Preliminary Results

RNS Number : 7750D

Real Good Food Company Plc (The)

29 March 2011

 



The Real Good Food Company plc (AIM: RGD) 

Preliminary Results for the year ended 31 December 2010

The Real Good Food Company plc ("the Group"), owns the largest independent non-refining distributor of sugar in Europe (Napier Brown) and is a supplier of dairy ingredients ("Garrett"), bakery ingredients (Renshaw) and a manufacturer of sweet bakery products (Haydens) for a range of major retail customers.

Highlights

Ø Significant progress achieved across all businesses in the Group

Ø Total group sales down 7% to £200.1m (2009: £215.6m), solely due to reduced EU intervention price for sugar  

Ø Group EBITDA of £5.6m in line with 2009 (2009: £5.6m)

Ø Profit before taxation and significant items increased to £2.34m (2009: £2.15m)

Ø Improvement in earnings per share (Basic) to 2.3p (2009: 1.3p)

Ø Continued reduction in net debt to £22.6m from £24.1m at the end of 2009

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

"All four businesses have made substantial progress during the year; Napier Brown has come through the difficult years of the EU sugar regime changes and is now well positioned with its supply arrangements to play an important role in the UK market; Garrett's has been relaunched as a standalone business and has quickly and successfully embarked on a growth strategy; Renshaw has delivered remarkably strong growth ahead of expectations both in the UK and Export while Haydens has continued to grow its sales while also progressing its restructuring plan."

29 March 2011

ENQUIRIES:

The Real Good Food Company plc	Tel: [phone]
Pieter Totté, Chairman
Mike McDonough, Group Finance Director
Shore Capital	Tel: [phone]
Stephane Auton
College Hill	Tel: [phone]
Gareth David

CHAIRMAN'S STATEMENT & REVIEW OF OPERATIONS

Overview

As mentioned in my interim report, I expected this year to be a transitional year, but that I was delighted with the progress we were making. It is now very pleasing to be able to demonstrate this in our results for the year, with overall Group profitability in line with expectations and a further reduction of £1.5m in our net debt.

For our sugar business this financial year has been the toughest ever in terms of margin as we were trading on the last stage of the EU sugar regime reform, with a reference price drop of 28% over the 2008 level. In the latest crop season, starting on 1 October 2010, we experienced improved volumes and margins and therefore finished the second half of the year better than the first half, and this has continued into the new financial year.

Our views regarding the market going forward, following the EU regime changes, have so far been vindicated. We felt that the market in the EU for the 2010-2011 campaign would be tight in supply and would therefore see price increases. During the final quarter of 2010, prices started to go up, albeit at a much higher level and faster than expected.

Our multiple sourcing plan, which we developed over this last year, has proven to be very beneficial as we have been able to repair our margins and we see that prices are likely to improve further during the course of 2011, particularly in the bagged sector. In our view the tightness of the market that we started to see in late 2010 will continue into 2011 and 2012. World shortages of sugar have been well reported and this, on top of the EU shortage, will add to the volatility in the market-place.

Within our sugar business, we decided to re-establish the separate identity of Garrett Ingredients, our dairy business, which has a name that is well known in the market. It has now been de-merged from Napier Brown and is being run as a separate standalone business. We are now starting to report and comment Garrett separately, in order to improve visibility.

Looking ahead we can see growth in this business through widening its product range and increasing the sales force to give it real national coverage. Tom Fowler, Managing Director, who joined the company in March 2010, has developed a strong team and delivered an excellent set of results, with EBITDA of £1.2m representing an increase of 10% year on year.

The business sees opportunities in widening its supplier base and is actively negotiating relationships and possible joint ventures across the UK, Eire, Europe and in  particular Poland. I am confident that Tom and his team are building a very strong position for Garrett in its markets and will continue to grow this business.

We expected an improved performance at Renshaw, the bakery ingredients division, but with strong growth year-on-year driving an EBITDA increase of 67% to £5.5m, the result has beaten our own best expectations. The product development team are planning a Renshaw-branded range to be introduced in the market-place and spent the largest part of their capacity this year on developing this range ahead of its planned launch in May 2011.

A particular focus on developing our export markets has proved highly successful, we reinforced our commercial and product development team during the year, and are planning to further develop our export management team in 2011. Currently we export to over 30 countries, with the US currently representing the largest part of our export business, accounting for 60% of export sales.

Haydens is continuing to grow its sales, reinforcing its supply position with its key customers and at the same time working on a very ambitious restructuring and refurbishing plan. The first major phase this year has been the signing of a lease for new premises adjacent to our existing bakery, which will increase our footprint by approximately 40% add much needed capacity to our distribution part of the business, at the same time this will also free up space for manufacturing.

Opening is ahead of schedule, and is officially planned in May 2011. This will also initiate the start of the second phase which will improve the efficiency of manufacturing through the introduction of state of the art baking technology, tools and machinery. This ultimately will enable us to improve our profitability, expand our output and capability for new innovative products.   

