TIDMRGD
RNS Number : 2549J
Real Good Food PLC
16 August 2019
16 August 2019
Real Good Food plc
("Real Good Food" or the "Company")
Final results for the year ended 31 March 2019
Real Good Food plc, (AIM: RGD) the diversified food business,
today announces its final results for the year ended 31 March
2019.
Financial highlights
-- Revenue from continuing businesses decreased by 3.4% from
GBP63.8 million to GBP61.6 million.
-- Adjusted EBITDA of GBP1.9m (see note 3) compared to a loss of
GBP0.3m in the prior year, despite the 3.4% decline in revenue.
-- The two continuing divisions, Cake Decoration and Food
Ingredients are profitable (before impairment charges) and cash
generative; total divisional adjusted EBITDA of GBP5.8m (see note
3) before central costs.
-- Central costs have been materially reduced during the year by GBP1.3m.
-- Goodwill has been impaired by GBP18.7m (2018: Nil), to
reflect the value today of the continuing businesses.
-- Bank term debt has been repaid; the invoice discount financing materially reduced
-- Net debt at 31 March 2019 stood at GBP35.7 million (2018:
GBP37.8 million), being predominantly shareholder loans, of which
GBP9.6m is in the form of convertible loan notes.
Operational highlights
-- A year of significant transition focusing on our core assets,
with business disposals, refinancing, and cost reductions.
-- During the year, Garrett Ingredients, Haydens Bakery, R&W
Scott and Chantilly Patisserie were sold, with total cash proceeds
of GBP18 million, utilised in debt reduction and working
capital.
-- Significant increase in capacity of Food Ingredients facility
following its capital investment programme.
-- Appropriate Board structure is now in place in line with our
commitment to improved corporate governance.
Post-period end events
-- GBP0.3 million fine paid following AIM Disciplinary Notice
relating to failings of corporate governance in and prior to
2017.
Current Trading
-- Current trading is in line with the Board's modest expectations.
-- Cake Decoration (Renshaw and Rainbow Dust Colours):
o Improved capital base and operating structure, reflective of
the turnaround underway.
o Focus on strengthening customer relationships and growing
sales.
o Early progress evident although the UK retail sector continues
under pressure to rationalise its supplier base.
-- Food Ingredients (Brighter Foods):
o Significantly increased capacity since the period end, on the
back of demand from existing and new customers.
o Currently selling all its production.
o Bodes well for the division to outperform its modest
expectations.
-- Further reductions in central costs
-- The Group remains focused on continuing to improve its results, and reduce net debt.
Hugh Cawley, Chief Executive commented:
"After a very difficult period in the Group's history and a
great deal of corporate activity, Real Good Food plc now comprises
two divisions, with clearly articulated objectives and defined
strategies to accomplish those objectives. We believe we now have
the leadership, the senior management and the resources capable of
delivering a further uplift in performance from both businesses,
and a substantially lower central cost base more fit for
purpose.
"In the new financial year to date, current trading from the two
remaining, robust and profitable businesses is in line with our
modest expectations for the year. The Group remains focused on
continuing to improve its results and on reducing net debt, as well
as continuing to support the business's strategy and thereby to
increase shareholder value and returns."
Enquiries:
Real Good Food plc Tel: 0151 541 3790
Hugh Cawley, Chief Executive
Maribeth Keeling, Chief Financial Officer
finnCap Limited (Nomad and Broker) Tel: 020 7220 0500
Matt Goode / Carl Holmes / James Thompson
(Corporate Finance)
MHP Communications (Financial PR) Tel: 020 3128 8734
Reg Hoare / Katie Hunt rgf@mhpc.com
About Real Good Food plc
Real Good Food plc is a diversified food business serving a
number of market sectors including retail, manufacturing,
foodservice and export. The Company now focuses on two main
markets: Cake Decoration (Renshaw and Rainbow Dust Colours) and
Food Ingredients (Brighter Foods).
Chairman's Statement
I am pleased to report that Real Good Food has made significant
progress over the past financial year. It is now a focussed group
comprising two businesses, both of which are profitable at adjusted
EBITDA level and cash generative, having started the year as an
unprofitable cash-absorbing collection of six businesses with
little clear strategic direction.
The Group's strategy is to develop the two remaining core
businesses which are leaders in their chosen markets. Management
actions are in place for Cake Decoration to rebuild customer
relationships and trust by improving product quality and
dependability whilst also improving operational efficiencies
further and growing sales in the UK and internationally. Food
Ingredients is meeting the challenges of scaling up production,
which has nearly doubled in the year, and broadening its customer
base.
We are fully committed to improving the Group's financial
performance and reducing its debt burden. The Board is confident
that the actions being taken by management are the right ones and
that, together with the investments we have made, should deliver
benefits in the coming year.
Strategic Review
31 March 31 March
2019 2018
GBP'000s GBP'000s
---------------------------------------------- --------- ---------
Loss before taxation of continuing businesses (26,090) (9,078)
---------------------------------------------- --------- ---------
Depreciation of property, plant and equipment 1,573 1,431
Impairment charge 18,675 -
Amortisation of intangibles 1,454 1,737
Significant items 1,717 4,008
Finance costs 4,406 1,424
Other finance costs 166 164
---------------------------------------------- --------- ---------
EBITDA (adjusted) Profit/(Loss) 1,901 (314)
---------------------------------------------- --------- ---------
2018/19 performance
Revenue from continuing businesses declined slightly from
GBP63.8m to GBP61.6m, with Food Ingredients seeing a reduction of
GBP0.9m and Cake Decoration's sales down by GBP1.2m. The former
principally resulted from the short-term restriction of sales owing
to operational issues arising from the expansion of capacity to
accommodate significant growth in the future; underlying demand for
the division's products remained strong throughout the period. Cake
Decoration was affected by the loss of one significant customer
which unfortunately more than offset the revenue growth
accomplished elsewhere within the division. The combined effect of
lost sales and extra costs incurred in the capacity expansion
resulted in a reduction in underlying adjusted EBITDA for Food
Ingredients (continuing) from GBP3.7m to GBP2.8m. In Cake
Decoration, underlying adjusted EBITDA increased from GBP1.1m in
2018 to GBP3.0m in 2019, despite the loss of the customer referred
to above.
Over the last two accounting periods, significant costs (both
cash costs and non-cash costs) have been recognised in the
turnaround of the business - restructuring costs necessary to align
central resources with the anticipated, smaller size of the group,
for example, losses on disposal of non-core businesses and
impairment charges where future forecast profitability could not
sustain the value of goodwill recognised some years ago. These have
now all been recognised, and the Board's intention is to ensure
that such turnaround costs are now a thing of the past; more
importantly, the remaining businesses are profitable and they both
generate cash. The Group's central resources have been pared back
to minimal levels and opportunities are continually sought to
reduce these further, consistent with good governance. The Group
retains higher levels of shareholder debt than is ideal, debt on
which the coupon was determined in less profitable times, and this
interest burden, almost all of which is rolled-up, will remain for
the foreseeable future.
Capital structure
During the course of the financial year, the Company formally
stabilised its funding structure. During July and August 2018,
principally through the provision of shareholder loan notes
convertible into equity in the sum of up to GBP8.8 million,
provided by our three major shareholders (Napier Brown, Omnicane
and Downing LLP client funds), supplemented by an oversubscribed
open offer for GBP1 million, the longer-term survival of the
company was assured, albeit with a significant interest coupon
attaching, and details of those loans, and other funding sources,
are set out in note 10. These financial restructuring arrangements
were approved at a general meeting of shareholders in August
2018.
Although the Board believes the Group's level of debt
outstanding remains higher than a business such as Real Good Food
should have, given its business model, the presence of bank debt
within the Group was restricted to asset-backed finance held by J F
Renshaw and its invoice discounting facility; as at 31 March 2019
there was no bank term loan outstanding. At the same time, the
Group's balance sheet retains a significant tangible asset base,
goodwill that has been written down to realistic levels, and has
net assets significantly in excess of the Group's current stock
market capitalisation. This is an important measure in establishing
the Group's financial worth in the future.
Operating performance and Outlook
For each component of the very much simpler group, we have set
budgets for the new financial year. So far, the performance of each
of the businesses is well aligned with the board's expectations and
central costs are also in line. The Cake Decoration market in the
UK, particularly in the retail sector, is proving increasingly
competitive but we are confident that we can leverage the fund of
experience and expertise we have to deliver what our customers need
and want. The Cake Decoration business has recently welcomed a new
Chief Executive, Steve Moon, whose experience of the sector and
business improvement credentials are such that we have high hopes
of him continuing the successful implementation of the newly
articulated strategy for that business. The Food Ingredients
division's growth plans are also now well in train under
well-established, experienced management and the future for both
businesses looks justifiably bright. The uncertainties of Brexit
for the business community continue, of course, and we are mindful
that the Cake Decoration business has European marketing and
distribution operations which may be impacted.
After two challenging years in the period to 31 March 2019, the
board wishes to thank all the Group's and businesses' stakeholders
for their understanding and patience to date. We are now entering a
period when the rewards for that patience should start to become
evident.
Group strategy
In the Report and Accounts last year, we explained that the
Board's strategy was to implement a turnaround plan for the Group
by focusing on its core assets and that the first phase of the plan
had broadly been delivered, through business disposals, some
refinancing, cost reductions and implementation of normalised
accounting policies.
As an important part of our determination to improve the
profitability and cash generation of the core assets, we undertook
a formal process, with third party involvement, of understanding
our customers' perception of the Cake Decoration business and
setting a refreshed and invigorated strategy for that division. We
identified areas of strength and weakness and have set in motion
processes to address each.
The strategy for the Food Ingredients division continues to be
relevant and focused on delivering great products for our
customers, as evidenced by the significant potential for growth in
that business. After investing GBP3.2 million in that business over
the past year, its capacity has doubled and, such is the quality of
the product coming out of its Tywyn facility, that the only current
constraint on sales is the business's ability to make the
product.
