Preliminary Results

RNS Number : 0678J

Real Good Food Company Plc (The)

24 March 2010

 



The Real Good Food Company plc (AIM: RGD) 

Preliminary Results for the year ended 31 December 2009

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 bakery ingredients and a manufacturer of sweet bakery products for a range of major retail customers.

Highlights

Ø Significantly improved operating performance in Bakery Ingredients and Bakery

Ø Total group sales down 1% to £215.6m (2008: £218.7m)

Ø Profit before taxation and significant items of £2.15m (2008: £0.9m)

Ø Earnings per share (basic and diluted) of 1.3p (2008: loss per share of 1.7p)

Ø Net cash from operating activities £8.6m versus £3.1 deficit in 2008

Ø Substantial reduction in Net Debt to £24.1m from £31.4m last year

Ø Substantial reduction in net bank borrowings to £20.9m (2008: £27.9m)  

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

"The Group is better placed than ever to plan for growth and improved profitability. Since the restructuring, our various business units are organised in such a way that there is  clear accountability and performance visibility, which gives management a much better view of how to structure their growth plans. This, together with the prospect of a stabilisation of the EU sugar market, means that I look forward to coming year with considerable confidence."

24 March 2010

ENQUIRIES:

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

CHAIRMAN'S STATEMENT & REVIEW OF OPERATIONS

Results

The past year has been one of great change at The Real Good Food Company, as our new management team has tackled a range of operational and financial issues. In this, my first annual results announcement since taking an executive role last November, I am therefore pleased to be able to report that we have made  considerable strides towards achieving our strategic goals.

We have made significant progress over the past year in improving operational efficiencies, driving sales growth and reducing bank borrowings. This has enabled us to achieve an increase in profit before tax from £0.9m to £2.15m, and also enabled us to substantially cut our bank borrowings from £27.8m to £20.9m at the year end.

Total group sales were down slightly at £215.6m (2008: £218.7m), due principally to the weak market for bulk sugar sales in the period leading up to the final phase of EU Sugar Regime changes. By contrast to the picture in bulk sugar however, we achieved improved sales in retail and specialist sugars, and in our bakery ingredients business, Renshaw, and bakery division, Hayden's. 

Key features of the past year were a significant increase during the second half in sugar sales to small industrial customers, followed by the launch of a new Whitworths 25kg Pure Cane Sugar in January 2010, with further investment in flexibility of pack format planned this year to promote medium term growth. The business also continues to develop its added value sugars, sourcing a range of specialist, organic and fair trade products for both retail and industrial customers.

Within our bakery ingredients business, we benefited from a resurgence of home baking and crafting, which drove growth in export as well as domestic markets, helping the ingredients business successfully recover and mitigating key commodity cost increases. A company-wide Innovations team has been established to increase focus on research to understand consumers and to drive investment in product development and innovation.

At Hayden's, our bakery division, we achieved significant growth in sales to all three of our major customers - Marks & Spencer, Waitrose and Costa Coffee. Overall sales increased by 15%, with double-digit growth achieved at all major customers. In addition, food service sales, which only started in 2008, grew steadily and now account for almost 10% of total revenues.

Sugar (Napier Brown)

Napier Brown Foods supplies a range of sugar and dry ingredients to food manufacturers and packs sugar for retail grocery and foodservice customers from its facilities at Normanton, near Leeds. A second unit 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 2009 £'000s	Year ended 31 December 2008 £'000s
Revenue¹	168,034	176,694
EBITDA	3,304	4,209
Operating profit²	2,737	3,616
Operating profit %	1.6	2.0

¹ Including inter-company trading.

² Normalised operating profit before significant items and central costs.

Sugar regime changes set by Brussels have dominated the last three years' results within the industry. We have, under very difficult trading circumstances and with margins under pressure, maintained our market share in most sectors. Retail, and our trading company in Thornbury have both delivered volume growth; retail volume was up 5% year on year, whilst the market was in decline by 6%, while sugar volumes at Thornbury in the second half of the year were up 45% year-on-year.

A new General Manager for Thornbury has been appointed and started on 1^st March with a brief to build on the success of this business unit, further developing the product and service offering as well as looking for logistics efficiencies. 

