Interim Results

RNS Number : 2476E

Real Good Food Company Plc (The)

25 September 2008

The Real Good Food Company plc

Interim results for the six months ended 30 June 2008

The Real Good Food Company plc ('the Group'), the sugars, ingredients and bakery company, today announces its Interim Results for the six months ended 30 June 2008

Highlights

> Market conditions in core Sugar Division remain challenging

> 13% growth in sales achieved by Baking Ingredients Division

> Total Group sales from continuing operations down 8% to £104.0m (2007: £112.8m)

> Operating profit before taxation and significant items of £921,000 (2007: £2.2m)

> Loss before taxation of £1.59m (2007: £184,000)

> Diluted loss per share of 1.7p (2007: profit of 4.7p)

> Successful refinancing of debt facilities

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

'Sales of the group continue to be skewed towards the last quarter and the critical Christmas trading period. It is still too early to anticipate the outcome of trading in this period. However, given the circumstances and trading conditions outlined above and in the absence of any significant improvement in market conditions, the Board anticipates that the results for the year ended 31 December 2008 are likely to be circa £1m lower than current market expectations.'

25 September 2008

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 7457 2020
Gareth David

Chairman's Statement

Introduction

As highlighted in our most recent trading update, these results for the six months to 30th June 2008 reflect a period of difficult trading conditions, when margins have been under competitive pressure and when fuel and energy prices have continued to rise, and look likely to have a consequential effect during the second half, particularly on packaging items.

Total Group sales for the period fell by 8% to £104m, principally due to a 10% reduction in sales by our Sugar Division and despite sales growth of 13% in our Baking Ingredients Division and a modest decline in sales of just 4% in the Bakery Division. Operating profit before significant items from continuing operations fell from £2.25m to £921,000, reflecting a 36% fall within our Sugar Division to £1.84m, a 32% fall within Baking Ingredients to £78,000 and an operating loss of £275,000 (2007: profit of £58,000) in our Bakery Division.

EU market conditions relating to sugar have continued to be challenging due largely to the uncertainty surrounding the reference price change on the 1st October 2008 and 2009. This continues to have an effect on our business.

EU Beet producers have so far relinquished some 5.2 million tonnes of sugar quota and the Commission expects further reductions to be announced by the end of January 2009. This should ensure that no further compulsory quota cut across all member states will be necessary.

I am very pleased to announce the appointment of Andrew Brown to the position of Managing Director, Napier Brown Foods effective 19th August. Andrew has held a number of senior posts within RHM and served as MD of the Milling Division. Equally I am pleased to confirm that the group has successfully re-financed its debt structure with KBC, a leading Belgian bank.

Sugar Division

£'000s	2008 Six Months	2007 Six Months

Sales	85,713	95,022
Operating Profit*	1,838	2,865

*Normalised profit before significant items, interest and central costs

Sales in our Sugar Division were down 10% on the prior year, almost entirely due to two principal reasons. One, the loss of a large account as previously reported and, two, price deflation as a consequence of the EU reform programme. This revenue decline was partially offset by currency movements, which increased both sales and costs of sales equally and retail volumes which were up 4% on the prior year.

In our Blends operation new business has been secured with further activities planned in 2009 to improve overall operating margins. Dairy trading has been more difficult than anticipated due to the poor and inclement weather. However, plans are being finalised to further develop the business. Whilst overall profitability was down versus the prior year it remained in line with our expectations.

Baking ingredients

£'000s	2008 Six Months	2007 Six Months

Sales	14,271	12,358
Operating Profit*	78	115

* Normalised profit before significant items, interest and central costs

Sales in the first half have been very positive and are up 13% on the prior year, reflecting healthy sales in the retail sector. This is partially offset with lower chocolate compound sales, which have been adversely affected by higher oil prices used in the manufacturing process. Gross margins were only slightly ahead, which reflects the delay in recovering all the material inflation. Material, fuel and energy prices have continued to rise, hence further discussions are being finalised in relation to price increases.

