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Annual Report and Accounts
For the year ended 31 March 2018
Stock code: RGD
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Real Good Food plc
Real Good Food operates
in three divisions:
The Group’s current objective:
to deliver a return on investment for all our stakeholders.
The Group’s current strategy:
to provide a stable financial platform for the Group through
improving the profitability of the Group as a whole and its
underlying businesses. Where appropriate, and only where it
maximises value for stakeholders, that could include finding a more
suitable home for a constituent business.
www.realgoodfoodplc.com
Navigating the Report
For further information within this
document and relevant page numbers
Additional information online
Contents
STRATEGIC REPORT
Overview
The Group in Summary
Strategic Review
Marketplace Review
Divisional Business Review
Finance Review
Key Performance Indicators
Corporate Social Responsibility
Risk Management
GOVERNANCE
Board of Directors
Report of the Directors
Audit Committee Report
Remuneration Committee Report
FINANCIALS
Independent Auditor’s Report
Consolidated Statement of
Comprehensive Income
01
02
04
07
08
12
13
14
15
16
17
19
20
21
25
Consolidated Statement of Changes in Equity 26
Company Statement of Changes in Equity
27
Consolidated Statement of Financial Position 28
Company Statement of Financial Position
Consolidated Cash Flow Statement
Company Cash Flow Statement
Notes to the Financial Statements
29
30
31
32
OTHER INFORMATION
Advisors and Company Information
IBC
IFC STRATEGIC REPORT
STRATEGIC REPORT
Annual Report and Accounts for the year ended 31 March 2018
Annual Report and Accounts for the year ended 31 March 2018
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notes-heading-level-two
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{ notes-list-bullet
{ notes-list-bespoke
− notes-list-dash
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Overview
STRATEGIC REPORT
Financial highlights
{ Revenue increased by 20% from £107.7million to £129.8million.
{ EBITDA (adjusted) reduced from a profit of £1.4million to a loss of
£2.6million, leading to an operating loss of £23.2million
(2017: loss of £5.6million).
{ Loss before tax was £25.2million, after impairment charges of
£10.5 million and significant items of £5.0 million, with an underlying
loss before tax of £9.7 million (2017: loss of £6.2million).
{ Losses reflect the recognition of asset values (note 18) and historic
disruption caused by an intense period of ambitious investment, which
led to an inflated overhead base.
{ Since new management took control, some £2.8million has been taken
out of annualised central costs.
{ Profitability was also affected by rising raw material costs and
increased competition, exacerbating the impact of poor financial control
of central costs.
{ New management and a refreshed Board have brought rigour to
corporate governance, accounting practices and commercial discipline
over the period.
{ The Company is now properly financed for the longer term (note 23),
providing a platform to maximise earnings while also looking to optimise
shareholder value, including, where appropriate, through managed
disposals of constituent businesses (note 34).
Operational highlights and post-period end
{ Governance and control:
− A simple, clear objective and a turnaround strategy has been
articulated and is well underway, focusing on core assets.
− Significant Board changes made to improve corporate governance:
y
y
Appointment of Hugh CL Cawley as CEO from
1 January 2018.
Two new independent Non–Executive Directors appointed post
year-end.
− Improvements to financial processes and procedures.
− Corporate governance review carried out by Ernst & Young and all
recommendations being implemented.
− Continuing and enduring support of the Group’s major shareholders.
{ Operational:
− Disposal of two non-core businesses to focus more strongly on
Cake Decoration and Food Ingredients, for a total consideration of
£13.8 million.
− Central costs now materially reduced.
− Restructuring of financing undertaken raising up to £9.7million post
year-end to reduce debt and provide the platform for future growth
and managed disposals where appropriate.
Current trading
{ Trading is in line with our expectation for the year.
{ Christmas period remains critically important for Renshaw, one of the
Group’s principal continuing businesses.
*See note 5 for reconciliation.
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GROUP
REVENUE
£129.8m
2017
£107.7m
GROSS
PROFIT
£24.9m
2017
£26.3m
GROUP EBITDA
(adjusted)
(Loss)/Profit*
£(2.6)m
2017
£1.4m
GROUP
OPERATING
(Loss)
£(23.2)m
2017
£(5.6)m
Financial information presented
relates to continuing operations.
01
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The Group in Summary
Real Good Food operated in three divisions –
Cake Decoration, Food Ingredients and Premium Bakery.
The three divisions
Each division comprises individual businesses, working
together to varying degrees, dependent upon the opportunities beneficially
to co-operate.
Head Office
The central functions have reduced markedly since the period under
review, and now comprise Finance, Technical, Innovation and Information
Services, providing support to the businesses as required. Each business
generally has the resources to operate as a stand-alone unit, but clearly,
each is able to call upon the centre or the other businesses as required.
REVENUE
£47.7m
EBITDA Profit
(adjusted)*
£2.6m
OPERATING PROFIT
£0.5m
REVENUE
£45.9m
EBITDA Profit
(adjusted)*
£2.3m
OPERATING (LOSS)
£(3.5)m
REVENUE
£36.2m
EBITDA (Loss)
(adjusted)*
£(0.9)m
OPERATING (LOSS)
£(10.2)m
HEAD
OFFICE
EBITDA (Loss)
(adjusted)*
£(6.6)m
OPERATING (LOSS)
£(10.0)m
EMPLOYEES
360
EMPLOYEES
269
EMPLOYEES
531
EMPLOYEES
47
Read more on page 8
Read more on page 10
Read more on page 11
*See note 5 for reconciliation
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STRATEGIC REPORT
Renshaw manufactures sugarpaste, marzipan, soft icings,
mallows and caramels and sells across a broad range of
sales channels: mainstream and specialist retail, wholesale,
foodservice and food manufacturing as well as export.
Rainbow Dust Colours produces a range of edible glitters,
dusts, powders and food paints, brushes and pens for the
specialist sugarcraft sector. Renshaw Europe sells, markets
and distributes both Renshaw and Rainbow Dust products
across Continental Europe.
Renshaw: Liverpool, 311 employees
Rainbow Dust Colours: Preston, 30 employees
Renshaw Europe: Brussels, 14 employees
Renshaw Americas: New Jersey, 5 employees
R&W Scott: Carluke, near Glasgow, 94 employees
Brighter Foods: Tywyn, Wales, 168 employees
Garrett Ingredients: Thornbury, near Bristol, and Swindon,
Wiltshire, 7 employees
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, sold to Kent Foods in April 2018,
after the period under review had closed, sources dairy, sugar
and other specialist food ingredients from across the UK,
Eire and Continental Europe, selling them to large, medium
and small food manufacturers across the UK. Through a sub-
division of Garrett Inredients, GI Nutrition, the business that
was discontinued in October 2017, it also manufactured and
sold whey protein supplements and sports nutrition products
through retail and specialist sales channels.
Haydens: Devizes, Wiltshire, 496 employees
Chantilly: Paignton, Devon, 35 employees
Haydens Bakery, sold to Bakkavor Limited in September
2018 after the period under review had closed, 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 producers.
Chantilly manufactures premium quality frozen desserts
(e.g. gateaux, cheesecakes, tarts and flans) and sells them
to pubs and restaurants.
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Strategic Review
Introduction
The year under review was one which
the Company will look back on with little
pride or satisfaction, but from which
we believe many valuable lessons have
been learnt which will stand us in good
stead in the future. The importance of
strong corporate governance and clear
strategic direction, the ill-advisedness
of investing before having secured the
necessary funding and without having
a clear, rational, unequivocal business
case, and the enormous consequential
direct and indirect cost of failings in
these areas, all feature prominently in
the reasons for our poor performance
in this period.
However, the Board is pleased to
report that since the start of 2018,
we have begun to take many of the
remedial actions to turn around the
Group performance, continuing these
steps beyond the financial year end.
Moreover, we can now see the benefits
of these actions in terms of having
eliminated term bank debt, much
reduced costs and a greater focus on
our continuing core businesses, all of
which provide optimism for the future.
2017/18 performance
Revenues from continuing businesses
increased in the year from £107.7
million in 2016/17 to £129.8 million in
2017/18, reflecting not least the effect
of the acquisition of Brighter Foods
from April 2017 (which added £16.1
million of revenues). EBITDA (adjusted)
(see table for reconciliation) in the
same period dropped, however, from
a positive £1.4 million in 2016/17 to
a negative £2.6 million in 2017/18,
with a resulting operating loss, after
taking account of the exceptional
(“significant”) items of £5.0 million,
and impairment charges of £10.5
million, the statutory loss before tax
totalled £25.2 million (2017: £6.2
million).
Continuing operations
31 March
2018
£’000s
31 March
2017
£’000s
Profit/(Loss) before taxation
(25,167)
(6,236)
Depreciation of property, plant and equipment
Impairment charge
Amortisation of intangibles
Significant Items
Finance Costs
Other Finance Costs
2,909
10,494
2,269
5,009
1,756
164
2,428
4,109
360
87
427
216
EBITDA (adjusted) Profit / (Loss)
(2,566)
1,391
These significant losses arose from
a number of issues. There was
uncontrolled growth in the infrastructure
and overhead base of the businesses
and Head Office, in anticipation
of significant, unprecedented and
unrealised growth in revenues. It can be
argued that these arose from a blurring
of focus on the commercial imperatives
of the businesses as sizeable capital
investments were implemented in
less than perfectly managed projects.
We were also affected by the macro-
economy with a variety of unfavourable
movements in external influences,
including commodity prices, exchange
rates and litigation. Our inflexible and
monolithic inability to adapt to these
macro changes exacerbated an already
complex situation. Change was required
and the current Board has embraced
the radical change and discipline
necessary for a turnaround. In line with
our review of corporate governance, we
also appraised the accounting practices
of the recent past and, of necessity,
have subsequently made a variety of
adjustments.
Capital structure issues
Over the course of the financial year,
and following the year end, our three
major shareholders (Napier Brown,
Omnicane and, from the second quarter
onwards, Downing LLP client funds)
were repeatedly called upon to support
the Group’s finances through a mixture
of injections of loan capital and new
equity. The requirement arose not just
from the poor results of the business
and the extensive capital programme,
but also from having acquired Brighter
Foods in April 2017, without having
clearly identified the source of funds
which would satisfy the acquisition
funding. The details of the injection
of this funding and how and when
it was injected were included in the
shareholder circular issued on 18th July
2018 and those details are in note 23.
The longer-term funding solution which
was implemented, and concluded in
August 2018 following the financial year
end, was the investment by our three
major supportive shareholders in loan
notes convertible into equity to replace
the loan notes issued in respect of
their last injection of up to £8.7 million.
At the same time, to ensure that the
minority shareholders were able to
participate in a fundraising alongside
the supportive major shareholders,
an open offer was undertaken, which
raised £1 million, at 5 pence per
share, completed in August 2018. This
financial restructuring was approved at
the general meeting of shareholders
held in London in August 2018.
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STRATEGIC REPORT
Although the Board believes the
Group’s level of debt outstanding
remains higher than a business such
as Real Good Food should have, given
its business model, the presence of
bank debt within the Group is now
restricted to asset backed finance with
J F Renshaw and R&W Scott, and the
invoice discount facility; today there is
no bank term loan outstanding. At the
same time, the Group’s balance sheet
retains a significant tangible asset
base, goodwill that has been written
down to realistic levels, and net assets
significantly in excess of the Group’s
current stock market capitalisation.
This is an important measure in
establishing the Group’s financial worth
in future.
The Board is confident therefore that
these steps, in combination with a
variety of other corporate initiatives
including the recently announced
disposal of Haydens Bakery, have now
established a solid financial footing
from which the remaining constituent
businesses of the Group are able
to flourish.
Board changes
During the financial year, there were
a number of Board changes, with
further changes since the year end.
On 1 August 2017, Peter Salter
(Non-Executive Director) resigned
and Pieter Totté (Executive Chairman)
and Dave Newman (Finance Director
and Company Secretary) resigned
on 7 August 2017. There was no
compensation for loss of office to
these Directors.
The Board was strengthened by the
appointment of three new Directors.