I expect 2010 to be a year where the sugar industry in Europe will start to stabilise though, while the market in Europe is now in balance, there remain uncertainties in the market place that have to be resolved. The volatile market globally has seen world prices double in 2009, which will have an effect on the European market as well, and one can imagine both price rises and potentially shortages with some of the suppliers.

For 2010, we expect margins on the whole still to be under pressure with some potential for recovery towards the last quarter. We have adapted our supply strategy accordingly and have secured new sources, which have been in operation since last summer. I see 2010 as a year of transition to a more stable market towards the end of this year and into 2011.  

Napier Brown - Overview

Napier Brown has focused on widening its sources of supply following changes in the structure of the EU sugar regime and the emergence of a more balanced market. Alternative cane and beet sugars have been successfully sourced, researched and trialled and this will strengthen the business' market position going forward.

Developing the Whitworths brand

Retail sales hit record levels as a result of investment in new packs and pack formats. The Whitworths retail sugar brand has been refreshed and updated together with new colour coded packaging highlighting specific sugars, their benefits and uses. A Whitworths 25kg cane granulated pack was launched for food service customers following increased demand for cane sugars. The business is also seeing growth in the demand for specialist sugars amongst small industrial customers.

Buying capabilities

The company values its independence and this has been strengthened during the year by importing more cane and beet sugar involving the use of a new dedicated container system. This new process complements traditional routes to market and gives the company a competitive advantage in customer service.

Looking forward

With its multiple supply sources, the business is well positioned for growth following the completion of the changes in the EU sugar regime. The business has segmented its operation into four sectors, all of which now receive focused management: bulk, industrial bags, retail and Thornbury. Investment in new sales resource, systems and customer service are already paying dividends.

Bakery Ingredients (Renshaw)

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 2009 £'000s	Year ended 31 December 2008 £'000s
Revenue¹	37,785	35,000
EBITDA	3,260	2,529
Operating profit²	2,493	1,824
Operating profit %	6.6	5.2

¹ Including inter-company trading.

² Normalised operating profit before significant items and central costs.

The Renshaw division of Renshawnapier produces a wide range of high quality ingredients and products, primarily for the bakery sector both in the UK and abroad; comprising craft bakers, major food manufacturers and the UK's leading retailers. Renshaw has a heritage stretching back over 100 years and the Renshaw brand occupies a unique place in the bakery trade with its reassurance of quality and consistency. It operates out of two facilities, one in Liverpool and the other in Carluke, Scotland.

The Carluke site has both expertise and heritage in producing quality jams and preserves under the Scotts brand, being a particular favourite in the Canadian and American markets. Carluke also produces premium, chocolate flavoured coatings supplied to many different market sectors. The Liverpool site is the leading producer of both sugarpaste and marzipan in the UK, under the Renshaw brand. Caramel, sauces, frostings and mallows are also produced here under expert guidance of specialist teams. The products and brands provide reliable solutions for customers and are constantly being developed to provide inspiration and innovation.

2009 saw a resurgence of home baking and crafting driving growth in both export and domestic markets. This trend is set to continue in 2010 and the business will develop its core categories further to capitalise on this.

Bakery Ingredients - Overview

Renshaw performed well above expectations in 2009. The main drivers being increases in volume and market share in both our export and domestic markets stimulated by a growing trend in home baking and crafting. Margin improvements were made in core categories through increases in efficiency and continued mitigation and recovery of raw material increases. Christmas 2009 was our busiest ever with increasing demand right up to the end of the year, fulfilled through both the dedication and flexibility of our skilled operations team and investment in new plant earlier in the year, enabling us to maintain high levels of service.

Innovation

During 2009 a companywide Innovations team was established to increase both focus on research, in order to understand our consumers better and to drive investment in product development and innovation. We launched a number of innovative workshops demonstrating new applications and techniques for using our products and provided category insights to help our customers maximise their potential markets.  As a result of these initiatives we have a number of new and unique products under development for launch in 2010 which will add further value to the business.

Looking forward

The strategy going forward is to build on the last 12 months growth through the heritage and strength of the Renshaw brand. In 2010 we will be investing in our core brands and driving innovation to initiate a number of new branded product opportunities.

We will also continue to work with key customers on bespoke product developments, continually searching for innovative ingredients and developing new and exciting ways of presenting finished products helping customers to deliver a point of difference and  achieve the most cost effective and efficient solutions to their needs.