It was a part of the role of any Group staff to work
appropriately with the management of each business to help improve
its performance, in its efforts to increase the return on the
considerable investment that has been made in recent years. As the
number of businesses has decreased, therefore so has the level of
Group central resource, such that each business is now
self-sufficient. Central resources are now therefore limited to
functions that relate to finance, information services and general
management.
Summary and Outlook
After a very difficult period in the Group's history and a great
deal of corporate activity, Real Good Food plc now comprises two
divisions, with clearly articulated objectives and defined
strategies to accomplish those objectives. We believe we now have
the leadership, the senior management and the resources capable of
delivering a further uplift in performance from both businesses,
and a substantially lower central cost base more fit for
purpose.
In the new financial year to date, current trading from the two
remaining, robust and profitable businesses is in line with our
modest expectations for the year. The Group remains focused on
continuing to improve its results and on reducing net debt, as well
as continuing to support the business's strategy and thereby to
increase shareholder value and returns.
We have made significant progress in our corporate governance
regime, and now have in place an appropriate board structure,
balanced as to Executive, Non-Executive and independent
Non-Executive Directors. The Board is grateful for the continued
support of all stakeholders who have shown confidence in the Group
during the past year and will make every effort to retain the
positive momentum which is now clearly evident in the underlying
businesses. The Board is confident in the future prospects for the
Group as a whole.
Divisional Business Review
Cake Decoration
2018/19 Performance
In a transitional year, the result for Cake Decoration was
encouraging in that the division delivered a significantly improved
underlying adjusted EBITDA performance, despite overall challenging
consumer demand and trading conditions, control of overhead
expenditure and the realignment of resources from Group to Cake
Decoration.
At the overall market level, consumer demand for Cake Decorating
products in the company's core market, the UK, was in slight
decline at minus 1% year on year, but there was some improvement in
the key seasonal trading period in the last three months of the
year when market volumes increased by 2%.
In the UK, where all the division's manufacturing facilities are
located, sales in the wholesale and retail distribution channels
were down on prior year with the decision of one significant
customer in retail to move production in-house, accounting for a
year-on-year reduction of GBP1.6m in revenue, while sales within
the manufacturing channel grew by 8%, and sales to the company's
sister company in the USA, increased by GBP2.4m, reflecting
increased customer demand and some limited re-stocking in that
market.
Following the establishment of a USA-based warehouse, to fulfil
orders for North America and an increase in customer demand, sales
in North America grew by a healthy 22%. A review of the order
fulfilment model for Continental Europe customers was also
completed, resulting in the closure of the Brussels warehouse and
office. Order fulfilment for Continental Europe customers is now
handled by the Company's main customer service and warehouse
operation based in Liverpool. The change was well executed with the
customer base retained and sales down by only 3% when compared with
prior year, reflecting increased competition and some economic
uncertainty rather than the change in distribution model.
A new line to produce convenience formats of Renshaw's core
product, rolled icing, was fully operational, delivering increased
throughput and lower costs and a new soft icings plant became fully
commissioned with the first orders for UK retailer own label
frostings being produced.
An independent customer survey was undertaken, which in turn,
led to a comprehensive review of the company's strategic plans. The
survey acknowledged the strength of the Renshaw brand, its heritage
and that for many customers it was seen as a "must stock" brand.
The survey also highlighted the key areas that the company needed
to address to further secure its position in the market and grow. A
comprehensive strategic plan and associated schedule of actions was
drawn up to address each of the areas highlighted.
Related to the customer feedback, a review of the company's
sales and operations planning process was undertaken with the help
of a specialist consultancy. The resultant process redesign and
associated structure changes have been implemented and are already
providing customer service and inventory benefits.
Forward plans
The business continues to implement its strategic plans, arising
from the strategic review referred to above. These are focused on
reducing reliance on the company's core product line, ready-to-roll
icing, by developing a wider range of products within the cake
decoration category. The products developed and made available will
be rooted in genuine consumer insight and seek to address consumer
concerns and needs in the areas of convenience, health, the
environment and providing accessible inspiration. The company's
marketing activities are also being aligned in one function and
reorganised to support the revised strategy.
In addition to product and marketing initiatives, the Company is
making progress in engaging with its key customers to provide a
more consultative approach to the overall cake decorating category
through the better use of bought-in market data, insight generation
and application and digital media content.
The B2B division continues to see and capitalise on significant
opportunities to leverage its long-standing industry knowledge and
expertise to help cake manufacturers through the provision of
reliable core products. It also continues to identify new customers
for products such as caramel and mallow in rapidly growing emerging
categories, such as the snack bar market.
Export growth is focused on North America where detailed
strategies for three principal areas have been identified and
recruitment is underway to ensure we have sufficient resource and
expertise to implement plans. The US operation will agree closer
distribution partnerships with key industry players throughout the
year.
Following changes to the order fulfilment model for Europe, the
business will continue to evaluate how it best serves its European
customer base, seeking constantly to improve customer service and
product availability.
Ensuring the supply of consistently high-quality product remains
the key imperative for the Company; as a result of which there is
now an active quality improvement programme across the entire
business. In addition to continuous improvement and preventative
measures, the programme involves acquiring the leading scientific
understanding of the products manufactured by the company to ensure
it stays ahead of the competition.
2019 2018
12 months to March GBPm GBPm
-------------------------- ------- ------
Revenue 46.4 47.6
EBITDA (adjusted)* 3.0 1.1
Impairment charge (18.7) -
Operating (loss)/profit (17.3) (1.0)
Operating (loss)/profit % (37.3%) (2.1%)
-------------------------- ------- ------
Food Ingredients
2018/19 Performance
During the period under review, this division has undergone
significant change; at the start of the year, it comprised three
businesses, R&W Scott, Garrett Ingredients and Brighter Foods;
the first two of these were sold during the year and only Brighter
Foods remained as part of the Group by the end of the year.
Brighter Foods was acquired in April 2017 and creates, develops and
manufactures snack bars for the healthy snacking market from its
factories in Tywyn, Gwynedd in mid Wales. Brighter Foods is a
multi-award-winning company which produces snacks which are
targeted at areas such as diet control, gluten free, lactose free,
low or no added sugar, sports nutrition, organic and fair trade and
its manufacturing capabilities, even before recent expansion, are
highly regarded throughout the industry. As well as manufacturing
partner-branded products, Brighter Foods has its own healthier
brands such as Wild Trail, which is stocked in retailers and health
food stores.
Brighter Foods itself also saw significant change in growing its
capacity by 9% in the year ended 31 March 2019, with a further 91%
increase in the current year-to-date, to accommodate newly acquired
business and in preparation for further growth in the new financial
year. Some GBP3.2m was invested in new capacity and the workforce
grew substantially from 160 people to 297, both of which
transformations posed their own short-term challenges. The impact
of this rapid, albeit planned and wholly welcome expansion, was
felt through a short-term reduction in sales, as the operational
changes were implemented, and the new staff were trained and
brought up to speed. The result is that Brighter Foods is now a
larger business, with a more diverse customer base and the ability
to grow further without more significant investment. The last year
has also seen a controlled growth in the professional overhead base
of the business, in anticipation of the increasing demands of its
blue-chip clients, but the business retains its well-run,
entrepreneurial spirit and continues to go from strength to
strength.
During the period under review, as was announced in early March
2019, the dispute regarding the non-supply of contracted sugar, to
Garrett Ingredients which had been outstanding for over a year, was
satisfactorily resolved, broadly in line with the provision made
within last year's accounts.
Forward plans
Following the disruption from the implementation of changes
necessary for the future growth of the business during 2018/19,
Brighter Foods, well-positioned as it is in the health and wellness
market, anticipates a resumption of the growth in revenue which has
characterised every other year of the business since its formation
in 2014.
2019 2018
12 months to March GBPm GBPm
------------------- ----- -----
Revenue 15.2 16.1
EBITDA (adjusted)* 2.8 3.7
Operating profit 1.2 2.1
Operating profit % 7.8% 12.8%
------------------- ----- -----
* See note 3 for reconciliation.
Finance Review
Revenue
Group revenue the continuing businesses for the 12 months ending
31 March 2019 was GBP61.6 million (2018: GBP63.8 million), a
decrease of 3.4% on the revenue to 31 March 2018. This results from
reductions in Cake Decoration of GBP1.2m (2.6%) and in Food
Ingredients of GBP0.9m (5.9%). The decrease in Cake Decoration came
principally from the loss of one significant customer, whereas the
Food Ingredients division reduction was driven mainly from the
practical difficulties arising out of the implementation of new
plant and equipment and the simultaneous, rapid increase in people
numbers.
Profit measure on operations
Gross profit on the continuing businesses for the overall Group
was GBP18.0 million (2018: GBP17.9 million). At 23.7%, the
delivered margin in the year, for the continuing businesses, was
above the prior year of 23.0% and significantly above that reported
for the whole group in the prior year of 14.9%, strongly indicative
of the improved quality of earnings for the Group as a whole.
Delivered margin is defined as gross profit less costs of
delivery.
The operating loss in the year of GBP21.5 million is reported
after an impairment charge of GBP18.7 million, depreciation and
amortisation charge of GBP3.0 million and significant costs of
GBP1.7 million.
After finance costs of GBP4.6 million and the inclusion of a
GBP6.2 million loss from the discontinued operations, this results
in a loss after tax for the year of GBP32.0 million (2018: loss of
GBP26.6 million). This equates to a basic loss per share of 28.64
pence on continuing operations (restated at 11.82 pence in 2018)
and a loss per share of 6.85 pence on discontinued operations
(restated to 23.76 pence in 2018) (see note 9).
Cashflow and net debt
Shares issued in the year and additional loans to 31 March 2019
amounted to GBP10.4 million, of which GBP7.7 million of cash was
used in investing activities and GBP2.7 million of cash was used in
operating activities.
