RNS Number:4070A
Real Good Food Company Plc (The)
27 March 2006
Date: 27 March 2006
On behalf of: Real Good Food Company plc ("RGFC" or "the Company")
Embargoed until: 0700hrs
Real Good Food Company plc
Preliminary Results 2005
Real Good Food Company plc, the food manufacturing group in ambient, chilled and
frozen products (AIM: RGD), today announces its preliminary results for the
twelve months to 31 December 2005.
The highlights are:
* Group sales on continuing activities up 228% to #116.4m (2004: #35.5m)
* Reverse acquisition of Napier Brown Foods plc for #67.7m;
* Normalised trading profit of #7.1m (2004: #0.4m);
* Strong cashflow generation and net cash at the year end of #7.3m (2004
#2.9m);
Commenting on the results, Pieter Totte, Non-executive Chairman of Real Good
Food Company plc, said:
"Strong progress on a number of fronts has been achieved in building a robust
platform for future growth including strengthening and deepening the management
teams across all the operating divisions, in particular the Renshaw business,
and creating a new plc Board. We are now in the best shape to take the Group
forward. We have achieved an important scale in each of our divisions and we are
also beginning to yield the benefits of cross divisional initiatives in terms of
cost reduction, purchasing economies and sales opportunities.
"Our focus for the coming financial year will be to concentrate on developing
our assets to their maximum potential and to exploit all commercial
opportunities whilst continuing to identify small bolt-on targets to supplement
and develop the activities of our operating companies. We are happy with the
start to the current financial year, albeit with a slow start for the sugar
division reflecting market volatility and a late Easter. We look forward to the
coming year with enthusiasm."
Enquiries to:
The Real Good Food Company plc Tel: 020 7234 0570
Pieter Totte www.realgoodfoodplc.co.uk
Redleaf Communications Tel: 020 7955 1410
Emma Kane/Duncan McCormick
CHAIRMAN'S STATEMENT
Introduction and Overview
I am pleased to report the Group's Preliminary Results for the twelve months to
31 December 2005. The key highlight of the year was the Group's reverse
acquisition for #67.7m of Napier Brown Foods plc ("NBF plc"), completed on 1
September 2005, which has enabled the Group to achieve critical mass. The Group
now comprises four divisions - Fish, Bakery, Baking Ingredients and Sugar,
manufacturing ambient, chilled and frozen products for the retail, foodservice
and industrial sectors.
Strong progress on a number of fronts has been achieved in building a robust
platform for future growth including strengthening and deepening the management
teams across all the operating divisions, in particular the Renshaw business,
and creating a new plc Board.
The Group achieved normalised trading profit of #7.1m compared with a loss of
#0.4m for the comparable period in 2004. This record result was achieved by
driving forward organic growth, the resultant benefits of restructuring the
operating companies and the contribution from the acquired business. The Group
also exited its loss making operations of sandwich making and nut processing
(acquired with the acquisition of NBF plc). The divisional highlights are:
* Fish - Five Star Fish exceeded the earn-out targets set at the time of
its acquisition in May 2004;
* Bakery - Hayden's growth continued during 2005 with record sales levels
achieved over the pre-Christmas period; Seriously Scrumptious was
successfully integrated into the Devizes site;
* Baking Ingredients - a new management team was put in place and
operational processes refined;
* Sugar - the business was restructured to give the division more direct
responsibility for managing its day-to-day affairs. Despite reduced sales
as a result of a customer margin review, profitability was maintained.
Strategy
The core of The Real Good Food Company's corporate strategy is to deliver the
highest levels of quality and customer satisfaction. Externally, the focus is
for each of the four divisions to be regarded as a premium provider to each
nominated market whether it is for ready prepared frozen fish for retail pub
chains or yum yums for Marks & Spencer. Internally, we provide each of the
divisions with the required resources to deliver above average returns, however
the local managers are empowered, thus accountable, for their actions and
mandated to drive organic growth. With a devolved divisional structure, aided by
a small experienced central team; we can respond faster to customer and market
demands. Cross marketing opportunities are induced by regular divisional
meetings chaired by the Chief Executive Officer -John Gibson.