 Napier Brown (Sugar)

Napier Brown supplies a range of sugars in many formats to all major market sectors; large, medium and small industrial, wholesale, retail grocery and foodservice from its facilities at Normanton, near Leeds.

	Year ended 31 December 2010 £'000s	Year ended 31 December 2009 £'000s
Revenue¹	108,400	134,857
EBITDA	409	2,216
Operating (loss)/profit²	(80)	1,649
Operating profit %	-	1.2

¹ Excluding inter-company trading

² Normalised operating profit before interest, significant items and central costs

The knock-on effects of the reform of the EU Sugar Regime continued to dominate the sugar market in 2010. We had always anticipated that following the reforms the market would change but both the speed at which these changes took place and the dramatic nature of them took all commentators by surprise.

The doubling of the world price for raw sugar between July and September 2010 meant that Europe, which following the Sugar regime reforms has become a net importer, very quickly began to experience a shortage in sugar supply as the imports of cane sugar required to balance supply with demand within the EU failed to materialise, as world producers found local markets more attractive.

This shortage was then exacerbated by crop problems in certain countries, most particularly in the UK. These market changes caused us a number of challenges in the latter part of 2010 as suppliers either withdrew volumes and/or increased prices.

Margins remained tight for the majority of the year and though some price rises were experienced towards the end of the year, sourcing and logistics costs also increased. Industrial and wholesale volumes grew slightly during the year as customers recognised the value of spreading their risk by buying from more than one supplier.

Supply strategy

Two years ago the overwhelming majority of our purchases came from the UK. This has already begun to change but needs to develop further and we would envisage over 50% of our supply being imported by 2012. We have been extensively researching new supply sources and have entered into a number of new supply agreements, some of them exclusive. We plan to develop this process further during the course of the year.

Investing in infrastructure

In addition to these new sources, we are preparing ourselves to be able to receive,quality check and distribute sugar from different origins and in different formats as efficiently as possible. We are examining a number of innovative ideas as to how to distribute and offload bulk sugar.

We have also invested in our infrastructure at our Normanton site including a new 25kg bagging line and a shrinkwrap format for retail and wholesale during 2010. Future plans include upgrading our sugar processing equipment and developing new pack formats.

Developing our Marketing

We increasingly recognise that we need to invest in communicating with the UK customer base the pivotal role which we believe we will play in the UK market in the coming years. Supply security will become all important and we plan to work with customers to achieve this. In retail, we have ambitious marketing plans for our Whitworths brand, the first phase of which will come to fruition later this year.

Looking Forward

In early 2011 we were faced with substantial price increases imposed on us by our two main UK suppliers. We have managed successfully to pass on these increases in the market and, with our plans to broaden our supply base from next year, we will be able to deliver increased value and security of supply to our customers.

For 2011 and onwards we see our 'multi-sourcing' proposition becoming increasingly attractive. We believe that UK buyers will be looking for security of supply. The reduction in cane refining in the UK plus the recent beet crop issues will make the UK even more of an import market and with the shortage of sugar within Europe generally, our ability to offer alternative supply sources will be more important than ever.

Napier Brown is well positioned for growth with new supply arrangements being increasingly attractive in an under-supplied UK market. The business is now structured to manage customers in each market sector (bulk, industrial bags and retail) and will invest to deliver value added products and service as their needs demand.

 Garrett Ingredients (Dairy)

Garrett Ingredients ("Garrett"), which is based at Thornbury, near Bristol, supplies a range of dairy powders, blends, and specialist ingredients, in addition to sugars to the ice cream and bakery industries.

	Year ended 31 December 2010 £'000s	Year ended 31 December 2009 £'000s
Revenue¹	25,584	24,706
EBITDA	1,182	1,088
Operating profit²	1,182	1,088
Operating profit %	4.6%	4.4%

¹ Excluding inter-company trading

² Normalised operating profit before interest, significant items and central costs

This business made a significant recovery in 2010, growing both sales and margin, and was re-launched under its original name, Garrett Ingredients, in October 2010, to reflect the successful proposition and style of its considerable heritage in the dairy market. Under the leadership of Tom Fowler, who has now been appointed Managing Director, the management team has been developed and extended with a number of new appointments made to take advantage of the many growth opportunities available.

Garrett still has a strong presence supplying the ice cream industry, but has continued to diversify into other food manufacturing sectors such as bakery, ready meals and soft drinks manufacturers. The company's main operation is trading dairy ingredients alongside sugar. It also has access to the Group's dry blends manufacturing unit, which is now sited at Carluke in Scotland, where a range of dairy mixes are produced, including bespoke blends for individual customers.

The business has also expanded its offering into other specialist ingredients thereby offering a 'One Stop Shop' solution to many customers. As well as leveraging better pricing, Garrett is well known for its technical knowledge and expertise and offers full product traceability.