Pension scheme
The Group offers a defined contribution scheme for all current
employees that is funded on a monthly basis. In addition, the
Company operates a defined benefit scheme that was closed to new
members in 2000. The defined benefit scheme is the Napier Brown
Retirement Pension Plan (the Plan). The IAS 19 pension schemes
valuation reported a gross deficit at 31 March 2019 of GBP7.4
million (2018: restated to GBP7.9 million). The Plan assets
increased by GBP0.3 million to GBP13.8 million (2018: GBP13.5
million) and the Plan liabilities are GBP21.2 million compared to
GBP21.4 million at 31 March 2018. The 2017 and 2018 deficit has
been restated in relation to certain pension increases which were
previously being considered discretionary. Fresh legal advice
clarifies these payments are mandatory. The correction has been
adjusted via brought forward reserves from 2017, thus matching the
cost and benefit, rather than taken in the current period accounts.
See note 11 for further details.
Dividend
The Directors, considering the Group's performance and cash
resources, do not recommend the payment of a final dividend for the
year ended 31 March 2019 (2018: nil).
2019 2018
12 months to March GBPm GBPm
------------------------------------------------------- --------- --------
Revenue 61,560 63,788
Gross profit 18,027 17,904
Delivered margin 14,612 14,680
Delivered margin % 23.7% 23.0%
EBITDA (adjusted)* profit/(loss) 1,901 (314)
Operating loss before impairment and significant items (1,126) (3,482)
Operating loss after impairment and significant items (21,518) (7,490)
Operating loss % (35.0%) (11.7%)
Loss before tax (26,090) (9,078)
------------------------------------------------------- --------- --------
All figures refer to continuing businesses.
* See note 3 for reconciliation.
Consolidated Statement of Comprehensive Income
Year ended 31 March 2019
12 months
12 months ended
ended 31 March
31 March 2018
2019 (restated*)
Notes GBP'000s GBP'000s
------------------------------------------------------------ ----- --------- ------------
Revenue 2, 3 61,560 63,788
Cost of sales (43,533) (45,884)
------------------------------------------------------------ ----- --------- ------------
Gross profit 18,027 17,904
Distribution expenses (3,415) (3,223)
Administrative expenses (15,738) (18,163)
------------------------------------------------------------ ----- --------- ------------
Operating loss before impairment and significant
items (1,126) (3,482)
Impairment charge 12 (18,675) -
Significant items 4 (1,717) (4,008)
------------------------------------------------------------ ----- --------- ------------
Operating loss after impairment and significant costs 5 (21,518) (7,490)
Finance costs 6 (4,406) (1,424)
Other finance costs 7 (166) (164)
------------------------------------------------------------ ----- --------- ------------
Loss before tax (26,090) (9,078)
Income tax credit 349 613
------------------------------------------------------------ ----- --------- ------------
Loss from continuing operations (25,741) (8,465)
Loss from discontinued operations (6,243) (18,100)
------------------------------------------------------------ ----- --------- ------------
Net loss (31,984) (26,565)
------------------------------------------------------------ ----- --------- ------------
Attributable to:
Owners of the parent (32,321) (27,099)
Non-controlling interests 337 534
------------------------------------------------------------ ----- --------- ------------
Net loss (31,984) (26,565)
Items that will or may be reclassified to profit
or loss
Foreign exchange differences on translation of subsidiaries (32) 61
Items that will not be reclassified to profit or
loss
Actuarial gains/(losses) on defined benefit plan 11 441 (599)
Tax relating to items which will not be reclassified (75) 100
------------------------------------------------------------ ----- --------- ------------
Other comprehensive gain/(loss) 334 (438)
------------------------------------------------------------ ----- --------- ------------
Total comprehensive loss for the year (31,650) (27,003)
------------------------------------------------------------ ----- --------- ------------
Attributable to:
Owners of the parent (31,987) (27,537)
Non-controlling interests 337 534
------------------------------------------------------------ ----- --------- ------------
Total comprehensive loss for the year (31,650) (27,003)
------------------------------------------------------------ ----- --------- ------------
* The result for the year ended 31 March 2018 has been restated
to reflect the change in continuing and discontinued
operations.
12 months
12 months ended
ended 31 March
31 March 2018
2019 (restated*)
Notes GBP'000s GBP'000s
----------------- ----------------------------- ------------------------------------------------ --------------
Basic
and diluted
loss per
share
- continuing
operations 9 (28.64)p (11.82)p
Basic
and diluted
loss per
share
- discontinued
operations 9 (6.85)p (23.76)p
----------------- ----------------------------- ------------------------------------------------ --------------
* Earnings per share for the year ended 31 March 2018 has been restated for
a prior period adjustment to remove the effect of non-controlling interests,
which were included in the figures to 31 March 2018 in error. It has also
been restated to reflect the change in continuing and discontinued operations.
Consolidated Statement of Changes in Equity
Year ended 31 March 2019
Foreign
Issued Share Share Exchange
Share Premium Other Option Translation Retained Non-Controlling Total
Capital Account Reserves Reserve Reserve Earnings Total Interest Equity
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Balance as
reported
at
31 March 2017 1,411 122 - 415 (48) 84,818 86,718 - 86,718
Restated
brought
forward
retained
earnings
(note
11) - - - - - (1,479) (1,479) - (1,479)
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Restated
balance at
31 March 2017 1,411 122 - 415 (48) 83,339 85,239 - 85,239
Total
comprehensive
loss for the
year
Loss for the
year - - - - - (27,099) (27,099) 534 (26,565)
Other
comprehensive
loss for the
year - - - - 61 (499) (438) - (438)
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Total
comprehensive
loss for the
year - - - - 61 (27,598) (27,537) 534 (27,003)
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Transactions
with owners
of the Group,
recognised
directly in
equity
Shares issued
in the
year 158 2,598 - - - - 2,756 - 2,756
Share based
payments - - - (5) - - (5) - (5)
Deferred tax
on
share-based
payments - - - (100) - - (100) - (100)
Long-term
liabilities - - (4,796) - - - (4,796) - (4,796)
Acquisition of
majority
interest - - - - - - - 1,269 1,269
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Total
contributions
by and
distributions
to owners of
the Group 158 2,598 (4,796) (105) - - (2,145) 1,269 (876)
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Balance as at
31 March 2018
(restated)* 1,569 2,720 (4,796) 310 13 55,741 55,557 1,803 57,360
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Total
comprehensive
loss for the
year
Loss for the
year - - - - - (32,321) (32,321) 337 (31,984)
Other
comprehensive
loss for the
year - - - - (32) 366 334 - 334
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Total
comprehensive
loss for the
year - - - - (32) (31,955) (31,987) 337 (31,650)
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Transactions
with owners
of the Group,
recognised
directly in
equity
Shares issued
in the
year 418 566 - - - - 984 - 984
Share based
payments - - - (38) - - (38) - (38)
Deferred tax
on
share-based
payments - - - (34) - - (34) - (34)
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Total
contributions
by and
distributions
to owners of
the Group 418 566 - (72) - - 912 - 912
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
Balance as at
31 March
2019 1,987 3,286 (4,796) 238 (19) 23,786 24,482 2,140 26,622
-------------- -------- -------- -------- --------- ----------- --------- --------- --------------- ---------
* Balance as at 31 March 2018 is restated to reflect the impact
of the prior period adjustment shown above. Full details are in
note 11.
Consolidated Statement of Financial Position
Year ended 31 March 2019
31 March 31 March 31 March
2019 2018 (restated*) 2017 (restated*)
Notes GBP'000s GBP'000s GBP'000s
---------------------------------------------- ----- --------- ----------------- -----------------
NON-CURRENT ASSETS
Goodwill 50,375 69,955 69,416
Other intangible assets 1,599 3,247 1,155
Tangible fixed assets 16,578 30,098 23,932
Investments 81 81 -
Deferred tax asset 1,259 1,129 1,435
---------------------------------------------- ----- --------- ----------------- -----------------
69,892 104,510 95,938
---------------------------------------------- ----- --------- ----------------- -----------------
CURRENT ASSETS
Inventories 6,840 10,582 13,323
Trade and other receivables 8,614 15,296 16,016
Current tax assets 52 27 233
Cash collateral 10 2,000 2,000 -
Cash and cash equivalents 2,909 2,731 464
---------------------------------------------- ----- --------- ----------------- -----------------
20,415 30,636 30,036
---------------------------------------------- ----- --------- ----------------- -----------------
Assets classed as held for sale 148 - -
---------------------------------------------- ----- --------- ----------------- -----------------
TOTAL ASSETS 90,455 135,146 125,974
---------------------------------------------- ----- --------- ----------------- -----------------
CURRENT LIABILITIES
Bank overdrafts - - 619
Trade and other payables 10,629 22,486 15,243
Borrowings 10 668 24,160 11,375
Financial instrument - - 146
---------------------------------------------- ----- --------- ----------------- -----------------
11,297 46,646 27,383
---------------------------------------------- ----- --------- ----------------- -----------------
NON-CURRENT LIABILITIES
Borrowings 10 37,961 16,390 4,701
Long-term liabilities - NCI put option 4,997 4,796 -
Derivative liability - Convertible loan notes 294 - -
Deferred tax liabilities 1,881 2,035 1,278
Retirement benefit obligation 11 7,403 7,919 7,373
---------------------------------------------- ----- --------- ----------------- -----------------
52,536 31,140 13,352
---------------------------------------------- ----- --------- ----------------- -----------------
TOTAL LIABILITIES 63,833 77,786 40,735
---------------------------------------------- ----- --------- ----------------- -----------------
NET ASSETS 26,622 57,360 85,239
---------------------------------------------- ----- --------- ----------------- -----------------
EQUITY
Share capital 1,987 1,569 1,411
Share premium account 3,286 2,720 122
Other reserve (4,796) (4,796) -
Share option reserve 238 310 415
Foreign exchange translation reserve (19) 13 (48)
Retained earnings 23,786 55,741 83,339
---------------------------------------------- ----- --------- ----------------- -----------------
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT 24,482 55,557 85,239
Non-controlling Interest 2,140 1,803 -
---------------------------------------------- ----- --------- ----------------- -----------------
TOTAL EQUITY 26,622 57,360 85,239
---------------------------------------------- ----- --------- ----------------- -----------------
* Retirement benefit obligation and retained earnings have been
restated for an error in the 31 March 2017 accounts. See note 11
for full details.