We have now assembled a strong team at both Board and divisional management
level and are now in the best shape to take the Group forward. We have achieved
an important scale in each of our divisions and we are also beginning to yield
the benefits of cross divisional initiatives in terms of cost reduction,
purchasing economies and sales opportunities.
Our focus for the coming financial year will be to concentrate on developing our
assets to their maximum potential and to exploit all commercial opportunities
whilst continuing to identify small bolt-on targets to supplement and develop
the activities of our operating companies.
We look forward to the coming year with enthusiasm.
Current Trading
The Bakery division has made a promising start to the New Year with sales up 3%
on the same period last year. Sales to Waitrose have been particularly
encouraging, whilst deliveries to a new grocery retail customer should commence
in April.
Despite market weakness, following some customer Christmas stock overhang, like
for like sales within Bakery Ingredients are marginally ahead of last year. The
re-focused management team is actively addressing efficiency improvement
programmes and some delayed contracts have now come on stream.
Five Star Fish has performed exceptionally well within its market place, with
sales during the first nine weeks of the year up 15% year on year. The provision
of raw materials from a new supplier has been encouraging and the business is
well set to deliver another year of volume and profit growth. Trading in the
Sugar division has so far been subdued, particularly in the February period.
This is likely explained by the result of the later than normal Easter and the
impact again of a post Christmas stock overhang. The expected uplift in volumes
has not yet occurred and this has had an effect on profitability for this
period.
However, the sugar market remains very competitive and it will be some months
before the actions taken in Brussels in both regime change, quota cuts and
export activity will give rise to a change in the competitive environment.
We are happy with the start to the current financial year, albeit with a slow
start for the sugar division reflecting market volatility and a late Easter, we
look forward to updating shareholders at the forthcoming AGM.
FINANCIAL REVIEW
Trading Results for the Year
Group sales on continuing activities were up 228% reflecting year on year
organic growth in both the Fish and Bakery divisions and the acquired revenue
(#73.7m) from the NBF plc acquisition. Whilst Group gross margin percentages
have reduced by eight percentage points, reflecting the significantly changed
nature of the business incorporating NBF plc, margins in the Bakery division
have improved by one point six percentage points reflecting the improved
material controls implemented during the year. Profit on ordinary activities
before exceptional and goodwill amortisation was #7.1m (2004 #0.4m loss).
Acquisition
During the period under review, the Group completed the reverse acquisition of
NBF plc. The acquisition was completed via the issue of 1.6236 RGFC shares for
every NBF plc share. In addition #3.4m (net of expenses) was raised to
contribute to the costs incurred in conjunction with the acquisition. Following
the acquisition, NBF plc was de-listed from the stock exchange and reregistered
as a limited company ("NBF Ltd"). During the four months following the merger of
the two groups and after a strategic review, the plc Board has been restructured
along with a number of activities within the operating divisions.
In total 50,773,282 new shares were issued.
Exceptional Costs
During the year, the Group incurred #4.6m of exceptional costs (2004 #0.5m):
- The closure of the loss making Sandwich Division incurred #0.8m of
exceptional costs relating in the main to the write down of fixed assets, a
further #0.8m of goodwill was also written down within amortisation costs;
- The consolidation of the Bakery operations to our Devizes facility saw
the closure of our Glastonbury site #0.9m;
- The recently announced closure of the Runcorn nut business has also
necessitated the provision of #1.2m relating to the written down of assets,
site sale costs and redundancies;
- Aborted acquisition costs of #0.3m were incurred in the first half;
- Other exceptional costs of #1.4m relate to the operational management
changes following the recent acquisitions and the restructuring of the plc
Board.
Cash Flow and Debt
The size and nature of the acquisition enabled the Group to restructure its
existing bank facilities and a new syndicated arrangement was entered into on
the 31 August 2005. The new facility comprised a term loan of #45m, a revolving
facility of #20.5m and an overdraft facility of #4.0m. These facilities are
syndicated through RBS and Rabobank International. During the period following
the acquisition of NBF plc, the freehold property of the former Sefcol business
was sold for #1.9m, net of disposal costs, this was used to pay down part of the
term loan. As at the year-end, the Group had a net cash position of #7.3m (2004
#2.9m). Net debt at the year end was #59.4m, incorporating #2.8m of loan notes
due to Napier Brown Holdings.
