Reunion Gold Corporation Annual Report 2017

Plain-text annual report

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 7 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 2017 25455-04 29 September 2017 11:10 AM Proof 8 Welcome Real Good Food plc Real Good Food operates in three pillar markets: Cake Decoration, Food Ingredients and Premium Bakery. Renshaw, Renshaw Europe, Renshaw Americas, Rainbow Dust Colours R&W Scott, Garrett Ingredients, Brighter Foods Haydens, Chantilly Patisserie Investor Proposition ✪ Diversified business markets: cake decoration, food ingredients, premium bakery ✪ Diversified sales channels: retail, manufacturing, wholesale, foodservice and export ✪ Market-led growth strategies identified for each division ✪ Investments completed in the major growth opportunities ✪ Following re-capitalisation, new focus on cash generation and value creation Contents Welcome STRATEGIC REPORT Overview Group at a Glance Statement from the Board Marketplace Review Strategy Divisional Business Reviews Cake Decoration Food Ingredients Premium Bakery Corporate Social Responsibility Finance Review Key Performance Indicators 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 7 8 10 12 14 16 19 20 21 22 25 26 Consolidated Statement of Comprehensive Income 27 Navigating the Report For further information within this document and relevant page numbers Additional information online Consolidated Statement of Changes in Equity Company Statement of Changes in Equity Consolidated Statement of Financial Position www.realgoodfoodplc.com Company Statement of Financial Position Consolidated Cash Flow Statement Company Cash Flow Statement Notes to the Financial Statements Advisers and Company Information 28 29 30 31 32 33 34 IBC 25455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017GROUP REVENUE GROSS PROFIT GROUP EBITDA* £108.2m £26.4m £1.2m GROUP OPERATING (LOSS)/PROFIT £(5.8)m 2016 £100.4m 2016 £26.7m 2016 £5.0m 2016 £2.1m Overview Financial Highlights { Revenue increased by 8% from £100.4m to £108.2m { Gross profit reduced by 1% from £26.7m to £26.4m { EBITDA reduced from £5.0m to £1.2m leading to an operating loss of £(5.8)m (2016: £2.1m) — Delay in passing on raw material price inflation post-Brexit vote — Significant sugar trading dispute unresolved during the financial year — Increases in overheads and costs as part of growth plan — Poor control of central costs — Impairment of assets and goodwill { Net debt at 31 March 2017 was £16.2m (2016: £5.0m) Operational Highlights and post period end events { Strategic decision taken to invest in increasing capacity at main Cake Decoration and Premium Bakery sites { Re-financing undertaken post-year end to fund growth plan { Significant Board changes { Review of financial processes and procedures and corporate governance being undertaken { Focus on cash generation { New banking covenants agreed Read more in the Finance Review on pages 16 to 19 *Represents adjusted EBITDA see note 5 for reconciliation 2016 represents continuing operations 1 STRATEGIC REPORTSTRATEGIC REPORT25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDGroup 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. Head Office The Group functions of Finance, HR, Information Services, Technical, Marketing and the Innovation Centre provide support to all the businesses on specific strategic projects as well as promoting best practice. Examples include management leadership training, support for BRC and FDA audits, product and brand development for major launches such as the new Renshaw Simply Create brand as well as ongoing promotion of best practice in health and safety and environmental management. The Group functions enable each of Real Good Food’s individual businesses to operate to the highest standards within the food industry. REVENUE £47.0m EBITDA* £6.5m OPERATING PROFIT £5.5m EMPLOYEES 358 REVENUE £27.3m EBITDA* £(1.6)m OPERATING (LOSS) £(5.8)m EMPLOYEES 121 REVENUE £33.9m EBITDA* £1.2m OPERATING PROFIT £0.1m EMPLOYEES 520 Read more on page 8 Read more on page 10 Read more on page 12 HEAD OFFICE & CONSOLIDATION EBITDA* £(4.9)m OPERATING (LOSS) £(5.6)m EMPLOYEES 46 *Represents adjusted EBITDA see note 5 for reconciliation 2 EMPLOYEES 121 25455-04 - 26-09-2017 - Proof 8STRATEGIC REPORTAnnual Report and Accounts for the year ended 31 March 2017Renshaw manufactures sugarpaste, marzipan, soft icings, mallows and caramels and sells across a broad range of sales MM 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 310 employees Rainbow Dust Colours: Preston 32 employees Renshaw Europe: Brussels 10 employees Renshaw Americas: 6 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. Brighter Foods (acquired in April 2017) manufactures snack bars, both branded and own label, targeted at areas such as diet control, gluten free, lactose free, low or no added sugar, sports nutrition, organic and fair trade. Garrett Ingredients: Thornbury, near Bristol and Swindon 25 employees R&W Scott: Carluke, near Glasgow 96 employees Brighter Foods: 179 employees Haydens bakes premium tarts, pies and crumbles, Danish pastries, 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 483 employees Chantilly: Paignton, Devon 37 employees 3 STRATEGIC REPORTSTRATEGIC REPORT25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDStatement from the Board 2016/17 Performance Real Good Food has recently experienced a period of substantial management change at the executive leadership and Board level as well as challenging trading conditions. These management changes have principally been instigated following the recognition that the financial performance of the business during the reported period was substantially below the level that might reasonably have been anticipated. Poor corporate governance and controls were also identified and are being addressed. While sales grew from £100.4 million in 2015/16 to £108.2 million in 2016/17, EBITDA dropped from £5.0 million in 2015/16 to £1.2m in 2016/17 leading to an operating loss of £(5.8) million. There were three main reasons for this. First, there was the adverse effect of the exchange rate on key commodity prices following the Brexit vote and a lag in implementing price increases to restore margins. Secondly, there was poor financial control of central costs. Finally, a significant trading dispute regarding the non-supply of contracted sugar to Garrett Ingredients, remained unexpectedly unresolved by the year end. The Board recognised these failings and as a result has taken the following actions. Re-capitalisation Shortly after the year end, the acquisition of Brighter Foods took place. The Board sees this as a very strong addition to the Group’s portfolio (details are given on Page 11). Following this acquisition, it became clear that the business was seriously under-funded and was not in a position to pursue its growth plan, particularly at Renshaw and Haydens. In June, a major re-capitalisation was effected by raising £4.0 million of loans from two existing shareholders and £10.0 million of loan notes and equity from a new shareholder. There is a peak in capital investment during the year 2017/18 and so in July 2017 a further £2.0 million was invested by the two existing major shareholders to secure an overdraft facility with Lloyds Bank plc and a further £4.0 million has been raised by all three major shareholders in September 2017 to ensure that sufficient working capital is now available to enable the Company to execute its strategy. Right: Renshaw Simply Create. 4 Create Inspire Enjoy 25455-04 - 26-09-2017 - Proof 8STRATEGIC REPORTAnnual Report and Accounts for the year ended 31 March 2017Left: Haydens iced twisted yum yums. The major shareholders have also stated that, while this is not anticipated, they are prepared to support as required any short term working capital shortfall. In September, following the conclusion of these cash injections, new agreements on covenants were concluded with Lloyds Bank which has confirmed its continued support for the business for at least 12 months. Board changes On 1st August Peter Salter (Non- Executive Director) resigned and Pieter Totté (Executive Chairman) and Dave Newman (Finance Director and Company Secretary) resigned on 7th August. The Board has been significantly strengthened by the appointment of three new Directors. Judith MacKenzie (non independent Non-Executive Director) was appointed on 29th June and Hugh Cawley (independent Non-Executive Director) joined on 7th August. Harveen Rai, was appointed as Finance Director and Company Secretary on 14th August and on 8th August, Christopher Thomas was appointed as Executive Director (from Non-Executive) and Pat Ridgwell assumed the post of Interim Non-Executive Chairman (from Deputy Chairman). These changes were made to improve the independence and corporate governance structure of the Board and to further strengthen the strategic and turnaround expertise for the Group. The Board intends to undertake a full independent review of the Group’s financial processes and procedures, corporate governance and controls in light of the previous failings. Operating performance and outlook Following this challenging period, the operating businesses are now focused on cash generation and on achieving short term targets with the aim of creating strategic value for all shareholders in the longer term. Despite these unsettling times the Board is confident that the underlying position of each business is fundamentally sound. Sales growth performance is strong–in the first 22 weeks of the FY 2018, like-for-like revenue is up 10% year-on-year in both Cake Decoration and Premium Bakery and up 28% in Food Ingredients though this latter sector is partly impacted by increased commodity prices–but it is recognised that this must be converted into operating profit and operating cash flow at the Group level. Real Good Vision Export Americas, Europe and Australasia Foodservice New tailored range for out of home Brand Renshaw Simply Create to target the novice user Frostings and Icing Discs Export and novice opportunity For the remainder of the 2017/2018 year, prior to the critical Christmas trading period, sales prospects continue to remain positive. The re-capitalisation and cash injections have enabled the investment programmes (£11 million at Haydens on freezing capability and a new Yum Yum line and £8 million at Renshaw on new automated icing discs and soft icing production lines) to proceed. The delays have, however deferred the delivery of benefits which are now anticipated to be fully realised in FY 2019. Summary The Board remains confident in the future prospects for the Company. With new leadership, a commitment to improve the Group’s financial controls and corporate governance, the Board believes the business is now well positioned to capitalise on the investment being made to improve profitability and cashflow over the coming years for the benefit of all shareholders. 5 STRATEGIC REPORTSTRATEGIC REPORT25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDMarketplace Review As a diversified food business, Real Good Food operates in a wide number of food market sectors and sales channels. With a market-led philosophy, the business carefully monitors trends which shape business plans. A summary of major trends in each division is shown below. Nine out of ten households in the UK bake at home at some time. The growing interest in home-baking has been fuelled by the likes of the Great British Bake-Off which was the most watched television programme in 2016 with 14 million viewers. In the last 12 months the £135 million retail cake decoration market has flattened off with the only area in any growth being frostings (soft icings) which grew by 3% value in 2016. (Kantar 12 months 2016) While the market has benefited from positive attitudes towards home-baking, there has been relatively little branded support and innovation helping consumers become more proficient. Renshaw’s planned launch of a new retail brand ‘Simply Create’ is designed to fulfil this opportunity. Internationally, the market for icings is predicted to show a compound growth rate of over 4% over the next five years with America and Europe accounting for over 80% of the market. (QYR Food Research Centre) This division encompasses a wide range of markets such as sugar, dairy, jams, sauces, coatings and health and nutrition. Consumer concerns about sugar are well documented and manufacturers are reacting accordingly by looking for added value alternatives. Significantly, consumers who are most concerned about their sugar consumption spend £5 per week more on groceries underlining the added value opportunity. Both RGF’s acquisitions in this division, Garrett Ingredients Nutrition and Brighter Foods, have targeted the growing ‘health’ sector. Health is now cited as a reason for food choice on 40% of food occasions in home. ‘Free from’ products are now bought annually by as many as 80% of households with markets such as ‘Free From Cereal Bars’ growing at 35% year on year. The overall market for groceries bought specifically for health reasons is now worth in excess of £20 billion and is growing at four times the rate of the total market. (Kantar) The total market for sweet cakes and pastries is £2.7 billion and is growing at 2%. Haydens operates in seven premium categories within this, all of which recorded positive value growth in 2016 such as tarts (+4%), sweet buns (+3%), croissants (+5%) and Danish pastries (+6%). (Kantar) Haydens’ strategy is also to expand in foodservice (the Chantilly Patisseries business is totally focused in this sector) where consumer trends point to further growth. 