We are investing in additional resource focussed on category management, product development, customer service and operational excellence to develop new and existing products and markets that will contribute to our three year growth plan.

Bakery Division (Hayden's Bakeries)

Hayden's 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 2009 £'000s	Year ended 31 December 2008 £'000s
Revenue¹	21,086	18,342
EBITDA	305	75
Operating profit²	(394)	(555)
Operating profit %	(1.9)	(3.0)

¹ Including inter-company trading.

² Normalised operating profit before significant items and central costs.

This business has had some real growing pains over the last three years but since the restructuring in 2009 we have now got an excellent experienced management team led by Paul Smith in place. Paul has been with the company for the last eighteen months and has succeeded in turning this business unit around into a very exciting project with real earning prospects. Sales have almost tripled since 2003 and I am confident that in the years ahead we will report and deliver a business that is unique in its objective and ahead of competition.

The business always had an excellent name for producing high quality, hand crafted products. This skill will be proudly maintained, whilst we eliminate those parts of the process that add no value and we invest in appropriate capacity and equipment. At Hayden's we are planning to build on the Artisan foundation, a business that is capable of producing daily small runs of product in a smart modern manufacturing process. We feel that the business is now fully aware of its customers needs and is also confident in being able to pro-actively answer those needs in the near future.

In addition, in the last two years the business has strategically started to explore opportunities to balance their retail production by entering into the Foodservice sector, this has added revenue of £2m a year and the business is ready to build on this further through a three year strategic plan.

Bakery Division - Overview

2009 may prove to have been a pivotal year for Hayden's of Devizes, which has been established for over 30 years. A re-structuring process, led by Paul Smith, has positioned a strong senior team committed to driving real growth for the future. During the 12 month period the business consolidated the entry position established in the Foodservice market with an additional £2m of sales in this sector, whilst simultaneously growing existing markets by over 11%. 

This was the year when (as one leading supermarket put it) 'everyday to gourmet' became a reality. Strong new product development in the second half led to over 40 new products being launched from great value for money Yum Yums through to exclusive hand decorated chilled desserts. This substantial development programme has further strengthened Hayden's position as a leading supplier of hand crafted bakery, patisserie and chilled dessert products.

In the final quarter, sales of seasonal products broke new records, with mince pie sales topping 1.5million. Consumer reaction to these products was such that an additional 250,000 pies were requested and produced in the final few days before Christmas to keep up with the unprecedented demand. 

We are delighted with the solid foundation that we have been able to achieve in 2009. In this time we have established a strong senior team, showed significant growth and demonstrated the ability to bring exciting new products to the market. We are now progressing our three year plan across four principal platforms:

People: We are investing heavily in training over the next two years and are working closely with two local colleges and exclusively with an employment training company. This investment of over £0.2m over the next two years will ensure that all our teams are able to operate at the highest level required to consistently produce the fantastic quality to which we continually aspire.

Plant: Hayden's is planning significant investment in the manufacturing process over the period of the plan. The preparation for this is already underway and Phase 1 will be complete by the year end.

Process: Plans for a new integrated system are well advanced and the first phase will be complete by the end of 2010. A range of lean manufacturing initiatives are being introduced to reduce waste, improve quality and strengthen overall operational effectiveness.

Product: A significant increase in the development capability is already underway and will be complete by the end of the 3^rd quarter of the year with emphasis on all three core competencies bringing together bakery skills, chilled dessert manufacture and in house fresh fruit preparation.

Outlook

In my half year statement, I mentioned that in my view our business was on the verge of turning the corner. I now feel very strongly that results in the second half of the year, but more importantly the underlying trading improvements at the start of 2010, confirm this and give us cause for optimism in both growth and profitability.

I would like to thank all our management teams for the excellent work they have done in implementing all the plans we set ourselves in not only prudently examining our costs at every level, but also our investment programmes in both people and equipment in order to make ourselves a stronger player and competitor in all the markets we operate in.

We have started a process of a new three year plan for every business unit to be presented to the board and the first indications show us a strong sustainable growth. We are now in the process of facilitating all the different resources for these plans to be implemented.