The business continues to explore new opportunities with new sales to M&S for chocolate drops and a range of syrups currently being sold into food service. Contracts for the remainder of the year have all been finalised with the major retailers for the busy Christmas trading period. Operational efficiencies are improved at both factories and will support customer service during the busy seasonal period.

Bakery division

£'000s	2008 Six Months	2007 Six Months

Sales	8,535	8,889
Operating Profit*	(275)	58

* Normalised profit before significant items, interest and central costs

Overall sales are down 4% on the prior year reflecting poor sales on a few key lines. The business is now focused on matching the consumer and customer needs to address this shortfall. As a consequence, the business has established a relationship with a leading patisserie Chef from London which should enhance our overall capability.

Material control remains a major challenge to the business and as a consequence further rationalisation will be required as well as further price increases to offset the effect of fuel and energy prices encountered this year. The business has now implemented the shift re-configuration as planned, reducing expensive night shift premiums.

Significant items

During the period under review, the Group incurred a number of one-off significant costs. These were largely related to the refinance of the Group (£0.8m) reflecting break costs with our previous lender and the release of the associated prepaid loan arrangement fees. Restructuring costs of £0.4m were also incurred as operational restructuring was undertaken at a number of divisions, whilst the provision for an onerous lease was increased by £0.2m as the Group has been unable to re-lease the property.

Cashflow

Cashflow from operating activities before working capital and significant items was £1.7m, reflecting a lower level of operating profit compared to the prior year. Investment in working capital was reduced by £0.4m during the period. Higher stock levels within both Sugar and Bakery Ingredients were driven by raw material inflation, seasonal stock builds for the higher second half sales and higher dairy and imported sugar stocks. These were offset by higher creditor levels, largely reflecting the timing of the stock builds and higher raw material costs.

Net interest costs amounted to £1.1m while continuing operations tax payments were £0.7m Additional tax payments of £2.9m were made in the period in relation to the deferred payments of tax due on the profit on disposal of Five Star Fish last year. Loan repayments, under our existing facility, of £0.8m left net debt at £31.4m up £5.5m since the year end, reflecting the deferred tax payments and higher stock levels.

Refinancing

As reported in our pre-close statement, the Group completed a re-finance of our debt facilities on the 19th July. This saw the repayment of facilities with our existing lender and new asset backed facilities undertaken with KBC, a leading Belgian bank. The new loans are for a period of five years, with two revolving facilities, secured against debtors and stock and term loan facilities of £13.3m which attract loan repayments of £2.20m per annum.

Outlook

In the Sugar Division the last few months have been a difficult trading period with both volumes and margins lower than anticipated as we enter the first reference price change. Whilst the sugar industry appears to be moving towards equilibrium on supply, some volatility is still expected until the regime change is fully implemented in October 2009. Further, customer call off on volumes is expected to continue below our original expectations.

Within Bakery Ingredients, sales improvements achieved in the first half have abated with lower volumes and margins in quarter three. There is much nervousness within the trade in attempting to understand potential consumer attitudes during the key Christmas trading period and this leads us to be cautious on our expectations for the full year.

In the Bakery Division sales have continued below that of the prior year. However new business has been secured within the Foodservice sector following re-assessment of the overall business strategy. Margins remain difficult as the business continues to wrestle with material variances and higher input costs.

Sales of the group continue to be skewed towards the last quarter and the critical Christmas trading period. It is still too early to anticipate the outcome of trading in this period. However, given the circumstances and trading conditions outlined above and in the absence of any significant improvement in market conditions, the Board anticipates that the results for the year ended 31 December 2008 are likely to be circa £1m lower than current market expectations.