93% of consumers now eat out of home every week in a total market worth £87 billion and growing at 2.3% in 2016. Two specific relevant sectors are coffee shops for Haydens and branded food pubs for Chantilly. Turnover in coffee shops grew 12% in 2016 and reached £8.9 billion – a third of consumers now visit a coffee shop at least four times a week and 20% daily. (Allegra 2016) Meanwhile the number of branded food pubs has grown by nearly 50% over the past five years. (CGA Peach 2016) 6 25455-04 - 26-09-2017 - Proof 8STRATEGIC REPORTAnnual Report and Accounts for the year ended 31 March 2017Strategy Group strategy remains to build long term sustainable businesses in each of the three pillar markets of Cake Decoration, Food Ingredients and Premium Bakery. GROWTH DRIVERS Brighter Foods health bars (acquired April 2017) Premium sauces and coatings Bespoke soft fillings GROWTH DRIVERS Yum Yums Broader retail customer base Develop foodservice GROWTH DRIVERS Export Americas, Europe and Australasia Brand Renshaw Simply Create to target the novice user Frostings and Icing Discs Export and novice opportunity While acquisitions (e.g. Rainbow Dust in January 2015 and Brighter Foods in April 2017) have played an important role in expanding the existing businesses, the focus going forward will be on investment in the existing businesses. These investments will target both growth and efficiency. INVESTMENT Site reconfiguration to improve in-line processing Automation of disc and plaque production New premium quality hot process frostings Reduction in outside warehousing INVESTMENT Brighter Foods capacity Preserves production and retail jar facility INVESTMENT Freezing capability for quality, efficiency and flexibility Yum Yum capacity and in-line processing Site reconfiguration to release space for capacity growth Read Our Strategy in Action on page 9 Read Our Strategy in Action on page 11 Read Our Strategy in Action on page 13 7 STRATEGIC REPORTSTRATEGIC REPORT25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDDivisional Business Review 2016/17 Performance After a disappointing first half, sales saw good growth in the second half of the year. Volumes of sugarpaste and caramels grew though marzipan sales fell slightly. Sales for export grew with increasing demand in the US and the launch of Renshaw ‘Extra’ in Europe. Rainbow Dust faced increased competition but still managed to grow sales by 13% with the Progel colours range performing particularly strongly. Overall divisional EBITDA was down on the previous year by £0.9 million as a result of increased overheads at Rainbow Dust and in Europe as well as set up costs and people investment in the new Americas operation. REVENUE £47.0m EBITDA* £6.5m OPERATING PROFIT £5.5m Forward plans Product plans at Renshaw include a drive on discs and plaques from the new automated line while frostings and the Simply Create ranges will begin sale in the final quarter. Significant new business is anticipated internationally with the developing American market and the launch of the brand into Australia. The Rainbow Dust range will be relaunched during the year with a refreshed logo, new designs and internationally compliant packaging. 12 MONTHS TO MARCH Revenue EBITDA* Operating profit Operating profit % 2016/2017 £m 2015/2016 £m 47.0 6.5 5.5 11.7% 48.3 7.3 6.5 13.5% The investment plan at the Renshaw Crown street site has begun with the installation of new sugar milling capacity, the new, automated discs and plaques line and the hot process frostings for the Simply Create brand. At Rainbow Dust, the site is being upgraded to BRC standard which will open up sales opportunities within the manufacturing sector. 8 MM *Represents adjusted EBITDA see note 5 for reconciliation 25455-04 - 26-09-2017 - Proof 8STRATEGIC REPORTAnnual Report and Accounts for the year ended 31 March 2017Strategy in Action A real opportunity for Renshaw to launch a new brand and teach novice consumers cake decorating skills Renshaw’s products are held in high esteem by professional cake decorators. With the growing interest in cake decorating by more novice consumers, the opportunity has been identified for the launch of a Renshaw brand targeted at less proficient consumers with products designed to help them create impressively decorated cakes. This is seen as a major source of market growth. Extensive consumer research was undertaken and the new brand, Renshaw Simply Create, will be introduced into mainstream retailers in 2018. The initial range will include high quality frostings in a unique tub, easy-to-use, tasty icings in a carton and pourable icings. All the products are new to the market and will help less confident consumers create professional looking results. The brand will be supported by a television campaign as well as PR and digital campaigns. Read about Our Strategy on page 7 Pictured: Simply Create range of frostings, ready to roll icing and pour over icing. 9 STRATEGIC REPORTSTRATEGIC REPORT25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDDivisional Business Review R&W Scott started supply of a major jam contract in September while last year’s investment will deliver operational savings. R&W Scott has also worked on a number of inter-company supply contracts, particularly to Haydens, which will bring margin in-house. 2016/17 Performance Sales revenues grew by over 20% but this was largely a result of recovering commodity prices in sugar and dairy. R&W Scott increased its sales by just over 5% while Garrett’s pursued a strategy of retaining customer volume despite poor margins. Both businesses suffered gross margin reverses with Garrett Ingredients particularly suffering around the sharp and unexpected currency movements after the Brexit vote leading to increased commodity costs. A dispute regarding the supply of sugar constrained Garrett’s trading position and remained unresolved at the year end. As a result the division traded at an operating loss. An annual impairment review was conducted in accordance with IAS38 ‘Intangible assets’ and IAS36 ‘Impairment of assets’ and this resulted in an impairment of goodwill and fixed assets of £3.6 million. REVENUE £27.3m EBITDA* £(1.6)m OPERATING LOSS £(5.8)m Forward plans The acquisition of Brighter Foods transformed the scale and profitability of this division and met the objective of expanding our presence in the added value health sector. New supplier relationships following the trading dispute should enable margin recovery in sugar from October 2017, while dairy trading should also present opportunities during the second half of the year providing currency trends stabilise. 12 MONTHS TO MARCH Revenue EBITDA* (loss) Operating (loss) Operating (loss) % 2016/2017 £m 27.3 (1.6) (5.8) (21.2)% 2015/2016 £m 22.7 (0.1) (0.4) (2.0)% 10 *Represents adjusted EBITDA see note 5 for reconciliation 25455-04 - 26-09-2017 - Proof 8STRATEGIC REPORTAnnual Report and Accounts for the year ended 31 March 2017Strategy in Action The acquisition of an 84.3% share in Brighter Foods has given Real Good Food a strong platform in the growing health market. Brighter Foods which was acquired in April 2017 creates and manufactures snack bars for the healthy snacking market from its factories in Tywyn, Gwynedd in Mid Wales, where it is a major local employer with some 179 full- time staff. The award-winning company produces snacks which are targeted at areas such as diet control, gluten free, lactose free, low or no added sugar, sports nutrition, organic and fair trade. Brighter Foods manufactures both partner branded products and has its own healthier brands such as Wild Trail which is stocked in major retailers and health stores. Read about Our Strategy on page 7 Pictured: Brighter Foods snack bars and its manufacturing 11 STRATEGIC REPORTSTRATEGIC REPORT25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDDivisional Business Review 2016/17 Performance Divisional sales grew 15% YOY (partly a result of the Chantilly acquisition) though Haydens like for like sales were over 7% higher. Most of the growth came from established customers such as Waitrose and Marks and Spencer. Performance at Chantilly was frustrated by capacity constraints with a delay in the proposed move to a new site nearby. At Haydens a strengthened management team was in place for the final quarter. EBITDA increased by £0.4 million despite a delay in price recovery on raw materials (butter, Haydens’ biggest raw material by value doubled in price between July and October 2016) so the strong Christmas trading period saw lower margins. REVENUE £33.9m EBITDA* £1.2m OPERATING PROFIT £0.1m Forward plans The factory investment plan at Devizes will transform the operation with significant added Yum Yum capacity and freezing capability which will reduce costs and increase flexibility. A number of new products are planned with the first stage of additional capacity coming on stream in September and the second from January 2018. There is increasing interest in Haydens’ product capabilities from a number of new retailers. The Haydens Distribution operation is expected to continue to perform well with Waitrose and growth in third party sales. Following the delay in moving the Chantilly operation, a review of options will be undertaken during the autumn of 2017. 12 MONTHS TO MARCH Revenue EBITDA* Operating profit Operating profit % 2016/2017 £m 2015/2016 £m 33.9 1.2 0.1 0.3% 29.4 0.7 (0.1) (0.5)% 12 *Represents adjusted EBITDA see note 5 for reconciliation 25455-04 - 26-09-2017 - Proof 8STRATEGIC REPORTAnnual Report and Accounts for the year ended 31 March 2017Strategy in Action Haydens will have the largest and most efficient yum yum plant in the world. Haydens is one of only two main manufacturers in what is a relatively small market (estimated £13 million) within the overall indulgent sweet treat category. However, part of this results from the restricted availability in major retailers and this represents a significant opportunity. Haydens’ product has a reputation for quality and a development programme combined with significant investment in more automated production will see sales grow next year. The new line will be able to produce a range of sizes from standard to mini, different shapes including twists, as well as having filling and glazing capability. Yum Yums are set to become the indulgent treat of choice. Read about Our Strategy on page 7 Pictured: Haydens’ new yum yum manufacturing 13 STRATEGIC REPORTSTRATEGIC REPORT25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDCorporate Social Responsibility Real Good Food plc is committed to ensure that Corporate Social Responsibility is part of daily business practice. Corporate Social Responsibility is integral to the mission of building long term sustainable businesses in our three pillar markets. Each business now has a Corporate Social Responsibility Plan that has been built around the Group’s Responsible Business Framework and is actively engaged in its fulfilment. The Responsible Business Framework that was in put in place last year has three key objectives: { To be the employer of choice { To be proactively involved within our communities and build a strong reputation for social responsibility { To continue to strengthen our reputation for respect, integrity and innovation with our customers, suppliers, employees and partners. 14 The following are three examples which illustrate the type of activity that our businesses are engaged in against each of those three objectives. 1) Greater employee involvement For each business, to be the ‘Employer of Choice’ and the emphasis is on training our people and ensuring health and safety as well as rewarding and celebrating success. Renshaw has given particular emphasis to Health and Safety training, giving employees recognised qualifications and increased participation in commitment to procedure. 115 people completed L2 Food Safety, 113 people completed L2 Health & Safety in the Workplace and 114 people went through a site re-induction and Allergen Awareness Training. A full programme of Health and Safety Legislative training has been completed including DSEAR, Asbestos Awareness, Legionella, PUWER and IOSH Managing Safely for the managers on site. Renshaw also managed to secure funding for its courses from Skills for Growth, an organisation which supports SMEs in the Liverpool area to co-invest in improving the skills and productivity of a workforce to enable growth. 