The Group is better placed than ever to plan for growth and improved profitability. Since the restructuring, our various business units are organised in such a way that there is clear accountability and performance visibility, which gives management a much better view of how to structure their growth plans. This, together with the prospect of a stabilisation of the EU sugar market, means that I look forward to the coming year with considerable confidence.

Pieter Totté

Chairman

24 March 2010

FINANCE DIRECTOR'S REPORT

Group revenue from continuing operations was £215.6m (2008: £218.7m). Revenue in Sugar was down 4.9% on the prior year, driven primarily by weaker bulk volumes. Bakery Ingredients delivered Sales 8% up on the prior year driven primarily by increased retail sales both in the UK and in US. Haydens Bakeries increased revenue 15% over 2008 with growth in both Retail and Foodservice.

Margins

Margin after Distribution costs (delivered margins) at £15.6m (2008: £15.5m) was in line with 2008 with 11% improvements in both Bakery and Bakery Ingredients driven by increased revenue. 2009 proved still to be a year of transition for Sugar with Delivered Margin down 12% driven by tough trading in the lead up to the final regime changes in October.

Profit before Tax and Interest

In a difficult year of transistion for our Sugar business, overall operating profits for the Group at £3.5m have been maintained at 2008 levels. Action taken early in 2009 to reduce our overhead cost base enabled us to reduce our ongoing cost base by £0.9m per annum and hold Overheads at 2008 levels of £12m

Financing Costs

2009 has seen a significant reduction in our net finance costs (pre significant items and other finance income) for the year to £1.38m (2008: £2.96m) benefiting from lower debt levels during the year along with the end of the impact of the interest rate swap positions.

Significant Items

During the year the Group incurred costs of £0.5m primarily related to the reorganisation of the Bakery Ingredients and Sugar Divisions announced in last year's annual report.

Cash Flow and Debt

The Group's total net debt (after Cash) as at 31 December was £24.1m (2008: £31.4m). The £7.3m reduction is driven primarily by improvements in trading terms and working capital management.  This has been an exceptional result, not expected to be repeated at this level in 2010.

The Group's borrowing facilities with KBC Business Capital comprise £37m of total facilities of which £20.9m (incl £5.65m cash) was utilised as at 31 December 2009, at a blended average cost of 2.76% over base rate.

Pensions

The subsidiaries of the Group, Napier Brown Foods Limited and Napier Brown and Company Limited, operate a defined benefit pension scheme. The scheme is closed to new members. The IAS 19 valuation of the scheme at the year end identified a £0.6m deficit, a deterioration of £0.3m on the prior year. During the year the Group contributed £98k (2008: £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 2009		Year ended 31 December 2008
Revenue growth1			(1.4%)		(5.4%)
Operating margin2			1.6%		1.6%
Debt cover (net debt:EBITDA)3			4.3		5.7
Interest cover4			4.0		1.9
Health & Safety score5			75%		69%
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 receivables).
5 -

Mike McDonough

Group Finance Director

24 March 2010

CONSOLIDATED STATEMENT of comprehensive income

for the year ended 31 December 2009

		Year ended 31  December 2009			Year ended 31 December 2008
		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		215,613	-	215,613	218,656	-	218,656
Cost of sales		(191,606)	-	(191,606)	(193,725)	-	(193,725)
GROSS PROFIT		24,007	-	24,007	24,931	-	24,931
Distribution costs		(8,433)	-	(8,433)	(9,405)	-	(9,405)
Administration expenses		(12,030)	(525)	(12,555)	(11,994)	(1,956)	(13,950)
OPERATING PROFIT		3,544	(525)	3,019	3,532	(1,956)	1,576
Finance income		92	-	92	133	-	133
Finance costs		(1,472)	-	(1,472)	(3,098)	648	(2,450)
Other finance income		(13)	-	(13)	320	-	320
PROFIT/(LOSS) BEFORE TAXATION		2,151	(525)	1,626	887	(1,308)	(421)
Income tax expense		(945)	149	(796)	(1,078)	366	(712)
PROFIT/(LOSS) FROM CONTINUING OPERATIONS		1,206	(376)	830	(191)	(942)	(1,133)
DISCONTINUED OPERATIONS
(Loss) on sale of division		-	-	-	-	(12)	(12)
(LOSS) BEFORE TAXATION		-	-	-	-	(12)	(12)
(LOSS) FROM DISCONTINUED     OPERATIONS		-	-	-	-	(12)	(12)
PROFIT/(LOSS) FOR THE YEAR		1,206	(376)	830	(191)	(954)	(1,145)
OTHER COMPREHENSIVE INCOME
Actuarial losses on defined benefit plans		(520)	-	(520)	(679)	-	(679)
Income tax relating to components of other comprehensive income		146	-	146	190	-	190
TOTAL COMPREHENSIVE INCOME FOR THE YEAR		832	(376)	456	(680)	(954)	(1,634)
Earnings/(Loss) per share from continuing and discontinued operations:
- basic				1.3p			(1.7)p
- diluted				1.3p			(1.7)p
Earnings/(Loss) per share from continuing operations:
- basic				1.3p			(1.7)p
- diluted				1.3p			(1.7)p