The Group delivered a strong cashflow for the year generating #4.5m from
operating activities, after incurring #4.6m of exceptional costs. Interest
payments were #2.0m, whilst the tax losses brought forward reduced the tax
payment to #0.4m. Capital expenditure was #1.2m whilst the sales of the Sefcol
property mentioned above generated a #2.0m income (before disposal costs). The
acquisition of NBF plc along with the #3.4m of share placing, net of fund
raising costs, combined with the refinancing of Group debt generated an
additional #5.7m, leaving total cash generation for the year at #10.3m.
OPERATING COMPANY REVIEW
Bakery Division
# '000s 2005 2004
12 months 12 months
Turnover 16,196 14,788
Operating Profit* 389 -388
% OP 2.40% -2.60%
* Normalised Profit before exceptional items, goodwill amortisation and central
costs
Hayden's Bakeries produces chilled and ambient premium patisserie and dessert
products to retail grocery customers and Seriously Scrumptious supplies a
similar range frozen to foodservice customers.
During the period under review, Hayden's continued to improve its profitability.
Whilst the rate of sales growth slowed in the second half of the year, primarily
due to delays in product launches, overall the year on year sales improvement
for the division was close to 10%, following the 23% growth in the previous
year.
Whilst Waitrose remains by some way the largest customer, selling to their
Bakery, Chilled Prepared Food department and providing Distribution services,
sales to Marks & Spencer have consolidated where progress has been made with
Cafe Revive. Budgens is also now purchasing from Hayden's and further new
grocery retail customer opportunities are in the pipeline for 2006.
Progress continues to be made in reducing the cost of direct labour and a
further substantial investment was made during the year to increase the
mechanisation of fried products, yum yums and Doughnuts. Raw material control
also remains a high priority and investment was undertaken in material controls
and handling. Both these areas have improved gross margins.
The integration of Seriously Scrumptious, our foodservice are of the Bakery
Division, into the Devizes site was successfully completed in the late summer of
2005 and both commercial and operational aspects of the businesses have been
integrated. Margins have improved significantly benefiting from tighter control
in Devizes and the activity is establishing a meaningful position in the
foodservice patisserie and dessert sectors.
Tony Harris, who had joined the division in the spring of 2005, was unable to
remain with us for personal reasons. Following the integration of Seriously
Scrumptious, a new Managing Director, Phil Wicks, was appointed in the autumn of
2005 and the commercial and operational teams combined. Significant additional
resource has been put into the commercial aspects of the business at the end of
the financial year.
Baking Ingredients Division
# '000s 2005 2004
4 months
Turnover 15,703 n/a
Operating Profit* 1,639 n/a
% OP 10.4% n/a
* Normalised Profit before exceptional items, goodwill amortisation and central
costs
Renshaw supplies a range of high quality food ingredients primarily to the
bakery sector, comprising craft bakers and major cake manufacturers and also to
grocery retailers. It operates two facilities, one in Liverpool and the other in
Carluke, South-east of Glasgow.
Sales for the period were below expectations in what is a key trading period for
the division. Prior to the acquisition, Renshaw had been through a period of
significant disruption as a result of the integration of the former Sefcol
activities into the Liverpool site. The caramel / mallow plant was transferred,
responsibility for the nut business moved and the establishment of an arms
length trading arrangement with Supercook, following the purchase from Hero at
the end of 2004, were all completed in the period. Consequently, there was some
loss of focus on the key elements of performance delivery in 2005, which
impacted on performance during the last trimester of the year.
As part of the strategic review of NBF Ltd, the Group decided to significantly
improve the quality of the senior management team and have now put in place a
new Managing Director, Stephen Heslop, who has appointed new Commercial and
Operations Directors. We believe that the team, supplemented by Mike McDonough,
Finance Director, are more than capable of meeting the challenges ahead in
maintaining Renshaw's position as the leading supplier in the sector.
The announcement of the closure of the nut plant was made in December and only
small quantities of products were produced in January 2006. The entire activity
will be exited by the end of April 2006.