Consolidated Cash Flow Statement
Year ended 31 March 2019
31 March 31 March
2019 2018
Notes GBP'000s GBP'000s
-------------------------------------------------------- ----- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES
Adjusted for:
(Loss) before taxation (32,333) (26,512)
Finance and other finance costs 6, 7 4,572 1,805
FX movement (98) 152
Impairment charge 18,675 10,494
Share based payment expense (38) (5)
Loss on discontinued business 5,202 142
Loss on disposal of intangible assets 123 -
Loss on disposal of property, plant and equipment 135 107
Past service cost on pension 11 106 115
Fair value of derivative liability 294 -
Fair value of NCI put option 201 -
Depreciation of property, plant and equipment 2,656 2,929
Amortisation of intangibles 1,464 2,274
-------------------------------------------------------- ----- --------- ---------
Operating Cash Flow 959 (8,499)
Decrease in inventories 186 3,675
Decrease in receivables 613 1,641
Pension contributions 11 (347) (942)
NCI put option - (4,796)
(Decrease)/increase in payables (3,511) 3,155
-------------------------------------------------------- ----- --------- ---------
Cash (used in) from operations (2,100) (5,766)
Income taxes (paid)/received (68) 1
Interest paid (493) (809)
-------------------------------------------------------- ----- --------- ---------
Net cash (outflow) from operating activities (2,661) (6,574)
-------------------------------------------------------- ----- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of intangible assets (10) (249)
Purchase of property, plant and equipment (4,474) (10,961)
Disposal of discontinued business, net of cash disposed
of 16,669 -
Acquisition of business, net of cash acquired - (1,781)
Payment of deferred consideration (4,520) -
-------------------------------------------------------- ----- --------- ---------
Net cash inflow/(outflow) from investing activities 7,665 (12,991)
-------------------------------------------------------- ----- --------- ---------
CASH FLOW USED IN FINANCING ACTIVITIES
Shares issued in year 984 2,756
Repayment of borrowings 8,10 (1,750) (750)
Inflow of investor loans 8,10 856 21,398
Inflow of funds from convertible loan notes 8,10 8,545 -
Drawdowns on revolving credit facilities 57,266 99,266
Repayments on revolving credit facilities (65,935) (99,930)
Asset finance cashflow - 1,008
Capital repayments on finance leases (4,783) (1,306)
-------------------------------------------------------- ----- --------- ---------
Net cash (outflow)/inflow from financing activities (4,817) 22,442
-------------------------------------------------------- ----- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 187 2,877
-------------------------------------------------------- ----- --------- ---------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of period 2,731 (155)
Effects of currency translations on cash and cash
equivalents (10) 9
Net movement in cash and cash equivalents 188 2,877
-------------------------------------------------------- ----- --------- ---------
Cash and cash equivalents at end of period 8 2,909 2,731
-------------------------------------------------------- ----- --------- ---------
Notes to the Financial Information
Year ended 31 March 2019
1. Presentation of financial information
General information
Real Good Food plc is a public limited company incorporated in
England and Wales under the Companies Act (registered number
04666282). The Company is domiciled in England and Wales and its
registered address is 61 Stephenson Way, Wavertree, Liverpool L13
1HN. The Company's shares are traded on the Alternative Investment
Market (AIM).
Basis of preparation
The consolidated financial information is presented on the basis
of International Financial Reporting Standards (IFRS) as adopted by
the European Union and has been prepared in accordance with AIM
rules and the Companies Act 2006, as applicable to companies
reporting under IFRS.
The financial information set out in this preliminary statement
does not constitute the Group's statutory accounts for the years
ended 31 March 2019 or 2018. Statutory accounts for 2018 have been
delivered to the Registrar of Companies, and those for 2019 will be
delivered in due course. The auditor has reported on those
accounts; their reports were (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying their report (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006. The accounts are prepared on a going concern basis.
These results were approved by the Board of Directors on 15
August 2019.
Discontinued operations
A discontinued operation is a component of the Group's business
that represents a separate major line of business or geographical
area of operation that has been disposed of or is held for sale, or
is a subsidiary acquired exclusively with a view to resale.
Classification of a discontinued operation occurs upon disposal or
when the operation meets the criteria to be classified as held for
sale, if earlier. When an operation is classified as a discontinued
operation, the comparative income statement is presented as if the
operation had discontinued from the start of the comparative
period.
During the twelve months to 31 March 2019, the Group sold
Garrett Ingredients Ltd, Haydens Bakery Ltd, R&W Scott Ltd, and
RGF Patisserie Ltd (t/a Chantilly Patisserie). At 31 March 2019,
some remaining assets in relation to the disposed businesses are
classed as held for sale.
Any references to discontinued operations throughout this report
refer to Garrett Ingredients Ltd, Haydens Bakery Ltd, R&W Scott
Ltd and RGF Patisserie Ltd.
IFRS standards and interpretations adopted
New standards which are effective from 1 January 2018, and have
been considered within the Group's accounting policies are:
-- IFRS 9 Financial Instruments; and
-- IFRS 15 Revenue from Contracts with Customers.
The adoption of IFRS9 has not had a material impact in the
presentation of the accounts of the Group.
There is no impact in the accounts from the implementation of
IFRS 15 Revenue from Contracts with Customers, as the requirements
of this standard are in line with those already adopted by the
Group in regard to recognition of revenue.
There are a number of standards and amendments to standards that
have been issued but are not yet effective. The Group has not
decided to adopt these early. These are:
-- IFRS 16 Leases (effective for periods beginning after 1 January 2019);
-- Amendments to IFRS 9 Prepayment Features with Negative
Compensation (effective 1 January 2019);
-- Amendments to IAS 28: Long-term Interests in Associates and
Joint Ventures (effective 1 January 2019); and
-- IFRS 17 Insurance Contracts (effective 1 January 2021)
The adoption of IFRS 16 Leases, will require the Group to
recognise right-of-use assets and liabilities for all contracts
that contain a lease. The Group does not currently recognise
related assets or liabilities for operating leases, but instead
spreads the lease payments on a straight-line basis over the lease
term. As such, the Group will no longer recognise an operating
expense for the lease payments but will replace this with interest
on its lease liabilities and amortisation of the right to use
assets. This will increase EBITDA for the Group.
The Board has decided to apply the modified retrospective
adoption method in IFRS 16 and will therefore only recognise leases
on the balance sheet as at 1 April 2019. They have also decided to
measure the asset as the lease liability on that date, meaning
there will be no immediate impact on net assets at 1 April 2019, as
the asset will offset with the liability.
At 31 March 2019, there are GBP0.4 million of operating lease
commitments outstanding, with a reduction of GBP0.2 million
expected in the year to 31 March 2020. The impact expected on
EBITDA for the year ended 31 March 2020 is therefore GBP0.2
million, being the current operating lease cost.
The Group does not expect any other standards issued by the
IASB, but not yet effective, to have a material impact on the
Group.
2. Revenue
The revenue for the Group for the current year arose from the
sale of goods in the following areas:
Cake Decoration Manufactures, sells and supplies cake decorating products
GBP46.4 million and ingredients for the baking sector.
---------------- ---------------------------------------------------------
Food Ingredients Manufactures and supplies a range of snack bars to the
GBP15.2 million retail sector.
---------------- ---------------------------------------------------------
3. Segment reporting
Business segments
The divisional structure reflects the management teams in place
and also ensures all aspects of trading activity have the specific
focus they need in order to achieve our growth plans.
The Group operates in two main divisions: Cake Decoration and
Food Ingredients. The Head Office functions of Finance, Technical
and Information Services provided support to the divisions in
varying scale.
Head Office
Cake and non-trading Continuing Discontinued Total
Decoration Food Ingredients subsidiaries Operations Operations Group
12 months ended 31 March 2019 GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Total revenue 56,340 15,151 - 71,491 26,365 97,856
Intercompany sales (9,931) - - (9,931) (346) (10,277)
------------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
External revenue 46,409 15,151 - 61,560 26,019 87,579
Cost of sales (31,716) (11,585) (232) (43,533) (21,615) (65,148)
------------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Gross profit/(loss) 14,693 3,566 (232) 18,027 4,404 22,431
Distribution expenses (3,074) (341) - (3,415) (1,227) (4,642)
Administrative expenses (9,662) (1,998) (4,078) (15,738) (9,267) (25,005)
------------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Operating profit/(loss) before
impairment and significant
items 1,957 1,227 (4,310) (1,126) (6,090) (7,216)
Significant items (589) (42) (1,086) (1,717) (46) (1,763)
Impairment charge (18,675) - - (18,675) - (18,675)
------------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Operating (loss)/profit after
impairment and significant
items (17,307) 1,185 (5,396) (21,518) (6,136) (27,654)
Finance costs (141) - (4,265) (4,406) (107) (4,513)
Other finance costs - - (166) (166) - (166)
------------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
(Loss)/profit before tax (17,448) 1,185 (9,827) (26,090) (6,243) (32,333)
Income tax expense/(credit) 18 (122) 453 349 - 349
------------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
(Loss)/profit after tax as
per comprehensive statement
of income (17,430) 1,063 (9,374) (25,741) (6,243) (31,984)
------------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Geographical segments
The Group earns revenue from countries outside the United
Kingdom, as shown below:
Cake Decoration Food Ingredients
GBP'000s GBP'000s
-------------- --------------- ----------------
UK 30,276 15,149
Europe 6,201 2
USA 8,643 -
Rest of World 1,289 -
-------------- --------------- ----------------
Total 46,409 15,151
-------------- --------------- ----------------
The Group has two customers which constitute over 10% of
revenue; one providing 22% of revenue, and the other 13%.