Judith MacKenzie (non-independent
Non-Executive Director from one of our
three major shareholders, Downing LLP)
was appointed on 21 July 2017 and
Hugh CL Cawley (independent Non-
Executive Director) joined on 7 August
2017. Harveen Rai was appointed
as Finance Director and Company
Secretary on 7 August 2017. On 8
August 2017 Christopher Thomas
was appointed as Chief Executive
(from Non-Executive Director) and
Pat Ridgwell assumed the post of
Interim Non-Executive Chairman
(from Deputy Chairman).
www.realgoodfoodplc.com Stock Code: RGD
Each business has now set its own
objective and its strategy, defined what
resources it requires to deliver those
and then is shaping the organisation
of its people accordingly. We have
corporately learnt more about our
own businesses, their strengths and
weaknesses, and continue to do
so, with the assistance of external
perspectives where required.
We are very conscious, particularly
following the shock of last year’s
poor Christmas trading period, that
we cannot be complacent and must
recognise the competitive pressures
which are a relatively new feature
for some of our businesses. At the
moment, underlying trading is in line
with our modest expectations for the
year. The Christmas trading period
remains a critically important one for
Renshaw especially. Having had a year
where we incurred significant one-off
financial costs (principally significant
items and impairments) our intention
in the future is to report a far more
straightforward Income Statement, thus
enabling investors to value the Group
more easily using standard metrics.
‘So far so good’ therefore aptly
describes progress to date in this
new financial year. The operational
management teams and the employees
of the Group have endured considerable
challenges, as have other stakeholders.
As is the nature of any turnaround, the
pain comes before any benefit and
we thank all our stakeholders for their
patience and unstinting support thus far.
These changes were made to improve
the independence and corporate
governance structure of the Board and
to strengthen further the strategic and
turnaround expertise for the Group in
short order. In the light of the previous
failings, the Board subsequently
commissioned a full independent
review of the Group’s financial
processes and procedures, corporate
governance and controls to be carried
out by specialists from Ernst & Young.
This has been completed and the
recommendations are in the process of
being implemented in full.
On 1 January 2018, Hugh CL Cawley
was appointed Chief Executive, as
Christopher Thomas stood down from
the position to become Non-executive
Deputy Chairman. Following the year
end, we announced the appointments
of, and are delighted to welcome to the
Board as independent Non-Executive
Directors, Mike Holt (also as Chair of
the Audit & Risk Committee) and Steve
Dawson. We are confident that their
experience and fresh perspectives will
add real value to the Board.
We have now completed the major
planned changes to the Board’s
composition with a more appropriate
mix of independent and non-
independent Directors as well as
Executives and Non-Executives.
Operating performance
and outlook
Over the year and post year-end, the
Board has dealt with a number of other
challenges facing the Group, over and
above the funding situation, such that
the performance of, and prospects for,
what is now a smaller and more focused
Group, have improved considerably. The
substantial investment in central cost
has largely been unwound, for example,
with the central headcount reduced from
47 to 12 as at the date of signing these
accounts. This has reduced the central
cost base by an annualised £2.8m
before reinvesting a proportion of the
savings to ensure the divisions have
directly replaced as required the roles
previously provided by Head Office.
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Strategic Review
Group strategy
The Board’s strategy has been to
implement a turnaround plan for the
Group by focusing on its core assets.
Phase 1 of the plan has broadly been
delivered (disposals, refinancing, cost
reductions, normalised accounting
policies). We are now moving onto
Phase 2 to improve the profitability and
cash generation of the core assets and
place the Group in a stronger position
to deliver shareholder value.
A basic tenet of the strategy required
to deliver our objectives is to work
appropriately with the management of
each and every business to improve
its performance, thus increasing the
return on the considerable investment
that has been made in recent years and
thereby also increasing the inherent
value of each business. Some of the
businesses in the Group are further
developed along that track than others.
Mindful that the Group has suffered
historically from spreading its resources
too thinly, the Board recognises that
where the net value to shareholders of
a business currently within the Group
is demonstrably greater were it to be
sold in the short term (as opposed
to retained and turned around), then
it must be considered a candidate
for sale. Garrett Ingredients was an
example just after the period under
review. The recent disposal of Haydens
also resulted from that recognition.
As a result, the continuing material
divisions of the Group comprise Food
Ingredients and Cake Decoration, both
of which are clearly profitable divisions.
Summary
The Group now principally comprises
two excellent divisions, with clear
objectives and strategies to achieve
those objectives. We believe we have
the leadership, the senior management
and the resources capable of delivering
the marked uplift in performance
required of each of them, together with
the solid financial foundation from
which to do so. Indeed, there are signs
of improvement already apparent in
each business.
There have been marked strides
made in the standards of corporate
governance throughout and there
is much firmer control over costs
and capital. This is a significant
improvement on the situation of
just a year ago. We are grateful
for the continued support of all
the stakeholders who have shown
confidence in the Group during some
historically challenging times and
we will strive to keep the positive
momentum which has been built of
late. The Board now has good reason
to be more confident, but far from
complacent, in the future prospects for
the Company.
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STRATEGIC REPORT
Marketplace Review
The Group operated in three main divisions: Cake Decoration, Food
Ingredients and Premium Bakery. Our brief perspective on the major
trends in each division follows.
The Group’s Cake Decoration division
comprises; Renshaw in the UK, USA
and Europe and Rainbow Dust Colours.
The Group’s Food Ingredients division
comprises; Brighter Foods, R&W Scott
and Garrett Ingredients.**
The Group’s Premium Bakery division
comprises; Haydens Bakery** and
Chantilly Patisserie.
One of the key trends in the huge
food ingredients sector is towards
an ever-greater emphasis on healthy
eating. Health considerations are now
prevalent throughout the food chain,
and have been for many years, with
something like 29% of all in-home food
purchases cited as being driven by
health considerations*. Brighter Foods
is especially well positioned to benefit
from consumer choice migrating from
confectionery to healthy snack bars; the
whole of this latter market is said now to
be worth over £360 million at RSP.
The total market for cakes and pastries
in the UK (worth some £2.4 billion at
RSP – 52 weeks to 20th May 2018*)
is growing at 3.7% per annum, with
Premium Bakery contributing positively
across all sectors. Within that market,
Haydens operates in six sectors of
which yum yums, croissants, Danish
pastries, sweet buns and pies are all
growing in both volume and value.
From the Multiples through to the
Discounters, retailers are enjoying
growth across these premium own-label
categories.
The love of homebaking in the UK
continues, fuelled by the continuing
success of TV programmes such as the
Great British Bake Off, the final of which
in the autumn of 2017 was watched
by a live audience of some 7.2 million
people. Nine out of ten consumers
shop in the homebaking market, a
market which is currently worth some
£705 million at RSP (retail selling
price)*. Within that, cake decorating
continues to grow and the visual appeal
of the end product is fuelled by the
ever-increasing use of social media.
Renshaw’s launch of its new Simply
CreateTM brand recognises and aims to
satisfy the growing need that the home
baker has to create more ambitious
and visually appealing cakes, but
using products specifically designed to
make the creative process as easy as
possible.
* Kantar data
** Business disposed of post year-end (see note 34)
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Divisional Business Review
2017/18 Performance
This year’s result for Cake Decoration
was disappointing in one of the key
businesses of the Group. Significant
delays to the commissioning of new
manufacturing equipment aimed at
introducing new products, formats
and a new brand, a delay in recovering
commodity cost increases during the
key sales period, and a significant
increase in competitive intensity,
particularly in the retail sector, were the
most significant factors contributing to
the performance.
A transformational capital investment
programme started during the year,
with a new line to produce convenience
formats of Renshaw’s core product,
rolled icing, and a new soft icings
plant; one line is now fully operational
and the other is in the final stages of
commissioning.
Consumer demand in the Cake
Decoration category in the UK was
largely flat, although consumer
shopping behaviour continued to
change, with footfall moving from
Grocery Multiples to Discount & Bargain
store channels where the range of
homebaking products is more limited.
During the key trading season for sweet
homebaking, competitive intensity
increased considerably resulting in
lower selling prices across brand
and own-label products. A delay in
recovering commodity cost increases
in sugar and dairy products further
contributed to reduced margins.
Outside the UK, the establishment of
a USA-based warehouse to fulfil orders
for North America was completed,
leading to a one-off reduction of stock
within the supply chain but consumer
demand remains strong. A review of the
order fulfilment model for Continental
Europe customers was initiated with the
aim of ensuring the division is easier to
do business with and the Europe-based
personnel are focused on business
development.
A product rebranding and relaunch
exercise at Rainbow Dust was initiated
with some delays experienced due to
the scale and technical complexity
of ensuring product compliance,
particularly for export markets. The
Preston manufacturing site made
significant strides to ensuring it has the
potential to distribute products into new
channels and territories, achieving both
FDA and BRC accreditations.
Forward plans
The business is implementing plans
focused on streamlining processes and
resources to ensure better coordination
of activity across the Cake Decoration
operating units and executing a growth
strategy focused on increased supply
of everyday usage and convenience
products under its own and retailer
brands, in the UK and in selected
export markets.
The professional cake decorating
community already holds Renshaw
products in high esteem – we value
and cherish that hard-won respect.
The launch of the Simply CreateTM
brand represents a real opportunity
for Renshaw to encourage novice
consumers to practise and expand
their cake decorating skills. The range
includes high-quality frostings in an
easy-to-use tub, tasty icings in a carton
and pourable icings, and it provides
an easy excuse to create and enjoy
a celebration cake, with professional-
looking results. With the challenges
over the past year, we held back the
planned national launch of Simply
CreateTM. During the current year,
Simply CreateTM has been listed in
Booths in the north-west of England
and throughout the Co-op estate,
with encouraging early results; wider
national distribution is planned from
early next year.
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Divisional Business Review
STRATEGIC REPORT
In business-to-business, the division
sees significant opportunities to
leverage its long-standing industry
knowledge and expertise to help
cake manufacturers, for example, by
delivering better value core ingredients
and some new innovative products,
capitalising on current cake decorating
trends.
Export growth is focused on North
America where the division has
identified significant potential to grow
sales, and a plan has been developed
which will see an increase in sales
resource, a higher profile presence
in the market and the acquisition of
new customers.
Following its review of the order
fulfilment model for Europe, the
business has closed its Brussels
warehouse and reverted to supplying
product from the UK with no detriment
to service levels. The Europe-based
sales effort will now focus on existing
and new business development.
Ensuring the supply of consistently
high-quality product remains the
key imperative for the division and,
while it values the reputation it has
and the accreditations achieved, it
is implementing various initiatives
to ensure product quality standards
continue to improve and that it leads
the industry in this respect.
REVENUE
£47.7m
EBITDA Profit
(adjusted)*
£2.6m
OPERATING
PROFIT
£0.5m
12 Months to March
2018
£m
2017
£m
Revenue
EBITDA (adjusted)*
Operating profit
Operating profit %
* See note 5 for reconciliation
47.7
2.6
0.5
1.0%
47.0
6.5
5.5
11.7%
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Divisional Business Review
2017/18 Performance
The Food Ingredients division
has undergone a fundamental
transformation during the past two
years, with the exciting, value-adding
acquisition of 84.33% of Brighter
Foods at the start of the financial year.
Conversely, shortly after the end of the
period, in line with our current strategy,
we divested Garrett Ingredients,
recognising that its net value to
shareholders was better realised from a
disposal than from continued ownership
(note 34). The trading conditions faced
by Garrett Ingredients in the year,
resulted in recognising an impairment
of £3.5 million (see note 16). During
the year to March 2018, there was
also considerable investment in R&W
Scott, where the acquisition of one
multiple retailer’s jam business added
significant volume, though at lower
than normal margins for this business.
Brighter Foods performed well during
the period and helped move the
division into positive EBITDA (adjusted),
although commodity prices were
unhelpful for the trading business and
for R&W Scott for much of the year.
REVENUE
£45.9m
EBITDA Profit
(adjusted)*
£2.3m
OPERATING
(LOSS)
£(3.5)m
12 Months to March
2018
£m
2017**
£m
Adjusted for:
Revenue
EBITDA (adjusted)*
profit/(loss)
Operating (loss)
Operating (loss) %
45.9
26.9
2.3
(3.5)
(1.4)
(5.6)
(7.6)%
(20.8)%
* See note 5 for reconciliation.
**2017 restated for continuing business only.
Forward plans
The acquisition of Brighter Foods
transformed the scale and boosted
the profitability of this division,
establishing an important presence
in the added value health sector. The
performance of R&W Scott in the year
was disappointing, notwithstanding it
secured a major jam contract, and the
returns from the investment made in
plant and equipment did not start to
show through until after the close of the
year. The origins of the sugar trading
dispute impacted the profitability of
the division markedly during the year,
particularly at Garrett Ingredients, and
the resulting switch of suppliers helped
margin recovery in the second half of
the year. The dispute regarding the
non-supply contracted sugar remains
unresolved. No separate disclosure is
made, as to do so could prejudice the
position of the Company.