Pieter Totte

Chairman

25 September 2008

Consolidated Income statement for the six months ended 30 June 2008 (Unaudited)

				Period ended 30 June 2008			Period Ended 30 June 2007

	Notes	Before Significant Items	Significant Items	Total	Before Significant Items	Significant Items	Total
		£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
CONTINUING OPERATIONS

REVENUE		103,972	-	103,972	112,835	-	112,835
Cost of sales		92,821	-	92,821	99,162	-	99,162

GROSS PROFIT		11,151		11,151	13,673		13,673
Distribution costs		4,371		4,371	5,165		5,165
Administration expenses		5,859	1,365	7,224	6,253	489	6,742

OPERATING PROFIT		921	(1,365)	(444)	2,255	(489)	1,766

Finance Income		106	-	106	180	-	180
Finance Costs		(1,407)	-	(1,407)	(2,220)	-	(2,220)
Net Pension Finance Income		157	-	157	90	-	90

PROFIT/(LOSS) Before Taxation		(223)	(1,365)	(1,588)	305	(489)	(184)

Taxation		75	410	485	(66)	-	-66

PROFIT/(LOSS) FROM CONTINUING OPERATIONS
		(148)	(955)	(1,103)	239	(489)	(250)
DISCONTINUED OPERATIONS
REVENUE		-	-	-	14,962	-	14,962
Operating Expenses		-	-	-	12,804	-	12,804
OPERATING PROFIT		-	-	-	2,158		2,158

Finance Costs		-	-	-	(95)	-	(95)
Profit on Sale of Subsidiary		-	-	-	-	8,300	8,300
Taxation		-	-	-	(439)	-6,581	(7,020)
PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS

		-	-	-	1,624	1,719	3,343
PROFIT/(LOSS) FOR THE PERIOD		(148)	(955)	(1,103)	1,862	1,230	3,093
Basic Profit/(loss) per share	5	0		(1.7)	2.9		4.8
Diluted Profit/(loss) per share	5	0		(1.7)	2.9		4.7

CONSOLIDATED BALANCE SHEET AS AT 30 JUNE 2008 (UNAUDITED)

GROUP BALANCE SHEET	30 June 08	30 June 07	31 Dec 07
As at 30 June 2008
	£'000s	£'000s	£'000s
ASSETS
Non Current Assets
Goodwill	75,796	75,794	75,796
Intangibles	587	548	547
Property, Plant and Equipment	16,770	15,841	16,721
	93,153	92,183	93,064

Current Assets
Inventory	11,970	11,396	9,353
Trade and Other Receivables	24,749	27,144	24,784
Financial Instruments at fair value	1	123	113
Corporation Tax	556	-	-
Cash and cash equivalents	7,769	23,333	13,780
	45,045	61,996	48,030

Total Assets	138,198	154,179	141,094

LIABILITIES
Current Liabilities
Borrowings	22,223	17,161	22,479
Trade and Other Payables	19,580	20,254	17,289
Financial Instruments at fair value	37	12	81
Corporation Tax	-	7,410	3,615
	41,840	44,837	43,464

Non current Liabilities
Borrowings	16,921	31,482	17,161
Deferred Tax	982	844	912
Provisions	545	470	356
	18,448	32,796	18,429
	77,910	76,546	79,201
Total Assets Less Liabilities


SHAREHOLDERS' EQUITY
Called up share capital	1,300	1,300	1,300
Share premium account	68,870	68,870	68,870
Other Reserves	79	68	66
Profit and loss account	7,661	6,308	8,965

EQUITY SHAREHOLDERS FUNDS	77,910	76,546	79,201

STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2008 (UNAUDITED)

	Issued Share Capital	Share Premium Account	IFRS 2 Share Option reserve	Retained Earnings	Total
	£'000s	£'000s	£'000s	£'000s	£'000s

Balance at 1 January 2007	1,297	68,773	53	2,536	72,659

Shares to be issued - Options	-	-	15	-	15

Options exercised in period	3	97	-	-	100

Profit for the period	-	-	-	3,093	3,093

Pension scheme surplus for period	-	-	-	679	679

Balances as at 30 June 2007	1,300	68,870	68	6,308	76,546



Balance at 1 January 2008	1,300	68,870	66	8,965	79,201

Shares to be issued - Options	-	-	13	-	13

Profit/(Loss) for the period	-	-	-	(1,103)	(1,103)

Pension Scheme surplus for period	-	-	-	(201)	(201)