2016 saw all of the warehouse employees and some engineers complete their refresher fork lift truck training and they are now registered with the professional qualification RTITB/NORS. A key successful innovation in 2016 has been working with site operators on the new marzipan disc line to write their own Safe Operating Procedures against the introduction of a new format which includes more detailed training. This has been a great success, and the operators have enjoyed being involved in creating them. Pictured: Renshaw marzipan operatives. Renshaw fork lift training. Carluke charity bike ride. Carluke on the run 10k Run. 25455-04 - 26-09-2017 - Proof 8STRATEGIC REPORTAnnual Report and Accounts for the year ended 31 March 20172) Continued involvement in community participation All Real Good Food businesses have good positive links with the community. R&W Scott has a long heritage of active support of community projects and are particularly committed to engaging with the local community. Last year they worked with a number of charities including the Carluke Development Trust, Carluke Bid, the Beatson (a local cancer charity and hospital facility), Macmillan Cancer Support and Alzheimer’s Scotland. Various events were held by staff such as the 10k ‘Carluke on the Run’, and a 10-hour charity bike ride. They also continue to develop links with local nurseries and schools; a number of managers and members of the senior team gave up their time to advise on career opportunities within the food industry as well as support Career Skills Week at the local high school, giving interview advice to S5 and S6 year pupils. The financial year 2017/18 will see R&W Scott further develop these relationships, not only through donations and fundraising events, but also in volunteering opportunities. Staff are encouraged to come forward with events and ideas to be more involved in the local community and they aim to hold at least one event per quarter next year. Pictured: Codford Biogas Codford Biogas which can handle all types of food waste, packaged or not. Through a process called Anaerobic Digestion, it utilises the waste as a raw material to create methane, which in turn is used to generate electricity that is 100% renewable and exported to the National Grid. The plant generates 3.7 megawatts of power, which is sufficient to supply up to 4,000 homes or 10,000 people. This environmentally friendly solution has helped Haydens with efficiency, reduced disposal costs and significantly reduced transport costs. 3) New initiatives for environmental performance All of the Group businesses focus on building their relationships with customers and suppliers and are committed to ensure that Group operations are managed to be both ethically and environmentally responsible. An environmental initiative of note is the work that Haydens has completed with new food waste partner Codford Biogas. Historically, Haydens had this food waste collected and transported to the Midlands for pig feed. Some waste had to be separated from its packaging by hand which was inefficient in terms of yield and labour. To address this issue, Haydens now uses the industrial processor of a food waste plant at Health and Safety Safety performance has remained relatively consistent across the Group with records being set at all of the major sites. Renshaw went 180 consecutive days without a reportable injury, while R&W Scott went 330 days and Haydens, at time of writing, are at 550 days and counting. These are significant milestones and the result of much pro- active work across the businesses. In November 2016 the Group created a new role of Group Head of Health, Safety and Environment. This role will work with all of the operating sites in helping smaller businesses ensure legal compliance and continuous improvement. Common priorities for 2017/18 include: ✪ Training and competence: a fundamental for performance and defence of Employers’ Liability claims. ✪ Managing the safety associated with the major capital expansions at Haydens and Renshaw. ✪ Environmental management in terms of legal compliance, Corporate Social Responsibility and utilities cost. ✪ Ensuring adequate risk management. Protecting our staff and our business from the consequences of accidents and ill health at all of our operating sites. 15 STRATEGIC REPORTSTRATEGIC REPORT25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDFinance Review Overview During the audit process for these full year accounts for the year ended 31 March 2017, a number of issues were identified, which ultimately resulted in a significant profit downgrade for the Company. As a result, the finance team has been working together with the Board of Directors, the Company’s auditor, financial adviser and external consultants in a comprehensive review of the Company’s financial position. Revenue Group revenue for the 12 months ending 31 March 2017 was £108.2 million (2016: £100.4 million) which is an increase of 8% on the revenue to 31 March 2016. This is the result of growth in the Food Ingredients business of £4.6 million, and in Premium Bakery of £4.5 million offset by Cake Decoration which traded behind prior year by £1.3 million. The increase of revenue in Premium Bakery included a full year effect of the acquisition of Chantilly which amounted to £2.1 million in the year. Results of continuing operations Revenue Gross Profit Delivered Margin EBITDA (adjusted) Operating Loss/Profit Operating Loss/Profit % Loss/Profit before tax* 31 March 2017 £’000s 108,208 26,351 21,383 1,179 (5,819) (5.4)% (6,462) 31 March 2016 £’000s 100,439 26,670 21,303 5,043 2,137 2.1% 4,735 *The 2016 Profit before tax of £12,890k is made up of Continuing Operations of £4,735k and Discontinued Operations of £8,155k 16 Above: Brighter Foods Wild Trail snack bars. 25455-04 - 26-09-2017 - Proof 8STRATEGIC REPORTAnnual Report and Accounts for the year ended 31 March 2017 Left: Haydens’ iced twisted yum yums Profit measure on operations Gross profit on the continuing businesses for the overall Group was broadly flat at £26.4 million (2016: £26.7 million). At 19.8% of revenue gross margin was lower than the 21% reported in 2016. This reduction in margin has reflected higher than anticipated commodity ingredient costs, in part due to an underestimation of the impact of currency volatility post- Brexit, compounded in some cases by a later than expected price recovery from customers following the increase in raw material costs. The operating loss for the 12 months to 31 March 2017 was £(5.8) million, down significantly from a profit of £2.1 million in 2016. The operating loss in the year of £(5.8) million is reported after the impairment charge of £4.1 million, depreciation charge of £2.4 million, amortisation of £0.4 million and significant items of £0.1 million. An annual impairment review has been conducted and this resulted in an impairment of goodwill of £1.6 million (see note 15) and an impairment of fixed assets of £2.5 million (see note 17) This has resulted in a statutory loss before tax of £6.5 million (2016: profit of £12.9 million) giving a basic loss per share of 8.50p in 2017 against an EPS of 18.36p in the prior year (see note 14). Right: Simply Create ganache 17 STRATEGIC REPORTSTRATEGIC REPORT25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDFinance Review (continued) Cash flow and net debt Given the factors described above, insufficient cash was generated to fund the Company’s strategic investment programme and further borrowings were secured. Investment in tangible and intangible assets in the year amounted to £11.5 million which led to the Company’s increasing net debt by £11.2 million (2016: £5.1 million) to £16.2 million as at 31 March 2017. This led to a worsened ratio of net debt to EBITDA from 1.0 in 2016 to 13.7 in 2017. Working Capital (inventories, trade and other receivables, trade and other payables) Net Borrowings (incl cash) Net Debt/EBITDA 31 March 2017 £’000s 14,096 16,231 13.7 31 March 2016 £’000s 16,156 5,066 1.0 Capital cancellation and dividend Following the capital cancellation of the parent company share premium account and following the Company statement at the AGM, the Directors paid an interim dividend in the year of 0.04p in January 2017 (2016 – £Nil). The Directors are not intending to recommend payment of a final dividend in respect of the 12 months ended 31 March 2017 (2016 – £Nil). Re-financing Following the year end, the Company undertook a major re-capitalisation exercise by raising loans from existing shareholders and loan notes and equity from a new shareholder. Together with existing loan facilities the Company’s cash position has now been stabilised and this combination of sources has injected a total of £20.0 million of funds into the 2017/18 FY (see notes 22 and 33). The Board is now confident that sufficient working capital is available to enable the Company to complete its investment programme and execute its growth strategy. Outlook A key focus for the year is to ensure that, with stronger financial controls and improved corporate governance, the management team supports the planned growth of the businesses, to increase shareholder value and returns. 18 Above: Brighter Foods Wild Trail snack bars. 25455-04 - 26-09-2017 - Proof 8STRATEGIC REPORTAnnual Report and Accounts for the year ended 31 March 2017Key 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. The key performance indicators, all based on continuing operations, are set out below. The Board intends to review these Key Performance Indicators in the coming year with a greater emphasis on targets for free cash flow generation. REVENUE GROWTH Revenue is calculated for continuing business 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. DEBT COVER Debt cover is calculated by dividing total Net Debt by continuing EBITDA. HEALTH & SAFETY SCORE Health & Safety score represents an average score across the sites and is measured against internal standards generated by an external consultant. Figures are quoted for calendar years. COMMENT Revenue in the year has increased by 8% driven by Premium Bakery and Food Ingredients £108.2m £110.2m £104.6m £100.4m 2017 2016 2015 2014 £5.0m £5.3m £4.9m 2016 2015 2014 EBITDA of £1.2 million reflecting both difficult market conditions, including commodity price increases due to currency volatility, and increased overhead costs £30.1m £31.1m Net debt in the year has increased to £16.2 million to fund the Group’s investment strategies £5.1m 2016 2015 2014 £1.2m 2017 £16.2m 2017 13.7 1.0 2016 2017 5.6 6.3 2015 2014 88% 90% 82% 88% 2017 2016 2015 2014 As a result of increased net debt the current net debt/EBITDA cover stands at 13.7 For 2018 the Group will change to an industry HSE standard measurement of Accident Frequency Rate to give a more comparable measurement with other industries 19 STRATEGIC REPORTSTRATEGIC REPORT25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDBoard of Directors Patrick Ridgwell Executive Interim Chairman Assumed role of Interim Chairman 8 August 2017 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 Limited. Christopher Thomas Executive Director Assumed role of Executive Director 8 August 2017 Chris qualified as a chartered accountant in 1969. In 1973 he joined Breakmate, a vending business, which was admitted to the 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. Harveen Rai Finance Director and Company Secretary (appointed 7 August 2017) Harveen has 20 years of experience, predominately in fast-moving consumer goods listed companies. She was previously Chief Financial Officer at Arzyta UK Holdings Limited (“Arzyta”), where she was involved in implementing and streamlining the processes and controls of the company. During her time at Arzyta, Harveen was also involved in developing and strengthening the regional finance teams to grow in line with the needs of the business. Prior to her time at Arzyta, Harveen spent over ten years working at LSG Sky Chefs, a global airline catering company which is owned by Lufthansa. Harveen is a member of the Chartered Institute of Management Accountants. 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. Pieter Totté Executive Chairman (resigned 7 August 2017) David Newman Finance Director and Company Secretary (resigned 7 August 2017) Peter Salter Non-Executive Director (resigned 7 August 2017) *Resignation and appointment dates as registered at Companies House Judith Mackenzie Non-Executive Director (appointed 21 July 2017) Hugh CL Cawley Non-Executive Director (appointed 7 August 2017) Judith joined Downing LLP in October 2009 and is Partner and Head of Public Equity. Previously she was a partner at Acuity Capital, a buy-out from Electra Private Equity, where Judith managed small company assets. Prior to Acuity, she spent seven years with Aberdeen Asset Management Growth Capital as co-Fund Manager of the five Aberdeen VCTs, focusing on technology and media investments in both the public and private arenas. Judith has held a number of public and private directorships. Hugh has extensive public company experience with a particular focus on helping businesses facing a major strategic challenge or undergoing significant corporate change. After working for Procter & Gamble and ICI plc in the early part of his career, his more recent public company executive roles have included spells with S Daniels PLC, Dawson Holdings PLC, office2office plc and, most recently, Driver Group plc. Hugh is also a founding member of the advisory board of the Confucius Institute for Business at the University of Leeds. 20 25455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR GOVERNANCE 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 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. Harveen Rai Finance Director and Company Secretary Harveen has 20 years of experience, predominately in fast moving consumer goods listed companies. She was previously Chief Financial Officer at Arzyta UK Holdings Ltd (“Arzyta”), Harveen is a member of the Chartered Institute of Management Accountants. 21 25455-04 - 26-09-2017 - Proof 8OUR GOVERNANCEwww.realgoodfoodplc.com Stock Code: RGDOUR GOVERNANCEReport of the Directors The Directors present their report and the audited financial statements for the 12-month period ended 31 March 2017 Corporate governance The Directors acknowledge the importance of the principles set out in the UK Corporate Governance Code 2012. The UK Corporate Governance Code 2012 is not compulsory for AIM quoted companies and has not been complied with. However, the Directors apply the principles as considered appropriate given the size and nature of the Company in accordance with the UK Corporate Governance Code 2012, and the more relevant QCA Corporate Governance Code for Small and Mid- Size Quoted Companies 2013. On 21 July the Board was strengthened by the appointment of Judith MacKenzie (non-independent Non-Executive Director) and on 7 August of Hugh Cawley (independent Non-Executive Director). On 7 August, Christopher Thomas was appointed as Executive Director (from Non-Executive) and Pat Ridgwell assumed the post of Interim Non-Executive Chairman (from Deputy Chairman). Harveen Rai was appointed as Finance Director on 7 August. On 7 August Peter Salter resigned as Non-Executive Director, Pieter Totte resigned as Executive Chairman of the Company and David Newman resigned as Finance Director. These changes were made to improve the independence and corporate governance structure of the Board. The Board is clear that the standards of Corporate Governance and reporting have historically been below those which investors might reasonably expect and is committed to rectifying this important aspect of operations and disclosure. The Board therefore intends to appoint external advisers to conduct a full review of the Company’s Corporate Governance and Financial Reporting procedures 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 Company 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 Directors have considered the Group’s business activities together with the factors likely to affect its future development and performance. These assumptions have been projected and shared with the Company’s bank and advisers. The Company has now successfully renegotiated new banking covenants and confirmed the support of the bank for the next 12 months. The principal shareholders of the Group have shown considerable support for the working capital requirements and, 22 25455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR GOVERNANCEhaving carefully considered the liquidity of the Company in line with future performance, the Directors believe that there are sufficient resources in place for the Group to meet its liabilities and that the Group is well placed to manage its business risks. The Directors believe the Group is a going concern and the financial statements have been prepared and submitted on that basis. 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, and { That each 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. Principal continuing activities The principal activities of the Group are the sourcing, manufacture and distribution of food to the retail and industrial sectors. Business review and future developments These topics are covered in detail within the Statement from the Board, Divisional Reviews and Finance Director’s Report on pages 4 – 24. Non-current assets Details of changes in non-current assets are given in notes 15, 16 and 17 to the financial statements. Directors Subsequent to the year end P Totté, P Salter and D P Newman resigned their positions as Directors of the Company and H Rai, J Mackenzie and H Cawley were appointed to the Board; details are given on page 20. 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 There were the following substantial interests (3% or more) in the Company’s ordinary share capital: 2 31 March 2017 31 March 2016 2,816,124 P W Totté* 2,816,124 P G Ridgwell** 22,502,354 22,502,354 181,000 P C Salter 290,363 C O Thomas 24,225 D P Newman — J d’Unienville 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 891,124 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 11 to the financial statements. 31 March 2017 Napier Brown Ingredients Limited Omnicane International Investors Limited 28 September 2017 Napier Brown Ingredients Limited Omnicane International Investors Limited Downing LLP % Holding in Ordinary Share Capital 31.9% 29.7% % Holding in Ordinary Share Capital 28.2% 26.3% 10.0% Directors’ indemnities The Company has paid £9,450 (2016 – £9,987) in respect of Directors’ and Officers’ Indemnity Insurance. 23 25455-04 - 26-09-2017 - Proof 8OUR GOVERNANCEwww.realgoodfoodplc.com Stock Code: RGDOUR GOVERNANCE Report of the Directors (continued) Financial instruments The Group’s financial instruments comprise bank term loans and a revolving credit facility, 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 to its commodity purchases which is offset in part by foreign currency sales. 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 24 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 Executive 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 £3,689 (2016 – £5,568). No political donations were made during the current or previous financial period. Research and development During the period the Group incurred costs 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. Of these costs £291k (2016 – £nil) has been capitalised as an intangible asset in line with the Group’s accounting policy and IAS 38. This report was approved by the Board on 28th September 2017 and is signed on its behalf by C O Thomas Executive Director H Rai Finance Director 24 25455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR GOVERNANCEAudit Committee Report and Remuneration Committee Report Audit Committee Report Between April 2016 and August 2017, the Audit Committee consisted of Peter Salter (Chairman) and Christopher Thomas. Following Peter Salter’s resignation on 1 August 2017, the Committee now comprises Hugh Cawley (Chairman) and Christopher Thomas. Whilst the Committee is scheduled to meet formally only twice a year with the auditors, in relation to the annual and interim accounts, the Chairman of the Committee also maintains a close dialogue with them throughout the year, to ensure they remain apprised of relevant events. Executive Directors are ordinarily present at Committee meetings by invitation only, with the Finance Director ordinarily attending. The Committee’s brief is to monitor the integrity of the audited financial statements of the Group, to consider and determine any significant financial judgements contained in them and to review all published financial statements on behalf of the Board. The Committee is also responsible for the independent monitoring of the systems of internal control, compliance, accounting policies, and keeping under review, including seeking written confirmation annually from them, the independence and objectivity of the external auditor (including a review of any non-audit services provided to the Group). In light of recent disclosures, a review of the effectiveness of the Corporate Governance and Financial Reporting procedures is to be undertaken, and the effective operation of the Committee will be encompassed within that review. Remuneration Committee Report Between April 2016 and August 2017, the remuneration committee consisted of Peter Salter (Chairman) and Pat Ridgwell. Peter Salter resigned and Judith MacKenzie assumed the Chair of the Remuneration Committee on 7 August 2017. Pat Ridgwell and Jacques d’Unienville are also members of the Remuneration Committee. The current Board acknowledges failings in the process of determining and reporting of historic remuneration of Directors and is committed to improving governance and accountability going forward. As such the Committee believes that its primary role is to: Determine and agree with the Board the framework of remuneration for the group of Executives within its remit; Ensure that effective performance management systems are in place to assess the performance of the Executives and the Company; Set the remuneration for the plc Directors, selected senior management and the Company Chairman; Oversee the implementation and operation of short term and long term incentive arrangements for senior management; Agree the policy for authorising claims for expenses from the Chairman and plc Directors. In future reports the Directors’ remuneration policy will be clearly defined, aiming to align the interests of all shareholders and management. The framework will recognise the need to recruit, retain and appropriately incentivise high calibre individuals to deliver the strategy set by the Board. The Report will outline the base salary, pension, benefits and long term incentive plans of all Board Executives. Non-Executive Director Remuneration Subject to annual re-election by shareholders, Non-Executive Directors are appointed for an initial term of three years. Subsequent terms of three years may be granted. The appointment and the Remuneration of the Non-Executive Directors are matters reserved for the full Board. The appointments are terminable by either party with one month’s written notice. The Non-Executive Directors are no longer eligible to participate in the Company’s performance related bonus plan, long term incentive plans or pension arrangements. Full terms and conditions for each of the Non- Executive Directors are available at the Company’s registered office during normal business hours and will be available at the AGM prior to the meeting and during the meeting. It is the intention of the current Remuneration Committee to review the long term incentives of key management during the coming year. 25 25455-04 - 26-09-2017 - Proof 8OUR GOVERNANCEwww.realgoodfoodplc.com Stock Code: RGDOUR GOVERNANCEIndependent 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 which comprise the Group and Parent Company Statements of Financial Position, the Group and Parent Company Statements of Comprehensive Income, the Group and Company Cash Flow Statements, the Group and Parent Company Statement of Changes in Equity and the related notes numbered 1 to 33. 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 members, 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 members 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 members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditor 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 A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/ auditscopeukprivate. 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 2017 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, based on the work undertaken in the course of our audit: { the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and { the Directors’ Report and Strategic Report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report. 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. Darren Rigden Senior Statutory Auditor For and on behalf of Crowe Clark Whitehill LLP Statutory Auditor Maidstone 28 September 2017 26 25455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALSConsolidated Statement of Comprehensive Income Year ended 31 March 2017 Year ended 31 March 2017 Year ended 31 March 2016 Continuing Operations £’000s Discontinued Operations £’000s Total £’000s Continuing Operations £’000s Discontinued Operations £’000s Notes Total £’000s REVENUE Cost of sales GROSS PROFIT Distribution costs Administration expenses Impairment Charge Significant items OPERATING (LOSS)/PROFIT Fair value gain on contingent consideration Finance costs Other finance costs Profit on disposal of discontinued operations (LOSS)/PROFIT BEFORE TAXATION Income tax credit/(expense) Tax on discontinued business Income tax on significant items (LOSS)/PROFIT ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT OTHER COMPREHENSIVE LOSS Items that will not be reclassified to profit or loss Foreign exchange differences on translation Actuarial (losses) on defined benefit plan Income tax relating to components of other comprehensive loss OTHER COMPREHENSIVE LOSS TOTAL COMPREHENSIVE (LOSS) FOR THE YEAR ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT Earnings per share – basic – diluted 4 6 8 9 10 13 13 14 108,208 (81,857) 26,351 (4,968) (23,006) (4,109) (87) (5,819) — (427) (216) — (6,462) 618 — (135) (5,979) (48) (1,847) 351 (1,544) (7,523) (8.50)p (8.50)p The notes on pages 34 to 84 form part of these financial statements. — — — — — — — — — — — — — — — — — — — — — — — — 108,208 (81,857) 26,351 (4,968) (23,006) (4,109) (87) (5,819) — (427) (216) — (6,462) 618 — (135) 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 — 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 (5,979) 4,409 8,411 12,820 (48) (1,847) 351 (1,544) — (484) 35 (449) — — — — — (484) 35 (449) (7,523) 3,960 8,411 12,371 (8.50)p (8.50)p 6.31p 5.83p 12.05p 11.13p 18.36p 16.96p 27 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALSConsolidated Statement of Changes in Equity Year ended 31 March 2017 Issued Share Capital £’000s Share Premium Account £’000s Share Option Reserve £’000s FX Translation Reserve £’000s Retained Earnings £’000s Total £’000s 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 distributions to owners of the Group Shares issued in the year Share based payment expense Total contributions by and distributions to owners of the Group Balance as at 31 March 2016 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 distributions to owners of the Group Shares issued in the year Deferred Tax on Share based payments Dividends paid Cancellation of share premium Total contributions by and distributions to owners of the Group Balance as at 31 March 2017 1,392 71,272 577 — — — 10 — 10 1,402 — — — 9 — — — 9 1,411 — — — 103 — 103 71,375 — — — 19 — — (71,272) (71,253) 122 — — — — 15 15 592 — — — — (177) — — (177) 415 — — — — — — — — — (48) (48) — — — — — (48) 8,678 81,919 12,820 (449) 12,371 12,820 (449) 12,371 — — — 21,049 (5,979) (1,496) (7,475) — — (28) 71,272 71,244 84,818 113 15 128 94,418 (5,979) (1,544) (7,523) 28 (177) (28) — (177) 86,718 28 25455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALSCompany Statement of Changes in Equity Year ended 31 March 2017 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 Total contributions by and distributions to owners of the Company Balance at 31 March 2016 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 Company, recognised directly in equity Contributions by and distributions to owners of the Group Shares issued in the year Dividends paid in year Deferred Tax on Share based payments Cancellation of share premium Total contributions by and distributions to owners of the Company Balance at 31 March 2017 Issued Share Capital £’000s 1,392 — 1,392 — — — 10 — 10 1,402 — — — 9 — — 9 1,411 Share Premium Account £’000s 71,272 — 71,272 — — — 103 — 103 71,375 — — — 19 — (71,272) (71,253) 122 Share Option Reserve £’000s 577 — 577 — — — — 15 15 592 — — — — (177) — (177) 415 Retained Earnings £’000s (17,163) 1,500 (15,663) 6,004 (449) 5,555 — — — (10,108) (5,963) (1,496) (7,459) — (28) — 71,272 71,244 53,677 Total £’000s 56,078 1,500 57,578 6,004 (449) 5,555 113 15 128 63,261 (5,963) (1,496) (7,459) 28 (28) (177) — (177) 55,625 The notes on pages 34 to 84 form part of these financial statements. 29 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALSConsolidated Statement of Financial Position Year ended 31 March 2017 NON-CURRENT ASSETS Goodwill Other intangible assets Property, plant and equipment Deferred tax asset CURRENT ASSETS Inventories Trade and other receivables Current tax assets Cash and cash equivalents TOTAL ASSETS CURRENT LIABILITIES Bank overdrafts Trade and other payables Borrowings Financial instrument 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 Foreign exchange translation reserve Retained earnings TOTAL EQUITY Notes 31 March 2017 £’000s 31 March 2016 £’000s 15 16 17 19 20 21 23 22 24 22 19 30 25 26 26 26 26 69,416 1,155 23,932 1,435 95,938 13,323 16,016 233 464 30,036 125,974 619 15,243 11,375 146 — 27,383 4,701 1,278 5,894 11,873 39,256 86,718 1,411 122 415 (48) 84,818 86,718 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 These financial statements were approved by the Board of Directors and authorised for issue on 28 September 2017. They were signed on its behalf by: C O Thomas Executive Director H Rai Finance Director The notes on pages 34 to 84 form part of these financial statements. 30 25455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS Company Statement of Financial Position Year ended 31 March 2017 NON-CURRENT ASSETS Investments Property, plant and equipment Deferred tax asset Intangible assets CURRENT ASSETS Trade and other receivables Current tax asset TOTAL ASSETS CURRENT LIABILITIES Bank overdraft Trade and other payables Borrowings NON-CURRENT LIABILITIES 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 31 March 2017 £’000s 31 March 2016 £’000s 18 17 19 16 21 23 22 30 19 22 25 26 26 26 64,594 2,369 1,278 227 68,468 36,122 1,470 37,592 106,060 210 41,827 1,000 43,037 5,894 4 1,500 7,398 50,435 55,625 1,411 122 415 53,677 55,625 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 *The loss after tax of the Company was £5,963k (2016: Profit £6,004k) These financial statements were approved by the Board of Directors and authorised for issue on 28th September 2017. They were signed on its behalf by: C O Thomas Executive Director H Rai Finance Director The notes on pages 34 to 84 form part of these financial statements. 31 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALSConsolidated Cash Flow Statement Year ended 31 March 2017 CASH FLOW FROM OPERATING ACTIVITIES Adjusted for: (Loss)/Profit before taxation Finance and other finance costs Share based payment expense Depreciation of property, plant and equipment Impairment charge Profit on disposal of Napier Brown Fair value gain on contingent consideration Past service gain on pension 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 Dividends paid Repayment of borrowings Repayment of loans Net movements on revolving credit facilities Advances net of repayments on 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 The notes on pages 34 to 84 form part of these financial statements. 32 12 months ended 31 March 2017 £’000s 12 months ended 31 March 2016 £’000s (6,462) 643 — 2,434 4,109 — — (1,330) 365 (241) (963) 1,021 (310) 1,497 1,004 (237) (427) 340 — (686) (10,820) — — (11,506) 28 (28) — (688) 5,628 4,074 9,014 (2,152) 1,997 (2,152) (155) 464 (619) (155) 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 25455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS Company Cash Flow Statement Year ended 31 March 2017 CASH FLOW FROM OPERATING ACTIVITIES Adjusted for: Loss before taxation Finance costs Impairment charge Share based payment expense Past service (gain)/loss on pension Depreciation of property, plant and equipment and intangibles Operating Cash Flow Decrease in receivables Pension contributions (Decrease)/increase in payables Cash generated from operations Interest paid Income taxes paid Net Cash from operating activities CASH FLOW FROM INVESTING ACTIVITIES Purchase of Intangible Assets Purchase of property, plant and equipment Net cash used in investing activities CASH FLOW USED IN FINANCING ACTIVITIES Shares issued in period Dividend Payment 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 The notes on pages 34 to 84 form part of these financial statements. 12 months ended 31 March 2017 £’000s 12 months ended 31 March 2016 £’000s (6,935) 398 1,425 — (1,330) 571 (5,871) 63,627 (310) (55,058) 2,388 (182) (234) 1,972 (249) (234) (483) 28 (28) (750) (750) 739 (949) 739 (210) -- (210) (210) (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) 33 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALSNotes to the Financial Statements Year ended 31 March 2017 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). 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 business in year to March 2016, as described in note 31, gave 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 been adopted by the European Union. The directors have assessed the potential impact of IFRS 15 and do not expect that the adoption of this standard will have a material impact on the financial statements of the Group in future periods. IFRS 16 may have an impact on the measurement and treatment of operating leases and the related disclosures. As at 31 March 2017 the estimated impact of the transition to IFRS 16 would be to increase tangible fixed assets and liabilities by approximately £1.9m The impact on the profit and loss account is not expected to be material to the 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 16 to 18. In addition, note 22 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 22 to the financial statements, 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 25455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS2. Significant accounting policies (continued) The Directors believe 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 result for the financial year, of the holding company, as approved by the Board, was £(5,963)k (2016 – £6,004k). c) 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. Sales are recorded 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 and 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. d) 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 applied or substantially applied 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. 35 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS2. Significant accounting policies (continued) e) 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. f) 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 30 to the financial statements. g) Property, plant and equipment Property, plant and equipment are 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 assets’ 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. h) Intangible assets Intangible assets consist of computer software, development costs and business relationships software is considered to have an economic life of five years; business relationships which are considered to have an estimated useful economic life of two years and development which have been internally generated and capitalised in accordance with IAS 38 which have an estimated commercial life of 5 years. All of these assets are amortised on a straight-line basis over these periods. The average remaining life of intangible assets is three years (2016 – three years). The charge for the year is included in administration expenses within the Statement of Comprehensive Income. i) 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. j) Investments Investments in the Company accounts relate to investments in subsidiaries and are stated at cost less provision for any impairment in value. k) 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 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS2. Significant accounting policies (continued) l) 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. m) 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 only when they have a short maturity of three months or less at the date of acquisition. n) 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. o) Trade payables Trade payables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest method. p) 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. q) 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 arising from transaction in the year are presented in the Statement of Comprehensive Income within the administration expense heading. Foreign currency differences on the translation of foreign subsidiaries are included in other comprehensive income and are shown as a separate reserve on the Statement of Financial Position. The Group mitigates foreign exchange risk by taking out forward exchange rate contracts. These are recognised at fair value on the Statement of Financial Position at the year end. r) 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. IFRS 3 “Business Combinations” requires that goodwill arising on the acquisition of subsidiaries is capitalised and included in intangible assets. IFRS 3 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. 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. 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 remeasured 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. 37 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS3. 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 significantly to 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 2% growth rate. A discount factor, based upon the Group’s weighted average cost of capital, which has been increased to reflect the increased risk of the Company being listed on AIM rather than the full market, is applied to obtain a current value (‘value in use’). 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. 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. Further details are set out in note 15. 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 5%. Changes to the discount rate of 0.5% would result in a change in the scheme liabilities of (7)% and a 0.5% movement in the rate of inflation would change the liabilities of the scheme by 2%. 38 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS4. 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. 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. There is also 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. Full details of these assumptions, which are based on advice from the Group’s actuaries, are set out in note 30. 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 included within significant items only 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. e) Going concern The Directors have considered the Group’s business activities together with the factors likely to affect its future development and performance. These assumptions have been projected and shared with the Company’s bank and advisers. The Company has now successfully renegotiated new banking covenants and confirmed the support of the bank for the next 12 months. The principal shareholders of the Group have shown considerable support for the working capital requirements and, having carefully considered the liquidity of the Company in line with future performance, the Directors believe that there are sufficient resources in place for the Group to meet its liabilities and that the Group is well placed to manage its business risks. The Directors believe the Group is a going concern and the financial statements have been prepared and submitted on that basis. 39 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS5. 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. 12 months ended 31 March 2017 Total revenue Revenue – internal External revenue Underlying adjusted EBITDA (see table below) Operating profit before Head Office Head Office and consolidation adjustments Impairment Charge Significant items Operating profit/(loss) Net finance costs Pension finance income Profit/(loss) before tax Tax Profit/(loss) after tax as per comprehensive statement of income Cake Decoration £’000s Food Ingredients £’000s Premium Bakery £’000s Head Office and Consolidation £’000s Total Group £’000s 51,042 (4,053) 46,989 6,528 5,758 — (264) 5,494 (129) 5,365 (1,280) 4,085 31,667 (4,340) 27,327 (1,564) (2,049) (3,589) (141) (5,779) (34) (5,813) 763 (5,050) 33,892 — 33,892 1,167 192 — (95) 97 (83) 14 (29) (15) — — — — — (5,524) (520) 413 (5,631) (181) (216) (6,028) 1,029 (4,999) 116,601 (8,393) 108,208 6,131 3,901 (5,524) (4,109) (87) (5,819) (427) (216) (6,462) 483 (5,979) Included in the Premium Bakery segment, one single customer accounts for 19.8% of the continuing Group’s external sales for the year ended 31 March 2017. Geographical segments The Group earns revenue from countries outside the United Kingdom, but as these only represent 11.6% 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. 40 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS5. Segment reporting (continued) Reconciliation of underlying EBITDA to operating profit Operating profit/(loss) Significant items Impairment Charge Depreciation Amortisation Underlying adjusted EBITDA 31 March 2017 Segment assets Segment liabilities Net operating assets Non-current asset additions Depreciation Amortisation Cake Decoration £’000s Food Ingredients £’000s Premium Bakery £’000s 5,494 264 — 719 51 6,528 (5,779) 141 3,589 469 16 (1,564) Cake Decoration £’000s Food Ingredients £’000s 86,663 11,411 75,252 3,904 719 51 18,654 8,391 10,263 2,525 469 16 97 95 — 696 279 1,167 Premium Bakery £’000s 16,885 9,044 7,841 4,175 696 279 Head Office & Consol Total £’000s (5,631) (413) 520 550 22 (4,952) Head Office & Consol Discontinued £’000s 3,772 10,410 (6,638) 233 550 22 Total Group £’000s (5,819) 87 4,109 2,434 368 1,179 Total Group £’000s 125,974 39,256 86,718 10,838 2,434 368 41 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS5. Segment reporting (continued) 12 months ended 31 March 2016 Cake Decoration £’000s Food Ingredients £’000s Total revenue Revenue – internal External revenue Underlying adjusted EBITDA 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 49,231 (933) 48,298 7,350 6,579 (81) 6,498 3,267 (270) — 9,495 (1,377) — 8,118 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 Discontinued 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 13,237 — 13,237 (15) (84) — — (84) — (906) — 9,145 8,155 256 — 8,411 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 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. 42 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS5. Segment reporting (continued) Inter-segment sales are charged at prevailing market rates. 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 Food Ingredients £’000s Premium Bakery £’000s Discontinued £’000s Unallocated £’000s Total Group £’000s 85,133 19,763 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 — — — — — — 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 1,917 113 — — — — 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. 43 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS6. Significant items Continuing operations Head Office relocation following Napier disposal Past service gain on pensions (note 30) Management restructuring Acquisition and legal costs Subtotal Taxation on significant items Total significant items 2017 £’000s 2016 £’000s — 1,155 (419) (823) (87) (135) (222) (446) — (119) (380) (945) 113 (832) Following a recent review by the Plan’s legal advisors, it was identified that for members who left pensionable service before 22 June 1995, all pension increases are at the sole discretion of the Company. Historically, an allowance for future pension increases of 3% pa has been included in the defined benefit obligation. The past service gains of £1,155k (actual gain of £1,584k less costs of service gains £254k and ETV exercise costs of £175k) reflects the value of this discretionary option, rather than the fixed 3% pa assumed historically. The company incurred acquisition and legal costs, these costs consists of both the successful acquisition of Brighter Foods (April 2017) but also costs relating to abortive acquisitions. The majority of the restructuring cost relate to the Cake Decoration pillar. 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 Audit related assurance Tax compliance services Tax advisory services Other assurance services Total fees paid to auditor 44 12 months ended 31 March 2017 £’000s 12 months ended 31 March 2016 £’000s 255 42 21 35 70 423 216 – 28 28 56 328 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS 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 Impairment Charge 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 loss Notes 12 17 16 6 15, 17 28 28 21 31 March 2017 £’000s 108,208 31,245 53,588 2,434 365 87 4,109 409 436 1,839 (92) 19 19,588 114,027 (5,819) 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 * The costs incurred in research and development are not capitalised where they do not meet the definitions of an intangible asset in accordance with IAS 38. 45 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS12 months ended 31 March 2017 £’000s 12 months ended 31 March 2016 £’000s 409 — 18 427 427 — 467 906 11 1,384 478 906 31 March 2017 £’000s 31 March 2016 £’000s 754 (538) 216 738 (547) 191 9. Finance costs Interest on bank loans and overdrafts Loan note redemption fee Interest on obligations under finance leases Continuing business Discontinued business 10. Other finance costs Interest on pension scheme liabilities Interest on pension scheme assets 46 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS11. Directors’ remuneration Fees Executive salaries and benefits The emoluments of the Directors for the period were as follows: 31 March 2017 £’000s 31 March 2016 £’000s 131 425 556 131 757 888 M J McDonough (to Sept 2015) P W Totté D P Newman P G Ridgwell P C Salter J M d'Unienville C O Thomas Short Term Employee Benefits* £’000s Share Based payments £’000s Post Employment Benefits £’000s 31 March 2017 £’000s 31 March 2016 £’000s 2 237 164 30 36 25 40 534 — — — — — — — — — — 22 — — — — 22 2 237 186 30 36 25 40 556 435 223 102 30 36 25 40 891 * 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 29. The Company Directors disclosed are considered as key management personnel. 47 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS 11. Directors’ remuneration (continued) Directors’ interests in share options: Option Type Date of Grant Number of options at 31 March 2017 Number of options at 31 March 2016 P W Totté Unapproved options 2009 Unapproved options 2010 July 2009 May 2010 1,000,000 1,000,000 142,857 142,857 Unapproved options 2011 March 2011 3,817,725 3,817,725 P G Ridgwell Unapproved options 2009 Unapproved options 2010 P C Salter Unapproved options 2009 Unapproved options 2010 C O Thomas Unapproved options 2009 Unapproved options 2010 D P Newman Approved options 2009 Approved options 2010 Approved options 2015 July 2009 May 2010 July 2009 May 2010 July 2009 May 2010 June 2009 May 2010 May 2015 476,190 61,224 285,714 102,040 304,762 40,816 333,333 20,408 16,666 476,190 61,224 285,714 102,040 304,762 40,816 333,333 20,408 16,666 Exercise Price 5.25p 24.50p 25.00p 5.25p 24.50p 5.25p 24.50p 5.25p 24.50p 5.25p 24.50p 45.00p Earliest Exercise Date Exercise Expiry Date July 2012 May 2013 April 2011 July 2012 May 2013 July 2012 May 2013 July 2012 May 2013 July 2012 May 2013 May 2018 July 2019 May 2020 Mar 2021 July 2019 May 2020 July 2019 May 2020 July 2019 May 2020 July 2019 May 2020 July 2019 No new options were granted to Directors during the year (2016 – 16,666). 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 2017 was 26p and the range during the year was 46p to 26p. No Director exercised share options during the year. During the period retirement benefits were accruing to one (2016 – two) Director in respect of money purchase pension schemes. 48 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS12. 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 2017 31 March 2016 576 304 165 1,045 743 159 156 1,058 31 March 2017 £’000s 31 March 2016 £’000s 27,347 2,669 1,229 — 31,245 24,640 2,503 1,299 15 28,457 49 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS31 March 2017 £’000s 31 March 2016 £’000s 84 (84) (134) (134) — 168 219 (764) 28 — (349) (483) — (483) (483) 247 (113) (7) 127 (256) 17 198 73 (89) (57) 326 (256) 70 70 13. 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 Brown Deferred tax charge re pension scheme Deferred tax on significant items Origination and reversal of timing differences Adjustments in respect of prior years Adjustments in respect of change in deferred tax rate Total deferred tax Tax – continuing operations Tax – discontinued operations Total tax Tax on profit 50 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS13. Taxation (continued) Factors affecting tax charge for the period: The tax assessed for the period is lower (2016 – lower) than the standard rate of corporation tax in the UK of 20% (2016 – 20%). 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% (2016 – 20%) Expenses not deductible for tax purposes Ineligible depreciation Share option relief Current year losses not recognised – deferred tax Income not taxable Adjustments 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 2017 £’000s 12 months ended 31 March 2016 £’000s (6,462) (1,292) 189 520 (26) 204 — 28 (106) — (483) (483) — (483) 12,890 2,598 207 — (26) 77 (2,502) (94) 66 (256) 70 326 (256) 70 51 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS14. 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 2017 £’000s Continuing operations (5,979) (5,979) — 70,272 (8.50)p — (8.50)p 12 months ended 31 March 2016 £’000s Continuing operations 12,820 4,409 8,411 69,818 6.31p 12.05p 18.36p Diluted earnings per share The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of all outstanding share options. The potential ordinary shares are considered antidilutive as they decrease the loss per share. Therefore diluted EPS is the same as basic. 52 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS14. Earnings per share (continued) The weighted average number of shares in issue for the year was 70,272k, the number of options outstanding was 9,171k. If these were all exercised the cash raised would be equivalent to that which would be raised by issuing 4,235k shares at the average share price during the year. The difference between these figures is the weighted average number of dilutive potential ordinary shares of 74,507k. 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 2017 £’000s 31 March 2016 £’000s (5,979) (5,979) — 74,507 (8.02)p — (8.02)p 12,820 4,409 8,411 75,564 5.83p 11.13p 16.96p 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 2017 £’000s 31 March 2016 £’000s (5,979) (5,979) — 87 — — 135 (5,757) 70,272 (8.19)p 74,507 (8.19)p 12,820 4,409 8,411 945 (3,267) (9,145) (113) 1,240 69,818 1.78p 75,564 1.64p 53 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS15. Goodwill Cost Carried forward 31 March 2016 Impairment Carried forward 31 March 2017 Group £’000s 71,005 (1,589) 69,416 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: An annual impairment review conducted in accordance with IAS38 ‘Intangible assets’ and IAS36 ‘Impairment assets’ resulted in an impairment of goodwill relating to RW Scott of £1.0 million and Garrett Ingredients of £0.6 million. Garrett Ingredients Renshaw R&W Scott Rainbow Dust Colours Haydens Bakery – Chantilly Patisserie Carried forward 31 March 2016 31 March 2017 £’000s 31 March 2016 £’000s 4,411 57,796 — 6,223 986 69,416 5,000 57,796 1,000 6,223 986 71,005 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, or ‘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 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS15. 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 7% (2016 – 3%) which has been increased to 11% to take account of the increased risk of being listed on AIM rather than the main market. A period of 19 years has been applied to the projected cash flows, based on a 2% annual growth rate. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. This is based on our base expectations for the trading period to 31 March 2018. The discounted cash flow forecasts include discounted disposal proceeds based upon 5 times the year 2018/19 forecast EBITDA. An increase in the Group’s weighted average cost of capital to above 11.5% (2016 – 12%) would cause the Board to impair the carrying value of goodwill of Renshaw. The Board have considered this but believe due to trading expectations and a strong brand the recoverable amount would support the value. As a result of the impairment review goodwill for Garretts has been impaired by £0.6 million whilst goodwill of £1.0 million and tangible fixed assets amounting to £2.0 million have been impaired in respect of R&W Scott compared to the values which are shown in the table below: Chantilly Rainbow Dust Colours Renshaw Garretts R&W Scott Book value of income generating unit £’000s Estimated recoverable amount/value in use £’000s 1,077.0 6,684.0 65,604.0 4,719.0 4,095.5 2,883.00 10,748.0 68,169.0 4,719.0 4,095.5 55 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS16. Other intangible assets Cost At 1 April 2016 Additions At 31 March 2017 Amortisation At 1 April 2016 Charge At 31 March 2017 Net book value at 31 March 2017 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 Customer Relationships £’000s Computer Software £’000s Development Costs Group £’000s Company £’000s 473 — 473 55 209 264 209 — 405 68 — 473 — 55 — 55 418 786 395 1,181 370 127 497 684 2,964 — — (2,178) 786 2,123 58 (1,811) 370 416 — 291 291 — 29 29 262 — — — — — — — — — — 1,259 686 1,945 425 365 790 1,155 2,964 405 68 (2,178) 1,259 2,123 113 (1,811) 425 834 — 249 249 — 22 22 227 4 — — (4) — 4 — (4) — — Intangible assets all relate to intangible assets acquired from third parties other than development costs which are generated internally and capitalised in accordance with IAS 38. There is no indication of any impairment of these intangible assets. 