The acquisition of Brighter Foods has
provided the Group with a robust and
stable platform in the growing health
food & wellness market.
Brighter Foods, acquired in April 2017,
creates and manufactures snack bars
for the healthy snacking market from
its factories in Tywyn, Gwynedd in
Mid Wales. This multi-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. As well as manufacturing
partner-branded products, Brighter
Foods has its own healthier brands
such as Wild Trail, which is stocked in
major retailers and health food stores.
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STRATEGIC REPORT
Forward plans
The Haydens business was sold in
early September 2018, to Bakkavor
Limited for £12 million, leaving Chantilly
Patisserie as the only business in our
Premium Bakery category (note 34).
Commodity prices will continue to be
a challenge, most particularly in the
higher end of the market in which
Chantilly operates but with excellent
products and a strong pipeline of new
product innovations, Chantilly’s ability to
stand alone in serving its foodservice
customer base is well-established.
2017/18 Performance
It is difficult to over-emphasise the
disruptive effect of the extensive
investment programme at Haydens
during the year. As a result of the
capital investment, however, the factory
in Devizes now has significant extra
capacity (one of the important features
that made the business attractive to
it’s recent acquirer) and is delivering
enviable service levels. This has already
allowed the business to attract Tesco
and Sainsburys to join the growing
customer list, utilising the equipment
installed as part of the investment.
Commodity prices were also very
unhelpful over the year, with the cost
of butter remaining at historically high
levels and our commercial agreements
at that time not tailored to recover
any of the added cost. Projects are
underway to improve the levels of
waste and overall efficiency, seeking to
extract maximum return from the new
investment. Recruitment of high-calibre
staff across the industry remains a key
differentiator and with a project that
also invested in staff and facilities, we
have increased the attractiveness of
the business for the future.
In the event, the planned move of the
Chantilly Patisserie business to new
premises was shelved, since, while it
was of course intuitively right to expand
and grow, given the relative scarcity
of cash last year, the investment
case for doing so simply could not be
made; the business remains based in
premises where growth will potentially
be capacity-constrained, although this
is not currently an issue.
The challenging trading conditions
resulted in an impairment of fixed
assets of £6.0 million for Haydens
Bakeries (note 18), and an impairment
charge to goodwill of £1.0 million for
Chantilly Patisserie (note 16).
REVENUE
£36.2m
EBITDA (Loss)
(adjusted)*
£(0.9)m
OPERATING
(LOSS)
£(10.2)m
12 Months to March
2018
£m
2017
£m
Adjusted for:
Revenue
EBITDA (adjusted)*
profit/(loss)
Operating profit/(loss)
36.2
33.9
(0.9)
(10.2)
1.2
0.1
0.3%
Operating profit/(loss) %
(28.2)%
*See note 5 for reconciliation
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Finance Review
Overview
During the year to 31 March 2018, the
finance team, supported by the Board,
senior management, auditors, financial
advisors and external consultants,
carried out comprehensive reviews
of financial controls and corporate
governance.
The findings of the reviews set
into motion a number of activities
to improve financial controls and
governance with all recommendations
in the process of being implemented.
A number of accounting processes and
procedures were reviewed which resulted
in a number of negative adjustments
within EBITDA (adjusted), and also
profit before tax, and full reviews of all
investments in light of projected future
divisional performance saw material
impairments of assets and goodwill, too.
Revenue
Group revenue for the 12 months
ending 31 March 2018 was £129.8
million (2017: £107.7 million), an
increase of 20% on the revenue
to 31 March 2017. This results
from growth in the Food Ingredients
business of £19.1 million, in Premium
Bakery of £2.3 million and a near-
flat performance in Cake Decoration
where sales YOY increased by £0.7
million. The increase in the Food
Ingredients division was driven mainly
by the acquisition of Brighter Foods in
April 2017, the revenue from Brighter
amounting to £16.1 million in the year.
Premium Bakery also saw revenue
growth following significant investment
in the year in both the yum yum and
tarts categories.
Profit measure on operations
Gross profit on the continuing
businesses for the overall Group was
£24.9 million (2017: £26.3 million).
At 14.9%, the delivered margin in the
year was below the prior year of 19.9%.
This margin has been impacted by
several factors including unfavourable
commodity price increases, later than
expected and limited price recovery,
currency impact, and changes in
accounting estimations within stock.
The operating loss in the year of £23.2
million is reported after an impairment
charge of £10.5 million, depreciation
and amortisation charge of £5.2 million
and significant costs of £5.0 million.
The impairment review resulted in an
impairment of goodwill of £4.5 million
(see note 16), and impairment of fixed
assets of £6.0 million (see note 18).
This has resulted in a statutory loss
before tax of £25.2 million (2017: loss
of £6.2 million), giving a basic loss per
share of 33.10 pence against a loss
per share of 8.18 pence in 2017 (see
note 15).
Cashflow and net debt
The significant capital investments,
financial impact of poor governance and
other factors affecting the operating
loss described above, led to insufficient
working capital. Shares issued in the
year and additional loans to 31 March
2018 amounted to £24.2 million,
of which £13.0 million of cash was
used in investing activities and £6.6
million of cash was used in operating
activities.
Refinancing and
additional funds
During the year, and since 31 March
2018, significant funds were injected
into the business by the major
shareholders to support the working
capital needs of the business. Agreed
investor loans and equity placing total
£27.0 million to the year end, and a
further £9.7 million was agreed after
the year end, of which £1.0 million was
raised through the Open Offer in August
2018. The Group further increased
its borrowings under hire purchase to
£6.4 million and continued to utilise
the invoice discounting facility. Further
details of borrowings can be found in
note 23. The total of borrowings saw
interest charges in the year totalling
£1.6 million.
Pension scheme
The Group offers a defined contribution
scheme for all current employees
that is funded on a monthly basis.
In addition, the Company operates a
defined benefit scheme that was closed
to new members in 2000.
The defined benefit scheme is the
Napier Brown Retirement Pension
Plan (the Plan). The IAS 19 pension
schemes valuation reported a gross
deficit at 31 March 2018 of £6.4
million (2017: £5.9 million). The Plan
assets decreased by £0.4 million to
£13.5 million (2017: £13.9 million) and
the Plan liabilities are £19.9 million
compared to £19.8 million at 31 March
2017. See note 31 for further details.
Dividend
The Directors, taking into account
the Group’s performance and cash
resources, do not recommend the
payment of a final dividend for the year
ended 31 March 2018 (2017: £28k).
Outlook
Following a difficult year, current trading
is in line with our modest expectations
for the year. The Group remains focused
on continuing to improve its results
and reduce net debt, as well as its
corporate governance and internal
controls to support the business
strategy and increase shareholder value
and returns.
Results of continuing operations
31 March
2018
£’000s
31 March
2017
£’000s
Adjusted for:
Revenue
129,842 107,736
Gross profit
24,902
26,325
Delivered margin
19,443
21,410
Delivered margin %
14.9%
19.9%
EBITDA (adjusted)
(loss)
(2,566)
1,391
Operating loss
(23,247)
(5,593)
Operating loss %
(17.9)%
(5.2)%
Loss before tax
(25,167)
(6,236)
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Finance Review
Key Performance Indicators
STRATEGIC REPORT
The Board monitors a range of financial and non-financial key
performance indicators, reported on a regular 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 free cash flow generation.
REVENUE GROWTH
Revenue is calculated for continuing
business and is from external
sources only.
£129.9m
£107.7m
£100.4m
£104.6m
2018
2017
2016
2015
£5.0m
£5.3m
£1.4m
£(2.6)m
2018
2017
2016
2015
£37.8m
£30.1m
£16.2m
2018
2017
£5.1m
2016
2015
11.5
1.0
5.6
(14.5)
2018
2017
2016
2015
EBITDA (ADJUSTED)
EBITDA (adjusted) 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
(adjusted).
ACCIDENT FREQUENCY RATE
The accident frequency rate is the
number of RIDDOR accidents spread
across the hours worked.
COMMENT
Revenue in the year has increased by
20%, driven primarily by Premium Bakery
and Food Ingredients (Brighter Foods
acquisition £16.1million).
EBITDA (adjusted) loss of £2.6 million due
to commodity price increases, changes
in accounting estimations and increased
overhead costs.
Net debt in the year has increased to
£37.8 million; these funds were required to
fund the Group’s investment plan, its poor
divisional performance and the significant
one-off costs incurred in the year.
As a result of increased net debt and
EBITDA (adjusted) losses incurred in the
year net debt: EBITDA (adjusted) cover
stands at (14.5)
0.73
A higher number denotes a higher risk.
0.48
0.38
0.12
2018
2017
2016
2015
2018
2017
2016
2015
J F Renshaw Limited
Haydens Bakery Limited
Brighter Foods Limited
R&W Scott Limited
1.54
0.00
0.00
0.00
1.08
0.00
–
0.97
0.00
–
1.45
0.36
–
0.98
0.52
1.70
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Corporate Social Responsibility
Real Good Food plc recognises its responsibility to, and how much it
benefits from, the communities of which it is a part, and embracing its
corporate social responsibility is therefore an integral part of building
long term sustainable businesses in our divisions. Notwithstanding that it
was a difficult year for the Group, we continued to play our part with our
stakeholders and in our communities.
Each business has a Corporate
Social Responsibility Plan that was
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 during 2016
has three key objectives:
{ To be the employer of choice in its
local community.
{ To be actively involved within
our communities and to build a
reputation for social responsibility.
{ To continue to strengthen our
reputation for respect, integrity
and innovation with our customers,
suppliers, employees and partners.
The following are examples which help
illustrate the type of activity that our
businesses are engaged in against
those objectives.
During 2017/18, Renshaw raised some
£3,800 for the local charity, KIND –
which helps children and their families
cope with the effects of disadvantage
and poverty – through sponsored
activities such as bike rides, cake sales
and raffles. The business also supplied
product to KIND for open days, and to
use in their work with local children,
and supported another local charity, The
Whitechapel Centre – a homelessness
and housing charity – through the
winter, supplying food and clothes
donated by employees for the homeless
in Liverpool. Renshaw also operate a
payroll donation scheme to Barnados,
through which last year some £4,700
was donated, bringing the total so far
donated to over £35,000.
Brighter Foods are also active in their
local community; the company helped
the local council to promote careers in
Science, Technology and Engineering,
for example, through attendance at
Coleg Meirion Dwyfor, Dolgellau in June
2018. They also sponsor Monmouth
RFC, sponsored the 2017 Wales Start
Up Awards and contributed to the cost
of the Shed Egryn project, a community
facility in the village of Llanegryn,
which allows members of the
community to come together, share
skills, have access to a workshop and
other shared facilities.
In the Premium Bakery division,
Haydens’ significant investment
programme allowed the business
to invest in improved facilities for
employees on site, to increase the
number of apprenticeships and
to provide site-wide training for all
employees. As well as frequently
providing produce for local charitable
events, there were also monetary
donations to local schools, Air
Ambulance and the British Legion.
Chantilly Patisserie, located in Paignton,
donates fine patisserie products to
local charities, schools and hospitals
and is a member of Taste for the West,
an organisation that promotes food
businesses in the South West region.
Health and safety
Commentary 2017/18
{ Haydens continued its strong record
of performance, having not had a
RIDDOR accident since November
2015. With circa 500 people in the
business and a significant capital
expansion project, this is a major
achievement.
{ Brighter Foods has performed well
with no RIDDOR incidents reported.
{ Renshaw experienced a number of
accidents and incidents during the
year and this has so far continued
into 2018.
{ R&W Scott appointed a permanent
HSE Advisor following a period of
interim support.
{ Having established an appropriate
stand-alone HSE infrastructure
within each business, the Group
Head of HSE left the business after
the end of the year under review.
2018/19 Priorities
{ Maintaining and improving legal
compliance and health and safety
performance where businesses look
to stand alone – an appropriate
periodic audit process will be
implemented to ensure improving
standards in this important area.
{ Implementing corporate reporting
such that the individual businesses
report in common format and
performance is reviewed at every
Board meeting.