Consolidated STATEMENT OF Changes in equity

for the year ended 31 December 2009

		Issued Share Capital	Share Premium Account	Share Option Reserve	Retained Earnings	Total
		£'000s	£'000s	£'000s	£'000s	£'000s
Balance as at 1 January 2008		1,300	68,870	66	8,965	79,201
Shares options to be issued		-	-	7	-	7
Total comprehensive income for the year		-	-	-	(1,634)	(1,634)
Balance as at 31 December 2008		1,300	68,870	73	7,331	77,574
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

consolidated STATEMENT OF FINANCIAL POSITION

As at 31 December 2009

		31 December 2009 £'000s	31 December 2008 £'000s
NON CURRENT ASSETS
Goodwill		75,796	75,796
Other intangible assets		651	513
Property, plant and equipment		15,226	16,408
Deferred tax asset		431	853
		92,104	93,570
CURRENT ASSETS
Inventories		9,570	10,963
Trade and other receivables		23,452	24,763
Current tax asset		-	839
Derived financial instruments		-	117
Cash and cash equivalents		5,657	1,464
		38,679	38,146
TOTAL ASSETS		130,783	131,716
CURRENT LIABILITIES
Trade and other payables		18,901	16,787
Borrowings		18,373	19,258
Derived financial instruments		-	524
Current tax liabilities		158	-
		37,432	36,569
NON CURRENT LIABILITIES
Borrowings		11,430	13,652
Deferred tax liabilities		3,187	2,973
Provisions		122	684
Retirement benefit obligations		582	264
		15,321	17,573
TOTAL LIABILITIES		52,753	54,142
NET ASSETS		78,030	77,574
EQUITY
Share capital		1,300	1,300
Share premium account		68,870	68,870
Share option reserve		73	73
Retained earnings		7,787	7,331
TOTAL EQUITY		78,030	77,574

Consolidated Cash Flow Statement

for the year ended 31 December 2009

		Year ended 31 December 2009		Year ended  31 December 2008
		£'000s		£'000s
CASH FLOW FROM OPERATING ACTIVITIES
Adjusted for:
Profit/(loss) before taxation		1,626		(433)
Finance costs		1,472		2,450
Finance income		(92)		(133)
IAS 19 income		13		(320)
Depreciation of property, plant & equipment		1,895		1,729
Amortisation of intangibles		127		206
Share based payment expense		-		7
Expense on disposal of discontinued operation		-		12
Operating Cash Flow		5,041		3,518
Decrease/(Increase) in inventories		1,393		(1,610)
Decrease/(Increase) in receivables		1,736		(1,246)
Increase/(Decrease) in payables		1,414		(486)
Cash generated from operations		9,584		176
Income taxes recovered/(paid)		987		(849)
Interest paid		(1,960)		(2,438)
Net cash from operating activities		8,611		(3,111)
CASH FLOW FROM INVESTING ACTIVITIES
Interest received		92		222
Disposal of division		-		738
Income tax paid on disposal of division		-		(2,919)
Purchase of intangible assets		(265)		(172)
Purchase of property, plant & equipment		(713)		(1,416)
Net cash (used in)/from investing activities		(886)		(3,547)
CASH FLOW USED IN FINANCING ACTIVITIES
Repayment of borrowings		(3,236)		(51,846)
Short term financial investments		-		3,472
Loan advances		-		49,437
Repayment of obligations under finance leases		(296)		(254)
Net cash used in financing activities		(3,532)		809
NET INCREASE/(DECREASE) IN CASH AND CASH  EQUIVALENTS		4,193		(5,849)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of year		1,464		7,313
Net movement in cash and cash equivalents		4,193		(5,849)
Cash and cash equivalents at end of year		5,657		1,464
Cash and cash equivalents comprise:
Cash		5,657		1,464
Overdrafts		-		-
		5,657		1,464

1. SEGMENT REPORTING

Business segments

The Group's operating segments are Sugar, Bakery Ingredients and Bakery as the Group's management and reporting structure is set out along these lines.