56 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS17. Property, plant and equipment Group Cost At 1 April 2016 Additions Disposals Reclassifications At 31 March 2017 Depreciation At 1 April 2016 Disposals Impairment Charge* Charge At 31 March 2017 Net book value at 31 March 2017 Cost At 1 April 2015 Acquired on acquisition of business 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 Continuing business Land and Buildings £’000s Plant and Equipment £’000s Assets in the course of construction £’000s 9,477 313 (8) 43 9,825 2,935 (8) 1,575 327 4,829 4,996 13,539 — 542 (4,604) — 9,477 3,891 (1,242) 286 2,935 6,542 6,542 27,088 6,800 (471) 299 33,716 15,906 (471) 945 2,107 18,487 15,229 32,615 108 5,122 (11,588) 831 27,088 21,221 (6,946) 1,631 15,906 11,182 11,182 342 3,707 — (342) 3,707 — — — — — 3,707 537 — 636 — (831) 342 — — — — 342 342 Total £’000s 36,907 10,820 (479) — 47,248 18,841 (479) 2,520 2,434 23,316 23,932 46,691 108 6,300 (16,192) — 36,907 25,112 (8,188) 1,917 18,841 18,066 18,066 *An annual impairment review conducted in accordance with IAS36 ‘Impairment of assets’ resulted in an impairment of fixed assets of £2.0m for R&W Scott. In addition an impairment review for assets at Head Office indicated an impairment of £0.5 million which has been made. The net book value of assets held under finance leases or hire purchase contracts, included above, is as follows: Plant and equipment 31 March 2017 £’000s 31 March 2016 £’000s 4,990 353 £18.1 million (2016 – £nil) of property, plant and equipment has been pledged as security for borrowings; see note 22. 57 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS17. Property, plant and equipment (continued) Company Cost At 1 April 2016 Additions At 31 March 2017 Depreciation At 1 April 2016 Impairment Charge Charge At 31 March 2017 Net book value at 31 March 2017 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 Land and Buildings £’000s Plant and Equipment £’000s 498 55 553 — — 11 11 542 — 498 — — 498 — — — — — 498 3,451 178 3,629 745 520 537 1,802 1,827 162 2,285 1,664 (660) 3,451 85 (660) 1,294 26 745 2,706 Total £’000s 3,949 233 4,182 745 520 548 1,813 2,369 162 2,783 1,664 (660) 3,949 85 (660) 1,294 26 745 3,204 The net book value of assets held under finance leases or hire purchase contracts, included above, is as follows: Plant and equipment 58 31 March 2017 £’000s 31 March 2016 £’000s — — Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS18. Investments Company Investments in shares of subsidiary undertakings: Napier Brown Foods Limited £’000s 53,900 — 53,900 At 31 March 2016 Impairment At 31 March 2017 FSF Dormant Limited/ TD Dormant Limited £’000s R&W Scott Limited Garrett Ingredients Limited £’000s Haydens Bakery Limited £’000s Eurofoods plc/ Coolfresh Limited £’000s Real Good Food Europe SA £’000s — — — 7,500 (905) 6,595 3,248 — 3,248 79 — 79 772 — 772 Total £’000s 65,499 (905) 64,594 The aggregate of the share capital and reserves at 31 March 2017 and of the profit or loss for the year ended on that date are as follows: Napier 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 63,909 1,020 7,115 (101) 1,906 1,891 (663) — 4,343 (143) 875 — (734) (2,702) (618) 59 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALSDescription and Number of Shares Held Proportion of Nominal Value of Shares Held 18. Investments (continued) Haydens Bakeries Limited* Eurofoods plc* FSF Dormant Limited* TD Dormant Limited* Napier Brown Foods Limited* Renshaw Us Incorporated 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 Cake Decoration Supplier Cake Decoration Supplier Holding Company Cake Decoration Supplier Food Ingredients Supplier Food Ingredients Supplier Dormant Premium Bakery Cake Decoration Supplier 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 200 ordinary shares of 1$ 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 * Held directly by Real Good Food plc. All entities have their registered office at International House, 1 St Katharines’ Way London E1W 1XB. Renshaw Europe SA registered office is Tollaon 71, 1932 Sint Steven, Woluwe, Belgium. Renshaw USA Incorporated registered office is 400 Commons Way, Rockaway, New Jersey, USA 19. 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 2017 Group £’000s 2017 Company £’000s 369 — (352) — — (174) (157) 1,278 (1,435) (157) (1,462) — 362 — — (174) (1,274) 4 (1,278) (1,274) 2016 Group £’000s 671 74 (58) (283) — (35) 369 1,925 (1,556) 369 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2016 Company £’000s (327) — 38 — (1,138) (35) (1,462) 16 (1,478) (1,462) Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS19. 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 2016 Charge/(credit) to income (Credit) to equity At 31 March 2017 Within 12 months Greater than 12 months Deferred tax provisions At 31 March 2016 Charged to income At 31 March 2017 Losses £’000s Options £’000s Provisions £’000s Pension £’000s Total £’000s — — — — — — (324) 9 177 (138) — (138) (76) (101) — (177) — (177) Intangible Assets £’000s 1,136 69 1,205 (1,155) 386 (351) (1,120) — (1,120) Tangible Assets £’000s 789 (716) 73 (1,555) 294 (174) (1,435) — (1,435) Total £’000s 1,925 (647) 1,278 There were £3.7 million of unused tax losses on which deferred tax is not recognised due to uncertainty over when they could be utilised. 61 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS19. Deferred taxation liability/(asset) (continued) Company The deferred tax balances arise from temporary differences in respect of the following: At 31 March 2016 Charge/(credit) to income Charge/(credit) to equity At 31 March 2017 Within 12 months Greater than 12 months 20. Inventories Materials Work in progress Finished goods Continuing business Provisions £’000s — (20) — (20) — (20) Pension Scheme £’000s (1,155) 386 (351) (1,120) — (1,120) 31 March 2017 Group £’000s 8,159 45 5,119 13,323 13,323 Tangible Assets £’000s 16 — (12) 4 — 4 31 March 2017 Company £’000s — — — — — Share Options £’000s (323) 8 177 (138) — (138) 31 March 2016 Group £’000s 5,495 641 6,224 12,360 12,360 Total £’000s (1,462) 374 (186) (1,274) — (1,274) 31 March 2016 Company £’000s — — — — — Inventories totalling £13,323k (2016 – £12,360k) 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 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS21. Trade and other receivables 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 31 March 2017 Group £’000s 31 March 2017 Company £’000s 31 March 2016 Group £’000s 31 March 2016 Company £’000s 13,584 (68) 13,516 1,300 — 1,200 16,016 — — — 31 35,871 220 36,122 15,006 (204) 14,802 1,068 — 1,169 17,039 — — — 12 55,390 396 55,798 63 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS21. Trade and other receivables (continued) Provision for impairment of receivables At 31 March 2016 Charge for period (Note 8) Uncollectable amounts written off At 31 March 2017 31 March 2017 Group £’000s 31 March 2017 Company £’000s 31 March 2016 Group £’000s 31 March 2016 Company £’000s (204) 92 44 (68) — — — — (111) (165) 72 (204) — — — — The creation and release of the provision for impaired receivables has been included in the income statement within administration costs. 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. 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 credit of £92k (2016 – charge of £165k) 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, in line with last year, driven by continued tight credit control programme. The ageing analysis of these receivables is as follows: Up to 30 days past due One to three months past due Over three months past due 64 31 March 2017 Group £’000s 1,846 126 122 2,094 31 March 2016 Group £’000s 740 1,040 378 2,158 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS22. Borrowings and capital management 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 Features of the Group’s borrowings are as follows: The Group’s financial instruments comprised cash, a term loan, hire purchase and finance leases, a revolving credit facility, an 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. 31 March 2017 Group £’000s 31 March 2017 Company £’000s 31 March 2016 Group £’000s 31 March 2016 Company £’000s 2,500 9,333 4,243 16,076 11,375 4,701 16,076 2,500 — — 2,500 1,000 1,500 2,500 3,200 3,705 158 7,063 7,008 55 7,063 — — — — — — — 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 Euro and US Dollar commodity purchases. However, this is mitigated by matching in part against foreign currency sales. The Board reviews and agrees policies, which have remained substantially unchanged for the year under review, for managing these risks. The Group’s policies on the management of interest rate, liquidity and currency exposure risks are set out in the Report of the Directors. During the year ended 31 March 2017 the Group successfully negotiated extended borrowing facilities with Lloyds Bank plc. The Group entered into an invoice finance facility of £20 million on a revolving basis with a minimum term of 12 months and a three-month notice period. This facility is secured against the debtors across the whole of the Group’s UK businesses, and comprise a sterling, euro and US dollar facility with an interest rate of 1.5% above base rate. 65 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS22. Borrowings and capital management (continued) 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 three 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 five 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 Group also entered into a £6.2 million facility to be secured against new items of plant and machinery with ABN Ambro Lease nv bank. This facility is for 5 years and interest is payable at 4%. 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. Post Year End Borrowings Post Year end £16.75 million has been secured from existing major shareholders. { £4.0 million secured one year term loan facilities from existing shareholders of the Company, (Napier Brown Holdings Limited and Omnicane Limited) { Lloyds bank agreed to provide the company with an overdraft facility of up to £2.0 million with two major shareholders (Napier Brown and Omnicane Limited) each putting £1.0 million into an account as security. The shareholder loans have an interest rate of 6.5% per annum. { £4.0 million additional short term debt facilities were secured (Omnicane International Investors Limited, NB Ingredients Ltd and Downing LLP). Each of the three shareholders participated equally. The Facility and the Loan Notes are secured on unencumbered chattel assets of the Company with a 10% coupon. A premium of 10% payable on redemption if not repaid on or before 30 September 2018. { A new injection of capital was raised by way of the issue of a secured loan note instrument of up to £8.75 million from funds managed and controlled by Downing LLP. The Loan Notes are redeemable in full after three years. 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 Group’s approach to capital management 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 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS22. Borrowings and capital management (continued) The following table details the Group’s maturity profile of its financial liabilities: 2017 Trade and other payables Bank term loans Revolving credit facilities Finance leases Interest Total 2016 Trade and other payables Bank term loans Revolving credit facilities Finance leases Interest Total Less than 1 month £’000s 1–3 months £’000s 3 months to 1 year £’000s 11,022 — — 87 11,109 7 11,116 3,101 250 — 260 3,611 43 3,654 1,120 750 9,333 695 11,898 295 12,193 Less than 1 month £’000s 1–3 months £’000s 3 months to 1 year £’000s 3,640 — — 10 3,650 19 3,669 4,167 — 3,705 20 7,892 57 7,949 517 3,200 — 73 3,790 153 3,943 1–5 years £’000s — 1,500 — 3,201 4,701 318 5,019 1–5 years £’000s — — — 55 55 15 70 5+ years £’000s Total £’000s — — — — — — — 15,243 2,500 9,333 4,243 31,319 633 31,952 5+ years £’000s Total £’000s — — — — — — — 8,324 3,200 3,705 158 15,387 244 15,631 The profile of the trade payables has been taken as being consistent with the Group’s payment terms to suppliers. 67 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS22. Borrowings and capital management (continued) Analysis of market risk sensitivity Currency risks: The Group is exposed to currency risks on purchases of commodities made from USA and Europe. The risk associated with these purchases is mitigated by sales also made to customers in these countries, however to the extent that these do not cover each other there is a risk of exposure to the Group. The effect of the exposure is calculated as being: { With an excess of $ debtors to $ suppliers then a 10 cent strengthening of the US dollar would result in an increase in pre tax profits of £212k. { With an excess of € suppliers to € debtors then a 10 cent strengthening of the Euro would result in an increase in pre tax profits of £212k. The Group also buys sugar in Euros and sells this sugar on fixed sterling contracts with customers through its Ingredients division. To reduce the currency risk on these forward currency purchase contracts are entered into. These forward contracts have been fair valued at the year end and this has resulted in a £146k loss being taken against this year’s results. 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 £118k. 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 2017 £’000s 31 March 2016 £’000s 1,042 3,201 4,243 (365) 3,878 1,010 2,868 3,878 103 55 158 (11) 147 98 49 147 It is the Group’s policy to lease certain property, plant and equipment under finance leases. For the period ended 31 March 2017 the average effective borrowing rate was 4.0% (2016 – 4.0%). Interest rates are fixed at the contract dates. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. All lease obligations are denominated in sterling. The fair value of the Group’s lease obligations approximates to their carrying amount. 