{ Targeting a reduction in the
number of incidents in Renshaw’s
operational HSE performance.
14
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Regulatory & Legal
The company has previously
acknowledged failings in corporate
governance and specifically its related
party disclosures. These failings could
perhaps result in further action from
the relevant regulatory authorities.
The company is currently not aware
of any regulatory investigations. The
Board has taken significant steps to
improve the corporate governance of
the company and a review was carried
out by Ernst & Young with the resulting
recommendations in the process of
being implemented.
This report was approved by the Board
on 28 September 2018 and is signed
on its behalf by
Hugh CL Cawley
Chief Executive
Officer
Harveen Rai
Finance Director
STRATEGIC REPORT
Risk Management
The risks the Group faces relate to
events, and depend on circumstances,
that may or may not occur in the future.
The Board recognises that risks and
uncertainties could affect the delivery
of its strategic objectives. The past
year has seen significant improvements
within the Group’s governance and
with the recent appointment of a
new independent Chair of the Audit
Committee, the development of a risk
management framework will be a key
focus area. The principal risks of the
Group as a whole are set out below, in
no particular order of priority.
Demand for products
& market share
Many factors affect the level of
consumer spending in the food
industry and consumer preferences
and spending habits change through
factors that are difficult to predict,
including lifestyle, nutritional and
health considerations. The Group has
expertise in the categories within which
it operates and builds on shopping
insights to predict a change in trends
and develop new products for changing
habits. The recent acquisition of
Brighter Foods is an example of the
Group’s establishing an important
presence in the added value health
sector.
The Group may experience increased
competition from existing or new
companies especially at a time when
the major retailers are experiencing
difficult trading conditions. The Group’s
sales fluctuate seasonally with products
sold during Christmas and Easter
accounting for a significant portion of
the Group’s overall revenue. The Group
maintains close relationships with its
existing customers base and continues
to develop research-led innovative
products. To reduce dependency on the
UK further, the Group has focused on
growing its market share in selected
export markets.
Macroeconomic environment
& Brexit
The Group has no control over
fluctuations in the longer-term price
and availability of ingredients and there
remains uncertainty over the exit from
the EU. The Group manages the impact
of commodity price inflation and foreign
exchange through natural hedging.
Regulations and safety
Food safety, environmental protection
and employee health and safety
are constantly evolving areas of
responsibility for the business, and
subject to increasing regulation
at home and abroad. Any incident
could have an impact on the Group’s
reputation and customer confidence.
The individual businesses of the Group
have responsibility for ensuring that
safe standards are maintained.
Pension liabilities
The Group operates a now closed
defined benefit pension scheme which
exposes the Group to changes in
investment returns, discount rates, life
expectancy and inflation. Although the
Group currently expects to be able to
meet its obligations under the pension
scheme, the funding of the scheme
exposes the Group to further risks.
Working capital
In order for the Group to have sufficient
working capital for its needs, the Group
has been dependent upon significant
financial support from its major
investors, the disposal of businesses,
the potential Sale & Leaseback of
freehold properties and central profit
improvement initiatives. The Board
regularly monitors the Group’s cash
position and, since the year end,
has disposed of two businesses,
renegotiated the terms of the investor
loans, secured further funding and
reduced the central cost base. The
Directors, after due consideration,
have a reasonable expectation that the
company and the Group have adequate
resources to continue in operational
existence for the next 12 months.
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Board of Directors
Heading
Patrick Ridgwell Interim Non-Executive Chairman
Assumed the role of Interim Non-Executive 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 Non-Executive Deputy Chairman
Assumed the role of Non-Executive Deputy Chairman on 1 January 2018, on standing down as Chief Executive
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.
Hugh C L Cawley Chief Executive Officer
Appointed Chief Executive on 1 January 2018, having been a Non-Executive Director since joining the Board on 7 August 2017
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 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.
Harveen Rai Finance Director and Company Secretary
Appointed 7 August 2017
Harveen has 20 years’ 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.
Judith A Mackenzie Non-Executive Director
Appointed 21 July 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.
Steve Dawson Non-Executive Director
Appointed 19 September 2018
Steve has extensive experience of the food and beverage industry, both in the UK and in North America, from both advising clients on how to improve and
build their businesses and from practising such skills himself. He is currently the Managing Director and founder of BrandGrowth LLC, a consultancy focused
on advising food and beverage brands on how to achieve their growth strategies. From August 2016 to May 2018, Steve was Interim CEO of Bahlsen North
America, stabilising the business and setting it well on the path for successful growth. Prior to founding BrandGrowth, Steve had enjoyed success as the CEO
of Walkers Shortbread Inc for nearly nine years and had spent eight years as Managing Director of Food From Britain North America.
Michael J Holt Non-Executive Director
Appointed 7 August 2018
Mike has significant public company board and financial experience. He was CFO of Low & Bonar PLC, an international performance materials group,
between 2010 and 2017. Prior to that, he was CFO of Vp plc, the specialist equipment rental group, for over six years from 2004. Prior to joining Vp,
Mike held senior financial positions within Rolls-Royce Group in the UK, USA and Hong Kong. He is a fellow of The Institute of Chartered Accountants in
England and Wales and a member of The Association of Corporate Treasurers. Mike qualified as a Chartered Accountant with Arthur Andersen. Mike is
also a non-executive director, and chair of the audit and risk committee, of Schroders Asian Total Return Investment Trust Company plc.
Pieter Totté Executive Chairman – Resigned 7 August 2017
Peter Salter Non-Executive Director – Resigned 7 August 2017
David Newman Finance Director and Company Secretary – Resigned 7 August 2017
Resignation and appointment dates as registered at Companies House
16
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Board of Directors
Report of the Directors
GOVERNANCE REPORT
The Directors present their report and the audited financial statements
for the 12-month period ended 31 March 2018.
Corporate governance
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 appointed
specialist external advisors from Ernst
& Young to conduct a full review of the
Company’s corporate governance and
financial reporting procedures, since
which time their recommendations are
being implemented.
The Directors are committed to high
standards of corporate governance and
acknowledge the importance of a good
corporate governance framework. The
Board has chosen to apply the Quoted
Companies Alliances “QCA” corporate
governance code for small and mid-
sized quoted companies 2018 and is
actively seeking to be compliant.
A number of changes were made to
improve the independence and corporate
governance structure of the Board.
On 21 July 2017, the Board was
strengthened by the appointment of
Judith MacKenzie (non-independent
Non-Executive Director) and on
7 August 2017 of Hugh CL Cawley
(independent Non-Executive Director).
On 8 August 2017, 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
2017. On 7 August 2017, Peter Salter
resigned as Non-Executive Director,
Pieter Totté resigned as Executive
Chairman of the Company and David
Newman resigned as Finance Director.
Further changes followed during
the year with Hugh CL Cawley being
appointed as Executive Director on
1 January 2018 and Chris Thomas
became Deputy Chairman. After
the year end two independent Non-
Executive Directors, Mike Holt (also
Chair of the Audit & Risk Committee)
and Steve Dawson were appointed.
The Company also changed key
advisors which saw BDO LLP appointed
as the Company’s auditor and Walker
www.realgoodfoodplc.com Stock Code: RGD
Morris as the Company’s principal
solicitors.
The Board meets once per month
and reviews the performance of the
business at each meeting. The Board
has delegated certain responsibilities
to the Audit and Remuneration
Committees, details of which can be
found on pages 19 and 20.
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; and
{ 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
planned future performance. The
forecasts, agreed with the businesses,
consider reasonable possible changes
in trading performance and these
assumptions have been projected and
shared with the Company’s advisors.
The Group was in compliance with its
banking covenant tests at 31 March
2018 and 30 June 2018 with the term
loan subsequently settled in full in
September 2018.
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 the current
strategy and future performance,
the Directors have a reasonable
expectation that the Company and
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Report of the Directors
the Group have adequate resources
to continue in operational existence
for the next 12 months and therefore
continue to adopt the going concern
basis in preparing the consolidated
financial statements.
Provision of information
to auditor
Each person who is a Director at the
time when this Report of the Directors
is approved has confirmed that:
{ As far as that Director is aware,
there is no relevant audit
information of which the Group’s
auditor is unaware, and
{ That each Director has taken all the
steps that ought to have been taken
as a 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,
foodservice and industrial sectors.
Business review and future
developments
These topics are covered in detail
within the Strategic Review, Divisional
Reviews and Finance Director’s report
on pages 4-12.
Non-current assets
Details of changes in non-current
assets are given in notes 16-20 to the
financial statements.
Directors
During the year, a number of changes
took place to strengthen the Board.
Pieter Totté, Peter Salter and David
Newman resigned their positions as
Directors of the Company and Harveen
Rai, Judith Mackenzie and Hugh CL
Cawley were appointed to the Board.
After the year end, the Board was
pleased to announce the appointment
of Mike Holt as Independent Non
Executive Director and Chair of the
Audit & Risk Committee and the
appointment of Steve Dawson as
Independent Non-Executive Director;
details are given on page 16.
Substantial interests
Downing LLP subscribed for ordinary
shares representing 10% of the share
capital in July 2017 at a price of 35
pence per share, raising a further
£2.75million. Admission of the
additional 7,844,924 new ordinary
shares occurred in July 2017.
There were the following substantial
interests (3% or more) in the Company’s
ordinary share capital:
31 March 2018
Napier Brown Ingredients
Limited
Omnicane International
Investors Limited
Downing LLP
% Holding
in ordinary
share capital
28.2%
26.3%
10.0%
Following the Open Offer of £1.0m, the
admission of 20,115,190 new ordinary
shares on 17 August 2018 resulted in
a change of the substantial holdings
as reflected in the table below. This
table does not reflect the possibility
of the conversion of Convertible Loan
Notes in the name of the three major
shareholders, Napier Brown, Omnicane
and Downing, details of which are
provided in note 23.
20 August 2018
Napier Brown Ingredients
Limited
Omnicane International
Investors Limited
Downing LLP
Mr J & Mrs S O’Driscoll
% Holding
in ordinary
share capital
22.5%
21.0%
8.0%
5.6%
Directors’ indemnities
The Company has paid £22,880 (2017:
£9,450) in respect of Directors’ and
Officers’ Indemnity Insurance.
Financial instruments
The Group’s financial instruments
comprised bank term loans and a
revolving credit facility, hire purchase
and finance leases, loan notes from
the major shareholders, 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 25 to the
financial statements.
Liquidity risk
Short term flexibility is available through
existing bank facilities.
Employee involvement
The Group aims to improve the
performance of the organisation
through the development of its
employees. Their involvement is
variously encouraged by means of team
working, team briefings, consultative
committees and working parties.
Equal opportunities
The Group continues to embrace and
champion the principles of equality of
opportunity and diversity in all aspects
of employment. During the year, our
employment policies and procedures
have been updated to ensure best
practice continues to be adopted, and
we continue to apply those principles to
enable a workplace which is free from
discrimination and where development
opportunities are open to all. The Group
also encourages an active approach to
those who require additional support in
order to achieve their potential.
During the year, the Group’s first gender
pay report was published, providing the
baseline for future development plans
and activities, particularly in terms of
leadership. Through our Leadership
Framework we look forward to creating
the opportunities for developing greater
diversity throughout our management
structures in the future.
Charitable and political
donations
During the current financial period the
Group made charitable donations of
£3,237 (2017 : £3,689). No political
donations were made during the current
or previous financial period.
This report was approved by the Board
on 28 September 2018 and is signed
on its behalf by
Hugh CL Cawley
Chief Executive
Officer
Harveen Rai
Finance Director
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Audit Committee Report
Audit Committee Report
Up until 1 August 2017, the audit
committee consisted of Peter Salter
(chairman) and Christopher Thomas.
Following Peter Salter’s resignation
on 1 August 2017, Hugh CL Cawley
became chair of the Audit Committee
on 7 August 2017. On 1 January
2018, Christopher Thomas assumed
the role as Chairman, pending the
appointment of an appropriately
qualified independent Non-Executive
Director. The Audit Committee met on
three occasions during the year.