Head Office
Reconciliation of operating Cake and non-trading Continuing Discontinued Total
(loss)/profit to underlying Decoration Food Ingredients subsidiaries Operations Operations Group
adjusted EBITDA GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Operating (loss)/profit (17,307) 1,185 (5,396) (21,518) (6,136) (27,654)
Significant items 589 42 1,086 1,717 46 1,763
Impairment charge 18,675 - - 18,675 - 18,675
Loss on disposal - - - - 5,202 5,202
Depreciation 1,016 242 315 1,573 1,083 2,656
Amortisation 12 1,376 66 1,454 10 1,464
----------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Underlying adjusted EBITDA 2,985 2,845 (3,929) 1,901 205 2,106
----------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Head Office
Cake and non-trading Continuing Discontinued Total
Decoration Food Ingredients subsidiaries Operations Operations Group
31 March 2019 GBP'000s GBP'000s GBP'000s GBP '000s GBP'000s GBP'000s
---------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Segment assets 108,357 13,460 (31,362) 90,455 - 90,455
---------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Segment liabilities 23,985 3,073 36,775 63,833 - 63,833
---------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Net operating assets 84,372 10,387 (68,137) 26,622 - 26,622
---------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
Non-current asset additions 102 4,581 - 4,683 - 4,683
Depreciation (1,016) (242) (315) (1,573) (1,083) (2,656)
Amortisation (12) (1,376) (66) (1,454) (10) (1,464)
---------------------------- ----------- ---------------- ---------------- ----------- ------------ ---------
In line with the Group strategy of allowing each business to
understand its true cost base as a stand-alone business, during the
12 months ended 31 March 2019, Head Office costs of GBP1.4 million
have been re-allocated to the Cake Decoration division. In order to
provide clear and consistent comparisons, the 12 months ended 31
March 2018 have been restated.
Head Office
Cake & non trading Continuing Discontinued Total
12 months ended 31 March 2018 Decoration Food Ingredients subsidiaries Operations Operations Group
(Restated) GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
Total revenue 55,175 16,096 61 71,332 71,035 142,367
Intercompany sales (7,544) - - (7,544) (4,697) (12,241)
------------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
External revenue 47,631 16,096 61 63,788 66,338 130,126
Cost of sales (33,744) (11,876) (264) (45,884) (59,753) (105,637)
------------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
Gross profit/(loss) 13,887 4,220 (203) 17,904 6,585 24,489
Distribution expenses (2,906) (317) - (3,223) (2,287) (5,510)
Administrative expenses (10,937) (1,842) (5,384) (18,163) (9,429) (27,592)
------------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
Operating profit/(loss) before
impairment and significant
items 44 2,061 (5,587) (3,482) (5,131) (8,613)
Significant items (1,060) (5) (2,943) (4,008) (1,477) (5,485)
Impairment charge - - - - (10,494) (10,494)
------------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
Operating (loss)/profit after
impairment and significant
items (1,016) 2,056 (8,530) (7,490) (17,102) (24,592)
Finance costs (214) - (1,210) (1,424) (332) (1,756)
Other finance costs - - (164) (164) - (164)
------------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
(Loss)/profit before tax (1,230) 2,056 (9,904) (9,078) (17,434) (26,512)
Income tax expense/(credit) 1,364 185 (936) 613 (666) (53)
------------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
Profit/(loss) after tax as
per comprehensive statement
of income 134 2,241 (10,840) (8,465) (18,100) (26,565)
------------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
Head Office
Reconciliation of operating Cake & non trading Continuing Discontinued Total
(loss)/profit to underlying Decoration Food Ingredients subsidiaries Operations Operations Group
adjusted EBITDA GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
Operating (loss)/profit (1,016) 2,056 (8,530) (7,490) (17,102) (24,592)
Significant items 1,060 5 2,943 4,008 1,477 5,485
Impairment charge - - - - 10,494 10,494
Depreciation 797 209 425 1,431 1,498 2,929
Amortisation 276 1,404 57 1,737 537 2,274
----------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
Underlying adjusted EBITDA 1,117 3,674 (5,105) (314) (3,096) (3,410)
----------------------------- ----------- ---------------- -------------- ----------- ------------ ---------
4. Significant items
12 months 12 months
ended ended
31 March 31 March
2019 2018
Reference GBP'000s GBP'000s
---------------------------------------------------- ---------- --------- ---------
Abnormal costs relating to ongoing capital projects 1 (38) (885)
Investigation work and penalties 2 (315) (1,207)
Professional fees in relation to refinancing costs 3 (380) (669)
Asset write-offs 4 (330) (920)
Commercial disputes 5 (118) (239)
Management restructuring 6 (582) (1,254)
Acquisition and legal costs - (311)
---------------------------------------------------- ---------- --------- ---------
Significant items (1,763) (5,485)
---------------------------------------------------- ---------- --------- ---------
Continuing business (1,717) (4,008)
Discontinued business (46) (1,477)
---------------------------------------------------- ---------- --------- ---------
Total significant items (1,763) (5,485)
---------------------------------------------------- ---------- --------- ---------
The Group's underlying profit figure excludes a number of items
which are material and non-recurring and are detailed separately to
ensure the underlying operating performance of the businesses is
clearly visible, without the distortions of these non-recurring
costs.
The year to 31 March 2019 has seen a lower level of significant
items than in the previous year. A number of the costs shown are
carried forward in relation to activities from the year to 31 March
2018. They are explained in the notes below:
1. Abnormal costs during improving capacity of business units.
Considerable funds have been invested throughout the Group in the
past two years in capital projects, to improve the capacity and
operating efficiency of the Group. The costs incurred in the year
ended 31 March 2019 are in relation to different capital projects
from those reflected in the year ended 31 March 2018.
2. Investigation work and penalties relating to corporate
governance failings. There were well-publicised failings in the
area of corporate governance. The costs of securing the services of
external agencies sufficiently specialised, experienced and
qualified to ensure all failings were fully investigated and
identified, and remedial actions highlighted on a timely basis have
been identified separately.
3. Professional fees relating to refinancing. The very unusual
frequency and short-term costs of refinancing in the period are
highlighted here, as being the costs associated with providing
repeated emergency funding before any form of longer-term package
was able to be negotiated. All loans have now been
renegotiated.
4. Asset write-offs. The costs incurred in the year ended 31
March 2019 relate to inventory and intangible asset write-offs in
relation to an abandoned product launch. In the period to 31 March
2018 this relates to the closure of Garrett Ingredients Nutrition,
and asset write-offs in relation to aborted projects.
5. Commercial disputes. These costs relate to the
well-publicised issues, identified separately in previous
announcements to the City, arising from disputes over material
sugar contracts. The value of the disputes was unusually large and
occurred some years after the original contracts were entered. They
are not expected to re-occur. All claims are now settled.
6. Management restructuring. Individual redundancies are
generally a matter of everyday business, however, significant
restructuring has been required and effected right across the Group
during the past 24 months, as fundamental changes in the operations
have been brought about, while deliberate, one-off changes have
been delivered. The central functions have been largely disbanded,
for example, as the Group can demonstrably no longer afford to
sustain a central overhead of marketing, operations, or HR. The
costs of severance for these staff members have been separately
identified and disclosed here.
5. Operating profit
Operating profit for continuing operations
12 months 12 months
ended ended
31 March 31 March
2019 2018
Notes GBP'000s GBP'000s
------------------------------------------------- ----- --------- ---------
External Sales 61,560 63,788
------------------------------------------------- ----- --------- ---------
Staff Costs (20,622) (21,800)
Inventories:
- cost of inventories as an expense (included in
cost of sales) (25,917) (29,545)
Depreciation of property, plant and equipment (1,573) (1,431)
Amortisation of intangible assets (1,454) (1,737)
Significant items 4 (1,717) (4,008)
Impairment charge (18,675) -
Operating lease payment:
- land and buildings (486) (651)
- other assets (57) (124)
Research and development expenditure (803) (1,172)
Impairment of trade receivables (100) (146)
Foreign exchange losses/(gains) (327) 415
Other net operating expenses (11,347) (11,079)
------------------------------------------------- ----- --------- ---------
Total (83,078) (71,278)
------------------------------------------------- ----- --------- ---------
Operating loss (21,518) (7,490)
------------------------------------------------- ----- --------- ---------
6. Finance costs
12 months 12 months
ended ended
31 March 31 March
2019 2018
GBP'000s GBP'000s
------------------------------------------------------ --------- ---------
Interest on bank loans, overdrafts and investor loans (4,164) (1,311)
Interest on obligations under finance leases (154) (330)
Interest on non-controlling interest put option (89) -
Past service cost on pension (note 11) (106) (115)
------------------------------------------------------ --------- ---------
(4,513) (1,756)
------------------------------------------------------ --------- ---------
Continuing business (4,406) (1,424)
------------------------------------------------------ --------- ---------
Discontinued business (107) (332)
------------------------------------------------------ --------- ---------
7. Other finance costs
12 months 12 months
ended ended
31 March 31 March
2019 2018
GBP'000s GBP'000s
------------------------------------------------- --------- ---------
Interest on pension scheme liabilities (note 11) (516) (553)
Interest on pension scheme assets (note 11) 350 389
------------------------------------------------- --------- ---------
(166) (164)
------------------------------------------------- --------- ---------
8. Notes supporting the cash flow statement
The cash collateral figure for the Group is GBP2 million. This
has been provided to Lloyds Bank plc as security for the
liabilities of the Group. The GBP2 million has been supplied as
investor loans by Omnicane Investors Ltd and NB Holdings Ltd and
attracts interest. This amount is not included in the cashflow.
Group
Non-current Current
Loans and Loans
Borrowings and Borrowings
GBP'000s GBP'000s Total
(Note 10) (Note 10) GBP'000s
---------------------------------------------------- ----------- --------------- ---------
At 31 March 2018 16,390 24,160 40,550
---------------------------------------------------- ----------- --------------- ---------
Cash Flows 6,214 (12,015) (5,801)
Non-cash flows
- Loans renegotiated to move from current at March
2018 to non-current at March 2019 12,144 (12,144) -
- Interest accruing on loans 4,317 - 4,317
- Accrued interest added to principal loan at the
point of issue of convertible loan notes 261 - 261
- Transaction costs of issuance of convertible loan
notes included in liability (317) - (317)
- Fair value measurement of convertible loan notes (345) - (345)
- Hire purchase disposed of as part of discontinued
entity (36) - (36)
- Loans and borrowings classified as non-current
at March 2018 becoming current before March 2019 (667) 667 -
---------------------------------------------------- ----------- --------------- ---------
At 31 March 2019 37,961 668 38,629
---------------------------------------------------- ----------- --------------- ---------
9. Earnings per share
Basic earnings per share
Basic earnings per share is calculated on the basis of dividing
the profit/(loss) attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares in issue
during the year.