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

Year Ended 31 December 2009
	Sugar		Bakery Ingredients	Bakery	Continuing Operations Total	Significant items	Total Group
	£'000s		£'000s	£'000s	£'000s	£'000s	£'000s
Total Revenue	168,034		37,785	21,086	226,905	-	226,905
Revenue - Internal	(8,471)		(2,821)	-	(11,292)	-	(11,292)
External Revenue	159,563		34,964	21,086	215,613	-	215,613
Operating Profit	2,737		2,493	(394)	4,836	(525)	4,311
Head Office and consolidation adjustments					(1,292)	--	(1,292)
Finance Costs (net of interest received)					(1,380)	-	(1,380)
Pension finance income					(13)	-	(13)
Profit/(loss) before tax					2,151	(525)	1,626
Tax					(945)	149	(796)
Profit/(loss) after tax as per income statement					1,206	(376)	830

Inter-segment sales are charged at prevailing market rates

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

2. SIGNIFICANT ITEMS

		Year ended 31 December 2009	Year ended 31 December 2008
		£'000s	£'000s
(Loss) on disposal of division		-	(12)
Management restructuring costs		(634)	(968)
Bank restructuring fees		-	(827)
Onerous lease provision released		109	(161)
		(525)	(1,968)
Interest on loan notes		-	648
		(525)	(1,320)
Taxation credit on significant items		149	366
		(376)	(954)

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, arising from the formation of Renshawnapier, along with a number of other material changes to the operations of the Divisions.

The release of the onerous lease provision arises following the successful negotiations to sub-let a vacant property that the Group had been previously unable to sub-let.

3. Taxation

	Year ended	Year ended
	31 December	31 December
	2009	2008
	£'000s	£'000s
CURRENT TAX
UK Current tax on profits/(loss) of the year	221	(8)
UK Current tax on significant items	(149)	(287)
Adjustments in respect of prior years	(58)	(392)
Total current tax	14	(687)
Deferred Tax
Deferred tax charge re pension scheme	57	116
Origination and reversal of timing differences	455	108
Deferred tax charge/(credit) on significant items	-	(79)
Adjustments in respect of prior years	(12)	380
Deferred tax asset re losses brought forward	282	-
Deferred tax impact of withdrawal of industrial
buildings allowance	-	874
Total deferred tax	782	1,399
Tax on profit/(loss) on ordinary activities	796	712

3. Taxation (continued)

Factors affecting tax charge for the year:

The tax assessed for the year is higher (2008 - 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
	2009	2008
	£'000s	£'000s
TAX RECONCILIATION
Profit/(loss) per accounts before taxation	1,626	(433)
Tax on (loss)/profit on ordinary activities at standard CT rate of (28%/30%)	455	(122)
Expenses not deductible for tax purposes	22	25
Income not taxable	107	-
Additional deduction for R&D expenditure	(33)	(33)
Losses carried back and relieved at higher tax rate	-	(20)
Deferred tax asset re losses brought forward	282
Marginal relief	(4)	-
Deferred tax impact of withdrawal of industrial buildings allowance	-	874
Adjustments to tax in respect of prior years	(33)	(12)
Tax charge for the year	796	712

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 2009	Year ended 31 December 2008
	Continuing Operations	Continuing  Operations
Earnings after tax attributable to ordinary shareholders (£000's)	830	(1,133)
Weighted Average No. of shares in issue (000's)	65,014	65,014
Basic earnings/(loss) per share	1.3p	(1.7)p