Since the appointment of Mike Holt
to the Board on 7 August 2018, the
Committee now comprises Mike
Holt (as Chairman) and Christopher
Thomas. Collectively, they have the
skills and experience required to fully
discharge their duties and Mike Holt,
having been the Chief Financial Officer
of Vp plc (2004-2010) and Low &
Bonar PLC (2010-2017), meets the
requirement of recent and relevant
financial experience. The Committee
is scheduled to meet formally twice
a year with the auditor, in relation
to the annual and interim accounts,
but in addition, 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 primary role is to
ensure the integrity of the financial
reporting and audit process and the
maintenance of sound internal control
and risk management systems. It is
responsible for monitoring and reviewing:
{ the integrity of the Group’s financial
statements and any formal
announcements relating to its
financial performance;
{ the Group’s internal financial
controls and internal control and
risk management systems;
{ the effectiveness of the external
audit process and making
recommendations to the Board on
the appointment, reappointment
and removal of the external auditor;
{ the policy on the engagement of the
external auditor to supply non-audit
services; and
{ taking specific responsibility
for certain key areas of risk
management to support the Board’s
role in overseeing an enterprise-
wide approach to risk identification,
management and mitigation.
In light of the disclosures of the
past year or so, a review of the
effectiveness of the corporate
governance and financial reporting
procedures was undertaken by Ernst
& Young, and the effective operation
of the Committee was encompassed
within that review. The past year has
seen significant improvements to the
governance regime throughout the
Group, through the implementation of
the recommendations of the review,
notably appointing two independent
Non – Executive Directors to the
Board, one of whom already chairs the
Audit Committee, setting out matters
reserved for the Board, improved
reporting to the Board, financial
accounting and reporting and strategic
planning. The key measures yet to
be implemented are internal control
assurance and risk management in
order to be compliant with the QCA’s
Code of Best Practice for small to
medium companies.
The Audit Committee reviewed a
wide range of financial reporting and
related matters in respect of the
Company’s Annual Report prior to their
consideration by the Board. Reports
highlighting key accounting matters
and significant judgements were also
received from BDO LLP in respect of
the year end financial statements
and discussed by the Committee. In
particular, these included the significant
judgement areas of the impairment of
goodwill and the going concern basis
of accounting.
Description
Of Risk
Overview of Risk
Company response
Asset
Impairment
The Group has £70.0 million of
goodwill,relating to excess of fair value
to consideraton paid for acquisitions,
and £30.1 million of property, plant and
equipment. The carrying value of goodwill
is reviewed at least annually to check
that it is not in excess of its recoverable
amount. The value of property, plant
and equipment is stated at cost less
accumulated depreciation and impairment
losses.
Cash flow projections for each Cash Generating Unit “CGU” have been
prepared and reviewed, which take into account current market conditions
and the long-term growth expectations for the key markets served by
the CGUs. A sensitivity analysis was also applied to stress test the
assumptions and future economic value of assets. These resulted in
the impairment of £4.5m of goodwill and £6.0m of property, plant and
equipment carried forward from previous years. The Audit Committee
discussed the underlying assumptions, and discount rates used, with
both management and BDO LLP. Following discussion of headroom and
sensitivity, the Committee was satisfied that the carrying values are
appropriate.
Going Concern
Given the losses incurred by the Group,
and its level of indebtedness, the
assumption of going concern has been
subject to challenge.
The Board has critically reviewed the planned future performance of the
Group and its cash flows and funding. Following a number of disposals and
the refinancing of the Group, the Committee and the Board, as a whole, is
satisfied that a going concern approach is fully justified.
Disclosure of
Related Party
Transactions
There have been a number of related party
transactions in relation to former Directors
that were not properly disclosed in the
relevant accounts.
The Committee critically reviewed related party transaction disclosures and
discussed these with the Board, management and BDO LLP to ensure that
all appropriate disclosures have been made.
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Remuneration Committee Report
Remuneration
Committee Report
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.
It is acknowledged that the current
members are not independent Non-
Executive Directors. On 7 August
2018, the Company announced the
appointment of Mike Holt as an
independent Non-Executive Director
and Chair of the Audit Committee
and has furthermore announced
the appointment of Steve Dawson
as another independent Non-
Executive Director. Following this
latter appointment, Steve Dawson
and Mike Holt will be appointed
members, ensuring that the Committee
is comprised of two Independent
Directors.
The current Board acknowledges
failings in the process of determining
and reporting of historic remuneration
of Directors and has taken steps to
improve governance and accountability.
This is a continuing process.
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
generally 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. Current base director’s salaries
and fees are disclosed in note 11 and
note 30.
The Committee has been reviewing
the long term incentives of the key
Executives and is in the final stages of
implementing these incentives. Further
detail of these will be provided in
due course.
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; and
{ 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.
Directors’ remuneration
Harveen Rai, Finance Director, received
a discretionary bonus of £25,000
during the year to reflect the significant
additional workload which came with
the restructuring of the business. No
other Directors received a bonus. The
salaries of the Executive Directors
are benchmarked against other AIM-
listed businesses of a similar size and
complexity.
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Independent Auditor’s Report
to the members of Real Good Food plc
OUR FINANCIALS
Opinion
We have audited the financial statements of Real Good
Food plc (the ‘parent company’) and its subsidiaries (the
‘group’) for the year ended 31 March 2018 which comprise
the consolidated statement of comprehensive income,
consolidated statement of changes in equity, company
statement of changes in equity, consolidated statement of
financial position, company statement of financial position,
consolidated cash flow statement, company cash flow
statement and notes to the financial statements, including a
summary of significant accounting policies.
The financial reporting framework that has been applied in
the preparation of the financial statements 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.
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 2018 and of the group’s loss 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.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further
described in the Auditor’s responsibilities for the audit
of the financial statements section of our report. We are
independent of the group and the parent company in
accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed entities, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters
in relation to which the ISAs (UK) require us to report to you
where:
{ the directors’ use of the going concern basis of
accounting in the preparation of the financial statements
is not appropriate; or
{ the directors have not disclosed in the financial
statements any identified material uncertainties that
may cast significant doubt about the group’s or the
parent company’s ability to continue to adopt the going
concern basis of accounting for a period of at least twelve
months from the date when the financial statements are
authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
financial statements of the current period and include the
most significant assessed risks of material misstatement
(whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy,
the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters were
addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Pension Scheme Assumptions
How We Addressed the Key Audit Matter in the Audit
We consider there to be a significant risk concerning the
appropriateness of the actuarial assumptions applied in calculating
the group’s defined benefit pension scheme liability of £6.4m (2017:
£5.9m) as shown in Note 31. This is also considered in Note 2
(accounting policies) and Note 3 (estimates and judgements).
The valuation of the group’s pension scheme liability was
performed by the group’s external actuary and involves significant
judgement from the directors and the actuary in the choice
of discount rate used and in the key sources of estimation
uncertainty, in particular in relation to the inflation assumptions
and mortality rates, as described in the group’s accounting policies.
We assessed the appropriateness of the assumptions
underpinning the valuation of the scheme assets and liabilities.
Specifically we challenged the discount rate, inflation and mortality
assumptions applied in the calculation by using our auditor
engaged pension specialists to benchmark the assumptions
applied against comparable third party data and assessed the
appropriateness of the assumptions in the context of the group’s
own position.
In addition we tested the membership data utilised in the valuation
of the scheme to source data, traced cash flow amounts to bank
statements and obtained third party confirmation of the valuation
of the pension assets from the investment managers.
In addition we also assessed the disclosure of the pension scheme
assumptions in the financial statements against the relevant
accounting framework.
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Independent Auditor’s Report
to the members of Real Good Food plc
Acquisition Accounting
How We Addressed the Key Audit Matter in the Audit
As described in Note 2 (accounting policies) and Note 33, on 4
April 2017 the group acquired 84.33% of the share capital of
Brighter Foods Limited.
We focused on this area because the accounting treatment for the
opening balance sheet is inherently judgemental and requires the
directors to exercise many judgements, including in respect of
the fair values of intangible assets and the calculation of
associated goodwill.
The acquisition accounting resulted in the recognition of an
intangible asset, being a customer relationship, of £4.1m and
residual goodwill of £5.0m.
We reviewed the sale and purchase agreement entered into on 4
April 2017 and considered directors accounting treatment.
We tested the fair values ascribed to intangible assets by
understanding the assumptions adopted in the valuation model,
which critically include the forecast attrition rate in relation to
existing customers, the expected longevity of the customer
relationships, and the sales and margin forecasts.
We engaged and evaluated the work of our specialists who
assessed the appropriateness of those underlying assumptions.
Going Concern
How We Addressed the Key Audit Matter in the Audit
The group incurred a net loss of (£26.6m) during the year ended
31 March 2018, and as at the year end the group’s current
liabilities exceeded its current assets by £16.0m. Furthermore, the
group incurred a negative operating cash flow of £8.5m during the
year. The group had cash of £2.7m and borrowings of £40.6m as
at the year end.
Our audit procedures included obtaining and examining
management’s business plan until March 2020, which is also used
as a basis for the discounted cash flow model in the impairment
assessment of goodwill and other non-current assets. We
examined the cash flow forecasts as well as considering downside
sensitivities to these.
The above factors necessitated further assessment of whether it
is appropriate for the group and the parent company to continue
preparing the consolidated financial statements on a going concern
basis.
We considered this to be a key audit matter because
management’s assessment involves significant assumptions and
judgements which are based on their best estimates, analysis of
the current market conditions and the group’s performance.
We challenged management’s assumptions used in the forecast
period by considering available evidence, including recent
performance, to support these assumptions.
Furthermore, we vouched cash received post year end as part
of business disposals to that included within the forecast, and
compared these against forecast cash requirements for the next
12 months.
We also reviewed the renegotiated financing arrangements in
relation to borrowings from shareholder loans and from external
banks.
Asset Impairment
How We Addressed the Key Audit Matter in the Audit
Given the loss incurred during the year, there were indicators of
impairment of the group’s non-current assets.
This relates to goodwill, investments and tangible fixed asset
balances. The impairment assessments resulted in an impairment
charge processed for goodwill (£4.5m – see Note 16), tangible
fixed assets (£6.0m – see Note 18) and investments (£9m – see
Note 19). This is also considered in Note 2 (accounting policies)
and Note 3 (estimates and judgements).
We focused on this area as the directors exercise significant
judgement in determining the underlying assumptions used in
impairment reviews, including the future results of the business
and the discount rate applied to the forecasted future cash flows.
We examined the assumptions and forecasts made by the directors
to assess the recoverability of the carrying amount of goodwill,
investments and tangible fixed asset balances. We focused on
the appropriateness of CGU identification, methodology applied to
estimate recoverable amounts, discount rates and forecast cash
flows. Specifically:
{ We compared the methodology applied in the value in use
calculation with the relevant accounting standard and checked
the mathematical accuracy of management’s model.
{ We checked that the cash flow forecasts used in the valuation
are consistent with the information used by the board.
{ We challenged management on their cash flow forecasts and
the growth rates for 2018/19 and beyond by considering
evidence available to support these assumptions, their
consistency with findings from other areas of our audit, and by
performing a sensitivity analysis.
{ We used our valuation experts to assist us in assessing
the discount rate and long-term growth rates applied within
the model.
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OUR FINANCIALS
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of
the group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the
group level.
In assessing the risk of material misstatement to the group
financial statements, and to ensure we had adequate
quantitative coverage of significant accounts in the financial
statements, we determined that there were six significant
components for the purposes of the group audit.
The audit of five out of the six significant components
was performed by ourselves. For these five significant
components we performed a full scope audit.
The only significant component audit not performed by
ourselves was for Brighter Foods Limited, which was
performed by the incumbent auditors from when the company
was acquired during the year. The Responsible Individual
and senior members of the group audit team were involved
at all stages of the audit process of Brighter Foods Limited,
directing the planning and risk assessment work. This
included calls with the component auditors at the planning
stage and throughout the audit, and attendance at the
clearance meeting with the component auditors and local
management at the premises of Brighter Foods Limited at
the completion stage. Reviews of the component auditor
working papers were also completed.
For the remaining components within the group that were not
fully scoped in for group audit purposes, we performed an
audit of the complete financial statements of three further
components due to statutory local requirements. In relation
to the remaining non-significant components, we performed
audit procedures on specific accounts within those
components that we considered had the potential for the
greatest impact on the significant accounts in the financial
statements, either because of the size of these accounts or
their risk profile.
As a consequence of the audit scope determined, we
achieved coverage of approximately 95% of revenue, 94% of
gross profit and 99% of net assets by using full scope audits
or similar.