A number of efficiency projects were started at the end of the year to improve
operational efficiency, particularly, at the Liverpool site and external support
has been retained to ensure timely delivery. Working practices will have to
reflect the competitive environment in the food sector in the twenty-first
century.
Business planning and raw material cost reduction programmes have also been put
in place to improve our service to customers and contribute to profit delivery.
We believe we now have the processes and management team capable of delivering
world class performance.
Fish Division
# '000s 2005 2004
12 months 12 months
Turnover 25,561 23,672
Operating Profit* 3,788 3,492
% OP 14.8% 14.8%
* Normalised Profit before exceptional items, goodwill amortisation and central
costs
Five Star Fish is a leading supplier of added-value, prepared frozen fish to the
foodservice sector.
We are delighted to confirm that the business has exceeded its second year
earn-out target agreed at the time of acquisition in May 2004. Proforma year on
year sales growth was 8%, some of which was due to raw material inflation, but
the majority was down to winning business with new customers and increasing
sales of added-value products. As expected, sales of lower value commodity lines
fell year on year. Two new product ranges, "Fish Shop" and "Coddies", were
launched in the year and have been well received by the market. The business
continues to increase its sales, broaden its customer base, increase sales of
added-value lines and maintain margins in the light of some raw material
inflation.
An investment in increased in line freezing capacity was undertaken towards the
end of the year and this has raised throughput and aided operational efficiency.
Plans for additional capacity in dusting and breading are in place for 2006 with
more battering and frying capacity at the end of the year. Whilst capacity has
reduced as a consequence of additional sales, these investments will provide
significant further scope for growth in the years ahead.
During the course of the year, raw material and finished goods stocks were
managed carefully to ensure both excellent availability for customer orders and
to achieve increased operational efficiency. To facilitate this and to ensure a
continuous flow of high quality raw material, a procurement review was
undertaken during the year and some new suppliers brought on stream in December.
The business remains committed to working with established suppliers and to
sourcing from stable and reliable fishing fleets.
At the end of the year John Fenty, Chairman and majority shareholder of Five
Star at the time of acquisition, indicated that he would like to reduce his
day-to-day involvement in the business but remain a part of the team.
Consequently, John has become a part-time Executive Consultant to the business,
reporting to Danny Burton, Managing Director. To supplement the senior
management team Pete Tiffney has been appointed Technical Director, after having
worked for the business in a consulting capacity for a number of years.
There remain a number of small to medium sized companies that compete with Five
Star and we believe some of these are likely to exit the sector. Five Star Fish
is in an ideal position to take advantage of any sector restructuring either to
widen customer base or product range.
Sugar Division
# '000s 2005 2004
4 months
Turnover 61,942 n/a
Operating Profit* 4,486 n/a
% OP 7.2% n/a
Normalised Profit before exceptional items, goodwill amortisation and central
costs
NBF Ltd supplies a range of sugar and dry ingredients to food manufacturers and
packs sugar for retail grocery and foodservice customers.
Sales revenue at #61.9m for the period September to December was below
expectations but this was a consequence of price deflation in a very competitive
market and the decision to exit a number of very low margin contracts. At the
same time, it became possible to take advantage of cheaper raw materials and
widen the division's sourcing arrangements. Consequently, while revenue was
down, overall profitability was maintained.
Prior to RGFC's ownership, NBF plc had completed the acquisition of James Budget
Sugars during 2004 from Messers ED&F Man and Greencore plc. This transaction was
referred to the Competition Commission in September 2004, but subsequently
cleared in March 2005. However, this decision caused considerable disruption to
the business in the light of these uncertainties and in a very competitive
market place the trading result was highly creditable.
During the second half of the year, the European Commission tabled and had
ratified by the Council of Ministers, a package of wide ranging regime reforms
to reduce the quality of sugar produced from beet and to bring EU prices more
closely in line with world market prices. We commented on this on 1 December
2005 and believe that in the medium term these new arrangements will
significantly benefit NBF Ltd. As a flexible non-refiner, we believe we will be
well placed to take advantage of the new supply arrangements and provide our
customers with high quality products from a range of sources. However, the
implementation of the reform proposals have been delayed for two years and this
has clearly had some impact on the market in the short term.
