this year, while we also see the potential for brands in some sectors of foodservice.

Finally, as we reviewed the business plans we soon recognised the need for additional sales resource across all the businesses. As we grow each of the businesses we need more sales resource to handle the increased activity levels across a range of channels and to ensure that we remain close to our customers' requirements from both a business development and a service standpoint.

We are actively recruiting more sales management at all five divisions. In addition, in order to fast track the opportunities we have identified in Europe, we have opened an office in Brussels and recruited a General Manger to work with each of the businesses on their European export plans. This has already generated a number of new opportunities.

Outlook

While the outlook for the economy and consumers' disposable income is likely only to improve gradually, I am confident that we have a strong platform for long term, sustainable growth, based on sound plans. I would like to thank colleagues across all the businesses for all the hard work which lies behind these results.

Pieter Totté

Chairman

26 June 2013

DIVISIONAL BUSINESS REVIEW

Napier Brown

	12 months ended 31 March 2013 £'000s	12 months ended 31 March 2012 £'000s	15 months ended 31 March 2012  £'000s
Revenue	157,156	152,642	176,885
EBITDA	4,723	3,912	4,383
Operating profit	4,353	3,355	3,703
Operating profit %	2.8%	2.2%	2.1%

Volume and sales revenue both grew resulting in an EBITDA of £4.7 million, an increase of over 20% on last year's level of £3.9 million. Sales increased in particular in the manufacturing sector, while in retail margins were enhanced by the successful added value Whitworths launches. These trends present a model for the business going forward.

The major manufacturing customers are keen to find new supply sources and we are keeping them briefed on our future plans in this area. In retail, our innovation programme has been greeted enthusiastically by retailers who are keen to see a strong third brand operating in the market. We have supported Whitworths with PR, web and social media campaigns.

Garrett Ingredients

	12 months ended 31 March 2013 £'000s	12 months ended 31 March 2012 £'000s	15 months ended 31 March 2012  £'000s
Revenue	31,260	29,783	38,181
EBITDA	2,151	2,677	3,231
Operating profit	2,151	2,677	3,231
Operating profit %	6.9%	9.0%	8.5%

While volume and revenue grew in the year, spot prices in both the dairy and sugar markets were below the levels of last year. This led to reduced margins and EBITDA fell accordingly to £2.2 million as compared with £2.7 million last year. Such cyclical patterns are not unusual in a trading business.

The poor 2012 summer also impacted on sales to the ice cream industry. The business, however, progressed in developing its product range, with the new distributorships secured for dextrose and sweetened condensed milk.

Renshaw

	12 months ended 31 March 2013 £'000s	12 months ended 31 March 2012 £'000s	15 months ended 31 March 2012  £'000s
Revenue	41,033	40,238	46,368
EBITDA	4,952	5,557	5,816
Operating profit	4,125	4,824	4,908
Operating profit %	10.0%	12.0%	10.6%

Sales revenue at £41.0 million continued to grow, up 2.2% on last year, although EBITDA at £5 million was lower than last year's strong performance of £5.6 million, with overheads increasing as the business invested in new resource to capitalise on the market opportunities which we have identified.

Sales volumes continued to be buoyant in most sectors, though a decision was taken to exit some lower margin industrial business. Delivered margin grew ahead of sales as margin mix improved with the focus on more added value products. Most of the fixed cost increases involved sales and technical management (particularly for export and online). There were also a number of costs associated with the brand re-launch of Renshaw, with the full range of products across all sales channels planned to be re-packaged during 2013.

R&W Scott

	12 months ended 31 March 2013 £'000s	12 months ended 31 March 2012 £'000s	15 months ended 31 March 2012  £'000s
Revenue	10,968	11,819	14,437
EBITDA	425	(1,191)	(1,044)
Operating profit	166	(1,428)	(1,338)
Operating profit %	1.5%	(12.1%)	(9.3%)

This was the first year that R&W Scott has been run as a stand-alone business and it was extremely encouraging that it achieved a positive EBITDA of £0.4 million this year as opposed to a £1.2 million loss last year.

Sales fell year on year, but this was largely a result of a conscious rebalancing of the product portfolio towards more added-value sectors. Margins were well controlled and production efficiencies improved driving the better performance over last year. The other main achievement was to put together a management team and work up a business strategy and plan. In this context it was a great boost for the business to win the food and drink category at the 2013 Lanarkshire Business Awards.

Haydens

	12 months ended 31 March 2013 £'000s	12 months ended 31 March 2012 £'000s	15 months ended 31 March 2012  £'000s
Revenue	25,337	24,485	29,658
EBITDA	341	(462)	(604)
Operating profit	(417)	(1,040)	(1,333)
Operating profit %	(1.6%)	(4.2%)	(4.5%)

EBITDA increased by £0.8 million year on year and whilst the improvements were delivered later than anticipated, at the year end we were achieving our targeted run-rate. This demonstrates that our plan is fully achievable and it is pleasing to report that these positive trends have continued into the new financial year.

A rationalisation of the product range reduced the level of sales growth, but this had a very positive effect on manufacturing costs. The new Hopton distribution centre continued to operate successfully as well as contributing revenue through its third party sales.