Our application of materiality
We consider materiality to be the magnitude by which
misstatements, individually or in the aggregate, could
reasonably be expected to influence the economic decisions
of the users of the financial statements. We use materiality
both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined
materiality for the financial statements as a whole as follows:
Group materiality
£500,000
Basis for materiality
0.4% of Revenue
Rationale for benchmark
adopted
As the group is loss making
in the current and prior year,
a profit based measure was
not considered suitable to be
used. Revenue was concluded
to be the most suitable
benchmark due to this being
one of the headline figures
in the financial statements
and a key consideration in
the finance review by the
directors.
In considering individual account balances and classes of
transactions we apply a lower level of materiality in order to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements
exceeds materiality. Performance materiality was set at
£300,000, representing 60% of materiality. The performance
materiality threshold was selected based on this being
our first year as auditors of the group and the relatively
low number of accounts that are subject to management
estimation.
Our audit work on each component was executed at levels
of materiality applicable to each individual entity which was
lower than group materiality. Component materiality ranged
from £2,000 to £375,000. Parent company materiality was
£350,000.
We agreed with the audit committee that we would report
to the committee all individual audit differences identified
during the course of our audit in excess of £15,000. We also
agreed to report differences below these thresholds that, in
our view, warranted reporting on qualitative grounds.
There were no misstatements identified during the course of
our audit that were individually, or in aggregate, considered to
be material in terms of their absolute monetary value or on
qualitative grounds.
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Independent Auditor’s Report
to the members of Real Good Food plc
Other information
The directors are responsible for the other information. The
other information comprises the information included in
the annual report, other than the financial statements and
our auditor’s report thereon. Our opinion on the financial
statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do
not express any form of assurance conclusion thereon.
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement set out on page 17, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to
enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to
determine whether there is a material misstatement in the
financial statements or a material misstatement of the other
information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have
nothing to report in this regard.
Opinions on other matters prescribed by the
Companies Act 2006
In our opinion, based on the work undertaken in the course
of the 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 strategic report and the directors’ report have
been prepared in accordance with applicable legal
requirements.
Matters on which we are required to report
by exception
In the light of the knowledge and understanding of the group
and the parent 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
in relation to which 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.
In preparing the financial statements, the directors are
responsible for assessing the group’s and the parent
company’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either
intend to liquidate the group or the parent company or to
cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not
a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Use of our report
This report is made solely to the parent 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 parent 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 parent company and
the parent company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Gary Harding (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
Manchester
28 September 2018
BDO LLP is a limited liability partnership registered in
England and Wales (with registered number OC305127).
24
OUR FINANCIALS
Annual Report and Accounts for the year ended 31 March 2018
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Consolidated Statement of
Comprehensive Income
Year ended 31 March 2018
OUR FINANCIALS
12 months ended
31 March 2018
£’000s
12 months ended
31 March 2017
£’000s
Notes
Adjusted for:
Revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses
Impairment charge
Significant Items
Operating loss
Finance costs
Other finance costs
Loss before tax
Income tax (expense)/credit
Loss from continuing operations
Loss from discontinued operations
Net loss
Attributable to:
Owners of the parent
Non-controlling interests
Net loss
Items that will not be reclassified to profit or loss
Foreign exchange differences on translation of subsidiaries
Actuarial losses on defined benefit plan
Tax relating to items which will not be reclassified
Other comprehensive loss
Total comprehensive loss for the year
Attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive loss for the year
4,5
129,842
(104,940)
24,902
16,18
6
8
9
10
14
32
31
20
(5,459)
(27,187)
(10,494)
(5,009)
(23,247)
(1,756)
(164)
(25,167)
(53)
(25,220)
(1,345)
(26,565)
(27,099)
534
(26,565)
61
(599)
100
(438)
(27,003)
(27,537)
534
(27,003)
Basic and diluted loss per share – continuing operations
Basic and diluted loss per share – discontinued operations
15
15
(33.10)p
(1.76)p
The notes on pages 32 to 73 form part of these financial statements.
107,736
(81,411)
26,325
(4,915)
(22,807)
(4,109)
(87)
(5,593)
(427)
(216)
(6,236)
483
(5,753)
(226)
(5,979)
(5,979)
–
(5,979)
(48)
(1,847)
351
(1,544)
(7,523)
(7,523)
–
(7,523)
(8.18)p
(0.32)p
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Consolidated Statement of Changes in Equity
Year ended 31 March 2018
Issued
Share
Capital
£’000s
Share
Premium
Account
£’000s
Other
Reserves
£’000s
Share
Option
Reserve
£’000s
Foreign
Translation
Reserve
£’000s
Retained
Earnings
£’000s
Non-
Controlling
Interest
£’000s
Total
£’000s
Total
Equity
£’000s
Adjusted for:
Balance as at 31 March
2016
Total comprehensive loss
for the year
Loss for the year
Other comprehensive loss
for the year
Total comprehensive loss
for the year
Transactions with owners
of the Group, recognised
directly in equity
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
Total comprehensive loss
for the year
Loss for the year
Other comprehensive
income for the year
Total comprehensive loss
for the year
Transactions with owners
of the Group, recognised
directly in equity
Shares issued in the year
(note 26)
Share based payments
(note 28)
Deferred tax on share
based payments
Long-term liabilities
(note 33)
Acquisition of majority
interest (note 33)
Total contributions by and
distributions to owners of
the Group
Balance as at
31 March 2018
1,402
71,375
–
–
–
9
–
–
–
–
–
–
19
–
–
(71,272)
9
(71,253)
1,411
122
–
–
–
–
–
–
158
2,598
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,796)
–
592
–
–
–
–
(177)
–
–
(177)
–
–
21,049
94,418
(5,979)
(5,979)
(48)
(1,496)
(1,544)
(48)
(7,475)
(7,523)
–
–
–
–
–
–
–
(28)
28
(177)
(28)
71,272
–
71,244
(177)
415
(48)
84,818
86,718
–
–
–
–
–
–
–
–
–
–
94,418
(5,979)
(1,544)
(7,523)
28
(177)
(28)
–
(177)
86,718
–
–
–
–
(5)
(100)
–
–
–
(27,099)
(27,099)
534
(26,565)
61
(499)
(438)
–
(438)
61
(27,598)
(27,537)
534
(27,003)
–
–
–
–
–
–
–
–
–
–
–
–
2,756
(5)
(100)
(4,796)
–
–
–
–
2,756
(5)
(100)
(4,796)
–
1,269
1,269
(2,145)
1,269
(876)
158
2,598
(4,796)
(105)
1,569
2,720
(4,796)
310
13
57,220
57,036
1,803
58,839
26
OUR FINANCIALS
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Company Statement of Changes in Equity
Year ended 31 March 2018
OUR FINANCIALS
Issued
Share
Capital
£’000s
Share
Premium
Account
£’000s
Share
Option
Reserve
£’000s
Retained
Earnings
£’000s
Total
Equity
£’000s
1,402
71,375
592
(10,108)
63,261
Adjusted for:
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
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
–
–
–
9
–
–
–
9
–
–
–
19
–
–
(71,272)
(71,253)
Balance as at 31 March 2017
1,411
122
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
Shares issued in the year (note 26)
Share based payments (note 28)
Deferred tax on share based payments
Total contributions by and distributions to
owners of the Group
Balance as at 31 March 2018
–
–
–
158
–
–
158
1,569
–
–
–
2,598
–
–
2,598
2,720
The notes on pages 32 to 73 form part of these financial statements.
–
–
–
–
(177)
–
–
(177)
415
–
–
–
–
(5)
(100)
(105)
310
(5,963)
(1,496)
(7,459)
–
–
(28)
71,272
71,244
53,677
(5,963)
(1,496)
(7,459)
28
(177)
(28)
–
(177)
55,625
(27,067)
(27,067)
(599)
(599)
(27,666)
(27,666)
–
–
–
–
2,756
(5)
(100)
2,651
26,011
30,610
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Consolidated Statement of Financial Position
Year ended 31 March 2018
Adjusted for:
NON-CURRENT ASSETS
Goodwill
Other intangible assets
Tangible fixed assets
Investments
Deferred tax asset
CURRENT ASSETS
Inventories
Trade and other receivables
Current tax assets
Cash collateral
Cash and cash equivalents
TOTAL ASSETS
CURRENT LIABILITIES
Bank overdrafts
Trade and other payables
Borrowings
Financial instrument
NON-CURRENT LIABILITIES
Borrowings
Long-term liabilities – NCI put option
Deferred tax liabilities
Retirement benefit obligation
TOTAL LIABILITIES
NET ASSETS
EQUITY
Share capital
Share premium account
Other reserve
Share option reserve
Foreign exchange translation reserve
Retained earnings
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
Non-controlling interest
TOTAL EQUITY
Notes
31 March
2018
£’000s
31 March
2017
£’000s
16
17
18
19
20
21
22
23
24
23
25
23
33
20
31
26
33
69,955
3,247
30,098
81
1,129
104,510
10,582
15,296
27
2,000
2,731
30,636
135,146
–
22,486
24,160
–
46,646
16,390
4,796
2,035
6,440
29,661
76,307
58,839
1,569
2,720
(4,796)
310
13
57,220
57,036
1,803
58,839
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
–
86,718
These financial statements were approved by the Board of Directors and authorised for issue on 28 September 2018.
They were signed on its behalf by:
Hugh CL Cawley
Chief Executive Officer
Harveen Rai
Finance Director
The notes on pages 32 to 73 form part of these financial statements.
28
OUR FINANCIALS
Annual Report and Accounts for the year ended 31 March 2018
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Consolidated Statement of Financial Position
Year ended 31 March 2018
Company Statement of Financial Position
Year ended 31 March 2018
Registered Company Number: 04666282
OUR FINANCIALS
Adjusted for:
NON-CURRENT ASSETS
Investments
Other intangible assets
Property, plant and equipment
Deferred tax asset
CURRENT ASSETS
Trade and other receivables
Current tax assets
Cash collateral
Cash and cash equivalents
TOTAL ASSETS
CURRENT LIABILITIES
Bank overdrafts
Trade and other payables
Borrowings
NON-CURRENT LIABILITIES
Borrowings
Retirement benefit obligation
TOTAL LIABILITIES
NET ASSETS
EQUITY
Share capital
Share premium account
Share option reserve
Retained earnings
TOTAL EQUITY
Notes
31 March
2018
£’000s
31 March
2017
£’000s
19
17
18
20
22
13
24
23
23
31
26
55,575
217
1,932
1,176
58,900
76,908
–
2,000
477
79,385
138,285
–
76,087
13,894
89,981
11,254
6,440
17,694
107,675
30,610
1,569
2,720
310
26,011
30,610
64,594
227
2,369
1,274
68,464
36,122
1,470
–
–
37,592
106,056
210
41,827
1,000
43,037
1,500
5,894
7,394
50,431
55,625
1,411
122
415
53,677
55,625
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act and not presented a
statement of comprehensive income for the Company alone. The result for the period is a loss of £27,666k (2017: a loss of
£7,459k).
These financial statements were approved by the Board of Directors and authorised for issue on 28 September 2018.
They were signed on its behalf by:
Hugh CL Cawley
Chief Executive Officer
Harveen Rai
Finance Director
The notes on pages 32 to 73 form part of these financial statements.
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Consolidated Cash Flow Statement
Year ended 31 March 2018
CASH FLOW FROM OPERATING ACTIVITIES
Adjusted for:
(Loss) before taxation
Finance and other finance costs
FX movement
Share based payment expense
Loss on discontinued business
Loss on disposal of property, plant and equipment
Depreciation of property, plant and equipment
Impairment charge
Past service cost/(gain) on pension
Amortisation of intangibles
Operating cash flow
Decrease/(increase) in inventories
Decrease in receivables
Pension contributions
NCI put option
Increase/(decrease) in payables
Cash (used in)/generated by operations
Income taxes received/(paid)
Interest paid
Net cash (outflow)/inflow from operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of intangible assets
Purchase of property, plant and equipment
Acquisition of business, net of cash acquired
Net cash outflow from investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Shares issued in year
Dividends paid
Repayment of loans
Inflow of investor loans
Drawdowns on revolving credit facilities
Repayments to revolving credit facilities
New finance leases acquired
Capital repayments on finance leases
Net cash inflow from financing activities
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of period
Effects of currency translations on cash and cash equivalents
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 32 to 73 form part of these financial statements.