Dairy Markets

A combination of growing global demand and more frequent extreme weather events across the world has led to increased volatility in dairy markets in terms of both supply and price. Our strategy to meet this challenge, as with Napier Brown in sugar, is to look to increase the number of our supply partners across the UK, Eire and increasingly both Western and Eastern Europe.

Product range and customer base

Our growth strategy involves broadening both our product range and our customer base. As well as continuing to develop sales of existing products such as our award winning UHT Sunshine Ice Cream Mix, we are working with customers to identify specific ingredients which we can source on their behalf. We appointed a Business Development Manager, Paul Carlisle, during the year and he is now successfully introducing our proposition to a range of new customers and industry sectors.

Looking Forward

Garrett Ingredients, with its entrepreneurial spirit and strong reputation for customer service, is well placed for growth by offering customers supply security and technical assurance in increasingly volatile markets.

 Renshaw (Bakery Ingredients)

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.

	Year ended 31 December 2010 £'000s	Year ended 31 December 2009 £'000s
Revenue¹	42,793	34,964
EBITDA	5,455	3,260
Operating profit²	4,575	2,493
Operating profit %	10.6	6.6

¹ Excluding inter-company trading

² Normalised operating profit before interest, significant items and central costs

2010 was a record year for Renshaw, with sales up by 13% to £43 million, significantly ahead of its three year growth plan. All sectors of the business performed ahead of expectations, with Sugar paste (icing) being a key driver across all sales channels. Our export business continued to expand: we now export to 31 countries globally, and exports will be a key focus in 2011.

Results from plans put in place at the beginning of 2010 have started to materialise and have had a positive impact on the overall performance of the business.  In addition to growing the core areas of our business Renshaw has also expanded its presence in other categories in a response to the continuing interest in home baking.

The Scott brand which is manufactured in Carluke, Scotland, was relaunched as R&W Scott with a new "retro" image which highlights the heritage and small batch production methods of the factory.  The two new quality ranges of Scottish 50% fruit jams and marmalades have been well received in the regional trade and also in the export market and plans are in place to build on this success. Promotion at trade shows and the Scottish Food Shows were well received.

Key challenges came in the form of commodity cost increases which affected the majority of our products and were either mitigated or recovered in trhe market place.

People

The commercial team has been strengthened with the introduction of a number of key personnel who will focus on continuing to drive innovation within the category from a branded perspective, whilst also responding to customers needs in the different channels. On the finance side, Graham Chellew has been promoted to Finance Director of Renshaw, and continues to improve internal reporting and financial measurement.

Plant

Realisation of new products and packaging has required investment in machinery for both production and packing and these have been implemented within the current factory environment.  Increases in demand for core products have also been dealt with by adopting a flexible approach within the factory and developing multiuse areas.

Looking Forward

The majority of the planning and work undertaken in 2010 will come to fruition in the second and third Quarters of the current year. To capitalise on the current trend of home baking and crafting, the Renshaw brand has been segmented into a Professional and a Consumer offering.  Within the proposition are new and innovative products and packaging solutions which will deliver first to market presence in both the professional and consumer sectors. 

With a complete marketing support package including online, advertising and public relations support, the brand presence of Renshaw will become strongly felt in the consumer marketplace in 2011. Continued sponsorship of industry events and a trade advertising programme will assure a maintained presence in the bakery area too. Increasing demand for our products abroad has led to a number of enquiries through our website and also an increased focus on export as an opportunity.  Several geographical areas have been targeted for initial focus.

 Haydens (Bakery)

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

	Year ended 31 December 2010 £'000s	Year ended 31 December 2009 £'000s
Revenue¹	23,327	21,086
EBITDA	415	305
Operating profit²	(238)	(394)
Operating profit %	(1.0)	(1.9)

¹ Excluding inter-company trading

² Normalised operating profit before interest, significant items and central costs

2010 witnessed a steady and seamless continuation of the restructuring at Haydens, as the foundations that were put in place the previous year have now been largely completed and the Executive team is now well placed to deliver its recovery plan. Strong new product development once again aided record sales for Hayden's across all sectors, including the bakery, patisserie and dessert ranges. Overall sales were up by 10% and of particular note was the growth seen in the dessert ranges, where strong innovation provided growth in the order of 20%.

One of the key challenges facing the Business in 2010 was matching the growing expectations of the key Customers with available capacity. In July, the Business was able to secure a long lease on an additional 30,000 sq feet of space in close proximity to the Bakery. This equates to 40% additional footprint and will allow Hayden's to create a dedicated contract distribution site. The space freed up in the prime manufacturing area allows a significant development plan to commence in both refurbishment and the installation of new state of the art process lines. 

Christmas, traditionally the peak trading period of the year, provided a 'best ever Christmas' for Haydens, in spite of poor weather conditions which changed purchasing habits over the festive period.

Last year, we reported on the start of our three year plan for the Business and the formation of a very strong and talented senior team. I am delighted to report that we have made good progress across all four principal platforms of the Plan:

People

The Haydens Executive Board was strengthened with the internal appointment of Stephen Brooks as Operations Director and most recently with Peter Dunn as Commercial Director. Heavy investment in training has resulted in the business having a stronger and highly committed workforce. Reductions in both temporary and agency staff has further led to an up-skilling at all levels of the Company.

Plant

The move of the Contract Distribution commenced with the acquisition of an additional site in July. The £800,000 capital investment will be completed by Easter 2011. The space released will allow the implementation of the operational strategy to proceed with the first of the new process lines to be installed during 2011.

Process

Work on integrating modern systems alongside 'hand crafting' skills continues to progress. System and procedural changes to stock and material management are providing benefits and greater control. Lean initiatives first introduced last year are being embraced across the Operation.

Product

A key milestone was achieved in the second half of the year with the appointment of Ross Sneddon as Executive Chef. Ross joins Hayden's with a wealth of experience as a highly skilled Chocolatier and Patisserie chef. He has created a new Innovations team, which will become fully operational during the first half of 2011.

Looking forward

There is much excitement around the new distribution site planned to open in time for Easter this year. This is a very significant milestone as it allows the Business to achieve two fundamental parts of its strategy simultaneously.

Firstly, with a larger and dedicated site for the Distribution activity, efficiencies previously not attainable can be realised. This, along with the ability to offer a cost effective route to market for other manufacturers, makes the proposition very commercial.

Secondly, the space freed up with the move means that the Operational strategy can commence. This will finally allow the Business to develop the core competencies that are already in demand. The first part of this new development will be in place by the half year and further significant developments can be expected before the year end.

Outlook

All four businesses have made substantial progress during the year; Napier Brown has come through the difficult years of the EU sugar regime changes and is now well positioned with its supply arrangements to play an important role in the UK market; Garrett's has been relaunched as a standalone business and has quickly and successfully embarked on a growth strategy; Renshaw has delivered remarkably strong growth ahead of expectations both in the UK and Export while Haydens has continued to grow its sales while also progressing its restructuring plan.

All four businesses understand their strengths and we will be looking to leverage these strengths through our brands, both industrial and consumer. In sugar we will refocus on our Napier Brown brand with its strong reputation in the industrial sector while developing our Whitworths consumer brand in retail; in our Dairy business we have resurrected the Garrett brand which again has a powerful heritage; in bakery ingredients we plan to extend the success of the Renshaw brand in the industrial sector into retail while also developing the R&W Scott brand in jam while Haydens continues to develop its reputation as a supplier of premium patisserie and desserts.

I would like to take this opportunity to thank all our employees across all the businesses for their considerable efforts over the past year without which we would not have achieved this substantial progress. The businesses all now have a clear vision and strategy and success in achieving our plans will be down to their continued support.

The businesses are all at exciting stages of their development and are well resourced with strong management teams who are focused on delivering the next phase of our growth plans. As such the Group is well placed to deliver further improvements in sales and profitability.

Pieter Totté

Chairman

29 March 2011

FINANCE DIRECTOR'S REPORT

Group revenue from continuing operations, at £200.1m (2009: £215.6m) was down £15.5m (7.2%) influenced heavily by the market reduction in sugar costs reflected in sales prices. The divisional performance was as follows:

·      Napier Brown down £26.5m, although £15m of this reflects the drop in Sugar costs as part of the Regime change with the rest primarily a withdrawal from low margin business.

·      Garrett, whlist historically reported as part of Napier is a Sugar and Dairy trading business in its own right and warrants separate reporting. I'm pleased to report revenue was up £0.9m in what has been a difficult sugar and dairy market over the year.

·      Renshaw delivered sales growth of 22% with all sectors up on 2009 with particular success in higher retail sales both in the UK and US.

·      Hayden's Bakeries enjoyed continued growth of 10% over 2009 with growth in both Retail and Foodservice.

Margins

Margin after Distribution costs (delivered margins) at £15.8m (2009: £15.6m) was in line with 2009 and expectations. Napier Brown's margins dropped by £2.3m with sales prices falling disproportionately lower than Sugar costs driving overall performance to only £0.4M at EBITDA level. Garretts was able to extend margins by £0.2m on positive management of a difficult market. Renshaw's strong growth increased overall margin levels by £2.3m. Haydens was flat year-on-year, with commodity cost increases offsetting the continuing Sales growth and sales prices not moving to recover costs until late in the year.

Profit before tax and interest

In what we expected to be a difficult year of transition for the Sugar market, overall operating profits for the Group before significant items, at £3.6m, was in line with forecast and 2009 levels.

Financing costs

Financing costs in 2010 at £1.37m were in line with 2009 levels (£1.38m).  

Significant items

During the year the Group incurred costs of £0.4m primarily related to the reorganisation of the Haydens operation which has seen a significant investment in resources during the year to support the growth plans.