Balances as at 30 June 2008	1,300	68,870	79	7,661	77,910

CASH FLOW STATEMENT FOR THE SIX MONTHS ENDING 30 JUNE 2008 (UNAUDITIED)

		6 months to 30 June 2008	6 months to 30 June 2007
		£'000s	£'000s
CASH FLOW FROM OPERATING ACTIVITIES
	(Loss)/Profit for the period before taxation	(1,588)	10,179
Adjusted for:
	Finance costs	1,407	2,315
	Finance income	(106)	(180)
	IAS 19 income	(157)	(90)
	Depreciation of property, plant & equipment	895	930
	Amortisation of intangibles	47	67
	Share based payment expense	13	15
	Gain on disposal of discontinued operation	-	(8,300)
Operating Cash Flow		511	4,936

	(Increase) in inventories	(2,617)	(4,214)
	Decrease/(Increase) in receivables	35	(2,386)
	Increase in payables	2,430	3,242
Cash generated from operations		359	1,578

	Income taxes paid	(696)	(584)
	Interest paid	(1,130)	(2,292)
Net cash from operating activities		(1,467)	(1,298)

CASH FLOW FROM INVESTING ACTIVITIES
	Interest received	100	180
	Disposal of division	-	33,974
	Income tax paid on disposal of division	(2,919)	-
	Purchase of intangible assets	(87)	(153)
	Purchase of property, plant & equipment	(944)	(1,352)
Net cash (used in)/from investing activities		(3,850)	32,649

CASH FLOW USED IN FINANCING ACTIVITIES
	Repayment of borrowings	(812)	(23,476)
	Repayment of obligations under finance leases	(129)	(346)
	Proceeds on issue of shares	-	100
Net cash used in financing activities		(941)	(23,722)
		(6,258)	7,629
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS
	Cash and cash equivalents at beginning of year	10,785	6,925
	Net movement in cash and cash equivalents	(6,258)	7,629

Cash and cash equivalents at balance sheet date		4,527	14,554

Cash and cash equivalents comprise:
	Cash	7,769	23,333
	Overdrafts	(3,242)	(8,779)
		4,527	14,554

Notes

1. General information

The Real Good Food Company plc is a public limited company ('company') incorporated in the United Kingdom under the Companies Act 1985 (registration number 4666282). The Company is domiciled in the United Kingdom and its registered address is International House, 1 St Katherine'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, marketing and distribution of food and industrial ingredients.

Copies of the interim report are being sent to shareholders. Further copies of the interim report and Annual Report and Accounts may be obtained from the address above.

2. Basis of preparation

The Real Good Food plc adopted International Financial Reporting Standards (IFRS) with effect from 1 January 2006 and these interim statements are prepared under this basis.

The financial information set out in this document does not comprise of the statutory accounts of the Company within the meaning of section 240(5) of the Companies Act 1985.

It is the company's policy to show items that it considers being of a significant nature separately on the face of the Income Statement in order to assist the reader to understand the accounts. The company defines the term significant as items that are material in respect to their size and nature; for example, a major restructuring of the activities of the group. Summary details of significant items are shown in the Chairman's statement which forms part of these accounts.

3. Segment analysis

The group has adopted IFRS 8 'Operating Segments' in advance of its effective date, with effect from 1 January 2007. IFRS 8 requires that operating segments be identified on the basis of internal reporting and decision making. This is in line with the previous divisional reporting which 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 period under review analysed by operating segment. Segment profit represents the trading profit after depreciation but before any interest and significant items.