12 months
12 months 12 months 12 months ended
ended ended ended 31 March
31 March 31 March 31 March 2018
2019 2019 2018 (restated)* (restated)*
Continuing Discontinued Continuing Discontinued
Operations Operations Operations Operations
GBP'000s GBP'000s GBP'000s GBP'000s
----------------------------------------------------- ----------- ------------- ----------------- -------------
Loss after tax attributable to ordinary shareholders
(GBP'000s) (26,078) (6,243) (8,998) (18,101)
Weighted average number of shares in issue
for basic EPS ('000s) 91,032 91,032 76,179 76,179
Employee share options ('000s) 364 364 1,790 1,790
Convertible loan notes ('000s) 144,554 144,554 - -
Weighted average number of shares in issue
for diluted EPS ('000s) 235,950 235,950 77,969 77,969
----------------------------------------------------- ----------- ------------- ----------------- -------------
Basic and diluted loss per share (28.64)p (6.85)p (11.82)p (23.76)p
----------------------------------------------------- ----------- ------------- ----------------- -------------
* Earnings per share for the year ended 31 March 2018 has been
restated for a prior period adjustment to remove the effect of
non-controlling interests, which were included in the figures to 31
March 2018 in error.
The total loss per share (continuing and discontinued
operations) for 2019 is (35.49)p (2018: (35.58)p).
Diluted earnings per share
The number of shares calculated as above is compared with the
number of shares that would have been issued assuming the exercise
of all outstanding share options. The potential ordinary shares are
considered anti-dilutive as they decrease the loss per share.
Therefore, diluted EPS is the same as basic. If all of the share
options had been exercised before the period end, the earnings per
share would then have been a loss per share of 11.05p (2018: loss
of 11.54p) on the continuing operations and a loss per share of
2.64p (2018: loss of 23.21p) on the discontinued operations.
The weighted average number of shares in issue for the year was
91,032,295 and the number of options outstanding was 5,554,550. If
these were all exercised the cash raised would be equivalent to
that which would be raised by issuing 364,362 shares at the average
share price during the year. There were also 232,432,078
convertible loan notes outstanding, of which the weighted average
number of shares was 144,553,649. Therefore, the weighted average
number of dilutive potential ordinary shares is 235,950,306.
10. Borrowings and capital management
31 March 31 March
2019 2018
Group Group
GBP'000s GBP'000s
------------------------------------------- --------- ---------
Secured borrowings at amortised cost
Bank term loans - 1,750
Revolving credit facilities - 8,669
Hire purchase 1,636 6,406
Investor loans* 25,165 21,398
Investor loans - Cash Collateral 2,000 2,000
Convertible loan notes** 9,550 -
Government grants 278 327
------------------------------------------- --------- ---------
38,629 40,550
------------------------------------------- --------- ---------
Amount due for settlement within 12 months 668 24,160
Amount due for settlement after 12 months 37,961 16,390
------------------------------------------- --------- ---------
Total 38,629 40,550
------------------------------------------- --------- ---------
* Accrued interest of GBP0.7m at 31 March 2018 is not shown in the above
Investor loans, this is shown within accruals in payables. Accrued interest
of GBP2.9m is shown within the number at 31 March 2019.
** Convertible loan notes shown at 31 March 2019 consists of GBP8.8m investment,
GBP1.4m accrued interest, GBP(0.3m) fair value adjustment and GBP(0.3m)
of transaction costs to be spread over the life of the liability.
Government grants represents the amount of grants received for
which the criterion to ensure that repayment is not required has
not yet been met. Grant monies in respect of which the criteria
have been met are included in operating income.
All existing shareholder loans were renegotiated in June 2018 to
require repayment in June 2020, and then renegotiated again post
year end to defer payment until 17 May 2021. The investor loans
shown consists of GBP22.3 million principal amount and GBP2.9
million accrued interest up to 31 March 2019.
Convertible loan notes
In May 2018 the Company secured further funding from each of its
major shareholders totalling GBP8.5 million. NB Holdings Ltd and
Omnicane Investors Ltd each providing GBP3.3 million and Downing
LLP provided GBP1.9 million. This instrument has since, with
shareholder approval, been replaced with convertible loan notes of
GBP8.8 million with a conversion price of 5 pence. The loan is
repayable in 3 years from the date of issue or can be converted at
any time into shares at the holder's option.
The instrument accrues interest at a rate of 12 percent per
annum accruing daily and will mature and be due for repayment in
full on 17 May 2021, unless they are redeemed before that date. On
that date, unless the convertible loan notes are converted into
ordinary shares on the conversion date, a redemption premium fee
will be payable. The redemption fee will be an amount which, when
added to the interest accrued on the relevant notes, provides a
total return equal to the amount which would have accrued in
respect of such notes from the date of the convertible loan note
instrument until and including the date the notes are redeemed in
full had the interest rate been 30 percent per annum.
A host loan at amortised cost and an embedded derivative
liability, being measured at fair value with changes in value being
recorded in profit or loss, have been recognised. At 31 March 2019,
the derivative liability was valued at GBP0.3 million.
The convertible loan notes shown consist of a host loan at
amortised costs of GBP8.1 million and GBP1.4 million accrued
interest up to 31 March 2019.
Features of the Group's borrowings are as follows:
The Group's financial instruments comprised cash, hire purchase
and finance leases, a revolving credit facility, an overdraft,
investor loans and various items arising directly from its
operations, such as trade payables and receivables. The main
purpose of these financial instruments is to finance the Group's
operations. The government grant is specific to Brighter Foods.
The main risks from the Group's financial instruments are
interest rate risk and liquidity risk. Liquidity risk arises from
the Group's management of working capital and the finance charges
and principal repayments on its debt instruments. The Group's
policy is to ensure that it will always have sufficient cash to
allow it to meet its liabilities when they become due.
The Group also has some currency exposure in relation to its
Euro and US Dollar commodity purchases. However, this is mitigated
by matching in part against foreign currency sales. The Board
reviews and agrees policies, which have remained substantially
unchanged for the year under review, for managing these risks.
The Group's policies on the management of interest rate,
liquidity and currency exposure risks are set out in the Report of
the Directors.
During the year ended 31 March 2019 the Group continued with the
borrowing facilities in place and secured loans from investors. As
at 31 March 2019, the borrowings comprised:
-- Invoice discounting facility of GBP8 million with Lloyds Bank
plc on a revolving basis with a minimum term of 12 months and a
six-month notice period. This facility is secured against the
debtors of JF Renshaw Ltd and Rainbow Dust Colours Ltd with an
interest rate of 1.5% above Base Rate.
-- An overdraft facility with Lloyds Bank plc of up to GBP2.0m
with two major shareholders (NB Holdings Ltd and Omnicane Investors
Ltd) each putting GBP1.0m into an account as security (cash
collateral). The interest rate on the overdraft is at 3.5% above
Base Rate.
-- The Group also secured facilities against specific plant and
machinery with Lloyds Bank plc and ABN Amro Lease NV totalling
GBP6.3m. The facilities interest payable is varied per specific
agreement, but is generally between 3.5% and 4.0%.
The three major shareholders, NB Holdings Ltd, Omnicane
Investors Ltd and certain funds managed by Downing LLP, supported
the business and provided significant funding to the Group by way
of loans.
The loans at 31 March 2019 were as follows:
Date Amount Method of Funding Major Shareholder(s)
---------------- ---------------- ------------------------------------------------- -------------------------------
May 2018 GBP8.8m Loan notes - transferred to NB Holdings Ltd (GBP3.4m),
convertible loan notes in Aug-18 Omnicane Investors
with accrued interest to date Ltd (GBP3.4m), Downing
added (original investment was LLP (2.0m)
GBP8.5m)
---------------- ---------------- ------------------------------------------------- -------------------------------
March 2018 GBP4.0m* Unsecured loan notes NB Holdings Ltd (GBP1.7m),
Omnicane Investors
Ltd (GBP1.7m), Downing
LLP (GBP0.6m)
---------------- ---------------- ------------------------------------------------- -------------------------------
January 2018 GBP3.0m Unsecured loan notes NB Holdings Ltd (GBP1.3m),
Omnicane Investors
Ltd (GBP1.3m), Downing
LLP (GBP0.4m)
---------------- ---------------- ------------------------------------------------- -------------------------------
September 2017 GBP4.0m Loan Facility and loan notes NB Holdings Ltd (GBP1.33m),
Secured on specific chattel Omnicane Investors
assets Ltd GBP1.33m), Downing
LLP (GBP1.33m)
---------------- ---------------- ------------------------------------------------- -------------------------------
August 2017 GBP2.0m Loan facility (applied as collateral NB Holdings Ltd (GBP1.0m),
for bank overdraft) Omnicane Investors
Ltd (GBP1.0m)
---------------- ---------------- ------------------------------------------------- -------------------------------
June 2017 GBP4.0m Investor loans NB Holdings Ltd (GBP2.0m),
Omnicane Investors
Ltd (GBP2.0m)
---------------- ---------------- ------------------------------------------------- -------------------------------
June 2017 GBP7.3m** Loan notes Downing LLP
---------------- ---------------- ------------------------------------------------- -------------------------------
Total GBP33.1m
---------------- ---------------- ------------------------------------------------- -------------------------------
* GBP0.9m of the funding agreed in March 2018 was received in April 2018.
** Interest is payable on a quarterly basis to the MI Downing Monthly Income
Fund up to a principal amount of GBP0.9m.
At 31 March 2019 Lloyds Bank plc had a debenture incorporating a
floating charge over the undertaking and all property and assets
present and future including goodwill, book debts, uncalled
capital, buildings, fixtures, intangible assets, fixed plant and
machinery. In addition, the banking arrangements with Lloyds Bank
plc contain certain cross-guarantees.
Liquidity risk management
Liquidity risk arises from the Group's management of working
capital and the finance charges and principal repayments on its
debt instruments. It is the risk that the Group will encounter
difficulty in meeting its financial obligations as they fall
due.
The Board reviews the Group's liquidity position on a monthly
basis and monitors its forecast and actual cash flows against
maturing profiles of its financial assets and liabilities.
The following table details the Group's maturity profile of its
financial liabilities:
3 months
Less than to
1 month 1-3 months 1 year 1-5 years 5+ years Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------- --------- ---------- --------- --------- --------- ---------
2019
Trade and other payables 6,122 3,719 665 123 - 10,629
Investor loans - - - 24,254 - 24,254
Convertible loan notes - - - 8,807 - 8,807
Government grants 5 12 32 197 31 277
Hire purchase 53 101 465 1,017 - 1,636
NCI put option liability - - - 4,997 - 4,997
------------------------- --------- ---------- --------- --------- --------- ---------
6,180 3,832 1,162 39,395 31 50,600
Interest 5 10 38 10,234 - 10,287
------------------------- --------- ---------- --------- --------- --------- ---------
Total 6,185 3,842 1,200 49,629 31 60,887
------------------------- --------- ---------- --------- --------- --------- ---------
3 months
Less than to
1 month 1-3 months 1 year 1-5 years 5+ years Total
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
---------------------------- --------- ---------- --------- --------- --------- ---------
2018
Trade and other payables 13,346 6,008 2,864 267 1 22,486
Bank term loans 250 - 1,500 - - 1,750
Revolving credit facilities - - 8,669 - - 8,669
Investor loans - 10,144 2,000 11,254 - 23,398
Government grants 5 12 32 198 80 327
Hire purchase 152 267 1,129 4,858 - 6,406
NCI put option liability - - - 4,796 - 4,796
---------------------------- --------- ---------- --------- --------- --------- ---------
13,753 16,431 16,194 21,373 81 67,832
Interest 35 640 684 1,671 - 3,030
---------------------------- --------- ---------- --------- --------- --------- ---------
Total 13,788 17,071 16,878 23,044 81 70,862
---------------------------- --------- ---------- --------- --------- --------- ---------
The profile of the trade payables has been taken as being
consistent with the Group's payment terms to suppliers.
Analysis of market risk sensitivity
Currency risks:
The Group is exposed to currency risks on purchases of
commodities from USA and Europe. The risk associated with these
purchases is mitigated by sales also made to customers in these
countries, however, to the extent that these do not cover each
other there is a risk of exposure to the Group.
The effect of the exposure is calculated as being:
-- With an excess of $ assets to $ liabilities, a 10%
strengthening of the US dollar would result in an increase in
pre-tax profits of GBP62k. A 10% weakening of the US dollar would
result in a decrease of pre-tax profits of GBP51k.
-- With an excess of EUR assets to EUR liabilities a 10%
strengthening of the Euro would result in an increase in pre-tax
profits of GBP35k. A 10% weakening of the Euro would result in a
decrease of pre-tax profits of GBP29k.
Interest rate risks:
The Group has an exposure to interest rate risk arising from
borrowings based upon the Bank of England base rate. However, at
the balance sheet date, the Group did not have any outstanding
balance on these borrowing facilities, and so the impact of an
increase in the applicable interest rates would, all other factors
remaining unchanged, not have impacted profits.
Obligation under finance leases
31 March 31 March
2019 2018
Group Group
GBP'000s GBP'000s
-------------------------------------------------------------- --------- ---------
Finance lease liabilities - minimum lease payments
Due within one year 671 1,764
Due within one to five years 1,048 5,128
-------------------------------------------------------------- --------- ---------
1,719 6,892
Future finance charges on finance leases (83) (486)
-------------------------------------------------------------- --------- ---------
Present value of finance lease liabilities 1,636 6,406
-------------------------------------------------------------- --------- ---------
The present value of finance lease liabilities is as follows:
Due within one year 619 1,548
Due within one to five years 1,017 4,858
-------------------------------------------------------------- --------- ---------
1,636 6,406
-------------------------------------------------------------- --------- ---------
It is the Group's policy to lease certain property, plant and
equipment under finance leases. For the period ended 31 March 2019
the average effective borrowing rate was 4.0% (2018: 4.0%).
Interest rates are fixed at the contract dates. All leases are on a
fixed-repayment basis and no arrangements have been entered into
for contingent rental payments. All lease obligations are
denominated in sterling.
The fair value of the Group's lease obligations approximates to
their carrying amount.
11. Pensions arrangements
Defined Contribution Scheme. The Group operates a defined
contribution scheme for all employees, including provision to
comply with auto-enrolment requirements laid down by law.
In addition, the Company operates one defined benefits scheme
which was closed to new members in 2000 and closed to future
accrual with effect from 5 April 2004. The Defined Benefit scheme
is a funded arrangement, with assets held in a separate
trustee-administered fund. Members of the Plan are entitled to
retirement benefits based on their final salary at date of leaving
the Plan (or 5 April 2004 if earlier), and length of service. From
1 April 2016 the Company annual contributions were agreed at
GBP320k for 11 years and eight months, increasing at 4% per annum
each April. The Company will pay GBP360k per annum pro-rata to the
Plan for the period from 1 April 2019 (2018: GBP347k) until 1
August 2019. The defined benefit scheme is funded by the Company.
The present value of future contributions is currently less than
the net liability disclosed as at 31 March 2019, so no additional
liability under IFRIC14 arises. A new arrangement has recently been
agreed with the Trustee under which repayments will increase to
GBP1 million per year with effect from 1 August 2019.
For the purposes of IAS 19 the data provided for the 31 March
2018 actuarial valuation, has been approximately updated to reflect
defined benefit obligations on the accounting basis at 31 March
2019. This has resulted in a deficit in the Plan of GBP7,403k.
Present values of defined benefit obligations, fair value of
assets and deficit
31 March 31 March 31 March 31 March 31 March
2019 2018 (restated)* 2017 (restated)* 2016 2015
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
----------------------- -------------- --------------------- ---------------------- ------------- -----------
Present value of
defined benefit
obligation 21,177 21,448 21,319 21,094 21,799
Fair value of Plan
assets (13,774) (13,529) (13,946) (15,013) (16,111)
----------------------- -------------- --------------------- ---------------------- ------------- -----------
Deficit/(surplus) in
Plan 7,403 7,919 7,373 6,081 5,688
Gross amount recognised 7,403 7,919 7,373 6,081 5,688
Deferred tax ** (1,258) (1,094) (1,120) (1,155) (1,138)
----------------------- -------------- --------------------- ---------------------- ------------- -----------
Net liability 6,145 6,825 6,253 4,926 4,550
----------------------- -------------- --------------------- ---------------------- ------------- -----------
* Following legal advice taken at the time, the Group posted a past service
credit into the accounts in the year ended 31 March 2017 in respect
of certain pension increases being considered discretionary. Fresh legal
advice clarifies these payments are mandatory and so GBP1.5 million
has been added to the defined benefit obligation to cover this requirement.
This correction has been adjusted via brought forward reserves from
2017, thus matching the cost and benefit, rather than taken in the current
period accounts.
** Deferred tax rate 2016, 2017 & 2018: 17%, 2015: 20%
Reconciliation of opening and closing balances of the present
value of the defined benefit obligations
31 March 31 March
2019 2018 (restated)*
GBP'000s GBP'000s
---------------------------------------------- --------- -----------------
Defined benefit obligation at start of period 21,448 21,319
Interest cost 516 553
Actuarial losses 77 367
Past service loss 106 115
Benefits paid (970) (906)
---------------------------------------------- --------- -----------------
Defined benefit obligation at end of period 21,177 21,448
---------------------------------------------- --------- -----------------
Reconciliation of opening and closing balances of the fair value
of Plan assets
31 March 31 March
2019 2018
GBP'000s GBP'000s
---------------------------------------------------------------- --------- ---------
Fair value of Plan assets at start of period 13,529 13,946
Interest income on Plan assets 350 389
Return on assets less interest income 518 (232)
Contributions paid by the Group 347 332
Benefits paid, death-in-service insurance premiums and expenses (970) (906)
---------------------------------------------------------------- --------- ---------
Fair value of Plan assets at end of period 13,774 13,529
---------------------------------------------------------------- --------- ---------
The actual return on the Plan assets over the period ended 31
March 2019 was GBP868k (2018 - GBP157k).
Total expense recognised in the Statement of Comprehensive
Income within other finance income
31 March 31 March
2019 2018
GBP'000s GBP'000s
------------------------ --------- ---------
Interest on liabilities 516 553
Interest on assets (350) (389)
------------------------ --------- ---------
Net interest cost 166 164
------------------------ --------- ---------
Past service cost 106 115
------------------------ --------- ---------
Total cost 272 279
------------------------ --------- ---------
Statement of recognised income and expenses
31 March 31 March
2019 2018
GBP'000s GBP'000s
------------------------------------------------------------- --------- ---------
Actuarial gain/(loss) on the Plan assets 518 (232)
Experience gains arising on the Plan liabilities 427 -
Actuarial gains on the Plan liabilities arising from changes
in demographic assumptions 436 114
Actuarial (losses) on the Plan liabilities arising from
changes in financial assumptions (940) (481)
------------------------------------------------------------- --------- ---------
Total amount recognised in Statement of Other Comprehensive
Income 441 (599)
------------------------------------------------------------- --------- ---------
Assets
31 March 31 March 31 March
2019 2018 2017
GBP'000s GBP'000s GBP'000s
--------------------- --------- --------- ---------
UK equity 2,667 1,511 1,907
Overseas equity - 2,952 4,120
Absolute return fund 1,013 3,136 3,732
Corporate Bonds 2,699 1,105 1,139
Gilts 3,137 945 1,646
Multi-Asset Funds 4,055 - -
Property - 83 152
Cash 203 1,122 284
Alternative assets _ 2,675 2,671
Current assets _ - 610
Current liabilities _ - (2,315)
Total assets 13,774 13,529 13,946
--------------------- --------- --------- ---------
The investment strategy for the Plan is controlled by the
Trustees, in consultation with the Company. None of the fair values
of the assets shown above includes any of the Group's own financial
instruments or any property occupied by, or other assets used by,
the Group. Absolute return funds are invested in a diverse range of
assets in order to achieve equity-like returns with reduced
volatility. Alternative assets include infrastructure and
derivatives.
Assumptions
12 months 12 months 12 months 12 months
ended ended ended ended
31 March 31 March 31 March 31 March
2019 2018 2017 2016
% % % %
----------------------------------------------- -------------- -------------- -------------- --------------
Inflation 3.30 3.10 3.20 2.80
Salary increases - - - -
Rate of discount 2.40 2.65 2.85 3.65
Allowance for pension in payment increases
RPI max 5% 3.10 3.00 3.10 2.70
RPI min 3% max 5% 3.50 3.40 3.40 3.30
Allowance for revaluation of deferred pensions 2.30 2.10 2.20 1.80
----------------------------------------------- -------------- -------------- -------------- --------------
Allowance for commutation of pension for 90% of 90% of 90% of 90% of
cash at retirement max allowance max allowance max allowance max allowance
----------------------------------------------- -------------- -------------- -------------- --------------
The obligations of the Plan have been calculated by projecting
forwards the figures from the initial results of the latest
valuation as at 31 March 2019 and then making appropriate
adjustments for known experience and for differences in
assumptions.
The mortality assumptions adopted at 31 March 2019 and 31 March
2018 imply the following life expectancies from age 65:
31 March 2019 31 March 2018
Male retiring at age 65 in current year 21 years 22 years
Female retiring at age 65 in current year 23 years 24 years
Male retiring at age 65 in 20 years' time 22 years 23 years
Female retiring at age 65 in 20 years' time 24 years 25 years
The weighted-average duration of the defined benefit obligation
at 31 March 2019 was 15 years (2018: 15 years).
Historic funding positions
The funding positions applicable at the start of each period are
as follows:
12 months 12 months
12 months ended ended 12 months 12 months
ended 31 March 31 March ended ended
31 March 2018 2017 31 March 31 March
2019 (restated)* (restated)* 2016 2015
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
-------------------- ------------------ ------------------- ------------------- ----------------- -----------
Fair value of assets 13,774 13,529 13,946 15,013 16,111
Defined benefit
obligation (21,177) (21,448) (21,319) (21,094) (21,799)
-------------------- ------------------ ------------------- ------------------- ----------------- -----------
(Deficit) in scheme (7,403) (7,919) (7,373) (6,081) (5,688)
-------------------- ------------------ ------------------- ------------------- ----------------- -----------
Experience
adjustment on
scheme assets 518 (232) 652 (1,122) 885
Experience
adjustment on
scheme liabilities 427 - (103) - -
-------------------- ------------------ ------------------- ------------------- ----------------- -----------
* Following legal advice taken at the time, the Group posted a past service
credit into the accounts in the year ended 31 March 2017 in respect
of certain pension increases being considered discretionary. Fresh
legal advice clarifies these payments are mandatory and so GBP1.5 million
has been added to the defined benefit obligation to cover this requirement.
This correction has been adjusted via brought forward reserves from
2017, thus matching the cost and benefit, rather than taken in the
current period accounts.
Risks
The scheme is exposed to a number of risks, including:
Asset volatility: The Plan's defined benefit obligation is
calculated using a discount rate set with reference to corporate
bond yields; however, the Plan invests significantly in equities.
These assets are expected to outperform corporate bonds in the
long-term but provide volatility and risk in the short term.
Changes in bond yields: a decrease in corporate bond yields
would increase the Plan's defined benefit obligation; however, this
would be partially offset by an increase in the value of the Plan's
bond holdings.
Inflation risk: a proportion of the Plan's defined benefit
obligation is linked to inflation; therefore, higher inflation will
result in a higher defined benefit obligation (subject to the
appropriate caps in place). The majority of the Plan's assets are
either unaffected by inflation, or only loosely correlated with
inflation, therefore an increase in inflation would also increase
the deficit.
Life expectancy: if Plan members live longer than expected, the
Plan's benefits will need to be paid for longer, increasing the
Plan's defined benefit obligation.
The Trustees and Company manage risks in the Plan through the
following strategies:
Diversification: In order to counter asset volatility and
changes in bond yields, investments are well diversified, such that
the failure of any single investment would not have a material
impact on the overall level of assets.
Investment Strategy: The Trustees are required to review their
investment strategy on a regular basis and consult with the Company
on any changes. The Trustees' investment strategy is set out in the
Statement of Investment Principles.
Funding positions: The Trustees are required to assess the
funding position annually by means of a formal actuarial report
which must be shared with the Company.
Sensitivity analysis
The impact to the value of the defined benefit obligation of a
reasonably possible change to one actuarial assumption, holding all
other assumptions constant, is presented in the table below:
Reasonably
Possible Obligation Obligation
Actuarial Assumption Change Increase Decrease
------------------------ ---------- ---------- ----------
Discount Rate (+/- 0.5%) 8% 7%
RPI Inflation (+/- 0.5%) 3% 3%
(+/-) 1
Assumed Life expectancy Year 5% 5%
------------------------ ---------- ---------- ----------
Small changes to other assumptions, such as the allowance for
commutation of pension for cash at retirement, and the proportion
of members assumed to be married at retirement, do not have such a
significant effect on the obligations of the Plan.
12. Goodwill
Goodwill acquired on business combinations is allocated at
acquisition to the cash generating units that are expected to
benefit from that business combination. The carrying amount of
goodwill has been allocated as follows:
Group GBP'000s
Cost
Carried forward balance 31 March
2018 69,955
Impairment Cake Decoration (18,675)
Disposal of Real Good Food Ingredients (905)
---------------------------------------------- ----------------------------
Carried forward balance 31 March
2019 50,375
---------------------------------------------- ----------------------------
31 March 2019 31 March 2019
GBP'000s GBP'000s
Real Good Food Ingredients (formerly Garrett
Ingredients) - 905
Cake Decoration 45,344 64,019
Brighter Foods 5,031 5,031
---------------------------------------------- -------------- -------------
Carried forward 50,375 69,955
---------------------------------------------- -------------- -------------
Assumptions:
The Group tests goodwill annually for impairment, or more
frequently if there are indications that goodwill may be impaired.
The recoverable amount of any cash generating unit is determined
based on the higher of fair value less costs of disposal and
value-in-use calculations. The cashflows used in the value-in-use
calculation are EBITDA (adjusted) performance less capital
expenditure based on the latest Board approved forecasts in respect
of the following three years.
Long-term growth rate assumptions:
For the purposes of impairment testing, the cashflows are
extrapolated over 5 years with a terminal value applied to the
fifth year. The
terminal value is calculated using the fifth year forecasted
EBITDA (adjusted) performance and applying a 2% growth rate.
Discount rate assumptions:
The discount rate applied to the cash flows is 10% (2018: 11%).
This rate is in line with the Company's actual weighted average
cost
of capital of 9.67% which takes account of the increased risk of
being listed on AIM rather than the main market. It is
representative of
businesses operating within the food sector.
Impairment charge:
The impairment review resulted in an impairment of the goodwill
held for Cake Decoration of GBP18.7m (2018: impairment of GBP4.5m
in
relation to Garrett Ingredients and Chantilly Patisserie). Cake
Decoration is a core division for the Group and is currently in
turnaround. The investments made in manufacturing capability in the
last couple of years have not yet started to deliver the returns
that could be expected, for example, and the Board believes that
the current valuation, reflected here, necessarily and materially
underplays the potential value of this division. Plans to improve
the strategic positioning, service delivery and commercial
performance of this business are also in progress.
Following the sale of the trade and assets of Garrett
Ingredients Ltd, the GBP0.9m goodwill held in relation to this cash
generating unit has
been written off, as the renamed entity Real Good Food
Ingredients Ltd, is no longer a cash generating unit.
Sensitivity analysis:
An illustration of the sensitivity to reasonable possible
changes in the discount rate assumption or the long-term growth
rate are shown
below:
o An increase of 0.5% in the Group's weighted average cost of
capital of 10% to 10.5% would cause a further impairment of GBP3.6
million on the carrying value of goodwill on Cake Decoration.
o A reduction of 0.5% to the growth rate from 2.0% to 1.5% would
cause an impairment of GBP2.8 million on the carrying value of
goodwill on Cake Decoration.
The Board has considered these sensitivities and believe that,
owing to trading expectations and a strong brand, the recoverable
amount would support the value.
13. Post-year end activities
1. On 30 May 2019, London Stock Exchange determined a public
censure of the Company and a fine of GBP450,000, discounted to
GBP300,000 for early settlement. The public censure related to
breaches of the AIM Rules for Companies ("AIM Rules") 10, 13, 17,
19, 21 and 31 which occurred in the period to July 2017. The fine
was settled in early June 2019.
2. On the same day, the following Board changes were made:
-- The Interim Non-Executive Chairman, Patrick Ridgwell, retired
from the Board, and Mike Holt, Independent Non-Executive Director,
was appointed Non-Executive Chairman, relinquishing his role as
Chair of the Audit Committee;
-- Judith MacKenzie, Non-Executive Director, was appointed as
Chair of the Audit Committee, relinquishing her role as Chair of
the Remuneration Committee;
-- Steve Dawson, Non-Executive Director, became Chair of the Remuneration Committee; and
-- Anthony Ridgwell, the principal beneficiary of Napier Brown's
holding in the Company, joined the Board as a Non-Executive
Director.
3. On 15 July 2019, Maribeth Keeling was appointed as Chief Financial Officer.
4. On 31 July 2019, Christopher Thomas, Non-Executive Deputy Chairman retired from the Board.
5. On the 9 August 2019 the Shareholder Loans were extended to 17 May 2021.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UVSKRKRAWAAR
(END) Dow Jones Newswires
August 16, 2019 02:00 ET (06:00 GMT)
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