Notes
31 March
2018
£’000s
31 March
2017
£’000s
9, 10
32
18
16, 18
31
17
33
17
18
33
26
23
13
(26,512)
1,805
152
(5)
142
107
2,929
10,494
115
2,274
(8,499)
3,675
1,641
(942)
(4,796)
3,155
(5,766)
1
(809)
(6,574)
(249)
(10,961)
(1,781)
(12,991)
2,756
–
(750)
21,398
99,266
(99,930)
1,008
(1,306)
22,442
2,877
(155)
9
2,877
2,731
2,731
–
2,731
(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)
30
OUR FINANCIALS
Annual Report and Accounts for the year ended 31 March 2018
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Company Cash Flow Statement
Year ended 31 March 2018
OUR FINANCIALS
CASH FLOW FROM OPERATING ACTIVITIES
Adjusted for:
(Loss) before taxation
Finance costs
Impairment charge
Share based payment expense
Loss on disposal of property, plant and equipment
Past service cost/(gain) on pension
Depreciation of property, plant and equipment
Amortisation of intangibles
Operating cash flow
(Increase)/decrease in receivables
Pension contributions
Increase/(decrease) in payables
Cash (used in)/generated from operations
Income taxes received/(paid)
Interest paid
Net cash (outflow)/inflow from operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of intangible assets
Purchase of property, plant and equipment
Net cash outflow from investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Shares issued in year
Dividends paid
Inflow of investor loans
Repayment of borrowings
Net cash inflow/(outflow) from 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 32 to 73 form part of these financial statements.
Notes
31 March
2018
£’000s
31 March
2017
£’000s
19
31
18
17
22
31
17
18
26
23
13
(25,834)
1,374
9,019
(5)
77
115
428
57
(14,769)
(40,787)
(942)
34,153
(22,345)
235
(493)
(22,603)
(47)
(67)
(114)
2,756
–
21,398
(750)
23,404
687
(210)
687
477
477
–
477
(6,935)
398
1,425
–
–
(1,330)
549
22
(5,871)
63,627
(310)
(55,058)
2,388
(234)
(182)
1,972
(249)
(234)
(483)
28
(28)
–
(750)
(750)
739
(949)
739
(210)
–
(210)
(210)
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Notes to the Financial Statements
Year ended 31 March 2018
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 04666282). The Company is domiciled in England
and Wales and its registered address is 61 Stephenson Way,
Wavertree, Liverpool L13 1HN. The Company’s shares are
traded on the Alternative Investment Market (AIM).
Basis of preparation
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. The accounts are prepared on a going
concern basis, as disclosed in note 3.
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 Garrett Ingredients Nutrition
business in year to March 2018, as described in note 32,
gave rise to a discontinued operation.
IFRS standards and interpretations adopted
The following accounting standards and interpretations,
issued by the International Accounting Standards Board
(IASB) or IFRIC Interpretations issued by the IFRS
Interpretations Committee (as endorsed by the EU), effective
for periods on or after 1 January 2017, have been endorsed
by the EU:
International Financial Reporting Standards
Amendments to
IAS 12
Recognition of Deferred Tax Assets
for Unrealised Losses
Amendments to
IAS 7
Disclosure Initiative
There has been no material impact on the Group’s results,
net assets, cash flows and disclosures on adoption of new or
revised standards in the period.
The following amendments to published standards, effective
for periods on or after 1 January 2018, have been endorsed
by the EU:
International Financial Reporting Standards
Amendments to
IFRS 12
Recognition of Deferred Tax Assets
for Unrealised Losses
IFRS 9
IFRS 15
Clarifications to
IFRS 15
Amendment to
IFRS 15
IFRS 16
IFRIC 22
Financial Instruments
Revenue from Contracts with
Customers
Revenue from Contracts with
Customers
Effective date of IFRS 15
Leases
Foreign Currency Transactions and
Advance Consideration
During 2017/18, the Group completed an initial review of
the requirements of IFRS 15 against current accounting
policies. As a result of the review, it is expected that current
accounting policies are materially in line with the new
standard. As the business evolves, the Group will continue
to review transactions with customers to ensure compliance
with IFRS 15 on adoption.
The effect of IFRS 9 Financial Instruments is to measure
expected costs rather than the current measurements using
incurred cost under IAS39. Implementation of IFRS 16
Leases will require us to capitalise assets financed through
operating leases, and operating costs will be substituted by
interest and depreciation. The Group is currently assessing
the impact of adopting these new standards.
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 11. The financial position of the Group, its cash flows
and liquidity position are described in the Finance Review
on pages 12 to 13. In addition, note 23 to the financial
statements includes the Group’s objectives, policies
and processes for managing its capital; its financial risk
management objectives; details of its financial instruments
and hedging activities; and its exposure to credit risk and
liquidity risk.
Also detailed in note 23 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.
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2. Significant accounting policies (continued)
The principal shareholders have considered the liquidity of
the Company in line with the current strategy and future
performance. The Directors have a reasonable expectation
that the Company and the Group have adequate resources
to continue in operational existence for the next 12 months
and therefore continue to adopt the going concern basis in
preparing the consolidated financial statements.
b) Basis of consolidation
The consolidated financial statements include the financial
statements of Real Good Food plc and entities controlled by
the Company (its subsidiaries). Control is achieved where the
Company is exposed to or has rights to variable returns from
involvement with an investee and has the ability to affect
those returns through its power over the investee.
All intra-Group transactions, balances, income and expenses
are eliminated on consolidation.
c) Revenue recognition
Revenue comprises the invoiced value for the sale of goods
net of sales rebates, discounts, value added tax and other
taxes directly attributable to revenue and after eliminating
sales within the Group. Revenue is recognised when the
outcome of a transaction can be measured reliably and when
it is probable that the economic benefits associated with the
transaction will flow to the Group.
(a) Sales of Goods: Sales of goods are recognised when
goods are delivered. Sales are recorded net of discounts,
Value Added Tax (VAT) and other sales-related taxes.
(b) Finance Income/Costs: 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.
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.
e) Significant items
It is the Group’s policy to show separately on the face of the
Statement of Comprehensive Income, items that it considers
to be significant, to assist the reader’s understanding of 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 full actuarial valuations being carried out every
three years. Actuarial gains and losses are recognised in full
in the period in which they occur. Further details are given in
note 31 to the financial statements.
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:
Land and buildings
Freehold buildings
Short-term leasehold buildings
Plant and equipment
Plant and equipment
Motor vehicles
Fixtures and fittings
Computer equipment
40 to 50 years
Length of lease
2 to 13 years
4 years
4 to 13 years
4 years
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
2. Significant accounting policies (continued)
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 include computer software, development
costs and business relationships. The following assets are
amortised on a straight-line basis over the following periods:
Computer software
5 years
Development costs, and business relationships
3 years
The charge for the year is included in administration
expenses within the Statement of Comprehensive Income.
Impairment reviews of intangible assets 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.
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 and Group accounts relate to
investments in subsidiaries and associated companies which
are stated at cost less provision for any impairment in value.
k) Inventories
Inventory is valued at the lower of cost and net realisable
value. Where appropriate, cost includes production and
other attributable overhead expenses as described in IAS 2
Inventories. Cost is calculated on a first-in, first-out basis by
reference to the invoiced value of supplies and attributable
costs of bringing the inventory to its present location and
condition.
Net realisable value is the estimated selling price in the
ordinary course of business less estimated costs of
completion and the estimated costs necessary to make
the sale. All inventories are reduced to net realisable value
where the estimated selling price is lower than cost. A
provision is made for slow moving, obsolete and defective
inventory where appropriate.
l) Research and development
Research and development expenditure is charged to the
income statement in the period in which it is incurred.
Development expenditure is capitalised when the criteria for
recognising an asset are met. When the recognition criteria
have been met, expenditure is capitalised as an intangible
asset. Property, plant and equipment used for research and
development is capitalised and depreciated in accordance
with the Group’s policy.
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 repayable on demand. Deposits are included within
cash and cash equivalents only when they have a short
maturity of three months or less at the date of acquisition.
The cash and cash equivalents figure for the Group is
inflated by £2million in relation to security provided by
Omnicane and Napier Brown Holdings (see note 23) to Lloyds
Banking Group. The £2million has been supplied as investor
loans and attracts interest. This is referred to as Cash
Collateral throughout the financial statements and is not
displayed on the cashflow.
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) Borrowings
Interest-bearing loans and overdrafts are recorded as the
proceeds received net of direct issue costs and are valued
at fair value net of any transaction costs directly attributable
to the borrowing. Interest-bearing liabilities are subsequently
measured at amortised cost using the effective interest rate
method, which ensures that any interest expense over the
period to repayment is at a constant rate on the balance of
the liability carried in the consolidated statement of financial
position. For the purposes of each financial liability, interest
expense includes initial transaction costs and any premium
payable on redemption, as well as any interest or coupon
payable while the liability is outstanding. The Group has an
invoice discounting facility secured on the trade debtors as
specified in note 23. Liabilities under this arrangement are
shown in borrowings.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
2. Significant accounting policies (continued)
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
transactions 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.
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.
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 may
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.
s) Government grants
Grants which have been received for which the grant criteria
have been met are included in operating income. Grants
which have been received where the grant criteria have not
yet been met are included in liabilities.
t) Invoice discounting
The Group has an invoice discounting faciity of £20 million
with Lloyds Banking Group secured on the trade debtors on
a revolving basis with a minimum term of 12 months and
a six month notice period. This facility is secured against
the debtors across the whole of the Group’s UK businesses
(excluding Brighter Foods) with an interest rate of 1.5% above
Base Rate. Trade debtors remain assets of the Group and
are shown at the total amount collectable. Liabilities under
this arrangement are shown in borrowings.
u) Non-controlling Interest (NCI) put option
The financial liability for the NCI put option is recognised
at the present value of the estimated amount payable
upon exercise of the NCI option with a corresponding
asset recognised in other reserves. Subsequent changes
in the carrying amount resulting from remeasurement of
the amount payable on exercising the options would be
recognised in equity.
3. Critical accounting estimates and judgements
In order to prepare these consolidated financial statements
in accordance with the accounting policies set out in note
2, management has 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 believes to
be reasonable. However, given the judgemental nature of
such estimates, actual results could be different due to the
assumptions used. The estimates and assumptions that
have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next
financial year are discussed below.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
3. Critical accounting estimates and
judgements (continued)
a) Impairment of goodwill
An impairment of goodwill has the potential to significantly
impact upon the Group’s Statement of Comprehensive
Income for the period. In order to determine whether
impairments are required the Directors estimate the
recoverable amount of the goodwill. This calculation is based
on the Group’s cash flow forecasts for the following financial
year extrapolated over a rolling 11-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 cash generating units in their current
condition. Future cash flows therefore exclude benefits from
major expansion projects requiring future capital expenditure
and estimate an amount for routine capital expenditure.
Further details are set out in note 16.
b) Retirement benefits
The Company sponsors the Napier Brown Foods Retirement
Benefits Plan which is a funded defined benefit arrangement.
The amounts recorded in the financial statements for this
type of scheme are based on a number of assumptions,
changes to which could have a material impact on the
reported amounts.
Any net deficit or surplus arising on the defined benefit
plan is shown in the Statement of Financial Position. The
amount recorded is the difference between Plan assets and
Plan 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 Plan 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 Plan liability by 3%. An increase in the discount
rate of 0.5% would result in a reduction of the Plan liabilities
of 6% and a 0.5% increase in the rate of inflation would
increase the liabilities of the Plan by 2%.
The Statement of Comprehensive Income includes 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 pension fund actuaries, are set out in note 31.
c) Business claims
In common with comparable food groups, the Group is
involved in disputes in the ordinary course of business
which may give rise to claims. Provision representing the
known cost of defending and concluding claims is made
in the financial statements in accruals as part of other
payables for 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 prejudice the
position of the Group. The dispute regarding the non-supply
of contracted sugar to the Group remains unresolved.
d) Going concern
The Directors have considered the Group’s business
activities together with the factors likely to affect its
planned future performance. The forecasts, agreed with the
businesses, consider reasonable possible changes in trading
performance and these assumptions have been projected
and shared with the Company’s advisers.
The Group was in compliance with its banking covenant tests
at 31 March 2018 and 30 June 2018 with the term loan
subsequently settled in full in September 2018.