	Sugar	Bakery Ingredients	Bakery	Head Office and Consolidation Adjustments	Total	Discontinued Operations	Total Group

Revenue - External	81,653	13,784	8,535	-	103,972	-	103,972
Revenue - Internal	4,060	487	-	(4,547)	-	-	-

Total Revenue	85,713	14,271	8,535	(4,547)	103,972	-	103,972


Operating Profit	1,838	78	(275)	(720)	921	-	921

Significant Items							(1,365)

Earnings before interest and Tax							(444)

Net Interest							(1,301)
Pension Finance Income							157
Tax							244

Loss after Tax							(1,344)

	Sugar	Bakery Ingredients	Bakery	Head Office and Consolidation Adjustments	Total	Discontinued Operations	Total Group

Segment assets	74,445	27,719	5,318	30,698	138,180	18	138,198

Segment liabilities	(15,591)	(2,447)	(3,595)	(37,029)	(58,662)	(1,626)	(60,288)


Net Assets	58,854	25,272	1,723	(6,331)	79,518	(1,608)	77,910

The group operates a central treasury function, finance costs cannot be meaningfully allocated to individual operating divisions.

4. Earnings per ordinary share

Earnings per share is calculated on the basis of profit for the year after tax, divided by the weighted average number of shares in issue for 2008 of 65,014,348 (2007: 65,014,348).

Diluted (loss)/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 dilutive weighted average number of shares considers the number of shares that would have been issued assuming the exercise of the share options.

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

			2008			2007
	Earnings £'000s	Weighted Average No. of shares	Per share amount pence	Earnings £'000s	Weighted Average No. of shares	Per share amount pence

Earnings attributable to ordinary shareholders	(1,103)	65,014,348	(1.7)	3,093	65,014,348	4.8


Significant items	955	-	-	(1,230)	-	-

Adjusted Earnings per share	(148)	65,014,348	0	1,863	65,014,348	2.9

Dilutive effect of options	-	-	-	-	243,782	-
Dilutive effect of warrants	-	-	-	-	105,776	-

Diluted earnings per share	(1,103)	65,014,348	(1.7)	3,093	65,363,906	4.7


Diluted adjusted earnings per share	(148)	65,014,348	0	1,863	65,363,906	2.9

5. Dividends

No dividend is proposed for the six months ended 30 June 2008.

6. Taxation

The charge for taxation is based on the results for the period and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.

Provision is made in full for taxation deferred in respect of timing differences that have originated but not reversed by the balance sheet date, except for gains on disposal of fixed assets which will be rolled over into replacement assets. No provision is made for taxation on permanent differences. Deferred tax is not discounted.

Deferred tax assets are recognised to the extent that it is more likely than not that they will be recovered.

7. Pension arrangements

A subsidiary of the Group, Napier Brown Foods Limited, operates a defined benefit pension scheme, the Napier Brown Retirement Benefits Scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The contributions made by the employer over the six-month period have been £45,836.

Assumptions

The assets of the scheme have been taken at market value and the liabilities have been calculated using the following principal actuarial assumptions:

	30 June 2008 % per annum	31 December 2007 % per annum
Rate of increase in pensions in payment	3.90	3.45
Discount rate	6.00	5.80
Inflation assumption	4.00	3.45
Revaluation rate for deferred pensions	4.00	3.45

The fair value of the assets in the scheme, the present value of the liabilities in the scheme and the expected rate of return at each balance sheet date were:

	30 June 2008 %	31 December 2007 %
Equities	8.10	7.50
Bonds	5.60	5.00
Property	6.60	6.00
Cash	4.50	4.50

	30 June 2008 £'000s	31 December 2007 £'000s
Total fair value of assets	17,398	18,052
Present value of scheme liabilities	(15,379)	(16,268)
Surplus/(Deficit) in the scheme	2,019	1,784
Amount not recognised in accordance with IAS 19 paragraph 58b	(2,019)	(1,784)
Amount to be recognised	-	-

The scheme is a closed scheme and therefore under the projected unit method the current service cost would be expected to increase as the members of the scheme approach retirement.

As the scheme is closed and benefits are no longer accruing to members, the surplus is unrecoverable by the company, and as such the surplus of £2,019k is not reflected in the Group balance sheet.

8. Post Balance Sheet Events

On the 17th July the Group completed a re-finance of the Groups debt facilities. The re-financing involved the repayment of our existing revolving and term loans with our existing lenders and the entering into loan agreements with KBC, a leading Belgium bank. The new loans facilities are: