Reunion Gold Corporation
Annual Report 2016

Plain-text annual report

R e a l G o o d F o o d p l c A n n u a l R e p o r t a n d A c c o u n t s F o r t h e y e a r e n d e d 3 1 M a r c h 2 0 1 6 S t o c k c o d e : R G D Stock code: RGD Annual Report and Accounts For the year ended 31 March 2016 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 Welcome Real Good Food plc Real Good Food operates in three pillar markets: Cake Decoration, Food Ingredients and Premium Bakery. Renshaw, Renshaw Europe, Rainbow Dust Colours R&W Scott, Garrett Ingredients, GI Nutrition Haydens, Chantilly Patisserie Investor Proposition ✪ Experienced senior management team with strong heritage in food manufacturing ✪ Diversified business markets: cake decoration, food ingredients, and premium bakery ✪ Diversified market sectors including: retail, manufacturing, wholesale, foodservice and export ✪ Market-led growth strategies identified for each division ✪ Strong financial platform and balance sheet enabling investment for growth ✪ Emphasis on product development, innovation and sales growth ✪ Track record of successful bolt-on, earnings enhancing, acquisitions Contents Welcome StRAteGic RepoRt Highlights Group at a Glance Chairman’s Statement Group Strategy Divisional Business Reviews Cake Decoration Food Ingredients Premium Bakery Corporate Social Responsibility Key Performance Indicators and Risks Finance Review ouR GoveRnAnce Board of Directors Executive Team Report of the Directors Audit Committee Report and Remuneration Committee Report ouR FinAnciAlS Independent Auditor’s Report IFC 1 2 4 6 8 10 12 14 16 17 20 21 22 25 26 Consolidated Statement of Comprehensive Income 27 Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Financial Position Company Statement of Financial Position Consolidated Cash Flow Statement Company Cash Flow Statement 28 29 30 31 32 33 34 IBC Navigating the Report For further information within this document and relevant page numbers Additional information online www.realgoodfoodplc.com Notes to the Financial Statements Advisers 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 Annual Report and Accounts for the year ended 31 March 2016Highlights operating Highlights { Following the successful disposal of Napier Brown, which generated a profit of £9.1 million the Group made a statutory profit before tax of £12.9 million in the year { Disposal transformed the Group balance sheet reducing net debt from £30.1 million down to £5.1 million { Group restructured into three pillar markets with stand-alone business strategies for each { Continuing investment strategy in core markets and across business assets to drive operating efficiency and future EBITDA growth { Acquisition strategy progressing to plan: Rainbow Dust Colours (January 2015); ISO2 Nutrition (December 2015); Chantilly Patisserie (February 2016) successfully completed { New Development Centre in Liverpool opened providing a base for our Group plc support functions (Technical, IT, HR, Operations) and a state-of-the art Innovation Centre for new product development { Launch of ‘Renshaw Academy’ to further monetise the Renshaw brand and to cement our position as industry leader in the global cake decorating market { Strong financial and operational platform in place for future growth in all three pillar markets: Cake Decoration, Food Ingredients and Premium Bakery * Throughout this report an underlying EBITDA is calculated as operating profit before depreciation, amortisation and significant items: see note 5. Read more in the Finance Review on pages 17 to 19 GROUP REVENUE £113.7m 2015 £232.9m GROUP EBITDA* £5.0m 2015 £2.0m GROSS PROFIT £28.0m 2015 £35.9m CONTINUING OPERATIONS REVENUE £100.4m 2015 £104.6m CONTINUING OPERATIONS EBITDA £5.0m 2015 £5.3m CONTINUING OPERATIONS GROSS PROFIT £26.7m 2015 £25.6m 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 1 www.realgoodfoodplc.com Stock Code: RGDStrategic reportGroup at a Glance Real Good Food operates in three distinct market sectors: Cake Decoration, Food Ingredients and Premium Bakery. three pillar markets While each Division comprises individual business units, Group employees work to set overall Divisional strategies based on market understanding and ensure cooperation between the businesses so that synergy opportunities are realised. TURNOVER £48.3m EBITDA EBITDA £•.•m £7.3m EMPLOYEES 356 TURNOVER £22.7m EBITDA EBITDA £•.•m £(0.1)m EMPLOYEES 121 TURNOVER £29.4m EBITDA EBITDA £•.•m £0.7m EMPLOYEES 480 Read more on page 8 Read more on page 10 Read more on page 12 2 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 Annual Report and Accounts for the year ended 31 March 2016Strategic reportRenshaw manufactures sugarpaste, marzipan, soft icings, mallows and caramels and sells across a broad range of sales channels: mainstream and specialist retail, wholesale, foodservice and food manufacturing as well as export. Rainbow Dust Colours produces a range of edible glitters, dusts, powders and food paints, brushes and pens for the specialist sugarcraft sector. Renshaw Europe sells, markets and distributes both Renshaw and Rainbow Dust products across continental Europe. Renshaw: Liverpool 318 employees Rainbow Dust Colours: Preston 28 employees Renshaw Europe: Brussels 10 employees Garrett Ingredients sources dairy, sugar and other specialist food ingredients from across the UK, Eire and continental Europe and sells them to large, medium and small food manufacturers across the UK. Through GI Nutrition, it also manufactures and sells whey protein supplements and sports nutrition products through retail and specialist sales channels. R&W Scott manufactures chocolate coatings, sauces, jams and dry powder blends for industrial, retail, wholesale and foodservice markets. Garrett Ingredients: Thornbury, near Bristol 20 employees GI Nutrition: Swindon 6 employees R&W Scott: Carluke, near Glasgow 95 employees Haydens bakes premium tarts, pies and crumbles, Danish, sweet buns, yum yums and doughnuts and sells to major retail customers and through foodservice channels. It operates both an ambient and frozen supply chain. It also operates a same day consolidation service for all Waitrose stores for both Haydens and third party products. Chantilly manufactures premium quality frozen desserts (e.g. gateaux, cheesecakes, tarts and flans) and sells them to pubs and restaurants. Haydens: Devizes, Wiltshire 450 employees Chantilly: Paignton, Devon 30 employees 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 3 www.realgoodfoodplc.com Stock Code: RGDStrategic reportchairman’s Statement We now operate in three pillar markets: Cake Decoration, Food Ingredients and Premium Bakery Pieter Totté Executive Chairman ” The year to 31st March 2016 saw the Group make a pre-tax profit of £12.9 million following the hugely successful disposal of Napier Brown which generated an exceptional profit of £9.1 million. While underlying EBITDA for the continuing businesses was largely flat, the Napier Brown sale has transformed our balance sheet (net debt at the year- end improved from £30.1 million to just £5.1 million) and thereby enabled us to begin a strategy of investing in building strategic positions in our core markets. In this respect the Napier Brown case history (building and investing strategically for the long term) is a model for what we intend to do in our remaining markets. We have spent the time since the Napier Brown disposal reviewing our strategy, clarifying our focus and restructuring the business accordingly. We now operate in three pillar markets (Cake Decoration, Food Ingredients and Premium Bakery) and our objective will be to build scale and strategic positions in each of these through organic growth, targeted investment and bolt-on acquisitions as appropriate. Each market has different characteristics and will generate different returns and our plans will reflect this. We will also evolve our management structures and approach to make sure that the potential for each of these divisions is maximised. We have made progress on a number of fronts. In Cake Decoration, the acquisition of Rainbow Dust Colours in January 2015 has now been fully integrated and it is a core part of this division. It will now be selling Renshaw products directly to some of its specialist customers who would prefer to have a one-stop shop. We have also recognised increased potential for tackling the cake decoration market globally and intend during the course of the next 12 months to create a global range under the Renshaw brand. While there may be the need to tailor locally either for reasons of different legislation or local tastes, the essential market positioning of the Renshaw brand and products will be the same. To provide additional focus for this initiative we have renamed our European business ‘Renshaw Europe’ and also set up Food Ingredients is a very different market where inevitably margins are lower but we also see increasing opportunities for providing added value. The acquisition of ISO2 Nutrition is an example of finding a niche in an area of our competences (whey protein is the main ingredient) and thereby providing diversification for Garrett Ingredients from its commodity base in dairy powders and sugar. Both these commodity sectors have been extremely difficult over the past two years with prices hitting record lows. There are already signs, particularly in sugar, that prices will rise, but our strategy is to reduce our reliance on this and seek more lucrative and sustainable sectors. We also believe that customer service and an efficient supply chain are important factors in this market and we continue to investigate how we can build competitive advantage in this way. Read more about Renshaw in Our Strategy on page 6 Above: This Avatar cake was displayed at the opening of Wavertree Development Centre a US company (Renshaw US Inc.) to drive this initiative. We see similar potential in Australasia and elsewhere. The transition from being just a manufacturer of products for other people to becoming a market and brand-led player (both with Renshaw and Rainbow Dust Colours) will be profound. 4 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 Annual Report and Accounts for the year ended 31 March 2016Strategic reportRead more about Chantilly on pages 6 and 12 In Premium Bakery, the acquisition of Chantilly Patisserie is a perfect example of the type of business we are keen to acquire and build on. It operates in a small but fast growing market niche – high quality out-of-home desserts. The business brings to us great skills in product and specific customer knowledge while we can help it grow and extend its technical capabilities and customer reach. Meanwhile, we have determined on a very clear vision for our core business in this sector, Haydens, by increasingly focusing on fewer product lines and product sectors – producing many more of fewer products and thereby doing it better and generating better returns. Part of this initiative is to produce a branded range from Haydens in the coming year. We also see significant opportunity to use our stronger cash resources to automate non-added value processes which will both reduce costs and improve quality and consistency. We have also been evolving our management model. While we believe in local accountability for stand-alone businesses we increasingly see divisional opportunities and the value which expert Group functions can deliver. To this end the opening of our new Development Centre in Liverpool is central to our strategy. The centre provides three things: first, a base for our Group support functions (Technical, IT, HR, Operations) which previously had been squeezed into the Renshaw Crown Street site; secondly, a state- of-the-art Innovation Centre for our Group new product development and applications teams who previously had to use only site- based equipment. The food industry is fast moving with consumers becoming ever more demanding in terms of health, quality, shelf life, convenience and personalisation. The challenge is to find technical and process solutions to deliver these benefits to consumers and our Innovation Centre team are fully focused on this with a number of exciting projects in the pipeline. Finally the Development Centre houses our new ‘Renshaw Academy’. This initiative is part and parcel of the Renshaw global range launch and will be the main marketing support vehicle for it. Consumer aspiration to improve cake decorating skills is a global phenomenon and the Renshaw brand has the reputation as the expert and thus is well placed to lead the market both in terms of product range and customer and consumer inspiration. More detail on our plans is given later in this report. outlook The food industry faces challenging times with diversifying sales channels, increasing legislative burdens, the growth in the minimum wage and ever- demanding consumers. The response to these trends requires being alert to all these factors and having the resources to invest and adapt. In this respect I am confident that with our clear strategy and strong balance sheet we are in a good position to build three increasingly strong businesses in our three pillar markets. Trading in the first three months of the new financial year has been satisfactory; with recent order intake positive, and with the investments we are making, I am confident that we will deliver growth across all three divisions. Pieter Totté Executive Chairman 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 5 www.realgoodfoodplc.com Stock Code: RGDStrategic reportGroup Strategy The Group will deliver shareholder value by building long term sustainable businesses in its three pillar markets of Cake Decoration, Food Ingredients and Premium Bakery. MARKetplAce Cake Decoration is a growing and global market with a spectrum of consumers from experts to beginners and a wide range of trade channels. The market displays many similar characteristics to hobby, leisure and fashion markets and as such has the potential for above-average returns compared to the food industry average. At the same time the need to invest in innovation and manufacturing and supply chain flexibility is paramount. Food Ingredients is a broad market sector and with major product sectors driven by commodity pricing. However, within this, there are a number of sources of competitive advantage and added value. Customer service and logistics can be a significant differentiator while technical support and (in traded products) full traceability is an important element in the customer proposition. Premium Bakery is a growing sector with volume in commodity bakery in decline alongside growth in value as consumers migrate to higher value premium offerings both in home and increasingly out-of- home. Health concerns are relevant but high quality, indulgent and occasional treats still represent a growing opportunity. New product development is an important facet of the market with opportunities to deliver healthier yet still indulgent eating products a particular focus. Each of these markets has different characteristics and our strategies will be tailored to the specific market needs but with the common theme of building long term sustainable growth. StRAteGY Real Good Food will utilise Renshaw as its global brand to access this market, leveraging its strong ‘The Professionals Choice’ reputation. The launch of ‘The Renshaw Academy’ will be used to underpin and build its global reputation as well as being a showcase for all Real Good Food cake decoration products both from Renshaw and Rainbow Dust Colours. As well as holding courses at the Academy facility in Liverpool, the Academy will build a network of global ambassadors for the Renshaw Academy. Courses will also be webcast to international audiences. Real Good Food will focus on its core competences of dairy and sugar trading as well as chocolate coating, jam, fruit preparations and sauces manufacture and seek to develop added value opportunities on this strong base. The acquisition of the sports nutrition brand ISO2 Nutrition (using whey protein), the development of high quality sauces for manufacturing and retail and of soft fillings for the confectionery manufacturing industry are examples. Supply partnerships and distributorships will be a part of developing the portfolio. Real Good Food will focus on a number of products and processes where it has product quality leadership – e.g. Danish, yum yums, frozen desserts. Haydens will launch a branded range to showcase its product excellence and extend its retail presence while the acquisition of Chantilly Patisserie not only represents an extension of the range portfolio but facilitates greater access to out-of-home eating occasions. Investment will be made in automating non-added value processes provided they maintain or even enhance product consistency and quality. 6 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 Annual Report and Accounts for the year ended 31 March 2016Strategic reportthe Real Good Food DEvElOPMEnT CEnTRE This new facility opened in May 2016 and is central to Group strategy providing direct support to the growth of each division. The building houses central Group support functions of technical, IT and Digital, HR and Operations. It also contains the Group Innovation Centre, a world class facility looking to develop new products for the businesses using emerging technologies in product, process and packaging. The Innovation Centre will also be a source of inspiration for customers on applications for Real Good Food product ingredients, be they for cake decoration or other ingredients. Finally the building contains the new ‘Renshaw Academy’. The vision for this is to be ‘the most inspirational cake decorating academy in the world’ providing a showcase for all of Real Good Food's cake decorating products. The school will encompass both cake decorating experts as well as the less highly skilled hobbyists and teach both traditional and contemporary methods and techniques. It will be a revenue generating facility though its primary objective will be to underpin the excellence of the Renshaw brand reputation. CASE hISTORy Product Innovation Real Good Food has considerable expertise in producing highly functional sugarpaste (icing); the Renshaw brand has a long-established reputation as the benchmark product for professional cake decorators who require stringent standards of strength and elasticity to produce the perfect looking cake. The Innovation team was briefed to look at the potential of a product which maintained these essential functional characteristics but also incorporated improved taste and texture for consumers wanting a more everyday product. This has involved combining traditional icing with in- house manufactured caramel and chocolate through careful control of water activity, fat levels, emulsification and natural gum systems. This blending of a number of Real Good Food’s manufacturing capabilities to produce a product which meets the increasing market for indulgently eating products is a good example of how the central Innovation team will operate. The new product will launch in 2017. 7 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 www.realgoodfoodplc.com Stock Code: RGDStrategic reportDivisional Business Review 2015/16 performance Sales revenue was slightly down on the previous year as Renshaw removed a manufacturing contract and Renshaw Europe lost a private label contract. Sales of Renshaw brand, however, grew as the company focused on developing its branded proposition. Export sales outside Europe showed strong growth. At Rainbow Dust Colours, sales of Progel© food colouring and metallic food paints in particular showed good growth, both areas where we have clear product superiority. As the market matures opportunities are appearing in more mainstream retailers such as Hobbycraft and John Lewis. Forward plans The new focus on developing a global branded range will take shape during the course of 2016. A relaunch of the core sugarpaste range in upgraded packaging is already having a strong impact in the market as is the introduction of ‘Renshaw Extra’, a firmer and more elastic product designed for European tastes and also more effective in hotter climates. Further significant product initiatives will be launched in early 2017. At Rainbow Dust Colours a number of major product initiatives are also in place; a relaunch of the ‘food art’ pens, an upgraded recipe on matt food paints and new multi-lingual packs on Progel©. pictured: Cupcakes – stencil design using Rainbow Dust 'Plain & Simple' 12 MONThS TO MARCh Revenue EBITDA Operating profit Operating profit % 2015/2016 £m 2014/2015 £m 48.3 7.3 6.5 13.5 49.2 6.5 5.5 11.2 8 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 REVENUE £48.3m EBITDA £7.3m OPERATING PROFIT £6.5m Annual Report and Accounts for the year ended 31 March 2016Strategic report24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 9 www.realgoodfoodplc.com Stock Code: RGDStrategic reportDivisional Business Review 2015/16 performance Revenues were significantly down year on year due to unprecedented commodity price deflation particularly in sugar and dairy. Both these markets experienced record low levels of prices; sugar was impacted not only by weak world prices but also in Europe ahead of the ending of quotas in 2017, while dairy, where quotas have already ended, was affected by the Russian export ban. In this context Garrett Ingredients did well to increase its traded dairy volumes though sugar sales fell slightly. The acquisition of ISO2 Nutrition generated a modest amount of sales but set-up costs led to a small overall loss in the year. Sales volume was slightly ahead of the previous year at R&W Scott though again price deflation led to a marginal revenue decline. Investment in management teams at both businesses led to higher costs and a decline in EBITDA. Both businesses are now fully equipped to run on a stand-alone basis and develop their growth plans. Forward plans Garrett Ingredients is well placed to benefit from any upturn in sugar and dairy pricing and will build sales in sports nutrition. At R&W Scott a number of product initiatives (soft fillings, fruit fillings, sauces, curds, mallows and premium jams) have been developed and are being sold across all channels. The investment in jam capacity at R&W Scott, which caused some disruption last year, should begin to yield benefits. R&W Scott will also significantly increase its supply into other Real Good Food companies (especially Haydens) facilitated by the central Innovations team. pictured: R&W Scott chocolate sauce 12 MONThS TO MARCh 2015/2016 £m 2014/2015 £m Revenue EBITDA Operating (loss)/profit Operating (loss)/profit % 22.7 (0.1) (0.4) (2.0) 27.0 0.5 0.3 1.1 10 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 REVENUE £22.7m EBITDA (£0.1m) OPERATING LOSS (£0.4m) Annual Report and Accounts for the year ended 31 March 2016Strategic report24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 11 www.realgoodfoodplc.com Stock Code: RGDStrategic reportDivisional Business Review 2015/16 performance Despite narrowing its product range Haydens grew its sales by 4% year on year with the growth rate quickening to 12% in the second half of the year. Customer service was excellent over the critical Christmas and Easter periods but at a cost of significantly increased labour which impacted margins leading to a decline in EBITDA over last year. The extension of the customer base had a positive effect on sales but product complexity remains the challenge and is being addressed with an even greater focus on fewer product lines. The impact of this was already being seen in the final quarter. The Chantilly acquisition took place late in the year with sales and margins in line with expectations. Forward plans The process of further focusing on core lines and processes where Haydens has recognised product superiority will continue. Part of this will be the launch of a small range of branded premium indulgent sweet treats which will be sold to a range of customers and generate significant scale. The Chantilly acquisition has already highlighted a number of cross selling opportunities (both opportunities for Haydens within foodservice and also Chantilly within retail) which will be pursued. There are a number of opportunities for automating non-added value, manual processes and these will be prioritised against the scale achieved in each product sector. pictured: Chantilly Rich Chocolate & Raspberry tear 12 MONThS TO MARCh 2015/2016 £m 2014/2015 £m Revenue EBITDA Operating (loss)/profit Operating (loss)/profit % 29.4 0.7 (0.1) (0.5) 28.4 1.3 0.4 1.5 12 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 REVENUE £29.4m EBITDA £0.7m OPERATING LOSS (£0.1m) Annual Report and Accounts for the year ended 31 March 2016Strategic report24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 13 www.realgoodfoodplc.com Stock Code: RGDStrategic reportcorporate Social Responsibility We continue to develop our activities in a socially responsible manner. The last year has seen a number of key activities across the Group: Business in the community We continue to work with Business in the Community to develop our approach to Corporate Social Responsibility. During the year with their help and support we developed a Responsible Business Framework for the Group, involving key stakeholders from each business. This provided a framework around our three core principles of People, Communities and Operational Responsibility. Key areas for action were identified as follows: people communities ✪ Health & Safety ✪ Training & Development ✪ Recognition ✪ Communication ✪ Health & Wellbeing ✪ Diversity & Inclusion ✪ Charitable Giving ✪ Proactive involvement in local community ✪ Links with schools and colleges operational Responsibility ✪ Environmental Management ✪ Ethical Trading ✪ Customer Engagement ✪ Responsible Marketing people health and Safety All companies within Real Good Food have made improvements in health and safety performance over the last year. See table below. Rainbow Dust Colours, acquired in January 2015, has been introduced to the Real Good Food Safety Management System and has been included within the Real Good Food audit programme. Common areas for further continuous improvement have been identified as: 1 Risk Assessments & Safe Operating Procedures: These include Site Transport, Manual Handling and DSEAR (Dangerous Substances and Explosive Atmospheres Regulations) 2 Safety Training 3 Machinery (Provision & Use of Work Equipment Regulations) Assessments 4 Effective planned preventative maintenance 5 Business continuity plans are progressing well across all sites 6 DSEAR – actions have been identified as part of individual site risk assessments 7 Occupational Health – a new programme for routine screening is required to include new starters, audiometry, spirometry Talent Development 2015–16 has seen the Group further develop and strengthen its management teams across all businesses ensuring we are fit to meet the challenges of the future, both internationally and in the UK. We seek to recruit the people of the highest calibre and commit to their ongoing development upon joining our Group. To this end we have continued to develop our people through our leadership development programme across the Group and are now seeing the benefits of our investment during the last three years in our leadership teams. Clear roles and accountability, coupled with behaviours consistent with our 'RECIPE' values are being demonstrated through improved operational performance and employee retention rates. Our leadership framework is being further developed with the clear objective of the creation and development of high performing teams across the Group and 2016–17 will see its conclusion and launch to our leadership and management teams. Each business was tasked with developing its own action plans to determine exactly what it wanted to achieve and what could be done to support this. The Group Directorate is working closely with each business to develop those activities further and progress has been made throughout the year. COMPANY Haydens Bakery Renshaw Liverpool R&W Scott – Carluke Rainbow Dust – Preston AUDIT SCORE 2015 AUDIT SCORE 2014 94% 90% 86% 35% 90% 88% 82% Recent Acquisition 14 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 Annual Report and Accounts for the year ended 31 March 2016Strategic reportAbove: The presentation of the new Super MAD Award Involvement We seek to involve and empower our people in key business development activities and one such example in March of this year was when a team of key operatives and engineers from Renshaw spent a week in Switzerland providing input to and receiving training on a significant new process whilst it was being built and before it was commissioned and installed in our factory at Renshaw. The involvement of the team at the outset was crucial to its success when installed and the performance of this process in the factory at Liverpool has been outstanding with full ownership by the team. Reward and Recognition Our MAD (Made a Difference) award scheme saw many awards made across the Group throughout the year, with colleagues being nominated by their peers and recognised and rewarded for exceptional performance, above and beyond the call of duty. This year, we held the first Group Super MAD Award, with the best of the best from around the Group being nominated by their businesses and rewarded and recognised at a ceremony with our Chairman at the new Development Centre in Wavertree. communities Charitable Giving Renshaw 2015–16 saw the Renshaw team raise in excess of £5,000 for Cancer Research in memory of a colleague who had passed away during the year. This was raised by raffles, charity race nights and the annual Santa Dash in Liverpool. The business supported such activities by way of donating prizes, paying for race entry fees and making donations to worthy causes local to site such as care homes and schools. R&W Scott As usual the R&W Scott team showed their commitment to local causes and fundraising during the year. Support and promotion of the local Carluke Jam & Ham Festival, hosting local primary school visits and fundraising activities were all highlights of the year. Schools and colleges Work experience initiatives and school visits continue across the Group in all businesses and our collaboration with local colleges and universities continues to bear fruit, with apprenticeships in place for engineers, food technologists and applications technicians. As we seek to develop our Group digital strategy, we have created university placements for students at our new Development Centre. They will work closely with the existing team at Group level and across all of the businesses to implement and develop leading Below: The Charity run at Carluke The Charity walk by Rainbow Dust haydens Over the past 12 months Haydens donated cakes to at least one local event every month varying from school fundraising events and fire station fun days to the Wiltshire Air Ambulance Volunteers Christmas party. The Wiltshire Air Ambulance continued to be the Haydens 'Chosen Charity of Choice' and during the year a group from the bakery visited its head office to understand more fully the vital role it plays in the local community Rainbow Dust A team from Rainbow Dust undertook the gruelling Yorkshire three peaks challenge raising over £3,000 for a local hospice. edge techniques to ensure our on-line presence is at the forefront, whilst also gaining valuable work experience. 2016 will see us sponsor a scholarship programme relevant to baking and confectionery skills – we have worked closely with further educational establishments to develop this programme which is to be launched imminently. We will provide support, guidance and materials to this exciting new development and look forward to reporting a successful launch of the programme next year. operational Responsibility Modern Slavery We have developed our statement on Modern Slavery and Human Trafficking which can be found on our website in full. As a responsible organisation we recognise our responsibilities and our commitment to ensuring an ethical approach to our activities remains at the forefront of all we do and throughout our supply chains. Our commitment and support of the Ethical Trading Initiative continues with successful unplanned audits at Devizes and Liverpool during the year. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 15 www.realgoodfoodplc.com Stock Code: RGDStrategic report Key performance indicators and Risks Key performance indicators The Board of Directors monitors a range of financial and non-financial key performance indicators, reported on a periodic basis, to measure the Group’s performance over time. The key performance indicators, all based on continuing operations, are set out below: REVENUE GROwTh Revenue is calculated for continuing business and excludes sugar for 2014 and is from external sources only. EBITDA EBITDA is defined as earnings before significant items, interest, tax depreciation and amortisation. NET DEBT Net Debt is the total Group borrowings less cash at bank. £100.4m £104.6m £110.2m (3.9)% GROWTH (5.1)% GROWTH 2.6% GROWTH 2016 2015 2014 £5.0m £5.3m £4.9m 5.0% OF SALES 5.1% OF SALES 4.4% OF SALES 2016 2015 2014 £30.1m £31.1m DEBT COVER Debt cover is calculated by dividing total Net Debt by continuing EBITDA. hEALTh & SAFETY SCORE Health & Safety score represents a weighted average score across all sites and is measured by an external consultant. Figures are quoted for calendar years. £5.1m 2016 2015 2014 9.5 5.6 1.0 2016 2015 2014 90% 82% 92% 2016 2015 2014 coMMent Revenue has fallen due to falling commodity prices and removal of manufacturing contracts. EBITDA has held steady in what have been difficult food market conditions. With the sale of Napier Brown Net Debt has reduced significantly. With the level of reduced debt and the maintenance of the EBITDA level then debt cover is at a comfortable level. In 2014, measures were reset effectively toughening the measure by approximately ten percentage points. principal Risks The Group operates in a continually changing environment and consequently our risks change over time. The assessment of risks and the development of strategies for dealing with them are dealt with on an ongoing basis through Group management and control processes. A formal review is carried out on an annual basis. This review includes the identification of risks and the likelihood of them impacting the business and the potential severity of that impact and the determination of what needs to be done to manage them effectively. The Directors have identified the following as principal risks: { Key Customers { Customer Requirements { Product Quality { Labour Costs, Prices and Supply { Health and Safety { Raw Materials Risks Mitigation Key Customers The Group has a number of key customers from which it derives its revenue. Its key customers tend to work without long term contracts The Group works with its key customers to ensure product development and customer service matches expectations and is flexible to meet demands Sales and Marketing strategies are set to attract new customers and limit any reliance on one particular customer Customer Requirements Changes in overall economy and consumer fashions may affect the marketability of the Group's offering Product Quality Maintenance of product quality standards is vital to sustained sales performance Labour costs, prices and supply The Group employs an average of 1058 employees of which 743 are direct labour employees and its success depend on attracting and retaining quality staff at the correct skill level Health and Safety Any breach of Health and Safety legislation may lead to reputation damage and penalties Raw Materials Raw materials used by the Group are subject to price fluctuations and market conditions The Group Innovation Centre recently opened and the new product development teams at the individual operating businesses work together to ensure the Group is always looking at new product areas to be ahead of any changes in the markets As a reputable food manufacturer our operating divisions rigorously enforce our technical policies and procedures in relation to production and storage of our products. Our larger divisions are all BRC accredited and our smaller divisions are SALSA accredited The Group has established a strong HR team across all of its operating sectors, with strict recruitment criteria and processes Personal development reviews are carried out every six months to map out training and development needs The Group has a compliance programme in place and this is audited by an external party to ensure that all legal and internal standards are met and adhered to The Group purchasing managers liaise regularly to ensure best buying practices are maintained and volume advantages are earned On commodities, forward purchase contracts are entered into to ensure best prices are obtained and continuation of supply is maintained 16 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 Annual Report and Accounts for the year ended 31 March 2016Strategic reportFinance Review Below: The new Renshaw Academy The business is now fully focused on its three pillar markets which are Cake Decoration, Food Ingredients and Premium Bakery David Newman Group Finance Director ” profit Measure on continuing operations Delivered Margin on the continuing businesses for the overall Group has encouragingly increased to £21.1 million from £19.9 million. Cake Decoration has increased margins by 4% as it has concentrated on higher margin business and the benefit of the Rainbow Dust acquisition is felt for the full year. Financial Summary Revenue Gross profit Delivered Margin (Gross profit after distribution costs) EBITDA* Operating profit* (EBITDA less depreciation) Operating profit % Profit/(loss) before taxation* * before significant items overview During this financial year the Group completed its segregation programme to achieve its model of each business unit being a stand-alone legal entity. It has also now fully focused the business on its three pillar markets and in this annual report will be reporting on the Group results based on those markets which are Cake Decoration, Premium Bakery and Food Ingredients. Comparative figures have been restated to reflect these markets. Revenue Group revenue for the 12 months ended March 2016 for continuing businesses was £100.4 million which is drop of 4% on the revenue to March 2015. This is the result of a move away from low margin contract business in Cake Decoration and also the low prices in the Food Ingredients markets. Premium Bakery has maintained a 13% margin on increased turnover whilst the Food Ingredients pillar has maintained a 10% margin even though turnover has declined in what has been a difficult trading year. EBITDA for the 12 months to March 2016 was £4.9 million, down by £0.5 million from March 2015 as the Group continued to invest in overheads to continue its drive towards a fully market led operation. Statutory profit before tax has been boosted by the profit on sale of Napier Brown Sugar of £9.1 million and an exceptional write-back of a Rainbow Dust liability no longer required of £3.2 million, as the contingent conditions were not met. This has resulted in a statutory profit before tax of £12.9 million (March 2015 loss £3.5 million) giving a basic EPS of 18.36p per share (2015 loss per share 4.9p). 31 March 2016 31 March 2015 Continuing £’000s 100,439 26,670 21,303 5,043 3,082 3.1% 2,413 Total £’000s 113,676 28,023 21,507 5,027 2,998 2.6% 1,423 Continuing £’000s 104,580 25,561 19.989 5,319 3,202 3.1% 2,101 Total £’000s 232,868 35,925 20,415 1,960 (741) (0.3%) (2,677) 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 17 www.realgoodfoodplc.com Stock Code: RGDStrategic reportFinance Review (continued) cash Flow and net Debt Following the sale of Napier Brown Sugar Ltd to Tereos in May 2015 and the receipt of the £44.4 million disposal proceeds the Group was able to repay all of its borrowings and to close its position with PNC Business Capital. The Group was also at this time able to repay the Loan Note that had been outstanding with NB Ingredients since the acquisition of Napier Brown by Real Good Food. The Group already had a relationship with Lloyds Bank plc for its daily banking arrangements and in September 2015 in order to cover working capital requirements and to fund the Group's acquisition policy this relationship was extended with the addition of a £10 million invoice finance facility. net Debt Summary Working Capital (Inventories, trade and other receivables, trade and other payables) Net Borrowings (incl. Cash) Net Debt/EBITDA 18 As noted above with the sale of Napier Brown Sugar Ltd the Group was able to clear its borrowings with PNC and accordingly net debt has reduced significantly during the year finishing on 31 March 2016 at £5.1 million compared to £30.1 million at March 2015. Cash generated from operations for the year was (£1.9 million) compared to £4.8 million in 2015 reflecting a higher working capital investment in the business due to higher commodity prices and more competitive trading leading to longer credit terms to customers. The Group invested £6.4 million in tangible fixed assets, an increase of £4.2 million of 2015, reflecting the modernisation of the Group’s factories and its facilities. This sum included £2.4 million on the new Group Innovation Centre. 31 March 2016 £’000’s 16,054 5,067 1.0 31 March 2015 £’000’s 7,557 30,140 15.4 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 Annual Report and Accounts for the year ended 31 March 2016Strategic reportcapital Restructuring During the year the Group held an extraordinary general meeting in order to get approval from shareholders to cancel its share premium reserve and transfer the amount into distributable reserves. This proposal was approved and an application was then made to the courts to complete this process. This was approved by the courts on 4 May 2016. This will be reflected in the financial statements for the year ended 31 March 2017. pension The Group operates defined contribution pension schemes with contributions made to schemes administered by major insurance companies. Contributions to these schemes are set as a percentage of an employee’s earnings. The Group also operates a defined benefit pension scheme which has been closed to further benefit accrual since 2000. In preparation for the disposal of the sugar business it was decided to transfer the liability for this scheme out of J F Renshaw Ltd into Real Good Food plc. The scheme deficit at 31 March 2016 was £6.1 million (2015 £5.7 million). Cash contributions to the scheme in the year ended 31 March 2016 amounted to £282,000 in line with the agreed recovery plan. For further information see note 31 to the financial statements. This report was approved by the Board on 31 July 2016. P W Totté Chairman D P Newman Finance Director Acquisitions The Group has been successful in acquiring two business during the year in accordance with its stated policy of looking for bolt-on acquisitions. In December 2015 it acquired the ISO2 Nutrition sports supplement brand from the administrators of Cre8tive Health Ltd. This business has been integrated into Garrett Ingredients, part of the Food Ingredients sector, and is seen as an enabler to the entry into a new and interesting product and portfolio diversification. The total consideration was £15,995. In February 2016 it acquired Chantilly Patisserie, based in Paignton, Devon, employing some 30 staff, and producing high quality, hand- made frozen desserts, supplying the foodservice sector, with customers such as Marston’s Brewery, Warner Leisure, Brakes, and Country Range. The business complements the offering of Haydens extremely well and it is envisaged that significant commercial opportunities for both businesses will be identified as a result. The total consideration was £1.75 million. Further details of these acquisitions are given in Note 33 to the accounts. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 19 www.realgoodfoodplc.com Stock Code: RGDStrategic reportouR GoveRnAnce Board of Directors pieter totté Chief Executive Pieter has extensive knowledge of the food sector having acted as a corporate finance adviser on many transactions over the past 20 years. Pieter founded RGF in 2003 and acted as Non-Executive Chairman until November 2009, when he assumed the role of Executive Chairman. Since then, Pieter has led the growth plan for RGF and has developed strong management teams across all the businesses, allowing him to devote more time to the strategic development of the Group. David newman Finance Director David joined Napier Brown & Co Ltd in 1995 following spells in the finance functions at John Mowlem plc and Pirelli Group plc. David began as a financial accountant until being promoted in 2005 to Group Financial Controller when Napier Brown Foods Group was acquired by RGF plc. David was appointed Company Secretary in 2010 to assist the Board in corporate governance and investor relations and was appointed Finance Director in September 2015. peter Salter Non-Executive Director Peter was in practice for 20 years as a tax partner with Chartered Accountants Crowe Clark Whitehill, latterly as CEO. In 1998 he moved into international corporate consultancy, where he advised on a number of mergers, acquisitions and fundraisings, working with various financial institutions in the UK and USA. In recent years he has gained considerable experience of the food sector and AIM and is currently a non-executive director of Peter Thompson Group PLC. He is chairman of both the Audit and Remuneration Committees of the Group. patrick Ridgwell Non-Executive Deputy Chairman Pat has extensive knowledge of the sugar industry and other food sectors having acquired and developed a number of food businesses during his career. He joined Napier Brown and Company in 1964 and became Managing Director in 1972 following its acquisition of his family interests in 1970. He is a director of Napier Brown Ingredients Ltd. Jacques d’unienville Non-Executive Director Jacques has nearly 20 years’ experience of sugar and related industries (independent power production, waste and environment management and renewable energy) in France, the Seychelles and Mauritius. He is the CEO of Omnicane and the chairperson of Omnicane Thermal Energy Operations (La Baraque) Limited and Omnicane Thermal Energy Operations (St. Aubin) Limited. He has served as president of the Mauritius Sugar Syndicate and as president of the Mauritius Sugar Producers’ Association. christopher thomas Non-Executive Director Chris qualified as a chartered accountant in 1969. In 1973 he joined Breakmate, a vending business, which was admitted to Unlisted Securities Market in 1984. He joined the Napier Brown Foods Group in 1992 as Group Finance Director and was involved in the day to day operations of the Group before becoming Chief Executive Officer of Napier Brown Foods. 20 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 Annual Report and Accounts for the year ended 31 March 2016executive team Andrew Brown Group Brand and Marketing Director Andrew joined Napier Brown Foods as Managing Director in August 2008. He has over 30 years’ experience within the food industry; he was marketing director at British Bakeries and Manor Bakeries and then managing director at both Manor Bakeries and RHM Cereals. Andrew moved to his current role in June 2012 to drive the Group’s ‘market-led’ agenda. Heather Billington Group hR Director A Fellow of the Chartered Institute of Personnel & Development, Heather joined the Renshaw business in 1981 and was appointed Human Resources Manager in 1990. She continued to hold this role for the wider business throughout the subsequent changes in ownership and business structure. In 2007 Heather was appointed Group HR Manager for Real Good Food plc before being appointed Group HR Director in January 2009. David newman Finance Director David joined Napier Brown & Co Ltd in 1995 following spells in the finance functions at John Mowlem plc and Pirelli Group plc. David began as a financial accountant until being promoted in 2005 to Group Financial Controller when Napier Brown Foods Group was acquired by RGF plc. David was appointed Company Secretary in 2010 to assist the Board in corporate governance and investor relations and was appointed Finance Director in September 2015. David Wright Group Operations Director David joined Real Good Food in 2006 as Operations Director of Renshaw. In early 2012 he was invited to join the Real Good Food management board as Group Operations Director. As well as coordinating health and safety and capital expenditure, David’s role is to manage and implement strategic projects and deliver the operational needs of the business to meet the future growth plans. www.realgoodfoodplc.com Stock Code: RGD ouR GoveRnAnce 21 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 Report of the Directors The Directors present their report and audited financial statements for the 12 month period ended 31 March 2016. Statement of Directors’ responsibilities The statutory Directors are responsible for preparing the Strategic Report, the Report of the Directors, other information included in the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the statutory Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and applicable law. Under company law the statutory Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: { select suitable accounting policies and then apply them consistently; { make judgements and accounting estimates that are reasonable and prudent; { state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; { prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company and Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. They are further responsible for ensuring that the Strategic Report, the Report of the Directors and other information included in the Annual Report and financial statements is prepared in accordance with applicable law in the United Kingdom. The maintenance and integrity of the Real Good Food plc website is the responsibility of the Directors; the work carried out by the auditor does not involve the consideration of these matters and, accordingly, the auditor accepts no responsibility for any changes that may have occurred in the accounts since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the accounts and the other information included in annual reports may differ from legislation in other jurisdictions. Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Divisional Reviews on pages 8 to 13. The financial position of the Group, its cash flows and liquidity position are described in the Finance Review on pages 17 to 19. In addition, notes 23 and 25 to the financial statements include the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk. As detailed in note 23 to the financial statements, the Group has a successful banking arrangement with Lloyds Bank plc and this, together with customer contracts and supplier agreements, enabled the Directors to believe that the Group is well placed to manage its business risks. Note that following the disposal of Napier Brown the Group’s outstanding loans were repaid in full, with Lloyds Bank plc remaining as the sole provider of clearing facilities and funding. The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. provision of information to auditor Each person who is a Director at the time when this Report of the Directors is approved has confirmed that: { as far as that Director is aware, there is no relevant audit information of which the Group’s auditor is unaware { that Director has taken all the steps that ought to have been taken as Director in order to be aware of any information needed by the Group’s auditor in connection with preparing its report and to establish that the Group’s auditor is aware of that information. 22 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR GOVERNANCEAnnual Report and Accounts for the year ended 31 March 2016principal continuing activities The principal activity of the Group is that of a food manufacturing and distribution business. The Group trades through three operating divisions as follows: Below: Chantilly white chocolate and raspberry bar gateau Manufactures, sells and supplies cake decoration products and ingredients for the baking sector in the UK and abroad. Sources, manufactures and supplies a range of food ingredients from bagged sugars and dairy powders to chocolate coatings and jams to food manufacturers, wholesalers and retailers. Manufactures, sells and distributes added value bakery and dessert products to UK retailers and foodservice customers. The Group’s profit for the period after taxation was £12,820k (2015 – Loss £3,409k) with continuing operations before significant items, delivering a profit of £2,375k as compared with £1,046k last year. The Directors do not recommend payment of a dividend in respect of the 12 months ended 31 March 2016 (2015 – £nil). Business review and future developments These topics are covered in detail within the Chairman’s Statement, Divisional Reviews and Finance Reviews on pages 4 to 5 and 17 to 19 respectively. Results and dividends The Group’s revenue from continuing operations for the 12 month period was £100,439k (2015 – £104,580k), yielding a gross profit of £26,670k (2015 – £25,561k) and an operating profit of £3,082k (2015 – £3,202k) from continuing operations before significant items. non-current assets Details of changes in non-current assets are given in notes 16, 17 and 18 to the financial statements. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 23 www.realgoodfoodplc.com Stock Code: RGDOUR GOVERNANCEReport of the Directors (continued) Directors On 31 August 2015 M McDonough resigned from his position as Finance Director. On 15 September 2015 D P Newman was elected to the Board in the position of Finance Director. The beneficial interests of the Directors in the ordinary share capital of the Company at the financial period end are set out below: Substantial interests At 31 March 2016 there were the following substantial interests (3% or more) in the Company’s ordinary share capital: Napier Brown Ingredients Limited Omnicane International Investors Limited % Holding in Ordinary Share Capital 31.8% 29.7% 2016 P W Totté* P G Ridgwell† P C Salter C O Thomas D P Newman J d’Unienville 31 March 2016 31 March 2015 2,716,124 2,624,124 22,502,354 22,502,354 131,000 240,363 24,225 — 181,000 290,363 24,225 — * 1,925,000 shares are held directly by Menton Investments Limited which is wholly owned by the Tulip Trust, a discretionary trust, of which P W Totté and certain members of his family are discretionary beneficiaries. In addition, shares are held by J M Finn Nominees Limited on behalf of Menton Investments Limited. P W Totté holds a further 791,124 shares directly. † Napier Brown Ingredients Limited holds 22,139,998 shares which are controlled by a trust, of which P G Ridgwell is a trustee. P G Ridgwell holds a further 362,356 shares directly. Details of the Directors’ share options are shown in note 12 to the financial statements. Directors’ indemnities The Company has paid £9,987 (2015 – £9,927) in respect of Directors’ and Officers’ Indemnity Insurance. corporate governance As the Group is listed on AIM its is not required to apply a particular corporate governance code. However, the Board recognises the importance of good governance and has implemented corporate governance processes that are appropriate for a group of its size and resource constraints. During the year the Group held an extraordinary general meeting in order to get approval from shareholders to cancel its share premium reserve and transfer the amount into distributable reserves. This proposal was approved and an application was then made to the courts to complete this process. This was approved by the courts on 4 May 2016. This will be reflected in the financial statements for the year ended 31 March 2017. Financial instruments The Group’s financial instruments comprise bank term loans and two revolving credit facilities, hire purchase and finance leases, cash and liquid resources and various items arising directly from its operations, such as trade receivables and trade payables. The main purpose of these financial instruments is to finance the Group’s operations. The main risks arising from the Group’s financial instruments are interest rate risk and liquidity risk. The Group also has some currency exposure regarding its sugar trade but the majority of this risk is offset by purchasing and selling sugar in matching currencies. The Board reviews and agrees policies, which have remained substantially unchanged for the period under review, for managing these risks. Full details of the Group’s financial assets and liabilities are set out in note 23 to the financial statements. liquidity risk Short term flexibility is available through existing bank facilities and the netting off of surplus funds. employee involvement The Group aims to improve the performance of the organisation through the development of its employees. Their involvement is encouraged by means of team working, team briefings, consultative committees and working parties. Bonus schemes linked to profitability and personal objectives are in place for all senior managers and Directors. Disabled employees The Group is committed to equality of employment and its policies reflect a disregard of factors such as disability in the selection and development of employees. The Group is involved in various initiatives which promote a positive understanding of disability and the integration of the disabled into the workforce. charitable and political donations During the current financial period the Group made charitable donations of £5,568 (2015 – £1,918). No political donations were made during the current or previous financial period. Research and development During the period the Group incurred costs of £1,220k (2015 – £750k) in relation to research and development of new products. These costs included costs associated with development chefs, development technologists and materials consumed in product development. This report was approved by the Board on 31 July 2016. P W Totté Chairman D P Newman Finance Director 24 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR GOVERNANCEAnnual Report and Accounts for the year ended 31 March 2016Audit committee Report and Remuneration committee Report Audit committee Report The Audit Committee comprises P C Salter (Chairman) and C O Thomas and meets formally twice per year with the auditor in relation to the annual and interim accounts. Its brief is to monitor the integrity of the financial statements of the Group as audited, to consider and agree any significant financial judgements contained in them and to review all formal reporting announcements relating to the Group’s financial performance. In addition, the Committee regularly reviews the Group’s finance function with particular reference to internal financial controls and risk management and reporting systems. It also ensures appropriate procedures are in place such as for bribery and whistleblowing. As the external auditor provides other services in addition to the Group’s audit (as detailed in note 7), the Committee also annually reviews the independence and objectivity of the auditor and the effectiveness of the audit. The Committee Chairman maintains a close dialogue with the auditor throughout the year to keep him apprised of relevant events. Remuneration committee Report The Remuneration Committee comprises P C Salter (Chairman) and P G Ridgwell, with C O Thomas being co-opted from time to time. It is responsible for setting and reviewing annually the remuneration packages of Executive Directors and senior managers within the Group. Packages are structured to attract, motivate and retain key personnel who have the capabilities, experience and ambition to drive forward and achieve the Group’s strategic aims. The Remuneration Committee is responsible for ensuring that the mix of incentives reflects the Company’s needs, establishes an appropriate balance between fixed and variable remuneration, and is based on targets that are appropriately stretching, verifiable and relevant, and which take account of risk. This is achieved through a market related base salary, plus a range of benefits and an annual bonus scheme set to reward achievement of Group or divisional EBITDA targets, cash controls and personal objectives. Auditor The auditor, Crowe Clark Whitehill LLP, will be proposed for reappointment in accordance with Section 489 of the Companies Act 2006. This report was approved by the Board on 31 July 2016. D P Newman Finance Director Cake decorating class at Renshaw Academy In addition, the Committee oversees the Group's share option schemes both of which closed for issue of new options during 2015/16. The Committee is currently reviewing possible future incentive schemes. The Committee meets twice per year unless there are compelling reasons to meet more regularly. The Chairman works closely with the Group Human Resources Director in relation to all relevant matters, including the terms of compromise agreements which in turn are approved by the Committee. External intelligence is sourced as necessary regarding market salary levels and professional advice sought as required. The remuneration of Non-Executive Directors is set by the Executive Directors. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 25 www.realgoodfoodplc.com Stock Code: RGDOUR GOVERNANCEindependent Auditor’s Report to the shareholders of Real Good Food plc We have audited the financial statements of Real Good Food Plc for the year ended 31 March 2016 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Company Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Company Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Company Statement of Cash Flows Statements, the Group and Parent Company Statement of Changes in Equity and the related notes numbered 1 to 34. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the company’s shareholders, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Strategic Report, the Report of the Directors’ and any other surround information to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. opinion on financial statements In our opinion: { the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2016 and of the group‘s profit for the year then ended; { the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; { the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 2006; and { the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. opinion on other matter prescribed by the companies Act 2006 In our opinion the information given in the Strategic Report and the Report of the Directors for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: { adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or { the parent company financial statements are not in agreement with the accounting records and returns; or { certain disclosures of directors’ remuneration specified by law are not made; or { we have not received all the information and explanations we require for our audit. Keith Newman Senior Statutory Auditor For and on behalf of Crowe Clark Whitehill LLP Statutory Auditor Maidstone 31 July 2016 26 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 2016consolidated Statement of comprehensive income year ended 31 March 2016 REVENUE Cost of sales GROSS PROFIT Distribution costs Administration expenses Significant items OPERATING PROFIT/(LOSS) Fair value gain on contingent consideration Finance income Finance costs Other finance costs Profit on disposal of discontinued operations PROFIT/(LOSS) BEFORE TAXATION Income tax (expense)/credit Tax on discontinued business Income tax on significant items PROFIT/(LOSS) ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT OTHER COMPREHENSIVE LOSS Items that will not be reclassified to profit or loss Actuarial (losses)/gains on defined benefit plan Income tax relating to components of other comprehensive loss OTHER COMPREHENSIVE LOSS TOTAL COMPREHENSIVE INCOME/(LOSS)FOR THE YEAR ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT Earnings per share – basic – diluted Notes 4 6 8 9 10 11 14 14 Year ended 31 March 2016 Year ended 31 March 2015 Continuing Operations £’000s Discontinued Operations £’000s 100,439 (73,769) 26,670 (5,367) (18,221) (945) 2,137 3,267 — (478) (191) — 4,735 (439) — 113 13,237 (11,884) 1,353 (1,149) (288) — (84) — — (906) — 9,145 8,155 — 256 — Total £’000s 113,676 (85,653) 28,023 (6,516) (18,509) (945) 2,053 3,267 — (1,384) (191) 9,145 12,890 (439) 256 113 4,409 8,411 12,820 (484) 35 (449) — — — (484) 35 (449) Continuing Operations £’000s Discontinued Operations £’000s Total £’000s 104,580 128,288 232,868 (79,019) 25,561 (5,572) (16,787) (117,924) 10,364 (9,938) (4,369) (196,943) 35,925 (15,510) (21,156) (522) 2,680 — — (866) (235) — 1,579 (1,055) — 110 634 (2,237) 447 (1,790) (328) (4,271) — — (845) — — (5,116) 1,005 — 68 (850) (1,591) — — (1,711) (235) — (3,537) (50) — 178 (4,043) (3,409) — — — (2,237) 447 (1,790) 3,960 8,411 12,371 (1,156) (4,043) (5,199) 15 6.31p 5.83p 12.05p 11.13p 18.36p 16.96p 0.91p 0.85p (5.81)p (5.81)p (4.90)p (4.90)p The notes on pages 34 to 82 form part of these financial statements. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 27 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSconsolidated Statement of changes in equity year ended 31 March 2016 Balance as at 31 March 2014 Total comprehensive income for the year Loss for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners of the Group, recognised directly in equity Contributions by and distribution to owners of the Group Shares issued in the year Share based payment expense Deferred tax on share options Total contributions by and distributions to owners of the Group Balance as at 31 March 2015 Total comprehensive income for the year Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners of the Group, recognised directly in equity Contributions by and distribution to owners of the Group Shares issued in the year Share based payment expense Deferred tax on share options Total contributions by and distributions to owners of the Group Balance as at 31 March 2016 Issued Share Capital £’000s 1,389 — — — 3 — — 3 1,392 — — — 10 — — 10 1,402 Share Premium Account £’000s 71,244 — — — 28 — — 28 71,272 — — — 103 — — 103 71,375 Share Option Reserve £’000s 504 — — — — 47 26 73 577 — — — — 15 — 15 592 Retained Earnings £’000s 13,877 (3,409) (1,790) (5,199) — — — — 8,678 12,820 (449) 12,371 — — — — 21,049 Total £’000s 87,014 (3,409) (1,790) (5,199) 31 47 26 104 81,919 12,820 (449) 12,371 113 15 — 128 94,418 28 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 2016company Statement of changes in equity year ended 31 March 2016 Balance at 31 March 2014 Total comprehensive income for the year Loss for the year (as restated) Other comprehensive income for the year Total comprehensive income for the year Transactions with owners of the Company, recognised directly in equity Contributions by and distributions to owners of the Group Shares issued in the year Share based payment expenses Deferred tax on share options Total contributions by and distributions to owners of the Company Balance at 31 March 2015 (as restated) Balance at 31 March 2015 (as previously stated) Prior year adjustment (note 27) Balance at 31 March 2015 (as restated) Total comprehensive income for the year Profit for the year Other comprehensive income for the year Total comprehensive income for the year Transactions with owners of the Company, recognised directly in equity Contributions by and distributions to owners of the Group Shares issued in the year Share based payment expenses Deferred tax on share options Total contributions by and distributions to owners of the Company Balance at 31 March 2016 Issued Share Capital £’000s 1,389 Share Premium Account £’000s 71,244 — — — 3 — — 3 1,392 1,392 — 1,392 — — — 10 — — 10 1,402 — — — 28 — — 28 71,272 71,272 — 71,272 — — — 103 — — 103 71,375 The notes on pages 34 to 82 form part of these financial statements. Share Option Reserve £’000s 504 — — — — 47 26 73 577 577 — 577 — — — — 15 — 15 592 Retained Earnings £’000s Total £’000s (13,689) 59,448 (1,974) — (1,974) (1,974) — (1,974) — — — — 15,663 (17,163) 1,500 (15,663) 6,004 (449) 5,555 — — — — (10,108) 31 47 26 104 57,578 56,078 1,500 57,578 6,004 (449) 5,555 113 15 — 128 63,261 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 29 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALS consolidated Statement of Financial position year ended 31 March 2016 NON-CURRENT ASSETS Goodwill Other intangible assets Property, plant and equipment Deferred tax asset CURRENT ASSETS Inventories Trade and other receivables Assets relating to discontinued business Current tax assets Cash and cash equivalents TOTAL ASSETS CURRENT LIABILITIES Bank overdrafts Trade and other payables Borrowings Liabilities relating to discontinued business Current tax liabilities NON-CURRENT LIABILITIES Borrowings Deferred tax liabilities Retirement benefit obligation TOTAL LIABILITIES NET ASSETS EQUITY Share capital Share premium account Share option reserve Retained earnings TOTAL EQUITY Notes 16 17 18 20 21 22 32 24 23 32 23 20 31 26 27 27 27 31 March 2016 £’000s 71,005 834 18,066 1,556 91,461 12,360 17,039 — — 2,946 32,345 123,806 949 13,243 7,008 — 127 21,327 55 1,925 6,081 8,061 29,388 94,418 1,402 71,375 592 21,049 94,418 31 March 2015 £’000s 70,019 841 13,599 1,866 86,325 10,328 15,229 41,406 — 6,687 73,650 159,975 51 18,000 17,190 27,300 613 63,154 6,677 2,537 5,688 14,902 78,056 81,919 1,392 71,272 577 8,678 81,919 These financial statements were approved by the Board of Directors and authorised for issue on 31 July 2016. They were signed on its behalf by: P W Totté Executive Chairman D P Newman Director The notes on pages 34 to 82 form part of these financial statements. 30 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 2016company Statement of Financial position year ended 31 March 2016 NON-CURRENT ASSETS Investments Property, plant and equipment Deferred tax asset Trade and other receivables CURRENT ASSETS Trade and other receivables Current tax asset Cash and cash equivalents TOTAL ASSETS CURRENT LIABILITIES Bank overdraft Trade and other payables Borrowings NON-CURRENT LIABILITIES Trade and other payables Retirement benefit obligation Deferred tax liability Borrowings TOTAL LIABILITIES NET ASSETS EQUITY Share capital Share premium account Share option reserve Retained earnings TOTAL EQUITY Notes 19 18 20 22 22 24 23 24 20 23 26 27 27 27 31 March 2016 £’000s 65,499 3,204 1,478 — 70,181 55,798 705 — 56,503 126,684 949 56,377 — 57,326 — 6,081 16 — 6,097 63,423 63,261 1,402 71,375 592 (10,108) 63,261 31 March 2015 £’000s restated 57,892 77 327 44,776 103,072 2,100 3,167 5,267 108,339 — 675 1,541 2,216 44,866 — — 3,679 48,545 50,761 57,578 1,392 71,272 577 (15,663) 57,578 These financial statements were approved by the Board of Directors and authorised for issue on 31 July 2016. They were signed on its behalf by: P W Totté Chairman D P Newman Director The notes on pages 34 to 82 form part of these financial statements. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 31 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSconsolidated cash Flow Statement year ended 31 March 2016 CASH FLOW FROM OPERATING ACTIVITIES Adjusted for: Profit/(loss) before taxation Finance and other finance costs Share based payment expense Depreciation of property, plant and equipment Profit on disposal of Napier Brown Fair value gain on contingent consideration Profit on disposal of property, plant and equipment Amortisation of intangibles Operating Cash Flow (Increase)/decrease in inventories (Increase)/decrease in receivables Pension contributions (Decrease) in payables Cash generated from operations Income taxes received/(paid) Interest paid Net cash from operating activities CASH FLOW FROM INVESTING ACTIVITIES Proceeds from disposal of property, plant and equipment Purchase of intangible assets Purchase of property, plant and equipment Disposal of Discontinued business Acquisition of business, net of cash acquired Net cash used in investing activities CASH FLOW USED IN FINANCING ACTIVITIES Shares issued in year Additional loans Repayment of borrowings Repayment of loans Net movements on revolving credit facilities Repayment of obligations under finance leases Net cash used in financing activities NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period Net movement in cash and cash equivalents Cash and cash equivalents at end of period Cash and cash equivalents comprise: Cash Overdrafts 12 months ended 31 March 2016 £’000s 12 months ended 31 March 2015 £’000s 12,890 1,575 15 1,917 (9,061) (3,267) — 113 4,182 (1,900) (2,034) (282) (1,866) (1,900) (614) (1,661) (4,175) 160 — (6,408) 37,201 (1,666) 29,287 113 — (33,447) — 3,705 (122) (29,751) (4,639) 6,636 (4,639) 1,997 2,946 (949) 1,997 (3,537) 1,946 47 2,341 — — (11) 360 1,146 3,393 4,678 (457) (3,955) 4,805 576 (1,711) 3,670 11 (99) (1,428) — (1,243) (2,759) 32 4,000 — (1,954) (4,832) (89) (2,843) (1,932) 8,568 (1,932) 6,636 6,687 (51) 6,636 The notes on pages 34 to 82 form part of these financial statements. 32 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 2016 company cash Flow Statement year ended 31 March 2016 CASH FLOW FROM OPERATING ACTIVITIES Adjusted for: Loss before taxation Finance costs Share based payment expense Pension finance costs Depreciation of property, plant and equipment Operating Cash Flow (Increase)/decrease in receivables Pension contributions Increase in payables Cash generated from operations Interest paid Income taxes received/(paid) Net Cash from operating activities CASH FLOW FROM INVESTING ACTIVITIES Investment Purchase of property, plant and equipment Net cash used in investing activities CASH FLOW USED IN FINANCING ACTIVITIES Shares issued in period Additional borrowings Repayment of borrowings Net cash used in financing activities Net increase in cash and cash equivalents CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period Net movement in cash and cash equivalents Cash and cash equivalents at end of period Cash and cash equivalents comprise: Cash Overdrafts 12 months ended 31 March 2016 £’000s 12 months ended 31 March 2015 £’000s (3,726) 118 15 191 26 (3,376) 490 (282) 7,430 4,262 (118) — 4,144 — (3,153) (3,153) 113 — (5,220) (5,107) (4,116) 3,167 (4,116) (949) — (949) (949) (3,480) 235 47 49 (3,149) 694 7,597 5,142 (235) — 4,907 — (3) (3) 32 — (1,954) (1,922) 2,982 185 2,982 3,167 3,167 — 3,167 The notes on pages 34 to 82 form part of these financial statements. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 33 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements year ended 31 March 2016 1. presentation of financial statements General information Real Good Food plc is a public limited company incorporated in England and Wales under the Companies Act (registered number 4666282). The Company is domiciled in England and Wales and its registered address is International House, 1 St Katharine’s Way, London, E1W 1XB. The Company’s shares are traded on the Alternative Investment Market (AIM). The principal activities of the Group are the sourcing, manufacture and distribution of food to the retail and industrial sectors. Basis of preparation These consolidated financial statements are presented on the basis of International Financial Reporting Standards (IFRS) as adopted by the European Union and have been prepared in accordance with AIM rules and the Companies Act 2006, as applicable to companies reporting under IFRS. These consolidated financial statements have been prepared in accordance with the accounting policies set out in note 2 and under the historical cost convention, except where modified by the revaluation of certain financial instruments and commodities. 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 operations 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. The disposal of the Napier Division, as described in note 32, gives rise to a discontinued operation. New IFRS standards and interpretations adopted A number of new standards and amendments to standards and interpretations have been issued but are not yet effective and in some cases have not yet been adopted by the EU. The Directors are still assessing whether the application of IFRS 9, IFRS 15 and IFRS 16, once effective, will have a material impact on the results of the group. Application of these standards may result in changes in presentation of information within the Group’s financial statements. 2. Significant accounting policies The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Group’s financial statements. a) Basis of accounting The financial statements have been prepared in accordance with applicable accounting standards. The Group’s business activities, together with the factors likely to affect its future development, performance and position, are set out in the Divisional Reviews on pages 8 to 13. The financial position of the Group, its cash flows and liquidity position are described in the Finance Review on pages 17 to 19. In addition, note 23 to the financial statements includes the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk. Also as detailed in note 23 to the financial statements, the Group repaid its borrowings with PNC Business Credit facility in full from the proceeds arising from, the disposal of Napier Brown Sugar Limited. The Group has a long term banking arrangement with Lloyds Bank Plc and this, together with customer contracts and supplier agreements, enables the Directors to believe that the Group is well placed to manage its business risks. 34 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 20162. Significant accounting policies (continued) The Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements. b) Basis of consolidation The Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings. The purchase method of accounting has been adopted. Under this method the results of all the subsidiary undertakings are included in the Consolidated Statement of Comprehensive Income from the date of acquisition or up to the date of disposal. Intra-group revenues and profits are eliminated on consolidation and all revenue and profit figures relate to external transactions only. Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own income statement. The profit for the financial period, of the holding company, as approved by the Board, was £6,004k (2015 – loss £1,974k). c) Goodwill Goodwill is calculated as the difference between the fair value of the consideration exchanged, and the net fair value of the identifiable assets and liabilities acquired and is capitalised. Goodwill is tested for impairment annually and whenever there is an indication of impairment. Goodwill is carried at cost less accumulated impairment losses. When the acquired interest in the net fair value of the identifiable assets and liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement. Gains and losses on the disposal of a business combination include the carrying amount of goodwill relating to the entity sold. d) Revenue recognition Revenue comprises the invoiced value of goods and services supplied by the Group, exclusive of Value Added Tax and trade discounts. Revenue is recognised at the point or points at which the Group has performed its obligations in connection with the contractual terms of the revenue agreement, and in exchange obtains the right to consideration. (a) Sales of Goods: Sales of Goods are recognised when goods are delivered and title passed net of discounts, Value Added Tax (VAT) and other sales related taxes. (b) Finance Income: Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable. Other finance costs includes net interest costs on the net defined benefit pension scheme liabilities. (c) Rebates and discounts: all discounts, rebates etc are accounted for in line with contractual commitments and netted off gross sales to reflect the net income earned any costs incurred in promotional activity are expensed within commercial overheads. In all cases these accounts will reflect the net position after any contractual discounts and rebates along with any promotional costs. Full accruals are made for any unpaid elements. e) Income tax The charge for taxation is based on the results for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes. Deferred tax is recognised on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts. The carrying amount of deferred tax assets is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. Deferred tax is calculated at the tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax is charged or credited to the Statement of Comprehensive Income, except where it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, and when they relate to income taxes levied by the same taxation authority, and the Group intends to settle its current tax assets and liabilities on a net basis. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 35 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 2. Significant accounting policies (continued) f) Significant items It is the Group’s policy to show items that it considers are of a significant nature separately on the face of the Statement of Comprehensive Income in order to assist the reader to understand the accounts. The Group defines the term ‘significant’ as items that are material in respect of their size and/or nature, at a segment reporting level, for example, a major restructuring of the management of that segment. The Group believes that by identifying these items separately as significant it enhances the understanding of the true performance of the segment trading position. Summary details of significant items are shown in note 6 to these accounts. g) Pension costs The Group operates a defined contribution and a defined benefit pension scheme. Payments to the defined contribution scheme are charged as an expense as they fall due. For the defined benefit scheme the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the period in which they occur. Further details are given in note 31 to the financial statements. h) Property, plant and equipment Property, plant and equipment is stated at historical cost or fair value at the date of acquisition, less accumulated depreciation and impairment provisions. Depreciation is provided to write off the cost, less the estimated residual value, of property, plant and equipment by equal instalments over their estimated useful economic lives as follows: Freehold buildings Short term leasehold buildings Plant and equipment Motor vehicles Fixtures and fittings Computer equipment 2% – 2.5% Length of lease 7.5% – 50% 25% 7.5% – 25% 25% Impairment reviews of property, plant and equipment are undertaken if there are indications that the carrying values may not be recoverable or that the recoverable amounts may be less than the asset’s carrying value. Assets in the course of construction relate to plant and equipment in the process of construction, which were not complete, and hence were not in use at the year end. Assets in the course of construction are not depreciated until they are completed and available for use. i) Intangible assets Intangible assets consist of computer software that is considered to have an economic life of five years and business relationships which are considered to have an estimated useful economic life of two years and the assets are amortised on a straight-line basis over these periods. The average remaining life of intangible assets is three years (2015 – three years). The charge for the year is included in administration expenses within the Statement of Comprehensive Income. j) Leases Where a lease is entered into which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a finance lease. The asset is recorded in the Statement of Financial Position as an item of property, plant and equipment and is depreciated over the shorter of its estimated useful life or the term of the lease. Future instalments under such leases, net of finance charges, are included within borrowings. Rentals payable are apportioned between the finance element, which is charged to the profit or loss, and the capital element, which reduces the outstanding obligation for future instalments. All other leases are treated as operating leases and the rentals payable are charged on a straight-line basis to the profit or loss over the lease term. k) Investments Investments in the company accounts relate to investments in subsidiaries and are stated at cost less provision for any impairment in value. l) Inventories Inventories are stated at the lower of cost and net realisable value after making due allowance for obsolete and slow-moving inventory. Cost includes all direct costs and an appropriate proportion of fixed and variable overheads. Cost is calculated using the standard cost or weighted average cost methods, appropriate to the materials and production processes involved. Net realisable value is based upon estimated selling price allowing for all further costs of completion and disposal. 36 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 20162. Significant accounting policies (continued) m) Derivative financial instruments The Group uses derivative financial instruments to reduce exposure to commodity price and foreign exchange rate movements. The Group does not hold or issue derivative financial instruments for speculative purposes. Derivative financial instruments are held by the Group as assets or liabilities on the Statement of Financial Position measured at the fair values at the year end date. Changes in the value of derivative financial instruments arising from fair value hedges are recognised in the income statement. For a hedging relationship to qualify for hedge accounting it must be documented at inception and it must be highly effective in offsetting the changes in cash flows or fair value attributed to the hedged risk. n) Cash and cash equivalents Cash and cash equivalents on the Statement of Financial Position consist of cash in hand and at the bank. Cash and cash equivalents recognised in the Cash Flow Statement include cash in hand and at the bank, and bank overdrafts which are payable on demand. Deposits are only included within cash and cash equivalents when they have a short maturity of three months or less at the date of acquisition. o) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. p) Trade payables Trade payables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest method. q) Bank borrowings Interest bearing bank loans and overdrafts are recorded as the proceeds received net of direct issue costs and are valued at amortised cost. r) Foreign currencies The consolidated financial statements are presented in sterling which is the Group’s functional and presentation currency. Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date. All foreign exchange gains and losses are presented in the Statement of Comprehensive Income within the administration expense heading. s) Intangible assets IFRS 3 (revised) “Business Combinations” requires that goodwill arising on the acquisition of subsidiaries is capitalised and included in intangible assets. IFRS 3 (revised) also requires the identification of other intangible assets at acquisition. The assumptions involved in valuing these intangible assets require the use of estimates and judgements which differ from the actual outcome. These estimates and judgements cover future growth rates, expected inflation rates and the discount rate used. t) Contingent consideration Determining the value of contingent consideration recognised as part of the acquisition of subsidiaries requires assumptions to determine the expected performance of the acquired business and the amount of contingent consideration that will therefore become payable. Initial estimates of expected performance are made by Directors responsible for completing the acquisition and form a key component of the financial due diligence that takes place prior to completion. Subsequent measurement of contingent consideration is based on the Directors’ fair value appraisal of the acquired business’s performance in the post- acquisition period with any required adjustments to the amount payable recognised in the Consolidated Income Statement as required under IFRS 3. u) Business combinations and goodwill Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. The Group measures goodwill at the acquisition date as: { the fair value of the consideration transferred; plus { the recognised amount of any non-controlling interests in the acquiree; plus { the fair value of the existing equity interest; less { the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 37 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 2. Significant accounting policies (continued) Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Any contingent purchase consideration payable is recognised at fair value at the acquisition date. If the contingent purchase consideration is classified as equity, it is not re- measured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent purchase consideration are recognised in the Consolidated Income Statement. 3. critical accounting estimates and judgements In order to prepare these consolidated financial statements in accordance with the accounting policies set out in note 2 management have used estimates and judgements to establish the amounts at which certain items are recorded. Critical accounting estimates and judgements are those that have the greatest impact on the financial statements and require the most difficult, subjective and complex judgements about matters that are inherently uncertain. Estimates are based on factors including historical experience and expectations of future events that management believe to be reasonable. However, given the judgemental nature of such estimates, actual results could be different due to the assumptions used. The critical accounting estimates are set out below. a) Impairment of goodwill An impairment of goodwill has the potential to significantly impact upon the Group’s Statement of Comprehensive Income for the period. In order to determine whether impairments are required the Directors estimate the recoverable amount of the goodwill. This calculation is based on the Group’s cash flow forecasts for the following financial year extrapolated over a rolling 19 year period assuming a zero growth rate. A discount factor, based upon the Group’s weighted average cost of capital, is applied to obtain a current value (‘value in use’). The fair value less costs to sell of the cash generating unit is used if this results in an amount in excess of value in use. Estimated future cash flows for impairment calculations are based on management’s expectations of future volumes and margins based on plans and best estimates of the productivity of the income generating units in their current condition. Future cash flows therefore exclude benefits from major expansion projects requiring future capital expenditure. Future cash flows are discounted using a discount rate based on the Group’s weighted average cost of capital. The weighted average cost of capital is impacted by estimates of interest rates, equity returns and market related risks. The Group’s weighted average cost of capital is reviewed on an annual basis. Further details are set out in note 16. b) Retirement benefits The Company sponsors the Napier Brown Foods Retirement Benefits Plan which is a funded defined benefit arrangement. The amounts recorded in the financial statements for this type of scheme are based on a number of assumptions, changes to which could have a material impact on the reported amounts. Any net deficit or surplus arising on the defined benefit plan is shown in the Statement of Financial Position. The amount recorded is the difference between plan assets and liabilities at the Statement of Financial Position date. Plan assets are based on market value at that date. Plan liabilities are based on actuarial estimates of the present value of future pension or other benefits that will be payable to members. The most sensitive assumptions involved in calculating the expected liabilities are mortality rates and the discount rate used to calculate the present value. If the mortality rate assumption changed, a one year increase to longevity would increase the liability by 4%. Changes to the discount rate of 0.5% would result in a change in the scheme liabilities of 7.0% and a 0.5% movement in the rate of inflation would change the liabilities of the scheme by 2.0%. 38 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 20163. critical accounting estimates and judgements (continued) The Statement of Comprehensive Income generally comprises a regular charge to operating profit for the current and past service cost. Past service costs represent the change in the present value of the benefits obligation that arises from benefit charges that are applied retrospectively to prior year benefits that have accrued. Past service costs are charged in full in the year when the changes to benefits are made and a finance charge, which represents the net of expected income from plan assets and an interest charge on plan liabilities. These calculations are based on expected outcomes at the start of the financial year. The Statement of Comprehensive Income is most sensitive to changes in expected returns from plan assets and the discount rate used to calculate the interest charge on plan liabilities. A 10% change in the assumption of the real discount rate would change the finance expense by approximately £0.07 million. Full details of these assumptions, which are based on advice from the Group’s actuaries, are set out in note 31. c) Significant items In determining whether an item should be classified as a significant item the Board reviews the expenditure in question and assesses whether the expenditure meets the definition of a significant item as defined in the Group’s accounting policy (note 2). Items are only included within significant items if, following this review, the Board is satisfied that the expenditure meets with the definition set out in the accounting policy. d) Business claims In common with comparable food groups, the Group is involved in a number of disputes in the ordinary course of business which may give rise to claims. Provision representing the cost of defending and concluding claims is made in the financial statements for all claims where costs are likely to be incurred. The Group carries a wide range of insurance cover and no separate disclosure is made of the detail of claims or the costs covered by insurance, as to do so could seriously prejudice the position of the Group. 4. 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 and ingredients for the baking sector. Food Ingredients Manufactures and supplies a range of food ingredients from bagged sugar and dairy powders to chocolate coatings and jams. Premium Bakery The manufacture and supply of high quality ambient cakes and desserts to the retail and foodservice sectors. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 39 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 5. 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. This structure has been changed in this financial year with Renshaw, Rainbow Dust and RGFE being combined into the Cake Decoration segment, R&W Scott and Garrett combined into Food Ingredients and Haydens and Chantilly forming the Premium Bakery. Comparative figures have been restated. 12 months ended 31 March 2016 Total Revenue Revenue – Internal External Revenue Underlying adjusted EBITDA (see table below) Operating Profit before Head Office Head Office and consolidation adjustments Significant items Significant Items relating to Head Office Operating Profit/(loss) Fair value gain on contingent consideration Net finance costs Pension finance income Profit on disposal of discontinued operation Profit/(loss) before tax Tax Unallocated Tax Profit/(loss) after tax as per comprehensive statement of income Cake Decoration £’000s 49,231 (933) 48,298 7,350 6,579 (81) 6,498 3,267 (270) — 9,495 (1,377) — 8,118 Food Ingredients £’000s 25,799 (3,104) 22,695 (147) (413) (38) (451) — — — (451) 49 — (402) Premium Bakery £’000s 29,446 — 29,446 758 (162) (162) — (47) — (209) 101 — (108) Continuing Operations Total £’000s 104,476 (4,037) 100,439 7,961 6,005 (2,923) (119) (826) 2,137 3,267 (478) (191) — 4,735 (1,227) 901 4,409 Discontinued Operations Total £’000s 13,237 — 13,237 (15) (84) — — (84) — (906) — 9,145 8,155 256 — 8,411 Inter segment sales are charged at prevailing market rates. Included in the Premium Bakery segment, one single customer accounts for 17.1% of the continuing Group’s external sales for the year ended 31 March 2016. Reconciliation of underlying EBITDA to Operating Profit Operating Profit/(loss) Significant Items Depreciation Amortisation Underlying adjusted EBITDA Head Office Underlying adjusted EBITDA as above Cake Decoration £’000s Food Ingredients £’000s 6,498 81 771 7,350 7,350 (451) 38 255 11 (147) (147) Premium Bakery £’000s (162) 818 102 758 758 Head Office & Consol Total £’000s (3,748) 826 4 — (2,918) 2,918 — Discontinued Operations Total £’000s (84) — 69 — (15) (15) Total Group £’000s 117,713 (4,037) 113,676 7,946 5,921 (2,923) (119) (826) 2,053 3,267 (1,384) (191) 9,145 12,890 (971) 901 12,820 Total Group £’000s 2,053 945 1,917 113 5,028 2,918 7,946 40 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 20165. Segment reporting (continued) 31 March 2016 Segment assets Unallocated assets Property, plant and equipment Deferred tax assets Trade and other receivables Current tax asset Total assets Segment liabilities Unallocated liabilities Trade and other payables Borrowings Current tax liabilities Deferred tax liabilities Pension liability Total liabilities Net operating assets Non-current asset additions Depreciation Amortisation Cake Decoration £’000s 85,133 Food Ingredients £’000s 19,763 Premium Bakery £’000s 13,818 85,133 7,601 19,763 3,905 13,813 5,990 7,601 77,532 1,626 771 — 3,905 15,858 991 255 11 5,990 7,823 1,077 818 102 Discontinued £’000s Unallocated £’000s Total Group £’000s — — — — — — 69 — — 118,714 3,204 1,479 409 — 123,806 17,496 765 4,146 (913) 1,813 6,081 29,388 94,418 6,477 1917 113 — — — — 2,783 4 — Unallocated Relates primarily to the Head Office and non-current asset additions, depreciation and amortisation which cannot be meaningfully allocated to individual operating divisions. Geographical segments The Group earns revenue from countries outside the United Kingdom, but as these only represent 11.3% of the total revenue of the Group, segmental reporting of a geographical nature is not considered relevant. The Cake Decoration segment accounts for the majority of this turnover 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 41 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 5. Segment reporting (continued) 12 months ended 31 March 2015 Total Revenue Revenue – Internal External Revenue EBITDA Operating Profit before Head Office Head Office and consolidation adjustments Significant Items relating to Head Office Operating Profit/(loss) Net finance costs Pension finance income Profit/(loss) before tax Tax Unallocated Tax Profit/(loss) after tax as per comprehensive statement of income Cake Decoration £’000s 50,705 (1,492) 49,213 6,523 5,519 — — 5,519 (457) — 5,062 532 — 5,594 Food Ingredients £’000s 30,104 (3,104) 27,000 516 260 — — 260 (206) — 54 — — 54 Premium Bakery £’000s 28,367 — 28,367 1,252 444 — — 444 (203) — 241 (48) — 193 Continuing Operations Total £’000s 109,176 (4,596) 104,580 8,291 6,223 (3,021) (522) 2,680 (866) (235) 1,579 506 (1,451) Discontinued Operations Total £’000s 137,456 (9,168) 128,288 (3,359) (3,943) — (328) (4,271) (845) — (5,116) 1,073 — Total Group £’000s 246,632 (13,764) 232,868 4,932 2,280 (3,021) (850) (1,591) (1,711) (235) (3,537) 574 (446) 634 (4,043) (3,409) 42 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 20165. Segment reporting (continued) Inter-segment sales are charged at prevailing market rates. 31 March 2015 Segment assets Unallocated assets Property, plant and equipment Deferred tax assets Trade and other receivables Current tax asset Total assets Segment liabilities Unallocated liabilities Trade and other payables Borrowings Current tax liabilities Deferred tax liabilities Pension liability Total liabilities Net operating assets Non-current asset additions Depreciation Amortisation Cake Decoration £’000s 89,199 Food Ingredients £’000s 15,521 Premium Bakery £’000s 11,333 Discontinued £’000s 41,406 Unallocated £’000s Total Group £’000s — 157,459 89,199 22,053 15,521 5,020 11,333 6,936 41,406 27,005 22,053 67,146 641 661 343 5,020 10,501 218 239 17 6,936 4,397 643 808 — 27,005 14,401 1,750 584 — 77 — 573 1,866 159,975 61,014 924 7,994 — 2,436 5,688 78,056 81,919 3,255 2,341 360 — — — — 3 49 — 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 43 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 5. Segment reporting (continued) Unallocated Relates primarily to the Head Office and non-current asset additions, depreciation and amortisation which cannot be meaningfully allocated to individual operating divisions. Geographical segments The Group earns revenue from countries outside the United Kingdom, but as these only represent 11.1% of the total revenue of the Group, segmental reporting of a geographical nature is not considered relevant. The Cake Decoration segment accounts for the majority of this turnover. 6. Significant items Continuing operations Head office relocation following Napier Disposal Management restructuring Acquisition costs Sub total Taxation on significant items Total significant items 2016 £’000s 2015 £’000s (446) (119) (380) (945) 113 (832) — (568) (282) (850) 178 (672) During the year the Group incurred a number of significant items as detailed above. Following the disposal of the Sugar business it was decided to relocate the head office function to the London office. The profit on disposal of the sugar business was the result of the sale to Tereos in May 2015. The reversal of contingent consideration relates to a liability created on the acquisition of Rainbow Dust Colours Limited. The current year acquisition costs relates to the purchase of Chantilly Patisserie £306k, plus additional costs for the acquisition of Rainbow Dust Colours Limited of £74k. 44 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 20167. Auditor’s remuneration Fees payable to the Company’s auditor for the audit of the Company’s annual accounts Fees payable to the Company’s auditor for other services — continuing operations The audit of the Company’s subsidiaries pursuant to legislation Tax compliance services Tax advisory services Other assurance services Total fees paid to Auditor Discontinued operations The audit of the Company’s subsidiaries pursuant to legislation Tax compliance services Tax advisory services Other assurance services Total fees paid to Auditor 12 months ended 31 March 2016 £’000s 12 months ended 31 March 2015 £’000s 36 180 28 28 56 292 — — — — — 30 143 31 35 24 233 85 — — — 85 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 45 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALS notes to the Financial Statements (continued) year ended 31 March 2016 8. operating profit External sales Staff costs Inventories: — cost of inventories as an expense (included in cost of sales) Depreciation of property, plant and equipment Amortisation of intangible assets Significant items Operating lease payment: — land and buildings — other assets Research and development expenditure* Impairment of trade receivables Foreign exchange (gains)/losses Other net operating expenses Total Operating profit Notes 13 18 17 6 29 29 22 31 March 2016 £’000s 113,676 28,457 62,805 1,917 113 945 560 795 1,220 165 (385) 15,031 111,623 2,053 31 March 2015 £’000s 232,868 32,787 166,035 2,341 360 850 559 621 750 81 (450) 30,525 234,459 (1,591) * The costs incurred in research and development are not capitalised as they do not meet the definitions of an intangible asset in accordance with IAS 38. 9. Finance income There was no finance income in the period (2015 – £nil). 10. Finance costs Interest on bank loans and overdrafts Loan note redemption fee Interest on obligations under finance leases Continuing business Discontinued business 46 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 12 months ended 31 March 2016 £’000s 467 906 11 1,384 478 906 12 months ended 31 March 2015 £’000s 1,700 — 11 1,711 866 845 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201611. other finance costs Interest on pension scheme liabilities Interest on pension scheme assets Past service cost 12. Directors’ remuneration Fees Executive salaries and benefits Share based payments 31 March 2016 £’000s 738 (547) — 191 31 March 2016 £’000s 131 757 — 888 31 March 2015 £’000s 857 (695) 73 235 31 March 2015 £’000s 106 472 16 594 The emoluments of the Directors for the period were as follows: M J McDonough (to Sept 15)** P W Totté D P Newman (from Sept 15) P G Ridgwell P C Salter J M d'Unienville C O Thomas Short term Employee Benefits* £’000s 392 223 92 30 36 25 40 838 Share based payments £’000s Post Employment Benefits £’000s 31 March 2016 £’000s 31 March 2015 £’000s — — — — — — — — 40 — 10 — — — — 50 432 223 102 30 36 25 40 888 257 231 — 30 36 — 40 594 * Short term Employee Benefits include Salaries received as an officer of the Company. Separate to these payments, consultancy fees are paid to entities in which Directors hold a beneficial interest. These payments are disclosed as related party transactions in note 30. ** Totals for M J McDonough include compensation for loss of office amounting to £326k. Key management personnel are considered to be the Company Directors. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 47 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALS notes to the Financial Statements (continued) year ended 31 March 2016 12. Directors’ remuneration (continued) Directors’ interests in share options: Option Type Date of Grant Number of options at 31 March 2016 Number of options at 31 March 2015 Exercise Price Earliest Exercise Date Exercise Expiry Date P W Totté Unapproved options 2009 July 2009 1,000,000 1,000,000 5.25p July 2012 July 2019 Unapproved options 2010 May 2010 142,857 142,857 24.50p May 2013 May 2020 Unapproved options 2011 March 2011 3,817,725 3,817,725 P G Ridgwell Unapproved options 2009 July 2009 476,190 476,190 Unapproved options 2010 May 2010 P C Salter Unapproved options 2009 July 2009 Unapproved options 2010 May 2010 C O Thomas Unapproved options 2009 July 2009 Unapproved options 2010 May 2010 61,224 285,714 102,040 304,762 40,816 61,224 285,714 102,040 304,762 40,816 D P Newman (appointed Sept 15) Approved options 2009 June 2009 333,333 333,333 Approved options 2010 Approved options 2015 May 2010 May 2015 20,408 16,666 20,408 — 25.0p 5.25p April 2011 Mar 2021 July 2012 July 2019 24.50p May 2013 May 2020 5.25p July 2012 July 2019 24.50p May 2013 May 2020 5.25p July 2012 July 2019 24.50p May 2013 May 2020 5.25p 24.50p 45.00p July 2012 July 2019 May 2013 May 2018 May 2020 July 2019 16,666 new options were granted to Directors during the year (2015 – none). Options have been granted to Directors whose performances and potential contribution were judged to be important to the operations of the Group, as incentives to maximise their performance and contribution. The mid-market price of the ordinary shares on 31 March 2016 was 45.25p and the range during the year was 32.0p to 59.0p. No Director exercised share options during the year. During the period retirement benefits were accruing to two (2015 – one) Director in respect of money purchase pension schemes. 48 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201613. Staff numbers and costs The average monthly number of people employed by the Group (including Executive Directors) during the year, analysed by category, were as follows: Continuing operations Production Selling and distribution Directors and administrative The aggregate payroll costs were as follows: Continuing operations Wages, salaries and fees Social Security Costs Other pension costs Share based payment expense 31 March 2016 31 March 2015 743 159 156 1,058 31 March 2016 £’000s 24,640 2,503 1,299 15 28,457 673 110 81 864 31 March 2015 £’000s 21,813 2,179 1,558 30 25,580 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 49 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 14. taxation Current tax UK Current tax on profit of the period UK Current tax on significant items Adjustments in respect of prior years Total current tax Deferred tax relating to sale of Napier Deferred tax charge re pension scheme Origination and reversal of timing differences Adjustments in respect of prior years Adjustment in respect of change in deferred tax rate Total deferred tax Tax – continuing operations Tax – discontinued operations Total tax Tax on profit 31 March 2016 £’000s 31 March 2015 £’000s 247 (113) (7) 127 (256) 17 198 73 (89) (57) 326 (256) 70 70 201 (178) 85 108 — 44 (260) (20) — (236) 945 (1,073) (128) (128) 50 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201614. taxation (continued) Factors affecting tax charge for the period: The tax assessed for the period is lower (2015 – higher) than the standard rate of corporation tax in the UK 20% (2015 – 21%). The differences are explained below: Tax reconciliation (Loss)/profit per accounts before taxation Tax on (loss)/profit on ordinary activities at standard CT rate of 20% (2015 – 21%) Expenses not deductible for tax purposes Additional deduction for R&D expenditure Share option relief Current year losses not recognised – deferred tax Income not taxable Adjustment in respect of change in deferred tax rate Adjustments to tax in respect of prior years Deferred tax relating to sale of Napier Brown Total tax Tax on continuing operations Tax on discontinued operations Tax charge for the period 12 months ended 31 March 2016 £’000s 12 months ended 31 March 2015 £’000s 12,890 2,598 207 — (26) 77 (2,482) (94) 66 (256) 70 326 (256) 70 (3,521) (732) 77 (47) (3) 502 — 11 64 — (128) 945 (1,073) (128) 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 51 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 15. 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. Earnings after tax attributable to ordinary shareholders (£’000s) – Continuing operations – Discontinued operations Weighted average number of shares in issue (’000s) – Continuing operations – Discontinued operations Basic earnings per share 12 months ended 31 March 2016 £’000s Continuing operations 12,820 4,409 8,411 69,818 6.31p 12.05p 18.36p 12 months ended 31 March 2015 £’000s Continuing operations (3,409) 634 (4,043) 69,568 0.91p (5.81)p (4.90)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 the outstanding the share options. The difference represents the dilutive potential ordinary shares. 52 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201615. earnings per share (continued) The weighted average number of shares in issue for the year was 69,818k, the number of options outstanding was 9,969. If these were all exercised the cash raised would be equivalent to that which would be raised by issuing 5,746 shares at the average share price during the year. The difference between these figures is the dilutive potential ordinary shares of 75,564. Earnings after tax attributable to ordinary shareholders (£’000s) – Continuing operations – Discontinued operations Weighted average number of shares in issue (’000s) – Continuing operations – Discontinued operations Diluted earnings per share 31 March 2016 £’000s 12,820 4,409 8,411 75,564 5.83p 11.13p 16.96p 31 March 2015 £’000s (3,409) 634 (4,043) 74,203 0.85p (5.8)p (4.9)p Adjusted earnings per share An adjusted earnings per share and a diluted adjusted earnings per share, which exclude significant items, have also been calculated as in the opinion of the Board this allows shareholders to gain a clearer understanding of the trading performance of the Group. Earnings after tax attributable to ordinary shareholders (£’000s) – Continuing operations – Discontinued operations Add back significant items (note 6) Add Back Fair value gain Add Back Profit on Napier disposal Add back tax on significant items Adjusted earnings after tax attributable to ordinary shareholders (£’000s) Weighted average number of shares in issue (’000s) Basic earnings per share Total potential weighted average number of shares in issue (’000s) Basic diluted earnings per share 31 March 2016 £’000s 12,820 4,409 8,411 945 (3,267) (9,145) (113) 1,240 69,818 1.78p 75,564 1.64p 31 March 2015 £’000s (3,409) 634 (4,043) 850 — — (178) (2,737) 69,568 (3.93)p 74,203 (3.93)p 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 53 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 16. Goodwill Cost Carried forward 31 March 2015 Disposal during year Addition in year (note 33) Carried forward 31 March 2016 Group £’000s 82,019 (12,000) 986 71,005 Goodwill acquired on business combinations is allocated at acquisition to the Cash Generating Units that are expected to benefit from that business combination. Before any recognition of impairment losses, the carrying amount of goodwill has been allocated as follows: Napier Brown (disposed in May 2015) Garrett Ingredients Renshaw R&W Scott Rainbow Dust Colours Haydens Bakery – Chantilly Patisserie Carried forward 31 March 2016 Continuing business Discontinued business 31 March 2016 £’000s — 5,000 57,796 1,000 6,223 986 71,005 71,005 — 31 March 2015 £’000s 12,000 5,000 57,796 1,000 6,223 — 82,019 70,019 12,000 The Goodwill on Renshaw; R&W Scott and Garrett Ingredients originally arose on the acquisition of Napier Brown Foods Limited. As previously reported the strategy in recent years has been to establish each of these as separate trading businesses, ‘divisions’, with their own management teams leading to them all being re-established as separate Limited companies. This process was fully completed in October 2015. The goodwill on Rainbow Dust Colours Limited arises out of the acquisition in January 2015. The goodwill on Hayden Bakery Limited arises out of the acquisition of the Chantilly Patisserie business in February 2016. 54 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201616. Goodwill (continued) An assessment of the underlying cash generation, based on current EBITDA performance less ongoing maintenance capital expenditure, has been used to determine the future cash generation profile for each of the divisions. In line with the established impairment tests logic this profile has been used in establishing the Net Present Value of the individual future income streams. The Board is keen to point out the outcome reflects the specific dynamics and nature of each division and that the respective values should not be viewed as a ‘judgement’ on each. All the divisions have exciting growth plans that are being implemented and all will contribute to the future success of the Group. The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired. The recoverable amounts of the Cash Generating Units are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discount rates and expected changes to selling prices and direct costs. The rate used to discount the forecast cash flows is the Group’s pre-tax weighted average cost of capital of 3.0% (2015 – 7.07%). A period of 19 years has been applied to the projected cash flows, based on the logic above assuming no annual growth, as the Directors used this period to assess the viability of the acquisition when the business was acquired in 2005. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Using these parameters and allowing for disposal income at the end of this timescale the recoverable amounts exceed the carrying value by £97.3 million for continuing operations. This is based on our base expectations for the trading period to 31 March 2017. An increase in the Group’s weighted average cost of capital to above 12% (2015 – 10.5%) would cause the Board to impair the carrying value of goodwill across all continuing divisions. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 55 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 17. other intangible assets Cost At 1 April 2015 Acquired on acquisition of Chantilly Patisserie Acquired on acquisition of ISO2 Nutrition Disposals At 31 March 2016 Amortisation At 1 April 2015 Charge Disposals At 31 March 2016 Net book value at 31 March 2016 Cost At 1 April 2014 Additions Disposals At 31 March 2015 Amortisation At 1 April 2014 Charge Disposals At 31 March 2015 Net book value at 31 March 2015 Customer Relationship £’000s Computer Software £’000s — 405 68 — 473 — 55 — 55 418 — — — — — — — — — 2,964 — — (2,178) 786 2,123 58 (1,811) 370 416 2,925 99 (60) 2,964 1,823 360 (60) 2,123 841 Group £’000s 2,964 405 68 (2,178) 1,259 2,123 113 (1,811) 425 834 2,925 99 (60) 2,964 1,823 360 (60) 2,123 841 Company £’000s 4 — — (4) — 4 — (4) — — 4 — — 4 4 — — 4 — Intangible assets all relate to intangible assets acquired from third parties and there are no internally generated intangible assets. There is no indication of any impairment of these intangible assets. 56 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201618. property, plant and equipment Group Cost At 1 April 2015 Acquired on acquisition of business (note 33) Additions Disposals Reclassifications At 31 March 2016 Depreciation At 1 April 2015 Disposals Charge At 31 March 2016 Net book value at 31 March 2016 Cost At 1 April 2014 Acquired on acquisition of subsidiary Additions Disposals Reclassifications At 31 March 2015 Depreciation At 1 April 2014 Disposals Charge At 31 March 2015 Net book value at 31 March 2015 Continuing business Discontinued business Land and Buildings £’000s 13,539 — 542 (4,604) — 9,477 3,891 (1,242) 286 2,935 6,542 13,094 — 1,571 (1,455) 329 13,539 3,576 — 315 3,891 9,648 6,278 3,370 Plant and Equipment £’000s 32,615 108 5,122 (11,588) 831 27,088 21,221 (6,946) 1,631 15,906 11,182 31,599 201 1,132 (614) 297 32,615 19,737 (542) 2,026 21,221 11,394 6,784 4,610 The net book value of assets held under finance leases or hire purchase contracts, included above, is as follows: Plant and equipment Assets in the course of construction £’000s 537 — 636 — (831) 342 — — — — 342 911 — 252 — (626) 537 — — — — 537 537 — 31 March 2016 £’000s 353 Total £’000s 46,691 108 6,300 (16,192) — 36,907 25,112 (8,188) 1,917 18,841 18,066 45,604 201 2,955 (2,069) — 46,691 23,313 (542) 2,341 25,112 21,579 13,599 7,980 31 March 2015 £’000s 586 £ NIL (2015 – £21.0 million) of property, plant and equipment have been pledged as security for borrowings; see note 23. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 57 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 18. property, plant and equipment (continued) Company Cost At 1 April 2015 Additions Group Transfers Disposals At 31 March 2016 Depreciation At 1 April 2015 Disposals Group Transfers Charge At 31 March 2016 Net book value at 31 March 2016 Cost At 1 April 2014 Additions Disposals At 31 March 2015 Depreciation At 1 April 2014 Disposals Charge At 31 March 2015 Net book value at 31 March 2015 Land and Buildings £’000s Plant and Equipment £’000s — 498 — — 498 — — — — — 498 1,455 — (1,455) — — — — — — 162 2,285 1,664 (660) 3,451 85 (660) 1,294 26 745 2,706 309 3 (150) 162 114 (78) 49 85 77 Total £’000s 162 2,783 1,664 (660) 3,949 85 (660) 1,294 26 745 3,204 1,764 3 (1,605) 162 114 (78) 49 85 77 The net book value of assets held under finance leases or hire purchase contracts, included above, are as follows: Plant and equipment 58 31 March 2016 £’000s — 31 March 2015 £’000s — 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201619. investments Company Investments in shares of subsidiary undertakings: Napier Brown Foods Limited £’000s 53,900 — 53,900 FSF Dormant Limited/ TD Dormant Limited £’000s 610 (610) — — R&W Scott Limited Garrett Ingredients Limited Haydens Bakery Limited £’000s — 3,248 7,500 7,500 — 3,248 Eurofoods plc/ Coolfresh Limited £’000s Real Good Food Europe SA £’000s 79 — 79 55 717 772 Total 57,892 (610) 8,217 65,499 At 31 March 2015 Impairment Capitalisation of intercompany loans At 31 March 2016 The additions in the year relate to the creation of trading limited companies and the increase in share capital as a result of the capitalisation of a Group loan balance. The aggregate of the share capital and reserves at 31 March 2016 and of the profit or loss for the year ended on that date are as follows: N Brown Foods Limited JF Renshaw Limited Haydens Bakery Limited Rainbow Dust Colours Limited RGFC Dust Limited Garrett Ingredients Limited R&W Scott Limited Real Good Food Europe SA Aggregate of Share Capital and reserves £’000s Profit/(loss) £’000s 37,277 59,569 1,160 6,240 (101) 2,640 4,593 (3) (759) 3,555 (108) 1,085 (68) 140 (407) (320) 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 59 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 19. investments (continued) Subsidiary Haydens Bakeries Limited* Eurofoods plc* FSF Dormant Limited* TD Dormant Limited* Napier Brown Foods Limited* JF Renshaw Limited RGFC Dust Limited* Rainbow Dust Colours Limited R & W Scott Limited Garrett Ingredients Limited Whitworths Sugars Limited Haydens Bakery Limited* Real Good Food Europe SA Principal Activities Dormant Dormant Dormant Dormant Holding Company Sugar Paste and Marzipan Supplier Holding Company Cake Decoration Supplier Chocolate compound and Jam Supplier Food Ingredients Supplier Dormant Cake and Dessert Supplier Sugar & Ingredient Supplier * Held directly by Real Good Food plc. 20. Deferred taxation liability/(asset) The gross movements on the deferred tax account are as follows: Opening position Acquired on the acquisition Income statement charge Transfer on sale Transfer on pension Charge to equity/(credit) Closing position Shown as follows Liabilities Assets 60 Description and Number of Shares Held Proportion of Nominal Value of Shares Held 4,052,659 Ordinary £1 260,000 Ordinary £1 50,000 Preference £1 11,112 Ordinary £1 5,000 Ordinary £1 28,248,096 Ordinary 50p 15,685,000 Ordinary £1 1 Ordinary £1 500 Ordinary £1 1 Ordinary £1 1 Ordinary £1 2,000,000 Ordinary £1 1 Ordinary £1 61,500 Ordinary €1 2016 Group £’000s 671 74 (58) (283) — (35) 369 1,925 (1,556) 369 2016 Company £’000s (327) — 38 — (1,138) (35) (1,462) 16 (1,478) (1,462) 2015 Group £’000s 1,367 13 (236) — — (473) 671 2,537 (1,866) 671 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2015 Company £’000s (294) — (7) — — (26) (327) — (327) (327) 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201620. Deferred taxation liability/(asset) (continued) Group Deferred tax assets The deferred tax balances arise from temporary differences in respect of the following: At 31 March 2015 Charge/(credit) to income: — current period — prior years (Credit) to equity At 31 March 2016 Within 12 months Greater than 12 months Deferred tax provisions At 31 March 2015 Acquired on acquisition Charged to income: — current period — prior period Transfer on sale of Napier At 31 March 2016 Losses £’000s (359) — 359 — — — — Options £’000s (324) — — — (324) — (324) Provisions £’000s (45) (36) 5 — (76) (76) — Intangible Assets £’000s 1,022 74 40 — — 1,136 Pension £’000s (1,138) 17 — (34) (1,155) — (1,155) Tangible Assets £’000s 1,515 — (153) (290) (283) 789 Total £’000s (1,866) (19) 364 (34) (1,555) (76) (1,479) Total £’000s 2,537 74 (113) (290) (283) 1925 There were £2.52 million of unused tax losses not recognised due to uncertainty over when they could be utilised. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 61 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 20. Deferred taxation liability/(asset) (continued) Company Deferred tax assets The deferred tax balances arise from temporary differences in respect of the following: At 31 March 2015 Charge/(credit) to income: — current period — transfers from Group companies Charge/(credit) to equity At 31 March 2016 Within 12 months Greater than 12 months 21. inventories Materials Work in progress Finished goods Continuing business Discontinued business Pension Scheme 17 (1,138) (34) (1,155) — (1,155) 31 March 2016 Group £’000s 5,495 641 6,224 12,360 12,360 — Tangible Assets £’000s (4) 20 — — 16 — 16 31 March 2016 Company £’000s — — — — — — Share Options £’000s (323) — — — (323) — (323) 31 March 2015 Group £’000s 5,491 743 10,293 16,527 10,328 6,199 Total £’000s (327) 37 (1,138) (34) (1,462) — (1,462) 31 March 2015 Company £’000s — — — — — — Inventories totalling £12,360k (2015 – £16,527k) are valued at the lower of cost and net realisable value. The Directors consider that this value represents the best estimate of the fair value of those inventories net of costs to sell. The write-off of inventories during the period is not material. 62 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201622. trade and other receivables Non-current trade and other receivables Amounts owed by Group undertakings Current trade and other receivables Trade receivables Less: provision for impairment of receivables Net trade receivables Other receivables Amounts owed by Group undertakings Prepayments Total Continuing business Discontinued business 31 March 2016 Group £’000s 31 March 2016 Company £’000s 31 March 2015 Group £’000s 31 March 2015 Company £’000s — — — 43,626 15,006 (204) 14,802 1,068 — 1,169 17,039 17,039 — — — — 12 55,390 396 55,798 26,012 (111) 25,901 1,566 — 2,591 30,058 15,229 14,829 — — — — 1,527 573 2,100 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 63 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALS notes to the Financial Statements (continued) year ended 31 March 2016 22. trade and other receivables (continued) Provision for impairment of receivables At 31 March 2015 Charge for period Uncollectable amounts written off At 31 March 2016 31 March 2016 Group £’000s (111) (165) 72 (204) 31 March 2016 Company £’000s — — — — 31 March 2015 Group £’000s (50) (81) 20 (111) 31 March 2015 Company £’000s — — — — The creation and release of the provision for impaired receivables has been included in the income statement within administration costs (note 8). Trade receivables primarily represent Blue Chip customers with good credit ratings. In assessing and granting credit the Group relies on professional credit rating agencies and has credit insurance policies in place for added protection. This credit insurance covers £10 million of the Group’s trade receivables, the remaining amount of £5 million relates to sales from the Group’s Premium bakery division to high street retailers, which the Group has not taken credit insurance on as we deem this to be of limited credit risk. There is no concentration of credit risk within trade receivables as the Group trades with a broad base of customers primarily within the UK, over various different sectors. The Group recognised a charge of £165k (2015 – charge of £81k) for impairment of its trade receivables during the period, to reflect debts significantly past their due dates. This loss has been included in operating profit in the Statement of Comprehensive Income. The Directors consider that the carrying amount of trade and other receivables approximates to their fair value. The Directors consider the maximum credit risk at the balance sheet date is equivalent to the carrying value of trade and other receivables, less any amounts claimable under the Group’s credit insurance policies. Trade receivables of £2.1 million were past due but not impaired, a slight decline on last year driven by a tighter credit control programme. The ageing analysis of these receivables is as follows: Up to 30 days past due 1–3 months past due Over 3 months past due 64 31 March 2016 Group £’000s 740 1,040 378 2,158 31 March 2015 Group £’000s 3,069 498 311 3,878 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201623. Borrowings and capital management Unsecured borrowings at amortised cost Loan notes Secured borrowings at amortised cost Bank term loans Revolving credit facilities Hire purchase Amounts due for settlement within 12 months Amounts due for settlement after 12 months Continuing business Discontinued business 31 March 2016 Group £’000s 31 March 2016 Company £’000s — 3,200 3,705 158 7,063 7,008 55 7,063 7,063 — — — — — — — — — 31 March 2015 Group £’000s 2,774 9,170 24,430 376 36,750 30,073 6,677 36,750 23,867 12,883 31 March 2015 Company £’000s — 5,220 — — 5,220 1,541 3,679 5,220 Features of the Group’s borrowings are as follows: The Group’s financial instruments comprise cash, a term loan, hire purchase and finance leases, revolving credit facility, overdraft 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. Following the sale of Napier Brown Sugar in May 2015 the facilities with PNC Business Credit have been fully repaid along with the loan note that was due to Napier Brown Ingredients Limited. During the year a new revolving credit invoice discount facility has been entered into with Lloyds Bank Plc. The main risks from the Group’s financial instruments are interest rate risk and liquidity risk. The Group also has some currency exposure in relation to its sugar trade and also some currency exposure in relation to the purchase of almonds from the United States. However, this is mitigated by matching 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. At the end of March 2016 the Group has one term loan and a revolving credit facility with Lloyds Bank Plc. The term loan was taken out in January 2015 to assist with the acquisition of Rainbow Dust Colours Limited, the original term was for 365 days and due for repayment in January 2016, this has been extended and is repayable in July 2016. The balance outstanding was £3.2 million (2015 £3.95 million). During the year the Group negotiated a £10 million revolving credit facility comprising Sterling Euro and US Dollar invoice discounting facilities which bears interest at 1.5% above base rate and at the year-end £3.7 million was outstanding under this facility. This facility is secured primarily on the debtors of JF Renshaw Limited and Haydens Bakery Limited. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 65 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALS notes to the Financial Statements (continued) year ended 31 March 2016 23. Borrowings and capital management (continued) Since the year end the Group has successfully negotiated extended borrowing facilities with Lloyds Bank plc to enable it to continue its acquisition and investment strategy. The Group has entered into an invoice finance facility of £20 million on a revolving basis with a minimum term of 12 months and a 3 months’ notice period. This facility is secured against the debtors across the whole of the Groups UK businesses, and comprise a Sterling, Euro and US Dollar facility with an interest rate of 1.5% above base rate. In addition a new term loan of £3 million has been agreed with Lloyds Bank plc to replace the loan taken out to finance the acquisition of Rainbow Dust Colours Limited. The new loan has a term of 3 years expiring in July 2019 and is repayable in quarterly instalments of £250k. Interest on this loan is charged at 2.75% above base rate. To aid the capital expenditure growth planned for the Group it has also entered into a £4 million facility secured against specific items of plant and machinery with Lloyds Bank plc. This loan is for a term of 5 years ending July 2021 and is repayable in monthly instalments of £73k plus VAT. Interest on this loan is charged at 3.5% above base rate. The fixed interest rate liabilities relate to amounts payable on hire purchase agreements £0.2 million. The weighted average interest rate of these liabilities was 2% (2015 – 2%) and the weighted average period for which the interest rates are fixed was 28 months (2015 – 40 months). The financial assets of the Group are surplus funds, which are offset against borrowings under the facility, and there is no separate interest rate exposure. Lloyds Bank Plc has 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, our banking arrangements with Lloyds Bank plc contain certain cross guarantees. Hire purchase and finance lease liabilities are secured upon the underlying assets. Capital management The Group is subject to the risk that its capital structure will not be sufficient to support the growth of the business. The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The sale of Napier Brown Sugar enabled the Group to repay all of its borrowings at the time, however there has been no change to the Group’s approach to capital management, which is to fund its working capital requirements by trading generated cash flows supplemented by asset based lending, which is the most favourable source of finance available to the business at this time, to assist in managing its seasonal requirements. Liquidity risk management 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. 66 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201623. Borrowings and capital management (continued) The following table details the Group’s maturity profile of its financial liabilities: 2016 Trade and other payables Bank term loans Revolving credit facilities Finance leases Interest Total 2015 Trade and other payables Loan notes Bank term loans Revolving credit facilities Finance leases Interest Total Less than 1 month £’000s 3,640 — — 10 3,650 19 3,669 Less than 1 month £’000s 24,657 — 403 — 10 25,070 148 25,218 1–3 months £’000s 4,167 — 3,705 20 7,892 57 7,949 1–3 months £’000s 3,675 — 556 24,430 20 28,681 338 29,019 3 months to 1 year £’000s 517 3,200 — 73 3,790 153 3,943 3 months to 1 year £’000s 3,687 — 4,532 — 122 8,341 451 8,792 1–5 years £’000s 5+ years £’000s — — — 55 55 15 70 1–5 years £’000s — 2,774 3,679 — 224 6,677 1,845 8,522 — — — — — — — 5+ years £’000s — — — — — — — — Total £’000s 8,324 3,200 3,705 158 15,387 244 15,631 Total £’000s 32,019 2,774 9,170 24,430 376 68,769 2,782 71,551 The profile of the trade payables has been taken as being consistent with the Group’s payment terms to suppliers. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 67 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 23. Borrowings and capital management (continued) Analysis of market risk sensitivity Currency risks: The Group is exposed to currency risk on purchases made of almonds from the United States. The risk associated with these purchases is mitigated by matching with sales in foreign currencies. The effect of a 10¢ strengthening of the US dollar against sterling exchange rate at the balance sheet date on the trade payables carried at that date would, with all other variables being held constant, have resulted in a decrease in pre-tax profits of £32k. The impact of a 10¢ strengthening of the US dollar against sterling at the balance sheet date on our trade receivables carried at that date would, all other variables being held constant, have resulted in an increase in pre- tax profits of £41k. The Group is also exposed to currency risk on purchases of sugar from Europe. The risk associated with these purchases is mitigated by matching with sales in foreign currencies. These sales form part of our Invoice Discounting facilities with Lloyds Bank Plc, which generate a euro loan obligation. The effect of a €0.05 strengthening of the euro versus sterling exchange rate at the balance sheet date on our overall euro net position carried at that date would, all other variables being held constant, have resulted in a decrease in pre-tax profits of £22k. Interest rate risks: The Group has an exposure to interest rate risk arising from fluctuations in sterling and euro base rates. The impact of a 1% increase in the applicable interest rates at the balance sheet date on the variable rate debt carried at that date would, all other factors remaining unchanged, have resulted in a decrease in pre-tax profits of £70k. Obligation under finance leases Finance lease liabilities – minimum lease payments Due within one year Due within one to five years Future finance charges on finance leases Present value of finance lease liabilities The present value of finance lease liabilities is as follows: Due within one year Due within one to five years 31 March 2016 £’000s 31 March 2015 £’000s 103 55 158 (11) 147 98 49 147 152 224 376 (27) 349 143 206 349 It is the Group’s policy to lease certain property, plant and equipment under finance leases. For the period ended 31 March 2016 the average effective borrowing rate was 4.0% (2015 – 4.01%). 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. 68 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201624. trade and other payables Amounts due in more than one year Amounts owed to Group undertakings Accruals Amounts due within one year Trade payables Social security Amounts owed to Group undertakings Accruals Other payables Continuing business Discontinued business 31 March 2016 Group £’000s 31 March 2016 Company £’000s 31 March 2015 Group £’000s — — — 236 89 55,593 459 — 56,377 — — — 8,324 654 — 3,600 665 13,243 13,243 — — 295 295 17,831 636 — 6,877 6,380 31,724 18,000 14,019 31 March 2015 Company £’000s 45,216 — 45,216 258 65 — 352 — 675 Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value. Included within accruals is £nil (2015 – £3.5 million) being the fair value of the contingent consideration in respect of a business combination that occurred during the year. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 69 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 25. Financial instruments Set out below are the Company’s financial instruments. The directors consider there to be no difference between the carrying value and fair value of the Company’s financial instruments. Loans and receivables at amortised cost Cash and cash equivalents Loans and receivables Financial liabilities at amortised cost Liabilities at amortised cost Amounts due for settlement Within twelve months After twelve months Group Company 2016 £’000s 2,946 14,802 15,387 15,387 15,332 55 15,387 2015 £’000s 6,687 25,901 54,607 54,607 47,930 6,677 54,607 2016 £’000s — — 949 949 949 — 949 2015 £’000s 3,167 — 5,504 5,504 1,825 3,679 5,504 Loans and receivables The Group’s policies on managing credit risk are set out in note 22 of these financial statements. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at 31 March 2016 was £14.8 million (2015 – £25.9 million). 70 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201625. Financial instruments (continued) Financial Liabilities at Amortised cost Features of the Group’s borrowing costs are detailed in note 23 of these financial statements. The following table analyses the Company’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet dated to the contractual maturity date. The amounts disclosed in the table are the contracted undiscounted cash flows. Discounting is not required as this has no material effect on the financial statements. Contingent consideration obligations At 31 March 2016 a financial liability of £nil has been recognised in respect of the fair value of the contingent consideration due in respect of acquisitions (2015 – £3,500,000). Financial assets/ financial liabilities Contingent consideration in a business combination Fair value as at 31/3/2015 31/3/2016 Fair value hierarchy Valuation technique(s) and key input(s) Significant unobservable input(s) Relationship of unobservable inputs to fair value £3,500,000 — Level 3 Gross margin based upon actual gross margins achieved. The higher the gross margin, the higher the fair value. The gross margin achieved within the acquired business was less than expected and as a result the contingent consideration payable was significantly less than previously estimated. The contingent consideration paid on 3 March 2016 was £233k, the difference between this amount and the liability recognised in the prior year represents a fair value gain on a financial instrument and has been credited to the income statement as finance income. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 71 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 26. Share capital Allotted, called up and fully paid equity share capital At 31 March 2015 Issued in the year At 31 March 2016 Number of Shares 2016 Number of Shares 2015 31 March 2016 £’000s 69,588,400 478,503 70,066,903 69,465,952 122,448 69,588,400 1,392 10 1,402 31 March 2015 £’000s 1,389 3 1,392 Ordinary shares carry the right to participate in dividends and each share entitles the holder to one vote on matters requiring shareholder approval. There are 9,969,454 shares reserved for issue under options, with expiry dates beyond 2016, outstanding at the end of the year. 27. Reserves Share premium: The share premium reserve comprises the premium paid over the nominal value of shares for shares issued. Share option reserve: The share option reserve represents the cumulative share option charge. Retained earnings: The retained earnings reserve represents the cumulative surplus or deficit of the Group. The Company retained earnings have been restated by £1,500k in respect of late management charge invoices raised to subsidiary companies, which were accrued in the subsidiaries accounts but not in the Company accounts. 28. equity-settled share option scheme The Company has a share option scheme for certain employees of the Group. Options are exercisable at a price equal to the average quoted market price of the Company’s shares at the date of grant. The vesting period is three years. If the options remain unexercised after a period of ten years from the date of grant the options expire. Options are forfeited if the option holder leaves the Group before the options vest. Details of the share options outstanding during the year are as follows: Outstanding at the beginning of the period Granted during the year Exercised during the year Forfeited during the year Outstanding at the end of the period Exercisable at the end of the period 72 31 March 2016 Number of share options 31 March 2016 Weighted Average Exercise Price (£) 31 March 2015 Number of share options 31 March 2015 Weighted Average Exercise Price (£) 9,588,025 1,164,932 (478,503) (305,000) 9,969,454 4,786,797 0.18 0.43 (0.23) (0.46) 0.20 0.11 9,610,473 200,000 (122,448) (100,000) 9,588,025 5,370,300 0.18 0.39 0.05 0.43 0.18 0.12 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201628. equity-settled share option scheme (continued) A breakdown of the range of exercise prices for options outstanding as at 31 March 2016 is shown in the table below: 2016 Weighted average remaining contractual life (years) 1 Number outstanding at end of period 9,969,454 Weighted average exercise price (pence) 19.84 Number outstanding at end of period 9,588,025 2015 Weighted average remaining contractual life (years) Weighted average exercise price (pence) 1 18.33 2016 £’000s 15 43.4p 2015 £’000s 46 33.9p £0.00 – £0.50 IFRS 2 Fair value charge Average share price New options have been issued during this current period. At the time of the issue of options the inputs into the Black–Scholes option pricing model were as follows: Expected volatility Expected life Risk-free rate Dividend yield 35% 3 years 2.88% Nil Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous three years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restriction, and behavioural considerations. The share option expense is shown as an expense in administration expenses in the Company as the majority of the charge relates to employees of the Company. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 73 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 29. commitments Operating lease arrangements At the balance sheet date the Group had total future minimum lease payments under non-cancellable operating leases for each of the following periods: Due within one year Due between one and five years Due beyond five years 31 March 2016 £’000s 1,264 374 — 31 March 2015 £’000s 885 1,322 1,127 Operating lease payments represent rentals payable by the Group in respect of its properties and machinery. For properties, the lease periods are negotiated for an average of fifteen years with five year reviews and for machinery the lease periods vary up to five years. Operating lease payments payable by the Company are considered immaterial for these accounts. Capital commitments Commitments for the acquisition of property, plant and equipment 30. Related party transactions Consultancy fees were paid to the following entities in which Directors hold a beneficial interest: Payee P G Ridgwell The Salter Consultancy LLP 2016 £’000s 930 2015 £’000s 690 Director P G Ridgwell P Salter 31 March 2016 £’000s 55 109 164 31 March 2015 £’000s 55 69 124 During the year the Group repaid the loan notes of £2,774k to Napier Brown Ingredients Limited, a company in which P G Ridgwell, who is a director of Real Good Food Plc, has significant influence. Together with the principal amount of £2,774k the Group also repaid accrued interest of 10% for 2014/15 of £277k, interest for the period of £43k and a redemption premium fee of £906k. 74 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201630. Related party transactions (continued) Transactions between the Company and its subsidiaries are as follows: Provision of services to related parties JF Renshaw Limited Haydens Bakery Limited R&W Scott Limited Garrett Ingredients Limited Amounts due to subsidiaries JF Renshaw Limited Rainbow Dust Colours Limited 31 March 2016 £’000s 555 350 120 50 1,075 31 March 2016 £’000s 51,240 4,576 31 March 2015 £’000s 1,150 350 — — 1,500 31 March 2015 £’000s restated 40,858 3,208 Renshaw Napier Limited is a related party because it is a 100% owned subsidiary of Napier Brown Foods Limited which is a 100% subsidiary of Real Good Food Plc. Purchases from related parties have been made at market prices; settlement of the debt is made under normal trading terms. Amounts due from subsidiaries Real Good Food Europe SA Haydens Bakery Limited Napier Brown Sugar Limited Napier Brown Foods Limited RGFC Dust Limited R&W Scott Limited Garrett Ingredients Limited 31 March 2016 £’000s 121 4489 — 45,801 5,055 1,503 152 31 March 2015 £’000s restated 838 357 1,527 41,800 281 — — 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 75 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 31. pensions arrangements The Group operates one defined benefits scheme which was closed to new members in 2000. From 1 April 2016 the Group annual contributions were agreed at £320k for 4 years 7 months. The Group is confident this will continue to meet the trustees’ needs and the pension regulator’s guidance. In preparation for the disposal of the sugar business it was decided to transfer the liability for this scheme out of JF Renshaw Limited into Real Good Food plc. For the purposes of IAS 19 the data provided for the 31 March 2012 actuarial valuation has been approximately updated to reflect liabilities on the accounting basis at 31 March 2016. This has resulted in a deficit in the scheme of £6,081,000. It is the policy of the Company to recognise all actuarial gains and losses in the year in which they occur in the Statement of Comprehensive Income. Present values of defined benefit obligations, fair value of assets and deficit Present value of defined benefit obligation Fair value of plan assets Deficit/(surplus) in plan Amount not recognised in accordance with IAS 19 Gross amount recognised Deferred tax at 19% (2014 – 20%) Net liability 31 March 2016 £’000s 21,094 (15,013) 6,081 — 6,081 (1,155) 4,926 31 March 2015 £’000s 21,799 (16,111) 5,688 — 5,688 (1,138) 4,550 31 March 2014 £’000s 19,033 (15,360) 3,673 — 3,673 (735) 2,938 31 March 2013 £’000s 19,153 (15,613) 3,540 — 3,540 (814) 2,726 31 December 2012 £’000s 17,085 (16,005) 1,080 — 1,080 (259) 821 76 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 2016Reconciliation of opening and closing balances of the present value of the defined benefit obligations Defined benefit obligation at start of period Interest cost Actuarial losses Benefits paid, death in service insurance premiums, expenses and past service costs Defined benefit obligation at end of period Reconciliation of opening and closing balances of the fair value of plan assets Fair value of scheme assets at start of the period Interest income on scheme assets Actuarial (losses)/gains Contributions paid by the Group Benefits paid, death in service insurance premiums and expenses Fair value of scheme assets at end of the period The actual return on the scheme assets over the period ended 31 March 2016 was £(575)k (2015 – £1,580k). 31 March 2016 £’000s 21,799 738 (638) (805) 21,094 12 months ended 31 March 2016 £’000s 16,111 547 (1,122) 282 (805) 15,013 31 March 2015 £’000s 19,033 857 3,122 (1,213) 21,799 12 months ended 31 March 2015 £’000s 15,360 695 885 457 (1,286) 16,111 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 77 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 31. pensions arrangements (continued) Total expense recognised in the Statement of Comprehensive Income within other finance income Interest on liabilities Interest on assets Net Interest Past service cost Total income Statement of recognised income and expenses Actuarial (losses)/gain Experience gains and losses arising on the scheme liabilities: loss Actuarial gains/(losses) arising from changes in demographic assumptions Actuarial gains/(losses) arising from changes in financial assumptions Total amount recognised in Statement of Other Comprehensive Income Assets UK equity Overseas equity Absolute return fund Bonds Gilts Property Cash Alternative assets Total assets 31 March 2016 £’000s 31 March 2015 £’000s 738 (547) 191 — 191 31 March 2016 £’000s (1,122) — (42) 680 (484) 857 (695) 162 73 235 31 March 2015 £’000s 885 — (11) (3,111) (2,237) 31 March 2016 £’000s 1,608 4,462 3,826 1,020 2,104 72 473 1,448 15,013 31 March 2015 £’000s 31 March 2014 £’000s 1,759 4,634 4,126 933 1,382 354 1,444 1,479 1,977 5,141 3,929 1,798 645 301 748 821 16,111 15,360 None of the fair values of the assets shown above include any of the Group’s own financial instruments or any property occupied by, or other assets used by, the Group. All assets stated above have a quoted market price in an active market. 78 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201631. pensions arrangements (continued) Assumptions Inflation Salary increases Rate of discount Allowance for pension in payment increases Allowance for revaluation of deferred pensions Allowance for commutation of pension for cash at retirement 31 March 2016 % per annum 2.80 — 3.65 2.70 1.80 90% of max allowance 31 March 2015 % per annum 2.90 — 3.45 2.80 1.90 90% of max allowance 31 March 2014 % per annum 3.30 — 4.65 3.20 2.20 75% of max allowance 31 March 2013 % per annum 3.20 — 4.70 3.10 1.90 75% of max allowance Assumption Discount rate Rate of inflation Rate of mortality Change in assumption Increase/decrease of 0.5% p.a. Increase/decrease of 0.5% p.a. 1 year increase in life expectancy Change in liability Decrease/increase by 7.0% Increase/decrease by 2.0% Increase by 4.0% The mortality assumptions adopted at 31 March 2016 imply the following life expectancies: Male retiring at age 65 in 2016 Female retiring at age 65 in 2016 Male retiring at age 65 in 2036 Female retiring at age 65 in 2036 21.9 years 23.9 years 23.2 years 25.4 years 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 79 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 31. pensions arrangements (continued) The long term expected rate of return on cash is determined by reference to UK long dated government bond yields at the balance sheet date. The long term expected return on bonds is determined by reference to UK long dated government and corporate bond yields at the balance sheet date. The long term expected rate of return on equities is based on the rate of return on bonds with an allowance for outperformance. Expected long term rates of return The expected long term rates of return applicable at the start of each period are as follows: Fair value of assets Defined benefit obligation Surplus/(deficit) in scheme Experience adjustment on scheme assets Experience adjustment on scheme liabilities 31 March 2016 £’000s 15,013 (21,094) (6,081) (1,122) — 31 March 2015 £’000s 16,111 (21,799) (5,688) 885 — 31 March 2014 £’000s 15,360 (19,033) (3,673) (382) — 31 March 2013 £’000s 15,613 (19,153) (3,540) 208 (1,923) 31 March 2012 £’000s 16,005 (17,085) (1,080) (984) (46) 32. Discontinued Business As disclosed in the year end March 2015 accounts the Group disposed of its Napier Brown Sugar business on 19 May 2015. This disposal was consistent with the Group’s strategy for the sugar business and allows it to focus on its remaining businesses. The result of the disposed business is shown below. Revenue Cost of Sales Gross Margin Distribution Administration Operating Loss 80 Year end 31 March 2016 £’000s 13,237 (11,884) 1,353 (1,149) (288) (84) Year end 31 March 2015 £’000s 128,288 (117,924) 10,364 (9,938) (4,697) (4,271) 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 201632. Discontinued operations (continued) Calculation of profit on disposal Disposal proceeds Assets disposed of Goodwill Property plant and equipment Net Working Capital Disposal Costs Legal and consultancy fees Other costs arising directly from the sale of the business Profit on disposal Assets held for sale Goodwill Property, plant and equipment Inventories Trade and other receivables Other financial assets Assets of Napier Brown business classified as held for sale Trade and other payables Borrowings Other financial liabilities Liabilities of Napier Brown business classified as held for sale Net assets of Napier Brown business held for sale Total £’000s 44,408 (30,917) (4,346) 9,145 (12,000) (8,211) (10,706) (2,024) (2,322) March 2016 £000’s March 2015 £ 000’s — — — — — — — — — — — 12,000 7,980 6,199 14,829 398 41,406 13,724 12,883 398 27,005 14,401 33. Acquisitions The Group acquired the trading and assets of a business called Chantilly Patisserie on 2 February 2016. This acquisition was transacted through Haydens Bakery Limited. Chantilly Patisserie employs around 40 employees and produces high quality, hand made frozen desserts, supplying the food sector market. The Real Good Food management believes that there are considerable synergies between Chantilly Patisserie and Haydens Bakery Limited and the acquisition is expected to bring mutual benefits to the two businesses, particularly in developing new products, producing production efficiencies and opening up new sales channels. 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 81 www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSnotes to the Financial Statements (continued) year ended 31 March 2016 33. Acquisitions (continued) Table of the assets and liabilities acquired and the purchase consideration Non-current assets Property, plant and equipment Business relationships Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Non current liabilities Deferred tax Total liabilities Fair value net assets of businesses acquired Initial cash consideration paid Deferred consideration due Total consideration Goodwill arising on current year acquisition Book Value £’000 Fair Value Adjustment £’000 108 — 132 411 2 653 217 — 217 436 — 405 — — — 405 — 77 77 328 Total £’000 108 405 132 411 2 1,058 217 77 294 764 1,650 100 1,750 986 Effect on 2016 Results The business of Chantilly Patisserie generated revenue of £408k and a profit of £60k for the 2 months to 31 March 2016 which has been included in the consolidated figures within the Premium Bakery sector, see note 5 Segment analysis for further information. Acquisition costs amounting to £306k have been shown as significant costs in the consolidated accounts of Real Good Food plc as disclosed in note 6 of the accounts. A review of the assets and liabilities of the acquired business has been undertaken and it was determined that the trade debtors were all collectable and no provision was required. It was determined that a value could be placed on intangible assets acquired as a result of the transaction, relating to business relationships that were in place. A value of £405k has been placed on these intangibles which are estimated to have a useful life of 2 years. Deferred tax of £77k has been recognised to impact on these accounts. Goodwill includes non identified, buyer specific synergies, know-how and workforce related industry specific knowledge. Increase in Group revenue of £2.5 million and additional profit of £0.5 million would have been reflected in these accounts if the acquisition had occurred at the start of this financial year. 34. Subsequent events After the balance sheet date the courts approved the Capital restructuring proposal which will have the effect of cancelling the share premium account and releasing the total value into distributable reserves. The effect of the capital restructuring will be reflected in the financial statements for the year ended 31 March 2017. The Board intend to review and implement a Group dividend policy as a result of this decision. 82 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 OUR FINANCIALSAnnual Report and Accounts for the year ended 31 March 2016Advisers and company information Directors P W Totté D P Newman P G Ridgwell P C Salter C O Thomas J M d’Unienville company Secretary D P Newman Registered office International House 1 St Katharine’s Way London E1W 1XB Registered number 4666282 Auditor Crowe Clark Whitehill LLP 10 Palace Avenue Maidstone, Kent ME15 6NF Solicitors Joelson Wilson & Co. 30 Portland Place London W1B 1LZ Bankers Lloyds Bank plc 5 St Paul’s Square Old Hall Street Liverpool L3 9SJ www.realgoodfoodplc.com Stock Code: RGD 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 International House, 1 St Katharine’s Way, London E1W 1XB T 020 3056 1516 enquiries@realgoodfoodplc.com www.realgoodfoodplc.com R e a l G o o d F o o d p l c A n n u a l R e p o r t a n d A c c o u n t s F o r t h e y e a r e n d e d 3 1 M a r c h 2 0 1 6 S t o c k c o d e : R G D 24831-02 - RGF AR 2016 2 August 2016 5:57 PM Proof 12 y o n E j e r i p s n I e t a e r C 

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