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 2009	Year ended 31 December 2008
	Continuing Operations	Continuing  Operations
Earnings after tax attributable to ordinary shareholders (£000's)	830	(1,133)
Total Potential Weighted Average No. of shares in issue (000's)	65,590	65,014
Diluted earnings/(loss) per share	1.3p	(1.7)p

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 2009	Year ended 31 December  2008
	Continuing Operations	Continuing       Operations
Earnings after tax attributable to ordinary shareholders (£000's)	830	(1,133)
Add back significant items (note 6)	525	1,308
Add back tax on significant items	(149)	(366)
Adjusted earnings after tax attributable to ordinary shareholders (£000's)	1,206	(191)
Weighted Average No. of shares in issue (000's)	65,014	65,014
Basic earnings/(loss) per share	1.9p	(0.03)p
Total Potential Weighted Average No. of shares in issue (000's)	65,590	65,014
Basic diluted earnings/(loss) per share	1.8p	(0.03)p

5.  goodwill

		GROUP
		£'000s
Cost
Brought forward 1 January 2009		75,796
Carried forward 31 December 2009		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 2009	Year ended 31 December 2008
	£'000s	£'000s
Sugar and Bakery Ingredients division*	75,796	75,796
Carried forward 31 December 2009	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 3.57% (2008 - 4.71%). The Group prepares cash flow forecasts derived from the most recent financial plans approved by the board for the next financial year and extrapolates this over a rolling 19 years assuming a 4.5% growth per annum over the first four years and then a zero growth rate for the purpose of conducting the impairment review. 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 exceeds the carrying value by £39 million.

An increase in the Group's weighted average cost of capital to above 7.6% (2008 - 5.9%) would cause the Board to impair the carrying value of goodwill.

6. Borrowings

	Year ended 31 December 2009	Year ended 31 December 2009	Year ended 31 December 2008	Year ended 31 December 2008
	Group	Company	Group	Company
	£'000s	£'000s	£'000s	£'000s
Unsecured borrowings at amortised cost
Loan notes	2,774	-	2,773	-
Secured borrowings at amortised cost
Bank term loans	10,379	10,379	12,227	12,227
Revolving credit facilities	16,145	1,598	17,112	748
Hire purchase	505	199	798	327
	29,803	12,176	32,910	13,302
Amounts due for settlement within 12 months	18,373	3,647	19,258	2,730
Amounts due for settlement after 12 months	11,430	8,529	13,652	10,572
	29,803	12,176	32,910	13,302

7.  Pensions ARRANGEMENTS

The Group operates a defined benefit pension plan in the UK. The actuarial valuation showed a deficit of £582,000.  The company has agreed with the trustees that it will aim to eliminate the deficit over a period of 9 years from 1 April 2008 by the payment of annual contributions of £97,740 in respect of the deficit.  It has been suggested in the April 2009 valuation that the level of contributions be increased to £215,000 per annum and the difference has been accured in these accounts. In addition and in accordance with the actuarial valuation, the company has agreed with the trustees that it will meet expenses of the scheme and levies to the Pension Protection Fund.

The next valuation was due as at 1 April 2009, but has yet to be agreed

For the purposes of FRS17 the actuarial valuation as at 1 April 2007, which was carried out by a qualified independent actuary, has been updated on an approximate basis to 31 December 2009.

The estimated value of liabilities at the date of the last full actuarial valuation was £26,310,000 compared to assets of £16,849,000.

Employer contributions are currently paid at the rate of £8,145 per month.

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

7. Pensions ARRANGEMENTS (continued)

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

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

The present value of scheme liabilities is measured by discounting the best estimate of future cash flows to be paid out by the scheme using the projected unit method.  The value calculated in this way is reflected in the next liability in the statement of financial position as shown above.

A further measure of the scheme liabilities is the solvency basis, often taken as an estimate of the cost of buying out the benefits with a suitable insurer.  This amount represents the amount that would be required to settle the scheme liabilities rather than the Company continuing to fund the ongoing liabilities of the scheme.  The estimated value of liabilities at the date of the last full actuarial valuation prepared for the trustees of the pension scheme as at 1 April 2007 was £26,310,000 compared with the assets at the same date of £16,849,000.

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

	Year ended	Year ended
	31 December	31 December
	2009	2008
	£'000s	£'000s
Defined benefit obligation at start of year	15,094	16,268
Interest cost	930	925
Actuarial losses/(gains)	633	(1,474)
Benefits paid, death in service insurance premiums and expenses	(712)	(625)
Defined benefit obligation at end of year	15,945	15,094

7.       Pensions ARRANGEMENTS (continued)

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

	Year ended	Year ended
	31 December	31 December
	2009	2008
	£'000s	£'000s
Fair value of scheme assets at start of the year	14,830	18,052
Expected return on scheme assets	917	1,245
Actuarial gains/(losses)	113	(3,937)
Contributions by employer paid	98	95
Contributions by employer poroposed not yet agreed	117	-
Benefits paid, death in service insurance premiums and expenses	(712)	(625)
Fair value of scheme assets at end of the year	15,363	14,830

The actual return on the scheme assets over the year ending 31 December 2009 was 2,692,000 (2008 - £1,986,000).

Total expense recognised in the income statement within other finance costs

	Year ended	Year ended
	31 December	31 December
	2009	2008
	£'000s	£'000s
Interest on liabilities	930	925
Expected return on scheme assets	(917)	(1,245)
Total cost/(income)	13	(320)

Statement of recognised income and expenses

	Year ended	Year ended
	31 December	31 December
	2009	2008
	£'000s	£'000s
Difference between expected and actual return on scheme assets: gain/(loss)	113	(3,937)
Experience gains and losses arising on the scheme liabilities: gain/(loss)	18	(114)
Effects of changes in the demographic and financial assumptions underlying the present value of the scheme liabilities: gain	(651)	1,588
Reversal of the limit under IAS19 paragraph 58b	-	1,784
Total amount recognised in statement of changes in equity	(520)	(679)

7.       Pensions ARRANGEMENTS (continued) 

Assets

	Year ending 31 December 2009 £'000s	Year ending 31 December 2008 £'000s	Year ending 31 December 2007 £'000s
Equities	10,274	8,547	14,348
Bonds	3,919	5,092	2,847
Property	449	563	420
Cash	721	628	437
Total assets	15,363	14,830	18,052

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.        

Assumptions

	Year ended 31 December 2009 % per annum	Year ended 31 December 2008 % per annum	Year ended 31 December 2007 % per annum
Inflation	3.10	3.10	3.45
Salary increases	-	-	-
Rate of discount	6.00	6.30	5.80
Allowance for pension in payment increases of RPI or 5% p.a. if less	3.10	3.10	3.45
Allowance for revaluation of deferred pensions of RPI or 5% if less	3.10	3.10	3.45
Allowance for commutation of pension for cash at retirement	50% 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 morality	Increase / decrease of 0.5% p.a. Increase / decrease of 0.5% p.a. 1 year increase in life expectancy	Decrease / increase by 7.9% Increase / decrease by 3.1% Increase by 2.1%

The mortality assumptions adopted at 31 December 2009 imply the following life expectancies:

Male retiring at age 65 in 2009                         22.0

Female retiring at age 65 in 2009                     24.9

Male retiring at age 65 in 2028                         23.1

Female retiring at age 65 in 2028                     25.9

7.       Pensions ARRANGEMENTS (continued)

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.

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 2009 % per annum	Year ended 31 December 2008 % per annum	Year ended 31 December 2007 % per annum
Equities	6.90	6.90	7.50
Bonds	5.64	5.64	5.00
Property	5.9	5.90	6.00
Cash	3.5	3.50	4.50
Overall for scheme	6.29	6.29	7.00

	Year ended 31 December 2009 £'000s	Year ended 31 December 2008 £'000s	Year ended 31 December 2007 £'000s	Year ended 31 December 2006 £'000s
Fair value of assets	15,363	14,830	18,052	16,585
Defined benefit obligation	(15,945)	(15,094)	(16,268)	(17,808)
Surplus /(deficit) in scheme	(582)	(264)	1,784	(1,223)
Experience adjustment on
scheme assets	113	(3,937)	893	(244)
Experience adjustment on
scheme liabilities	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 2009 or 2008, but is derived from those financial statements. Statutory financial statements for 2008 have been delivered to the Registrar of Companies and those for 2009 will be delivered following the company's annual general meeting. The auditors have not yet reported on the 2009 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 2009 were approved by the Board of Directors on 23 March 2010

 

END

 

 

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