Cash flow and debt

The Group's total net debt (after cash) as at 31 December was £22.6m (2009: £24.1m). The £1.5m reduction is driven primarily by improvements in trading terms and working capital management. Cash management continues to be an area of major focus for us. The Group's borrowing facilities with PNC Business Capital comprise £34m of total facilities, of which £19.6m (incl £3.18m cash) was utilised as at 31 December 2010, at a blended average cost of 2.76% over base rate.

Pensions

The subsidiaries of the Group, Napier Brown Foods Limited and Renshawnapier Limited, operate a defined benefit pension scheme. The scheme is closed to new members. The IAS 19 valuation of the scheme at the year end identified a £0.1m surplus, an improvement of £0.4m on the prior year. During the year the Group contributed £117k (2009: £98k) to the scheme.

Key Performance Indicators

The Group's Board 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:

			Year ended 31 December 2010		Year ended  31 December 2009
Revenue growth1			(7.2%)		(1.4%)
Operating margin2			1.8%		1.6%
Debt cover (net debt:EBITDA)3			4.0		4.3
Interest cover4			4.5		4.0
Health & Safety score5			80%		75%
1 -	Revenue growth is calculated for continuing operations.
2 -	Operating margin is stated for continuing operations only and is calculated by dividing profit before tax and before 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 receivable).
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.

Mike McDonough

Group Finance Director

29 March 2011

CONSOLIDATED STATEMENT of comprehensive income

For the year ended 31 December 2010 

	Year Ended 31  December 2010			Year Ended 31 December 2009
	Before Significant Items	Significant Items (Note 6)	Total	Before Significant Items		Significant Items (Note 6)	Total
CONTINUING OPERATIONS	£'000s	£'000s	£'000s	£'000s		£'000s	£'000s
REVENUE	200,104	-	200,104	215,613		-	215,613
Cost of sales	(176,225)	-	(176,225)	(191,606)	-		(191,606)
GROSS PROFIT	23,879	-	23,879	24,007		-	24,007
Distribution costs	(8,053)	-	(8,053)	(8,433)		-	(8,433)
Administration expenses	(12,217)	(395)	(12,612)	(12,030)		(525)	(12,555)
OPERATING PROFIT	3,609	(395)	3,214	3,544		(525)	3,019
Finance income	5	-	5	92		-	92
Finance costs	(1,365)	-	(1,365)	(1,472)		-	(1,472)
Other finance income	94	-	94	(13)		-	(13)
PROFIT BEFORE TAXATION	2,343	(395)	1,948	2,151		(525)	1,626
Income tax expense	(536)	111	(425)	(945)		149	(796)
PROFIT FROM CONTINUING OPERATIONS	1,807	(284)	1,523	1,206		(376)	830
OTHER COMPREHENSIVE INCOME
Actuarial gains /  (losses) on defined benefit plans	488	-	488	(520)		-	(520)
Income tax relating to components of other comprehensive income	(137)	-	(137)	146		-	146
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	2,158	(284)	1,874	832		(376)	456
Earnings per share from continuing and discontinued operations:
- basic			2.3p				1.3p
- diluted			2.2p				1.3p
Earnings per share from continuing operations:
- basic			2.3p				1.3p
- diluted			2.2p				1.3p

Consolidated STATEMENT OF Changes in equity

For the year ended 31 December 2010 

		Issued Share Capital	Share Premium Account	Share Option Reserve	Retained Earnings	Total
		£'000s	£'000s	£'000s	£'000s	£'000s
Balance as at 1 January 2009		1,300	68,870	73	7,331	77,574
Shares options to be issued		-	-	-	-	-
Total comprehensive income for the year		-	-	-	456	456
Balance as at 31 December 2009		1,300	68,870	73	7,787	78,030
Balance as at 1 January 2010		1,300	68,870	73	7,787	78,030
Shares options to be issued		-	-	34	-	34
Deferred tax on share options		-	-	46	-	46
Total comprehensive income for the year		-	-	-	1,874	1,874
Balance as at 31 December 2010		1,300	68,870	153	9,661	79,984

consolidated STATEMENT OF FINANCIAL POSITION

As at 31 December 2010

	31 December 2010 £'000s		31 December 2009 £'000s
NON CURRENT ASSETS
Goodwill	75,796		75,796
Other intangible assets	625		651
Property, plant and equipment	15,603		15,226
Deferred tax asset	351		431
	92,375		92,104
CURRENT ASSETS
Inventories	9,546		9,570
Trade and other receivables	24,373		23,452
Cash and cash equivalents	3,187		5,657
	37,106		38,679
TOTAL ASSETS	129,481		130,783
CURRENT LIABILITIES
Trade and other payables	19,891		19,023
Borrowings	17,258		18,373
Derived financial instruments	30		-
Current tax liabilities	589		158
	37,768		37,554
NON CURRENT LIABILITIES
Borrowings	8,565		11,430
Deferred tax liabilities	3,164		3,187
Retirement benefit obligations	-		582
	11,729		15,199
TOTAL LIABILITIES	49,497		52,753
NET ASSETS	79,984		78,030
EQUITY
Share capital	1,300		1,300
Share premium account	68,870		68,870
Share option reserve	153		73
Retained earnings	9,661		7,787
TOTAL EQUITY	79,984		78,030