FINANCE DIRECTOR'S REPORT

Having been associated with the Renshaw and R&W Scott businesses for over twenty years and soon to have been in my present role as Group Finance Director for four, I think it is appropriate, in addition to the specific commentary on the year in this annual report, to take stock of the progress the Board and the Divisional Executive teams have made.

Structure

The group itself is now a much simpler and clearer organisation with more focus and visibility both internally and externally on performance as a result of the following changes:

Ø The establishment of Garrett Ingredients and R&W Scott as separate trading divisions from Napier Brown and Renshaw respectively

Ø The hive down of Haydens from the parent company into its own separate legal entity

Ø The liquidation of numerous non trading dormant subsidiaries which presented clutter to stakeholders such as Credit Insurers and potential funders

As the Chairman also touches on, having Managing Directors now in place in all divisions supported by their own management teams completes our transition into locally managed businesses focused on delivering their opportunities and business plans supported by the Group's Executive team.

Performance

The last two years' performance, with EBITDA growing to £10.5 million this year is a long way from the period from 2008 until 2010, when the group was navigating its way through the uncertainties and pressures of the EU Sugar regime reform when EBITDA averaged approximately 50% of current levels. More importantly, each division now has the opportunities and plans to deliver a growing and more sustainable profit base in the future:

Ø Napier Brown has restored its profitability levels post the sugar regime reform and has made great progress in securing its supply lines and growth plans through the group's partnership with Omnicane and the investment in sugar handling facilities in Immingham boosting capabilities dramatically. Revitalising the retail and foodservice range under the Whitworths brand also offers significant opportunities

Ø Garrett Ingredients will always experience a degree of variability in performance as it operates in a trading market but is well equipped to deal with this and has also made significant progress in extending its product offering by taking on new distributorships and range extensions, as well as extending its sources of supply particularly in the Dairy sector to ensure availability and deliver the growth opportunities

Ø Renshaw has undoubtedly been in the right place at the right time to take advantage of the significant growth in the home baking market both here in the UK and the US. Not resting on its laurels, it has recognised the need to invest  in the business now, primarily brand and commercial resource, to take advantage of further added value growth in the UK and the huge opportunities which export offers

Ø R&W Scott has been focusing on improving its product offering and re-establishing the brand offering it historically had. The separation from Renshaw has benefited both businesses bringing more clarity and focus

Ø Haydens for some time has had a clear vision of its operational improvement plan including the introduction of freezing capacity but has struggled to deliver on this. However, we have seen the management team make a significant step forward in the second half of this year both operationally and commercially, and there are, clear and exciting plans to continue the development and sustainably improve margins and build the bottom line. On the commercial side the team is being strengthened and, plans are in place to develop the existing range as well as increasingly pursuing new product and customer opportunities.

Ø RGFE (Europe) is still very much in its early days but we can see already the synergies with our existing business, starting with Renshaw, and the difference it will make in accessing the commercial opportunities in Europe

Net Debt

Despite the relative uncertainty throughout the period of sugar regime reform, Net Debt levels have always been under control, manageable and trending down. The significant increase in Sugar prices at the start of 2011 when prices increased by 40% did push Working Capital and hence Net Debt up although this was well within our funding facilities as reported in last year's annual report.

We will be investing significantly in the coming year, primarily in the Immingham sugar handling facility, but with funding capacity in place, and cash generation, improving Net Debt levels will resume a downward path thereafter.   

Financing

We have reported previously on the refinancing exercise we completed in December 2012 increasing and extending our existing facility with PNC and their partner ABN AMRO by £10 million to £50 million. Securing these facilities for the next five years, is a huge vote of confidence in the business in a difficult market where renewals and extensions of facilities continue to be elusive to some and especially on improved terms. Increasing the facilities is a key element in providing us with the capacity we need to meet our investment and growth plans

We have worked with the management team at PNC, and also previously when they were part of KBC since 2008. They understand our business and have demonstrated a flexible approach to meeting our requirements and needs. The facilities are competitively priced, asset based, focusing primarily on ID (invoice discounting) and stock financing which works well since as we grow Sales the assets increase accordingly, especially Debtors, providing additional funding capacity. The facilities are well balanced with £8.1 million of term loans repayable over the next 5 years largely secured on property and plant with a book value of £17.7 million as at March 2013.

Whilst property values generally remain depressed a recent exercise on the Immingham site indicates significant untapped value in assets with replacement costs three times the £1.7 million acquisition cost. Our operations team have recently completed an exercise, for insurance purposes, indicating replacement values as a whole across our property and plant assets of approximately £92 million. We would expect some extra financing capacity to become available as particularly property values pick up should the economy's outlook improve.

We also have a new partner on board, Lloyds TSB, who provide us with clearing and ancillary facilities with the potential for other funding opportunities especially in the supply chain.

In summary, on all levels the group has developed hugely in recent years both in structure and focused management capability: it is now demonstrating its ability to deliver volume growth and more sustainable profits with increasing cash generation and financing capacity setting a solid base for the future.

REVIEW OF THE YEAR

Accounting reference date

As commented on at the start of this report, the change in the accounting reference date in April 2011 will improve the Group's budgeting and forecasting routines, and provide stakeholders with improved commentary and trading updates. In order to make clear our underlying performance the emphasis in commentary in this report will be on comparisons of the current 12 month period ended 31 March 2013 (year) with the 12 months ended 31 March 2012 (last year).

Overview

It is very pleasing to be able build on last year's performance with the Group delivering further improvements in EBITDA at £10.5 million, up 24%, on the £8.5 million delivered last year. What was particularly pleasing were the turnarounds in Haydens and R&W Scott divisions who both returned to profitability at the EBITDA level vindicating the actions taken in the last 12-18 months. Net Debt levels remain under control at £25.0 million an improvement of £3.7 million on last year.  

Revenue

Group revenue from continuing operations for the 12 months to 31 March 2013 was £265.8 million, which on a like-for-like basis was approximately 2.8% up (£7.2m) on the 12 months to 31 March 2012. Volumes, mainly Sugar, in Napier Brown and Garrett Ingredients were up 5% overall with the rest of the group down slightly as they focussed, this year, on improving sales mix with the emphasis on added value lines.

Further movements in base commodity costs did require price increases to be passed on but we saw nothing like the dynamics of last year when Sugar prices increased by up to 40% at the start of 2011 putting significant value into the balance sheet.

Key Comparatives (Continuing Operations, excluding Significant Items)	12 months ended 31 March 2013 £'000s	12 months ended 31 March 2012 £'000s	15 months ended 31 March 2012 £'000s
Revenue	265,754	258,573	305,529
Gross Profit	37,285	33,472	39,626
Delivered Margin
(Gross Profit after Distribution costs)	25,620	22,887	26,617
EBITDA	10,466	8,455	9,185
Operating profit
(EBITDA less Depn)	8,241	6,341	6,564
Operating profit %	3.1%	2.5%	2.1%
Profit before Taxation (After Financing & Pension costs)	6,765	4,925	4,910

Margins

Delivered Margin for the year was £25.6 million with EBITDA of £10.5 million as compared with the 12 months ended March 2012 of £22.9 million and £8.5 million respectively. The prime drivers of the £2.0 million improvement in EBITDA were Haydens, £0.8 million, and R&W Scott, £1.6 million, with both businesses recovering from losses at this level last year.

Profit before Tax and Interest

Overall profits for the year at £6.8 million (PBT continuing operations including pension "running costs") increased by £1.8 million, over the 12 months ended March 2012. £0.1m higher depreciation, reflecting increased capital expenditure and £0.1m higher interest costs reflecting higher Net Debt levels during the year slightly diluted the £2.0 million EBITDA improvement.

Financing Costs

Financing costs for the year at £1.48m were approximately 10% up on the prior year reflecting the higher Working Capital levels during the year.

Significant Items

During the year the group incurred one-off costs of £0.5 million due mostly, £0.4 million, to the reshaping of the executive team at Haydens, including a new Managing Director and Financial Controller now in place, £0.1 million was incurred in "break costs" associated with the refinancing exercise we completed with PNC, our existing provider in December.

Working Capital and Net Debt	31 March 2013 £'000s	31 March 2012 £'000s
Working Capital (Fixed Assets/Stock/Trade Debtors & Trade Creditors)	42,555	38,750
Net Borrowings (Incl Cash)	24,952	28,655
Net Debt/EBITDA	2.4	3.3*

*Based on 12 months to March 2012

Cash Flow and Debt

Working Capital levels have increased by £3.8 million during the year. Within this Fixed Assets were up a net £1.5 million (£3.7million Capital expenditure less £2.2million depreciation) reflecting our investment plans with the balance £2.3 million, consisting of movements across the more fluid stock, debtor and creditor positions.

Net Debt (after Cash) as at 31 March 2013 was £25.0 million,  down £3.7m (13%) on the prior year (31 March 2012 £28.7 million) reflecting the cash generated from the improved trading performance and also the shares issued in the year as shown in this simple bridge for the year overall.

Net Debt Movements

	31 March 2013 £'000s
Opening April 2012	28,656
Operating Cash	(4,989)
Share Issue	(2,459)
Capex	3,744
Closing March 2013	24,952

Our ability to service this debt has improved significantly with a reduction in the key Debt ratio (Net Debt to EBITDA) from 3.3 last year to 2.4 currently

Pensions

Pensions Summary

Ø Group operates one defined benefits scheme which was closed to new members in 2000

Ø Group expects to be able to confirm shortly its agreement in principle with the trustees on extending the existing recovery plan with contribution levels for the coming year to be £265K as originally planned with annual increments of 3% for the following two years. In the current year contributions were £187K and £177K in 2011/12. The group is confident this will meet the trustees needs and the pension regulators guidance whilst it implements its growth plans

Ø Latest IAS valuation indicates £3.5 million deficit, an increase of £2.4 million since March 2012,

driven mainly by current market conditions and also its impact on depressing discount rates used in calculating future liabilities

Pensions Commentary

Two subsidiaries, Napier Brown Foods Limited and Renshawnapier Limited, operate a defined benefit pension scheme which has been closed to new members since 1 June 2000. In common with virtually all companies with such pension schemes we have to report at this time a significant deterioration in the deficit within the scheme.  As has been widely reported in the Press, this is a result of current economic policies and their effect on Gilt rates which are taken as the prime actuarial assumption in calculating discount rates and thereby the potential future liabilities within a scheme. If Gilt rates improve as is widely expected over the next few years then, all things being equal, liabilities within the scheme will be reduced and the deficit will also therefore go down. It is perhaps worth noting that in June 2011 the scheme was in surplus.

International Financial Reporting Standards require an actuarial valuation of the scheme to be undertaken at each accounting date (IAS 19 Employee Benefits). At 31 March 2013 this identified a £3.5 million current deficit, a deterioration of £2.4 million since 31 March 2012 driven mainly by an assumed actuarial increase in the schemes benefit obligations.

Ø The scheme's assets at 31 March 2013 are £15.6 million, on the face of it a reduction of £0.4 million since 31 March 2012, although this includes a £0.8 million divestment to meet transfer out payments in the year. "Like with like" asset values however were 2.3% higher than the £16.0 million opening position.

Ø The schemes liabilities (benefit obligations) at £19.2 million increased overall as set out below. The future assumptions are largely driven by the reduction in discount rates with the experience adjustment originating from the latest triennial valuation as at 31 March 2012, which whilst not being finalised has to be factored into the calculations.

Deficit Movements

	£m	£m
Opening April 2012		(1.1)
Income/Contributions	1.2
Benefits paid	(0.8)
Transfers Out	(0.8)
Assets	(0.4)	(0.4)
Transfer Out	0.9
Experience (mainly Triennial)*	(1.8)
Future assumptions	(1.1)
Liabilities	(2.0)	(2.0)
Closing March 2013		(3.5)

* represents actual performance 2009 through to 2012 as compared to the actuarial assumptions made by the schemes actuary at the time

The group continues to be proactive with the trustees in managing the scheme, notably exploring with members the options beneficially available to them, which could also help to reduce the schemes real liabilities going forward. The investment mandate has also been revised during the year as has the choice of investment managers with some changes being made.

It is worth noting that whilst the key market drivers are exceptionally weak at the moment primarily as a result of policies such as quantitative easing and the maintenance of low interest rates, the Government has prompted the pension regulator to encourage all trustees and employers to give more focus to "private sector investment and growth" and "support scheme funding arrangements that are compatible with sustainable growth for the sponsoring employer".

The board are in discussion with the Trustees regarding this and a common sense approach to current market conditions and actuarial valuations whilst remaining committed to fulfilling the group's obligations. This is already in place to an extent as reflected in the existing recovery plan, agreed in 2009, which will be renewed in the next few months once discussions with the Trustees are completed. During the period the group contributed £187,000 (2011/12: £177,000) to the scheme.

Key Performance Indicators

The Board of Directors monitors a range of financial and non-financial key performance indicators, reported on a periodic basis, to measure the group's performance over time. The key performance indicators are set out below:

	31 March 2013	31 March 2012
Revenue growth1	2.8%	n/a
Operating margin2	3.1%	2.5%
Debt cover (Net debt/EBITDA)3	2.4	3.3*
Interest cover4	7.1	4.8
Health & Safety score5	88%	83%

* Based on 12 months to March 2012

1.  Revenue growth is calculated for continuing operations.

2.  Operating margin is stated for continuing operations only and is calculated by dividing operating profit before tax, interest and significant items by revenue from continuing operations.

3.  Debt cover is calculated by dividing total net debt by continuing EBITDA. EBITDA is defined as earnings before significant items, interest, tax, depreciation and intangible asset amortisation.

4.  Interest cover is calculated by dividing EBITDA by net interest payments (gross interest payable less interest receivables).

5.  Health & Safety score represents the weighted average score across all sites as determined by our health and safety score index which was introduced in 2008 and is measured by an external consultant. Figures quoted refer to the calendar year.

Mike McDonough

Group Finance Director

26 June 2013

Consolidated Statement of Comprehensive Income

12 months ended 31 March 2013

	12 months ended 31 March 2013			15 months ended 31 March 2012
Continuing Operations	Before significant items £'000s	Significant items £'000s	Total £'000s	Before significant items £'000s	Significant items £'000s	Total £'000s
REVENUE	265,754	-	265,754	305,529	-	305,529
Cost of sales	(228,469)	-	(228,469)	(265,903)	-	(265,903)
GROSS PROFIT	37,285	-	37,285	39,626	-	39,626
Distribution costs	(11,665)	-	(11,665)	(13,009)	-	(13,009)
Administration expenses	(17,379)	(505)	(17,884)	(20,053)	(550)	(20,603)
OPERATING PROFIT	8,241	(505)	7,736	6,564	(550)	6,014
Finance income	-	-	-	-	-	-
Finance costs	(1,560)	-	(1,560)	(1,896)	-	(1,896)
Other finance income	84	-	84	242	-	242
PROFIT BEFORE TAXATION	6,765	(505)	6,260	4,910	(550)	4,360
Income tax expense	(1,467)	121	(1,346)	(859)	113	(746)
PROFIT FROM CONTINUING OPERATIONS ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT	5,298	(384)	4,914	4,051	(437)	3,614
OTHER COMPREHENSIVE INCOME
Actuarial (losses)/gains on defined benefit plans	(2,731)	-	(2,731)	(1,499)	-	(1,499)
Income tax relating to components of other comprehensive income	613	-	613	360	-	360
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT	3,180	(384)	2,796	2,912	(437)	2,475
Earnings per share from continuing operations:
- basic			7.2p			5.6p
- diluted			6.6p			5.1p