In the trading area, the decision to integrate the Garrett dairy products
wholesaling activity and Sefcol's dry blending facilities into NBF Ltd began to
show positive results as major customers saw the benefit of buying a range of
dry ingredients from a single reliable and competitive source. We believe that
this will become a significant point of difference from other suppliers.
At the end of the year, a significant contract was won with Wm Morrison plc
following consolidation of their sugar purchasing arrangements. NBF Ltd will be
supplying sugars across the range to all of their depots.
To enable this additional volume to be packaged efficiently, the Board have
authorised the expenditure of #1.6m on new packaging and material handling
projects. These will come on stream in the third quarter of 2006.
Following the strategic review of NBF's trading activity, the NBF Ltd business
unit was established in October 2005 and the senior management team
restructured. The decision to relocate the Finance team from London to Normanton
was announced on 25 February 2006, as a consequence, Richard Broadley will be
joining in April 2006 as Divisional Finance Director.
Pieter Totte
Chairman
27 March 2006
THE REAL GOOD FOOD COMPANY PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
YEAR ENDED 31 DECEMBER 2005
Year ended 31 December 2005 Year ended 31 December 2004
#'000s #'000s
Before Before
Goodwill Goodwill goodwill Goodwill
amortisation amortisation amortisation amortisation
and and and and
exceptional exceptional exceptional exceptional
items items Total items items Total
TURNOVER
Continuing operations 43,017 - 43,017 28,813 - 28,813
Acquisitions 73,373 - 73,373 15,795 - 15,795
Discontinued 1,260 - 1,260 - - -
Operations
117,650 - 117,650 44,608 - 44,608
Cost of sales (93,378) - (93,378) (31,826) - (31,826)
-
GROSS PROFIT 24,272 - 24,272 12,782 - 12,782
Distribution costs (6,854) - (6,854) (3,185) - (3,185)
Administration (8,369) (3,148) (11,517) (9,641) (666) (10,307)
expenses
Other operating income - - - 54 - 54
OPERATING PROFIT/ 9,049 (3,148) 5,901 10 (666) (656)
(LOSS)
Continuing operations 3,604 (1,892) 1,712 (2,008) (666) (2,674)
Acquisitions 5,785 (1,256) 4,529 2,018 - 2,018
Discontinued (340) - (340) - - -
operations
EXCEPTIONAL ITEMS
Reorganisation costs - (3,277) (3,277) - (440) (440)
Termination of an - (1,025) (1,025) - - -
operation
PROFIT/(LOSS) ON ORDINARY ACTIVITIES
BEFORE INTEREST & 9,049 (7,450) 1,599 10 (1,106) (1,096)
TAXATION
Interest receivable 209 - 209 59 - 59
Interest payable (2,174) - (2,174) (494) - (494)
LOSS ON ORDINARY ACTIVITIES
ACTIVITIES BEFORE 7,084 (7,450) (366) (425) (1,106) (1,531)
TAXATION
Taxation (1,871) - (1,871) 533 300 833
LOSS FOR THE FINANCIAL 5,213 (7,450) (2,237) 108 (806) (698)
YEAR
Basic and diluted loss (0.072) (0.064)
per share
There are no recognised gains and losses other than those shown in the above
profit and loss account.