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

29 March 2011.

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2010

			Year ended 31 December 2010		Year ended  31 December 2009
			£'000s		£'000s
CASH FLOW FROM OPERATING ACTIVITIES
Adjusted for:
Profit before taxation			1,948		1,626
Finance costs			1,365		1,472
Finance income			(5)		(92)
IAS 19 costs/(income)			(94)		13
Depreciation of property, plant & equipment			1,785		1,895
Amortisation of intangibles			241		127
Operating Cash Flow			5,240		5,041
Decrease in inventories			24		1,393
Decrease/(Increase) in receivables			(922)		1,736
Increase in payables			904		1,414
Cash generated from operations			5,246		9,584
Income taxes recovered/(paid)			(23)		987
Interest paid			(1,341)		(1,960)
Net cash from operating activities			3,882		8,611
CASH FLOW FROM INVESTING ACTIVITIES
Interest received			5		92
Purchase of intangible assets			(215)		(265)
Purchase of property, plant & equipment			(2,162)		(713)
Net cash used in investing activities			(2,372)		(886)
CASH FLOW USED IN FINANCING ACTIVITIES
Repayment of borrowings			(3,708)		(3,236)
Repayment of obligations under finance leases			(272)		(296)
Net cash used in financing activities			(3,980)		(3,532)
NET INCREASE/(DECREASE) IN CASH AND CASH  EQUIVALENTS			(2,470)		4,193
CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year			5,657		1,464
Net movement in cash and cash equivalents			(2,470)		4,193
Cash and cash equivalents at end of year			3,187		5,657
Cash and cash equivalents comprise:
Cash			3,187		5,657
Overdrafts			-		-
			3,187		5,657

NOTES TO THE FINANCIAL STATEMENTS

Year ended 31 December 2010

1.       SEGMENT REPORTING

Business segments

The group has historically traded with its operating segments being Sugar, Bakery Ingredients and Bakery and the Group's management and reporting structure has been set out along these lines. 2010 saw the re-launch of Garrett Ingredients as an important part of the group and from 2011 this division, which is currently reported within Sugar, will be reported as a separate operating segment.

The following table shows the Group's revenue and results for the year under review analysed by operating segment. The Group reports and manages its trading segments at an EBIT reporting level without allocating head office costs. The table below, therefore, shows segment performance at a profit after tax level without allocating any head office or consolidation adjustments or the tax and finance costs relating to head office.

Year Ended 31 December 2010
	Sugar	Bakery Ingredients	Bakery	Continuing Operations Total	Significant items	Total Group
	£'000s	£'000s	£'000s	£'000s	£'000s	£'000s
Total Revenue	136,113	42,971	23,327	202,411	-	202,411
Revenue - Internal	(2,129)	(178)	-	(2,307)	-	(2,307)
External Revenue	133,984	42,793	23,327	200,104	-	200,104
Operating Profit	1,102	4,575	(238)	5,439	(395)	5,044
Head Office and consolidation adjustments				(1,830)	-	(1,830)
Net Finance Costs Unallocated Net Finance Costs	(789) -	(460) -	(86) -	(1,335) (25)	- -	(1,335) (25)
Pension finance income	-	-	-	94	-	94
Profit/(loss) before tax	313	4,115	(324)	2,343	(395)	1,948
Tax Unallocated Tax	(192) -	(854) -	31 -	(1,015) 479	- 111	(1,015) 590
Profit/(loss) after tax as per comprehensive statement of income	121	3,261	(293)	1,807	(284)	1,523

Inter-segment sales are charged at prevailing market rates.

NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

2.       SIGNIFICANT ITEMS

		Year ended 31 December 2010	Year ended 31 December 2009
		£'000s	£'000s
Management restructuring costs		(395)	(634)
Onerous lease provision released		-	109
		(395)	(525)
		(395)	(525)
Taxation credit on significant items		111	149
		(284)	(376)

During the year 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 year.