Consolidated Statement of Changes in Equity

12 months ended 31 March 2013

	Issued Share Capital £'000s	Share Premium Account £'000s	Share Option Reserve £'000s	Retained Earnings £'000s	Total £'000s
Balance as at 1 January 2011	1,300	68,870	153	9,661	79,984
Share options to be issued	-	-	38	-	38
Deferred tax on share options	-	-	335	-	335
Shares issued in period	-	4	-	-	4
Total comprehensive income for the period	-	-	-	2,475	2,475
Balance as at 31 March 2012	1,300	68,874	526	12,136	82,836
Share options to be issued	-	-	45	-	45
Deferred tax on share options	-	-	(31)	-	(31)
Shares issued in period	89	2,370	-	-	2,459
Total comprehensive income for the period	-	-	-	2,796	2,796
Balance as at 31 March 2013	1,389	71,244	540	14,932	88,105

Consolidated Statement of Financial Position

12 months ended 31 March 2013

	31 March 2013 £'000s	31 March 2012 £'000s
NON-CURRENT ASSETS
Goodwill	75,796	75,796
Other intangible assets	1,412	521
Property, plant and equipment	17,685	17,057
Deferred tax asset	1,385	912
	96,278	94,286
CURRENT ASSETS
Inventories	15,037	17,380
Trade and other receivables	30,213	24,444
Cash and cash equivalents	7,134	2,506
	52,384	44,330
TOTAL ASSETS	148,662	138,616
CURRENT LIABILITIES
Trade and other payables	21,282	20,082
Borrowings	23,032	24,366
Current tax liabilities	750	570
	45,064	45,018
NON-CURRENT LIABILITIES
Borrowings	9,054	6,796
Deferred tax liabilities	2,899	2,886
Retirement benefit obligations	3,540	1,080
	15,493	10,762
TOTAL LIABILITIES	60,557	55,780
NET ASSETS	88,105	82,836
EQUITY
Share capital	1,389	1,300
Share premium account	71,244	68,874
Share option reserve	540	526
Retained earnings	14,932	12,136
TOTAL EQUITY	88,105	82,836

Consolidated Cash Flow Statement

12 months ended 31 March 2013

	12 months ended 31 March 2013 £'000s	15 months ended 31 March 2012 £'000s
CASH FLOW FROM OPERATING ACTIVITIES
Adjusted for:
Profit before taxation	6,260	4,360
Finance costs	1,560	1,896
Finance income	-	-
Other finance income	(84)	(242)
Depreciation of property, plant and equipment	1,992	2,449
Amortisation of intangibles	233	172
Operating Cash Flow	9,961	8,635
Decrease / (Increase) in inventories	2,343	(7,834)
(Increase) in receivables	(5,769)	(70)
Pension contributions	(187)	(177)
Increase in payables	1,220	221
Cash generated from operations	7,568	775
Income taxes paid	(1,019)	(932)
Interest paid	(1,560)	(1,896)
Net cash from operating activities	4,989	(2053)
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from disposal of property , plant and equipment	32	-
Shares issued in period	2,459	4
Purchase of intangible assets	(1,124)	(68)
Purchase of property, plant and equipment	(2,652)	(3,903)
Net cash used in investing activities	(1,285)	(3,967)
CASH FLOW USED IN FINANCING ACTIVITIES
Additional/(Repayment of) borrowings	956	5,540
Repayment of obligations under finance leases	(32)	(201)
Net cash used in financing activities	924	5,339
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS	4,628	(681)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of period	2,506	3,187
Net movement in cash and cash equivalents	4,628	(681)
Cash and cash equivalents at end of period	7,134	2,506
Cash and cash equivalents comprise:
Cash	7,134	2,506
Overdrafts	-	-
	7,134	2,506

Notes to the Financial Statements

12 months ended 31 March 2013

1. Segment reporting

Business segments

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

12 months ended 31 March 2013	Napier £'000s	Garrett £'000s	Renshaw £'000s	R&W Scott £'000s	Haydens £'000s	Continuing Operations Total £'000s	Significant items £'000s	Total Group £'000s
Total Revenue	167,754	31,947	41,113	10,968	25,337	277,119	-	277,119
Revenue - Internal	(10,598)	(687)	(80)	-	-	(11,365)	-	(11,365)
External Revenue	157,156	31,260	41,033	10,968	25,337	265,754	-	265,754
Operating Profit	4,353	2,151	4,125	166	(417)	10,378	(505)	9,873
Head Office and consolidation adjustments	-	-	-	-	-	(2,137)	-	(2,137)
Net Finance Costs	-	-	-	-	-	(1,560)	-	(1,560)
Pension Finance Income	-	-	-	-	-	84	-	84
Profit/(loss) before tax	4,353	2,151	4,125	166	(417)	6,765	(505)	6,260
Tax	(936)	(462)	(887)	(36)	90	(2,231)	-	(2,231)
Unallocated Tax	-	-	-	-	-	764	121	885
Profit/(loss) after tax as per comprehensive statement of income	3,417	1,689	3,238	130	(327)	5,298	(384)	4,914

Sales between segments are charged at prevailing market rates.