THE REAL GOOD FOOD COMPANY PLC
CONSOLIDATED BALANCE SHEET
31 DECEMBER 2005
2005 2004
#'000s #'000s
FIXED ASSETS
Intangible assets:-
Negative goodwill (410) (433)
Positive goodwill 89,134 16,737
Tangible fixed assets 18,451 6,377
107,175 22,681
CURRENT ASSETS
Stock 14,390 4,218
Deferred tax asset 253 914
Debtors 29,828 6,315
Cash at bank and in hand 11,999 1,420
56,470 12,867
CREDITORS:
Amounts falling due within one year (34,748) (16,132)
NET CURRENT ASSETS / (LIABILITIES) 21,722 (3,265)
TOTAL ASSETS LESS CURRENT LIABILITIES 128,897 19,416
CREDITORS:
Amounts falling due after more than one (60,413) (6,421)
year
PROVISIONS FOR LIABILITIES (746) -
NET ASSETS EXCLUDING PENSION DEFICIT 67,738 12,995
PENSION SCHEME DEFICIT (806) -
NET ASSETS INCLUDING PENSION DEFICIT 66,932 12,995
CAPITAL AND RESERVES
Called up share capital 1,297 282
Share premium account 68,773 13,643
Profit and loss account (3,138) (930)
SHAREHOLDERS' FUNDS - ALL EQUITY 66,932 12,995
THE REAL GOOD FOOD COMPANY PLC
CONSOLIDATED CASH FLOW STATEMENT
YEAR ENDED 31 DECEMBER 2005
2005 2004
#'000s #'000s
Net cash Inflow/(outflow) from
operating activities 4,468 (1,354)
Returns on investment and servicing of
finance
Interest received 209 59
Interest element of finance lease (29) -
repayments
Interest paid on bank loans, overdrafts
and loan stock (2,145) (391)
Net cash outflow from returns on
investments
and servicing of finance (1,965) (332)
Taxation paid (482) (10)
Capital expenditure
Purchase of tangible fixed assets (1,172) (1,934)
Sale of tangible fixed assets 2,059 24
887 (1,910)
Acquisitions and disposals (54,849) (15,966)
Net cash outflow before use of
liquid resources and financing (51,941) (19,572)
Financing 62,229 17,127
Increase / (Decrease) in cash 10,288 (2,445)
THE REAL GOOD FOOD COMPANY PLC
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED 31 DECEMBER 2005
1. ACCOUNTING POLICIES
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the Group's financial
statements.
a) Basis of Preparation
The financial statements have been prepared in accordance with applicable
accounting standards under the historical cost convention.
b) Basis of Consolidation
The Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings. The acquisition method of accounting
has been adopted. Under this method the results of all the subsidiary
undertakings are included in the consolidated profit and loss account from the
date of acquisition or up to the date of disposal. Intra-group sales and profits
are eliminated on consolidation and all sales and profit figures relate to
external transactions only.
Under Section 230 of the Companies Act 1985 the Company is exempt from the
requirement to present its own profit and loss account. The loss for the
financial period, of the holding Company, as approved by the Board, was
#2,212,000 (2004 - #799,000).
c) Goodwill
Purchased goodwill (both positive and negative, representing the excess or
discount of the fair value of the consideration given over the fair value of the
separable net assets acquired) arising on consolidation in respect of
acquisitions is capitalised. Positive Goodwill is fully amortised by equal
annual instalments over its estimated useful life. The estimated useful life is
calculated separately for each acquisition.
The estimated useful economic life of each acquisition has been estimated at 20
years.
Negative goodwill up to the fair values of the associated non-monetary assets
acquired is released to the profit and loss account over the period in which the
non-monetary assets are recovered. Any negative goodwill in excess of this is
recognised through the profit and loss account in the period expected to be
benefited. The estimated useful economic life of the current negative goodwill
relates to 1 acquisition and has been estimated at 20 years.
THE REAL GOOD FOOD COMPANY PLC
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED 31 DECEMBER 2005
DIVISIONAL INFORMATION
Operating divisions
Head Bakery Bakery Fish Sugar Consolidation Continuing Euro Total
Office Ingredients adjustments operations Foods
Turnover - 16,196 15,703 25,561 61,942 (3,139) 116,263 1,386 117,650
Cost of sales 41 (11,233) (11,735) (19,432) (52,825) 3,012 (92,171) (1,207) (93,378)
Gross Margin 41 4,963 3,968 6,129 9,117 (127) 24,092 179 24,272
Distribution - (308) (639) (642) (2,037) - (3,626) (153) (3,778)
costs
Administration (963) (4,267) (1,691) (1,699) (2,586) 127 (11,078) (367) (11,445)
costs
Normalised (922) 388 1,638 3,788 4,494 - 9,388 (341) 9,049
Profit / (loss)
Goodwill (2,874)
amortisation
Exceptional (4,302)
costs
Abortive (274)
acquisition
costs
Earnings before
interest
& Tax 1,599
Interest (1,965)
Tax (1,871)
(Loss) after Tax (2,237)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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