3.       Taxation

	Year ended	Year ended
	31 December	31 December
	2010	2009
	£'000s	£'000s
CURRENT TAX
UK Current tax on profit of the year	576	221
UK Current tax on significant items	(111)	(149)
Adjustments in respect of prior years	(7)	(58)
Total current tax	458	14
Deferred Tax
Deferred tax charge re pension scheme	26	57
Origination and reversal of timing differences	104	455
Adjustments in respect of prior years	(56)	(12)
Deferred tax asset re losses brought forward	-	282
Adjustment in respect of change in
deferred tax rate	(107)	-
Total deferred tax	(33)	782
Tax on profit on ordinary activities	425	796

NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

Factors affecting tax charge for the year:

The tax assessed for the year is lower (2009 - higher) than the standard rate of corporation tax in the UK (28%).  The differences are explained below:

	Year ended	Year ended
	31 December	31 December
	2010	2009
	£'000s	£'000s
TAX RECONCILIATION
Profit per accounts before taxation	1,948	1,626
Tax on profit on ordinary activities at standard CT rate of (28%)	545	455
Expenses not deductible for tax purposes	51	22
Impact of change in tax base for leasehold	-	107
Additional deduction for R&D expenditure	-	(33)
Deferred tax asset re losses brought forward	-	282
Marginal Relief	-	(4)
Adjustment in respect of change in deferred tax rate	(107)	-
Adjustments to tax in respect of prior years	(64)	(33)
Tax charge for the year	425	796

NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

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.

	Year ended 31 December 2010	Year ended 31 December 2009
	Continuing Operations	Continuing Operations
Earnings after tax attributable to ordinary shareholders (£000's)	1,523	830
Weighted Average No. of shares in issue (000's)	65,014	65,014
Basic earnings per share	2.3p	1.3p

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.

	Year ended 31 December 2010	Year ended 31 December 2009
	Continuing Operations	Continuing Operations
Earnings after tax attributable to ordinary shareholders (£000's)	1,523	830
Total Potential Weighted Average No. of shares in issue (000's)	68,311	65,590
Diluted earnings per share	2.2p	1.3p

NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

4.       EARNINGS per SHARE (continued)

Adjusted earnings per share

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 allows shareholders to gain a clearer understanding of the trading performance of the Group.

	Year ended 31 December 2010	Year ended 31 December 2009
	Continuing Operations	Continuing Operations
Earnings after tax attributable to ordinary shareholders (£000's)	1,523	830
Add back significant items (note 6)	395	525
Add back tax on significant items	(111)	(149)
Adjusted earnings after tax attributable to ordinary shareholders (£000's)	1,807	1,206
Weighted Average No. of shares in issue (000's)	65,014	65,014
Basic earnings per share	2.8p	1.9p
Total Potential Weighted Average No. of shares in issue (000's)	68,311	65,590
Basic diluted earnings per share	2.6p	1.8p

NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

5.       goodwill

	GROUP
	£'000s
Cost
Brought forward 1 January 2010	75,796
Carried forward 31 December 2010	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:
	Year ended 31 December 2010	Year ended 31 December 2009
	£'000s	£'000s
Sugar and Bakery Ingredients division*	75,796	75,796
Carried forward 31 December 2010	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 4.61% (2009 - 3.57%). 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 time scale the recoverable amounts exceed the carrying value by £54 million. Actual results were 12% 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 10.4% (2009 - 7.6%)  would cause the Board to impair the carrying value of goodwill.

 NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

6.       Borrowings AND CAPITAL MANAGEMENT

	Year ended 31 December 2010	Year ended 31 December 2010	Year ended 31 December 2009	Year ended 31 December 2009
	Group	Company	Group	Company
	£'000s	£'000s	£'000s	£'000s
Unsecured borrowings at amortised cost
Loan notes	2,774	-	2,774	-
Secured borrowings at amortised cost
Bank term loans	7,784	7,784	10,379	10,379
Revolving credit facilities	15,032	1,088	16,145	1,598
Hire purchase	233	106	505	199
	25,823	8,978	29,803	12,176
Amounts due for settlement within 12 months	17,258	3,187	18,373	3,647
Amounts due for settlement after 12 months	8,565	5,791	11,430	8,529
	25,823	8,978	29,803	12,176

NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

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/defecit to be calculated using prudent as opposed to best actuarial assumptions. The actuarial valuation showed a deficit of £5.0 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 defecit contributions contingent on the Group's year end cash position relative to its banking covenants.

For the purposes of IAS19 the data provided for the 1 April 2009 Actuarial valuation has been approximately updated to reflect liabilities on the accounting basis at 31 December 2010. This has resulted in a surplus in the scheme of £96,000.

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.  The asset this year is not recognised as the scheme is closed to new members and therefore the surplus is not considered to be recoverable by the Group.

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

	Year ended 31 December 2010 £'000s	Year ended 31 December 2009 £'000s	Year ended 31 December 2008 £'000s	Year ended 31 December 2007 £'000's	Year ended 31 December 2006 £'000's
Present value of defined benefit obligation	16,212	15,945	15,094	16,268	17,808
Fair value of plan assets	(16,308)	(15,363)	(14,830)	(18,052)	(16,585)
Deficit/(surplus) in plan	(96)	582	264	(1,784)	1,223
Amount not recognised in accordance with IAS I9 paragraph 58b	96	-	-	1,249	-
Gross amount recognised	-	582	264	(535)	1,223
Deferred tax at 28% / 30%	-	(163)	(74)	535	(367)
Net liability	-	419	190	-	856

NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

7.       Pensions ARRANGEMENTS (continued)

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

	Year ended	Year ended
	31 December	31 December
	2010	2009
	£'000s	£'000s
Defined benefit obligation at start of year	15,945	15,094
Interest cost	937	930
Actuarial losses/(gains)	(6)	633
Benefits paid, death in service insurance premiums and expenses	(664)	(712)
Defined benefit obligation at end of year	16,212	15,945

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

	Year ended	Year ended
	31 December	31 December
	2010	2009
	£'000s	£'000s
Fair value of scheme assets at start of the year	15,363	14,830
Expected return on scheme assets	1,031	917
Actuarial gains	578	113
Contributions by the Group paid	117	98
Adjustment for contribtions by the Group not agreed	(117)	117
Benefits paid, death in service insurance premiums and expenses	(664)	(712)
Fair value of scheme assets at end of the year	16,308	15,363

The actual return on the scheme assets over the year ending 31 December 2010 was £1,609,000 (2009 - £2,692,000).

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

	Year ended	Year ended
	31 December	31 December
	2010	2009
	£'000s	£'000s
Interest on liabilities	937	930
Expected return on scheme assets	(1,031)	(917)
Total cost/(income)	(94)	13

NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

7.       Pensions ARRANGEMENTS (continued) 

Statement of recognised income and expenses

	Year ended	Year ended
	31 December	31 December
	2010	2009
	£'000s	£'000s
Difference between expected and actual return on scheme assets: gain	578	113
Experience gains and losses arising on the scheme liabilities: gain	387	18
Effects of changes in the demographic and financial assumptions underlying the present value of the scheme liabilities: (loss)	(381)	(651)
Reversal of the limit under IAS19 paragraph 58b	(96)	-
Total amount recognised in statement of changes in equity	488	(520)

Assets

	Year ending 31 December 2010 £'000s	Year ending 31 December 2009 £'000s	Year ending 31 December 2008 £'000s
Equities	10,779	10,274	8,547
Bonds	3,990	3,919	5,092
Property	408	449	563
Cash	1,131	721	628
Total assets	16,308	15,363	14,830

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.        

NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

7.       Pensions ARRANGEMENTS (continued)

Assumptions

	Year ended 31 December 2010 % per annum	Year ended 31 December 2009 % per annum	Year ended 31 December 2008 % per annum
Inflation	3.10	3.10	3.10
Salary increases	-	-	-
Rate of discount	5.70	6.00	6.30
Allowance for pension in payment increases of RPI or 5% p.a. if less	3.10	3.10	3.10
Allowance for revaluation of deferred pensions of RPI or 5% if less	3.10	3.10	3.10
Allowance for commutation of pension for cash at retirement	75% of max allowance	50% 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 morality	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 7.8% Increase / decrease by 3.1% Increase / decrease by 0.0% Increase by 2.8%

The mortality assumptions adopted at 31 December 2010 imply the following life expectancies:

Male retiring at age 65 in 2010	21.9 years
Female retiring at age 65 in 2010	24.0 years
Male retiring at age 65 in 2030	23.8 years
Female retiring at age 65 in 2030	26.0 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.

NOTES TO THE FINANCIAL STATEMENTS (continued)

Year ended 31 December 2010

7.       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:

	Year ended 31 December 2010 % per annum	Year ended 31 December 2009 % per annum	Year ended 31 December 2008 % per annum
Equities	7.50	6.90	6.90
Bonds	5.60	5.64	5.64
Property	6.50	5.90	5.90
Cash	4.20	3.50	3.50
Overall for scheme	6.83	6.29	6.29

	Year ended 31 December 2010 £'000s	Year ended 31 December 2009 £'000s	Year ended 31 December 2008 £'000s	Year ended 31 December 2007 £'000s	Year ended 31 December 2006 £000's
Fair value of assets	16,308	15,363	14,830	18,052	17,808
Defined benefit obligation	(16,212)	(15,945)	(15,094)	(16,268)	(16,585)
Surplus /(deficit) in scheme	96	(582)	(264)	1,784	1,223
Experience adjustment on
scheme assets	578	113	(3,937)	893	(244)
Experience adjustment on
scheme liabilities	387	18	(114)	464	280

8. Audit status

The financial information set out above does not constitute the company's statutory financial statements for the years ended 31 December 2010 or 2009, but is derived from those financial statements. Statutory financial statements for 2009 have been delivered to the Registrar of Companies and those for 2010 will be delivered following the company's annual general meeting. The auditors have not yet reported on the 2010 financial statements.

Whilst the financial information included in this preliminary announcement has been computed in accordance with International Financial Reporting Standards (IFRS), this announcement does not in itself contain sufficient information to comply with IFRS. The accounting policies used in the preparation of this preliminary announcement are consistent with those in the full financial statements which have yet to be published. The preliminary results for the year ended 31 December 2010 were approved by the Board of Directors on 29 March 2011.

 

END

 

 

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