2. Significant items

	12 months ended 31 March 2013 £'000s	15 months ended 31 March 2012 £'000s
Management restructuring costs	(395)	(429)
Group re-financing / restructuring costs	(110)	(121)
	(505)	(550)
Taxation credit on significant items	121	113
	(384)	(437)

During the period the group incurred a number of significant costs as detailed above. The management restructuring costs reflect a number of fundamental reorganisations within our operating divisions during the period. Refinancing costs relate to "break costs" associated with the refinancing exercise we completed with PNC our existing provider in December. The group restructuring cost relate to liquidation of dormant subsidiaries necessary to simplify the group structure.

3.Taxation

	12 months ended 31 March 2013 £'000s	15 months ended 31 March 2012 £'000s
Current tax
UK Current tax on profit of the period	1,404	1,102
UK Current tax on significant items	(121)	(113)
Adjustments in respect of prior years	(59)	(98)
Total current tax	1,224	891
Deferred tax
Deferred tax charge re pension scheme	58	101
Origination and reversal of timing differences	114	36
Adjustments in respect of prior years	49	45
Deferred tax asset re losses brought forward	-	-
Adjustment in respect of change in deferred tax rate	(99)	(327)
Total deferred tax	122	(145)
Tax on profit on ordinary activities	1,346	746

        Taxation (continued)

Factors affecting tax charge for the period:

The tax assessed for the period is lower (2012 - lower) than the standard rate of corporation tax in the UK 24 % (2012 - 26.39%). The differences are explained below:

	12 months ended 31 March 2013 £'000s	15 months ended 31 March 2012 £'000s
Tax reconciliation
Profit per accounts before taxation	6,260	4,360
Tax on profit on ordinary activities at standard CT rate of 24% (2012 - 26.39%)	1,502	1,150
Expenses not deductible for tax purposes	16	48
Additional deduction for R&D expenditure	(18)	(64)
Share option relief	(39)	-
Temporary difference movements at lower tax rate	-	(9)
Adjustment in respect of change in deferred tax rate	(102)	(327)
Adjustments to tax in respect of prior years	(13)	(52)
Tax charge for the period	1,346	746

4. Earnings per share

Basic earnings per share

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

	12 months ended 31 March 2013 Continuing operations	15 months ended 31 March 2012 Continuing operations
Earnings after tax attributable to ordinary shareholders (£000's)	4,914	3,614
Weighted average number of shares in issue (000's)	68,405	65,017
Basic earnings per share	7.2p	5.6p

Earnings per share (continued)

Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares. Potential dilutive ordinary shares arise from share options and warrants. For these, a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the company's shares) based on the monetary value of the exercise price attached to outstanding share options. Thus the total potential dilutive weighted average number of shares considers the number of shares that would have been issued assuming the exercise of the share options.

	12 months ended 31 March 2013 Continuing operations	15 months ended 31 March 2012 Continuing operations
Earnings after tax attributable to ordinary shareholders (£'000s)	4,914	3,614
Total potential weighted average number of shares in issue (000's)	74,111	71,385
Diluted earnings per share	6.6p	5.1p

Adjusted earnings per share

An adjusted earnings per share and a diluted adjusted earnings per share, which exclude significant items, have also been calculated as in the opinion of the Board this allows shareholders to gain a clearer understanding of the trading performance of the Group.

	12 months ended 31 March 2013 Continuing operations	15 months ended 31 March 2012 Continuing operations
Earnings after tax attributable to ordinary shareholders (£'000s)	4,914	3,614
Add back significant items (note 6)	505	550
Add back tax on significant items	(121)	(113)
Adjusted earnings after tax attributable to ordinary shareholders (£'000s)	5,298	4,051
Weighted average number of shares in issue (000's)	68,405	65,017
Basic earnings per share	7.8p	6.2p
Total potential weighted average number of shares in issue (000's)	74,111	71,385
Basic diluted earnings per share	7.2p	5.7p

5. Goodwill

	Group £'000s
Cost
Carried forward 31 March 2012	75,796
Carried forward 31 March 2013	75,796

Goodwill acquired on business combinations is allocated at acquisition to the Cash Generating Units that are expected to benefit from that business combination. Before any recognition of impairment losses, the carrying amount of goodwill has been allocated as follows:

	31 March 2013 £'000s	31 March 2012 £'000s
Sugar and Bakery Ingredients divisions*	75,796	75,796
Carried forward 31 March 2013	75,796	75,796

* The goodwill relating to the Sugar and Bakery Ingredients Divisions arose out of the single acquisition of Napier Brown Foods by The Real Good Food Company plc in 2005. It has not been possible to allocate this goodwill between individual Cash Generating Units.

The group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired.

The recoverable amounts of the Cash Generating Units are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates and expected changes to selling prices and direct costs.

The rate used to discount the forecast cash flows is the group's pre-tax weighted average cost of capital of 4.88% (2012 - 7.19%). The group prepares cash flow forecasts derived from the most recent financial plans approved by the Board for the next three years and extrapolates this over a further 16 years at a zero growth rate. A period of 19 years has been applied as the Directors used this period to assess the viability of the acquisition when the business was acquired in 2005. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Using these parameters and allowing for disposal income at the end of this timescale the recoverable amounts exceed the carrying value by £75.8 million. Actual results were 37% above the forecast cash flows used for the impairment review in the previous year.

An increase in the group's weighted average cost of capital to above 14.7% (2012 - 17.11%) would cause the Board to impair the carrying value of goodwill.

6. Borrowings and capital management

	31 March 2013 Group £'000s	31 March 2013 Company £'000s	31 March 2012 Group £'000s	31 March 2012 Company £'000s
Unsecured borrowings at amortised cost
Loan notes	2,774	-	2,774	-
Secured borrowings at amortised cost
Bank term loans	8,103	8,103	6,016	6,016
Revolving credit facilities	21,209	-	22,340	1,135
Hire purchase	-	-	32	32
	32,086	8,103	31,162	7,183
Amounts due for settlement within 12 months	23,032	1,823	24,366	3,161
Amounts due for settlement after 12 months	9,054	6,280	6,796	4,022
	32,086	8,103	31,162	7,183

7.   Pensions arrangements

The group operates a defined benefit pension plan in the UK. A full actuarial valuation was carried out as at 1 April 2009 in accordance with the scheme funding requirements of the Pensions Act 2004 and the funding of the scheme is agreed between the group and the trustees in line with those requirements. These in particular require the surplus/deficit to be calculated using prudent as opposed to best actuarial assumptions. The actuarial valuation showed a deficit of £5.3 million. However a further actuarial review was undertaken as at 31 March 2010 which revealed that the deficit had reduced to £2.7 million. This was a result of the recovery of the stock markets from the low in 2009 and improvements in gilt yields and discount rates. On the basis of this valuation the group agreed with the trustees that it will eliminate the £2.7 million deficit over a period of 11 years and 9 months from 1 April 2009 by the continuation of contributions of £8,145 per month up to 31 July 2010, increasing to £12,000 per month between 1 August and 31 December 2010, £130,000 per annum in 2011, £155,000 per annum in 2012 and £265,000 per annum thereafter. In addition and in accordance with the actuarial valuation, the group has agreed with the trustees that it will meet the expenses of the scheme and levies to the Pension Protection Fund, along with further deficit contributions contingent on the group's year end cash position relative to its banking covenants.

For the purposes of IAS 19 the data provided for the 1 April 2009 Actuarial valuation has been approximately updated to reflect liabilities on the accounting basis at 31 March 2013. This has resulted in a deficit in the scheme of £3,540,000.

It is the policy of the company to recognise all actuarial gains and losses in the year in which they occur in the statement of comprehensive income.

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

	31 March 2013 £'000s	31 March 2012 £'000s	31 December 2010 £'000s	31 December 2009 £'000s	31 December 2008 £'000s
Present value of defined benefit obligation	19,153	17,085	16,212	15,945	15,094
Fair value of plan assets	(15,613)	(16,005)	(16,308)	(15,363)	(14,830)
Deficit/(surplus) in plan	3,540	1,080	(96)	582	264
Amount not recognised in accordance with IAS 19 paragraph 58b	-	-	96	-	-
Gross amount recognised	3,540	1,080	-	582	264
Deferred tax at 23% (2012-24%)	(814)	(259)	-	(163)	(74)
Net liability	2,947	821	-	419	190

Pensions arrangements (continued)

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

	31 March 2013 £'000s	31 March 2012 £'000s
Defined benefit obligation at start of period	17,085	16,212
Interest cost	816	1,132
Actuarial losses	2,805	611
Benefits paid, death in service insurance premiums and expenses	(1,553)	(870)
Defined benefit obligation at end of period	19,153	17,085

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

	12 months ended 31 March 2013 £'000s	15 months ended 31 March 2012 £'000s
Fair value of scheme assets at start of the period	16,005	16,308
Expected return on scheme assets	900	1,374
Actuarial (losses)/gains	74	(984)
Contributions paid by the Group	187	177
Benefits paid, death in service insurance premiums and expenses	(1,553)	(870)
Fair value of scheme assets at end of the period	15,613	16,005

The actual return on the scheme assets over the period ended 31 March 2013 was £974,000 (2012 - £390,000).

Pensions arrangements (continued)

Total expense recognised in the statement of comprehensive income within other finance income

	12 months ended 31 March 2013 £'000s	15 months ended 31 March 2012 £'000s
Interest on liabilities	816	1,132
Expected return on scheme assets	(900)	(1,374)
Total income	(84)	(242)

Statement of recognised income and expenses

	12 months ended 31 March 2013 £'000s	15 months ended 31 March 2012 £'000s
Difference between expected and actual return on scheme assets: gain / (loss)	74	(984)
Experience gains and losses arising on the scheme liabilities: gain / (loss)	(1,923)	(46)
Effects of changes in the demographic and financial assumptions underlying the present value of the scheme liabilities: (loss)	(882)	(565)
Reversal of the limit under IAS 19 paragraph 58b	-	96
Total amount recognised in statement of changes in equity	(2,731)	(1,499)

Assets

	31 March 2013 £'000s	31 March 2012 £'000s	31 December  2010 £'000s	31 December  2009 £'000s
Equities	8,224	9,615	10,779	10,274
Bonds & Gilts	4,641	4,915	3,990	3,919
Property	390	434	408	449
Cash	2,358	1,041	1,131	721
Total assets	15,613	16,005	16,308	15,363

None of the fair values of the assets shown above include any of the group's own financial instruments or any property occupied by, or other assets used by, the group.      

Pensions arrangements (continued)

Assumptions

	31 March 2013 % per annum	31 March 2012 % per annum	31 December  2010 % per annum	31 December  2009 % per annum
Inflation	3.20	2.90	3.10	3.10
Salary increases	-	-	-	-
Rate of discount	4.70	5.00	5.70	6.00
Allowance for pension in payment increases of RPI or 5% p.a. if less	3.10	2.80	3.10	3.10
Allowance for revaluation of deferred pensions of RPI or 5% if less	1.90	1.90	3.10	3.10
Allowance for commutation of pension for cash at retirement	75% of max allowance	75% of max  allowance	75% of max  allowance	50% of max  allowance

Assumption	Change in assumption	Change in liability
Discount rate Rate of inflation Rate of Salary Growth Rate of mortality	Increase/decrease of 0.5% p.a. Increase/decrease of 0.5% p.a. Increase/decrease of 0.5% p.a. 1 year increase in life expectancy	Decrease/increase by 7.6% Increase/decrease by 2.3% Increase/decrease by 0.0% Increase by 3.7%

The mortality assumptions adopted at 31 March 2013 imply the following life expectancies:

Male retiring at age 65 in 2013	21.8 years
Female retiring at age 65 in 2013	24.0 years
Male retiring at age 65 in 2033	22.7 years
Female retiring at age 65 in 2033	25.2 years

The long term expected rate of return on cash is determined by reference to UK long dated government bond yields at the balance sheet date. The long term expected return on bonds is determined by reference to UK long dated government and corporate bond yields at the balance sheet date. The long term expected rate of return on equities is based on the rate of return on bonds with an allowance for out-performance.

Pensions arrangements (continued)

Expected long term rates of return

The expected long term rates of return applicable at the start of each period are as follows:

	31 March  2013 % per annum	31 March  2012 % per annum	31 December 2010 % per annum	31 December 2009 % per annum
Equities	7.65	7.55	7.50	6.90
Bonds	4.10	4.60	5.60	5.64
Property	7.65	7.55	6.50	5.90
Cash	0.50	0.50	4.20	3.50
Overall for scheme	5.38	5.87	6.83	6.29

		31 March  2013 £'000s	31 March  2012 £'000s	31 December  2010 £'000s	31 December 2009 £'000s	31 December  2008 £'000s
Fair value of assets		15,613	16,005	16,308	15,363	14,830
Defined benefit obligation		(19,153)	(17,085)	(16,212)	(15,945)	(15,094)
Surplus/(deficit) in scheme		(3,540)	(1,080)	96	(582)	(264)
Experience adjustment on scheme assets		74	(984)	578	113	(3,937)
Experience adjustment on scheme liabilities		(1,923)	(46)	387	18	(114)

Audit Status

The preliminary announcement has been prepared under the historical cost convention, on a going concern basis and in accordance with the recognition and measurement principles of International Financial Reporting Standards and IFRIC interpretations as adapted by the EU ("IFRS"), but this announcement does not in itself contain sufficient information to comply fully with IFRS.

The directors have considered the working capital requirements of the group for a period of one year from the date of this announcement and believe that the going concern basis is appropriate due to the current cash balance and future prospects.

The preliminary announcement has been prepared on the basis of the same accounting policies as published in the audited financial statements of the group for the period ended 31 March 2012 and the accounting policies adopted in the audited financial statements of the group for the period ended 31 March 2013.

Comparative figures for the year ended 31 March 2012 have been extracted from the statutory financial statements for that period which carried an unqualified audit report, did not include a reference to any matters to which the auditor drew attention by way of emphasis and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

The financial information in this announcement does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006.

The audited statutory financial statements for the period ended 31 March 2013, which have not yet been delivered to The Registrar of Companies, contain an unqualified audit report, do not include a reference to any matters to which the auditor might draw attention by way of emphasis and do not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

 

END

 

 

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