68 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS23. Trade and other payables Amounts due within one year Trade payables Social security Amounts owed to Group undertakings Accruals Other payables 31 March 2017 Group £’000s 31 March 2017 Company £’000s 31 March 2016 Group £’000s 31 March 2016 Company £’000s 10,634 913 — 3,336 360 15,243 238 99 39,896 1,594 — 41,827 8,324 654 — 3,600 665 13,243 236 89 55,593 459 — 56,377 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. 69 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS24. 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 Financial liabilities at fair value through profit and loss Forward foreign exchange contracts Amounts due for settlement Within 12 months After 12 months Group 2017 £’000s 464 13,516 26,710 26,710 146 146 22,155 4,701 26,856 2016 £’000s 2,946 14,802 15,387 15,387 — — 15,332 55 15,387 Company 2017 £’000s 2016 £’000s — — 210 210 — — 210 — 210 — — 949 949 — — 949 — 949 Loans and receivables The Group’s policies on managing credit risk are set out in note 21 of these financial statements. The carrying amount of financial assets represents the maximum credit exposure. The Group has taken out insurance to cover the credit risk, see note 21. During the year the group took out forward foreign currency contracts to mitigate against foreign exchange risk. In accordance with IFRS 13 the above financial instrument has been assigned a hierarchy level. IFRS 13 categorises the inputs into valuation of a financial instrumentheld at fair value into three levels. The highest priority is given to quoted prices (level 1 inputs) and the lowest priority to unobservable inputs (level 3). The inputs into the valuation of the above are considered to be level 2. Observable inputs include the forward rate at the date the contract was taken out and the forward rate at the end of the year. There are no unobservable inputs. The contracts are not discounted as the impact is not considered to be material given the timeframes over which the contracts are settled. The total exposure under forward contracts at the year end was €4 million. The movement in fair value of £0.146 million has been recognised in the Statement of Comprehensive Income for the year. 70 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS25. Share capital Number of Shares 2017 Number of Shares 2016 31 March 2017 £’000s 31 March 2016 £’000s Allotted, called up and fully paid equity share capital At 31 March 2016 Issued in the year At 31 March 2017 70,066,903 496,598 70,563,501 69,588,400 478,503 70,066,903 1,402 9 1,411 1,392 10 1,402 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 9,171,350 shares reserved for issue under options, with expiry dates beyond 2017, outstanding at the end of the year. 26. 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. Foreign exchange translation reserve: The Foreign exchange reserve represents the difference generated when converting profit and loss results at average rates and balance sheets at year end closing rates. 27. 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* * 3,817,726 options to P. Totte not exercisable until share price exceeds £1.00. 31 March 2017 Number of Share Options 31 March 2017 Weighted Average Exercise Price (£) 31 March 2016 Number of Share Options 31 March 2016 Weighted Average Exercise Price (£) 9,969,454 — (496,598) (301,506) 9,171,350 5,899,624 0.20 — (0.05) (0.46) 0.20 0.17 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 71 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS27. Equity-settled share option scheme (continued) A breakdown of the range of exercise prices for options outstanding as at 31 March 2017 is shown in the table below: 2017 Weighted average remaining contractual life (years) Number outstanding at end of period Weighted average exercise price (pence) Number outstanding at end of period 2016 Weighted average remaining contractual life (years) Weighted average exercise price (pence) £0.00 – £0.50 9,171,350 1 20.65 9,969,454 1 19.84 No 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. 72 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS28. 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 31 March 2017 £’000s 31 March 2016 £’000s 757 1,222 1,264 374 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 15 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 2017 £’000s 2016 £’000s Commitments for the acquisition of property, plant and equipment 5,954 930 73 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS29. Related party transactions Consultancy fees were paid to the following entities in which Directors hold a beneficial interest: Osmond Consultancy Limited P Totté Menton Investments Universal Sucrose Services Limited Nuevocoloro SL P G Ridgwell The Salter Consultancy LLP Director P Totté P Totté P Totté P Totté P Totté P G Ridgwell P Salter 31 March 2017 £’000s 31 March 2016 (Restated) £’000s 220 10 5 — — 55 94* 384 110 — — 1,100 109 55 124* 1,498 * Includes expenses of £11k in FY2017 and £15k in FY2016. In the previous year P Totté received payments totalling £1,319,000 and P Salter received payments of £15,000, which were included in the financial statements but not disclosed to the auditors or disclosed within the financial statements. A loan of £39k was also provided to P Totté in the year to March 2016 which was subsequently repaid in June 2017. 74 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS29. 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 Rainbow Dust Colours Limited R&W Scott Limited Garrett Ingredients Limited Amounts due to subsidiaries JF Renshaw Limited Rainbow Dust Colours Limited 31 March 2017 £’000s 31 March 2016 £’000s 720 360 60 240 120 1,500 555 350 — 120 50 1,075 31 March 2017 £’000s 31 March 2016 £’000s 58,352 5,768 51,240 4,576 JF Renshaw Limited is a related party because it is a 100% owned subsidiary of Napier Brown Foods Limited which is a 100% owned subsidiary of Real Good Food plc. Amounts due from subsidiaries Renshaw Europe SA Haydens Bakery Limited Renshaw USA Incorporated Napier Brown Foods Limited RGFC Dust Limited R&W Scott Limited Garrett Ingredients Limited 31 March 2017 £’000s 31 March 2016 £’000s 1,082 4,612 723 45,801 8,255 809 204 121 4,489 — 45,801 5,055 1,503 152 75 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS30. 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 11 years 8 months, increasing at 4% per annum. 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 2015 actuarial valuation has been approximately updated to reflect liabilities on the accounting basis at 31 March 2017. This has resulted in a deficit in the scheme of £5,894,000. 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 2017 £’000s 19,840 (13,946) 5,894 — 5,894 (1,120) 4,774 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 31 December 2013 £’000s 19,033 (15,360) 3,673 — 3,673 (735) 2,938 19,153 (15,613) 3,540 — 3,540 (814) 2,726 76 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS30. Pensions arrangements (continued) 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 Settlements Past service gain 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 Settlements 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 2017 was £1,190k (2016 – £(575)k). 31 March 2017 £’000s 31 March 2016 £’000s 21,094 754 2,499 (2,060) (1,584) (863) 19,840 21,799 738 (638) — — (805) 21,094 12 months ended 31 March 2017 £’000s 12 months ended 31 March 2016 £’000s 15,013 538 652 920 (2,314) (863) 13,946 16,111 547 (1,122) 282 — (805) 15,013 77 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS30. 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 31 March 2017 £’000s 31 March 2016 £’000s 754 (538) 216 — 216 738 (547) 191 — 191 31 March 2017 £’000s 31 March 2016 £’000s 652 (103) 228 (2,624) (1,847) (1,122) — (42) 680 (484) 78 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS30. Pensions arrangements (continued) Assets UK equity Overseas equity Absolute return fund Bonds Gilts Property Cash Alternative assets Current assets Current liabilities Total assets 31 March 2017 £’000s 31 March 2016 £’000s 31 March 2015 £’000s 1,907 4,120 3,732 1,139 1,646 152 284 2,671 610 (2,315) 13,946 1,608 4,462 3,826 1,020 2,104 72 473 1,448 — — 15,013 1,759 4,634 4,126 933 1,382 354 1,444 1,479 — — 16,111 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. 79 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS30. 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 2017 % per annum 31 March 2016 % per annum 31 March 2015 % per annum 31 March 2014 % per annum 3.20 — 2.85 3.10 2.20 90% of max allowance 2.80 — 3.65 2.70 1.80 90% of max allowance 2.90 — 3.45 2.80 1.90 90% of max allowance 3.30 — 4.65 3.20 2.20 75% of max allowance Assumption Discount rate Rate of inflation Rate of mortality Increase/decrease of 0.5% p.a. Increase/decrease of 0.5% p.a. 1 year increase in life expectancy Decrease by 7% Increase by 2% Increase by 5% Change in assumption Change in liability The mortality assumptions adopted at 31 March 2017 imply the following life expectancies: Male retiring at age 65 in 2017 Female retiring at age 65 in 2017 Male retiring at age 65 in 2037 Female retiring at age 65 in 2037 22 years 24 years 23 years 25 years 80 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS30. 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 2017 £’000s 13,946 (19,840) (5,894) 652 (103) 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. Discontinued Operations As disclosed in the year end March 2016 accounts the Group disposed of its Napier Brown Sugar Limited 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 Year end 31 March 2017 £’000s — — — — — — Year end 31 March 2016 £’000s 13,237 (11,884) 1,353 (1,149) (288) (84) 81 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS31. 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 March 2017 Total £;000s March 2016 Total £’000s — — — — — — — 44,408 (12,000) (8,211) (10,706) (2,024) (2,322) 9,145 32. Acquisitions Real Good Food plc (AIM: RGD) and Tywyn based Brighter Foods announced on 5 April 2017 a new partnership to build on the success of the Wales based food manufacturing company, with Robin Williams remaining as CEO. Real Good Food plc acquired an 84.33% interest in Brighter Foods for total consideration of up to £9 million, on a cash and debt free basis, to be paid in two equal instalments, 50% on completion and 50% upon finalisation of the Company’s 2017/18 audited accounts. The consideration will be satisfied from the Group’s existing debt facilities. The acquisition is expected to be immediately earnings enhancing to the Group. 82 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALS32. Acquisitions (continued) Non Current Assets Intangible Assets Tangible Assets Investments Current Assets Inventories Trade and other receivables Cash at Bank Current liabilities Trade and other payables Income Tax Amounts falling due after one year Provision of Liabilities Net Current Assets Purchase Price Paid April 2017 Due to be paid on completion of 17/18 accounts Total paid or payable Balance as Goodwill £ 28,712 1,874,998 81,667 1,985,377 762,877 990,221 1,734,792 3,487,890 (3,178,554) (252,157) (335,517) (167,411) 1,539,628 4,520,088 4,520,088 9,040,176 (7,500,548) The Group consider that the value of assets and liabilities is equal to the fair value of these items and that all receivables are fully recoverable. Senior management of Brighter Foods has retained 15.67% stake in the business. The value of this non controlling stake on completion was £682k. The Group has also entered into a separate shareholder agreement regarding the Management Stake whereby the senior management of Brighter Foods can elect to sell 50 per cent of the Management Stake to the Group after March 2020 and 50 per cent after March 2021. The consideration for the entire Management Stake will be based upon an agreed valuation formula, linked to profit before interest and tax of Brighter Foods in the years ending 31 March 2020 and 31 March 2021 respectively, and is capped at £8 million in aggregate. Additionally the Group can elect to acquire the Management Stake after March 2021 based upon the same valuation formula. For the 12 months to 31 March 2016, Brighter Foods reported profit before tax of £2.3 million and net assets of £2.7 million as at 31 March 2016. The deferred consideration is payable after 12 months of trading and will be in range of £Nil to £4.5 million and is based on performance of the company. Costs incurred in acquiring this company amount to £361k, of which £151k has been included in these accounts as part of significant items (note 6). 83 25455-04 - 26-09-2017 - Proof 8www.realgoodfoodplc.com Stock Code: RGDOUR FINANCIALSOUR FINANCIALS33. Post Year End Equity EQUITY Downing agreed to subscribe for 7,844,924 new ordinary shares of 2 pence each in the Company (the “New Shares”) at 35 pence each (the “Placing Price”) to raise gross proceeds of approximately £2.75 million representing 10% of the Company’s overall issued share capital. 84 Notes to the Financial Statements (continued)Year ended 31 March 201725455-04 - 26-09-2017 - Proof 8Annual Report and Accounts for the year ended 31 March 2017OUR FINANCIALSAdvisers and Company Information OUR FINANCIALS Directors C O Thomas H Rai P G Ridgwell J M d’Unienville J Mackenzie H C L Cawley Company Secretary H Rai 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 JD LLP 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 OUR FINANCIALS IBC 25455-04 29 September 2017 11:10 AM Proof 8 International House, 1 St Katharine’s Way, London E1W 1XB T 020 3056 1516 enquiries@realgoodfoodplc.com www.realgoodfoodplc.com Create Inspire Enjoy 25455-04 29 September 2017 11:10 AM Proof 8

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