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 the current strategy and future performance, the
Directors have a reasonable expectation that the Company
and the Group have adequate resources to continue in
operational existence for the next 12 months and therefore
continue to adopt the going concern basis in preparing the
consolidated financial statements.
36
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
4. Revenue
The revenue for the Group for the current year arose from the sale of goods in the following areas:
Cake Decoration
£47.7million
Manufactures, sells and supplies cake decorating products and ingredients for the baking sector.
The revenue from Renshaw Academy is shown in Head Office and relates to the Cake Decoration division.
Food Ingredients
£45.9million
Manufactures and supplies a range of food ingredients such as chocolate coatings, sauces, jams, dry
powder blends and snack bars to the retail, wholesale and foodservice sectors.
Premium Bakery
£36.2million
The manufacture and supply of high quality cakes and desserts to the retail and
foodservice sectors.
5. Segment reporting
Business segments
The divisional structure reflects the management teams in place and also ensures all aspects of trading activity have the
specific focus they need in order to achieve our growth plans.
The Group operates in three main divisions: cake decoration, food ingredients and premium bakery. The Head Office
functions of Finance, Human Resources, Technical, Marketing and the Innovation Centre provide support to the divisions in
varying scale.
12 months ended 31 March 2018
Cake
Decoration
£’000s
Food
Ingredients
£’000s
Premium
Bakery
£’000s
Head Office
£’000s
Continuing
Operations
£’000s
Discontinued
Operations
£’000s
Total
Group
£’000s
Adjusted for:
Total revenue
Revenue – internal
External revenue
Underlying adjusted EBITDA
(see table on next page)
Operating profit/(loss) before
impairment & significant items
Impairment charge
Significant items
Operating profit/(loss)
Net finance costs
Other finance costs
Profit/(loss) before tax
Tax
55,175
50,641
36,206
(7,544)
(4,697)
–
47,631
45,944
36,206
61
–
61
142,083
(12,241)
129,842
284
–
284
142,367
(12,241)
130,126
2,597
2,344
(922)
(6,585)
(2,566)
(844)
(3,410)
1,524
238
(2,439)
(7,067)
(7,744)
(869)
(8,613)
–
(3,506)
(6,988)
–
(10,494)
–
(10,494)
(1,060)
(275)
(731)
(2,943)
(5,009)
(476)
(5,485)
464
(214)
–
250
(3,543)
(10,158)
(10,010)
(23,247)
(1,345)
(24,592)
(127)
(205)
(1,210)
(1,756)
–
–
(164)
(164)
–
–
(1,756)
(164)
(3,670)
(10,363)
(11,384)
(25,167)
(1,345)
(26,512)
1,364
(580)
99
(936)
(53)
–
(53)
Profit/(loss) after tax as per
comprehensive statement of income
1,614
(4,250)
(10,264)
(12,320)
(25,220)
(1,345)
(26,565)
Included in the Premium Bakery segment, one single customer accounts for 17.2% (2017: 19.8%) of the continuing Group’s
external sales for the year ended 31 March 2018.
Geographical segments
The Group earns revenue from countries outside the United Kingdom, but as these only represent 9.8% of the total revenue
of the Group (2017 : 11.6%), segmental reporting of a geographical nature is not considered relevant. The Cake Decoration
segment accounts for the majority of this turnover.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
5. Segment reporting (continued)
Reconciliation of underlying EBITDA
to operating profit
Cake
Decoration
£’000s
Food
Ingredients
£’000s
Premium
Bakery
£’000s
Head Office
£’000s
Continuing
Operations
£’000s
Discontinued
Operations
£’000s
Total
Group
£’000s
Adjusted for:
Operating profit/(loss)
Significant items
Impairment charge
Depreciation
Amortisation
Underlying adjusted EBITDA
31 March 2018
Adjusted for:
Segment assets
Segment liabilities
Net operating assets
Non-current asset additions
Depreciation
Amortisation
12 months ended 31 March 2017
Adjusted for:
Total revenue
Revenue - internal
External revenue
Underlying adjusted EBITDA
(see table overleaf)
Operating profit/(loss) before
impairment & significant items
Impairment charge
Significant items
Operating profit/(loss)
Net finance costs
Other finance costs
Profit/(loss) before tax
Tax
464
1,060
–
797
276
2,597
(3,543)
(10,158)
(10,010)
(23,247)
(1,345)
(24,592)
275
3,506
693
1,413
2,344
731
6,988
994
523
2,943
–
425
57
5,009
10,494
2,909
2,269
476
–
20
5
5,485
10,494
2,929
2,274
(922)
(6,585)
(2,566)
(844)
(3,410)
Cake
Decoration
£’000s
Food
Ingredients
£’000s
Premium
Bakery
£’000s
Head Office
£’000s
Continuing
Operations
£’000s
Discontinued
Operations
£’000s
Total
Group
£’000s
(16,952)
135,146
110,146
26,219
83,927
2,646
(797)
(276)
24,615
18,449
6,166
4,206
(693)
(1,413)
17,337
27,097
4,542
(9,760)
(21,494)
8,169
2,087
(994)
(523)
(425)
(57)
76,307
58,839
17,108
(2,909)
(2,269)
–
–
–
–
(20)
(5)
135,146
76,307
58,839
17,108
(2,929)
(2,274)
Cake
Decoration
£’000s
Food
Ingredients
£’000s
Premium
Bakery
£’000s
Head Office
£’000s
Continuing
Operations
£’000s
Discontinued
Operations
£’000s
Total
Group
£’000s
51,042
(4,053)
46,989
31,195
(4,340)
26,855
33,892
–
33,892
–
–
–
116,129
(8,393)
107,736
472
116,601
–
(8,393)
472
108,208
6,528
(1,352)
1,167
(4,952)
1,391
(212)
1,179
5,758
–
(264)
5,494
(129)
–
5,365
(1,280)
(1,823)
(3,589)
(141)
(5,553)
(34)
–
(5,587)
763
192
–
(95)
97
(83)
–
14
(29)
(5,524)
(520)
413
(1,397)
(4,109)
(87)
(226)
–
–
(1,623)
(4,109)
(87)
(5,631)
(5,593)
(226)
(5,819)
(181)
(216)
(427)
(216)
–
–
(427)
(216)
(6,028)
(6,236)
(226)
(6,462)
1,029
483
–
483
Profit/(loss) after tax as per
comprehensive statement of income
4,085
(4,824)
(15)
(4,999)
(5,753)
(226)
(5,979)
38
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
5. Segment reporting (continued)
Reconciliation of underlying EBITDA
(adjusted) to operating profit
Cake
Decoration
£’000s
Food
Ingredients
£’000s
Premium
Bakery
£’000s
Head Office
£’000s
Continuing
Operations
£’000s
Discontinued
Operations
£’000s
Total
Group
£’000s
Operating (profit)/loss
5,494
(5,553)
Significant items
Impairment charge
Depreciation
Amortisation
264
–
719
51
141
3,589
463
8
97
95
–
696
279
Underlying adjusted EBITDA
6,528
(1,352)
1,167
(4,952)
6. Significant items
(5,631)
(5,593)
(226)
(5,819)
(413)
520
550
22
87
4,109
2,428
360
1,391
–
–
6
8
(212)
87
4,109
2,434
368
1,179
Adjusted for:
Disruption/abnormal wastage costs relating to ongoing capital projects
Investigation work
Professional fees in relation to refinancing costs
Discontinued operations and asset write-off
Commercial disputes
Past service gain on pensions (note 31)*
Management restructuring
Acquisition and legal costs
Significant items
Continuing business
Discontinued business
Total significant items
Commentary
Notes
12 months ended
31 March 2018
£’000s
12 months ended
31 March 2017
£’000s
1
2
3
4
5
6
7
(885)
(1,207)
(553)
(920)
(355)
–
(1,254)
(311)
(5,485)
(5,009)
(476)
(5,485)
–
–
–
–
–
1,155
(419)
(823)
(87)
(87)
–
(87)
* Historically, an allowance for future pension increases of 3% 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 ETZ exercise cost of £175k) reflect the value of this discretionary option, rather than the fixed 3% pa
assumed historically.
The Group’s underlying profit figure excludes a number of items which are material and non-recurring and are detailed
separately to ensure the underlying operating performance of the businesses is clearly visible, without the distortions of
these non-recurring costs.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
6. Significant items (continued)
The year to March 2018 has been one of significant corporate change, upheaval and challenge and the excluded items,
explained in the notes below, have been commensurately large.
1.
2.
3.
4.
5.
Disruption/abnormal wastage during improving capacity of business units. Considerable funds have been invested throughout the Group in the past two
years in capital projects, to improve the capacity and operating efficiency of the Group. The unusual costs associated with abnormal disruption, which arose
on the capital projects in Haydens, Renshaw and R&W Scott, have been separately tracked in the P&L.
Investigation work relating to corporate governance failings. There were well-publicised failings in the area of corporate governance. The costs of securing
the services of external agencies sufficiently specialised, experienced and qualified to ensure all failings were fully investigated and identified, and remedial
actions highlighted on a timely basis have been identified separately.
Professional fees relating to refinancing costs required. The very unusual frequency and short-term costs of refinancing in the period are highlighted here, as
being the costs associated with providing repeated emergency funding before any form of longer-term package was able to be negotiated. All loans have now
been negotiated.
Close of business transaction and asset write-offs. During the year, we closed the Garrett Ingredients Nutrition business (£476k), a business that we had
bought out of administration, to avoid incurring continuing losses and to avoid the distraction that managing a distressed business inevitably entails. The
remaining costs relate to capital expenditure projects which are no longer being pursued.
Commercial disputes. These costs relate to the well-publicised issues, identified separately in previous announcements to the City, arising from disputes
over material sugar contracts. One claim is now settled, the other continues and is not yet resolved.
6. Management restructuring. Individual redundancies are generally a matter of everyday business, however, significant restructuring has been required and
effected right across the Group during the past 12 months, as fundamental changes in the operations have been brought about, while deliberate, one-off
changes have been delivered. The central functions have been largely disbanded, for example, as the Group can demonstrably no longer afford to sustain a
central overhead of marketing, operations, or HR. The costs of severance for these staff members have been separately identified and disclosed here.
7.
The Company incurred further legal fees in 2018 relating to the successful acquisition of Brighter Foods in April 2017.
7. Auditor’s remuneration
12 months ended
31 March 2018
£’000s
12 months ended
31 March 2017
£’000s
Fees payable to BDO LLP
Fees payable to the Company’s auditor for the audit of the Group’s annual accounts
Fees payable to the Company's auditor for other services;
Tax compliance services
Tax advisory services
Other assurance services
Other assurance services – investigation work (note 6)
Total fees paid to auditor
Fees payable to previous auditor (Crowe Clark Whitehill LLP)
Fees payable to the Company’s auditor for the audit of the Group’s annual accounts
Fees payable to the Company's auditor for other services;
Audit-related assurance services
Tax compliance services
Tax advisory services
Other assurance services
Total fees paid to auditor
(220)
(25)
(5)
(6)
(199)
(455)
–
(95)
–
(35)
(14)
(144)
–
–
–
–
–
(255)
(42)
(21)
(35)
(70)
(423)
Total auditor remuneration
(599)
(423)
40
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
7. Auditor’s remuneration (continued)
The fee payable to the Company’s auditor for the audit of the annual accounts has been split between Real Good Food
Company, and its subsidiaries, as follows:
Annual accounts audit fee apportioned by division
Real Good Food Company
J F Renshaw Limited
R&W Scott Limited
Garrett Ingredients Limited
Haydens Bakery Limited
Rainbow Dust Colours Limited
8. Operating profit
Operating profit for continuing operations
Adjusted for:
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 losses/(gains)
Other net operating expenses
Total
Operating loss
12 months ended
31 March 2018
£’000s
12 months ended
31 March 2017
£’000s
(92)
(50)
(18)
(20)
(20)
(20)
(220)
(170)
(35)
–
(15)
(20)
(15)
(255)
12 months ended
31 March 2018
£’000s
12 months ended
31 March 2017
£’000s
Notes
12
18
17
6
129,842
(40,732)
(70,591)
(2,909)
(2,269)
(5,009)
16, 18
(10,494)
22
(1,161)
(269)
(1,795)
(146)
289
(18,003)
(153,089)
(23,247)
107,736
(31,070)
(53,317)
(2,428)
(360)
(87)
(4,109)
(409)
(436)
(1,839)
92
(19)
(19,347)
(113,329)
(5,593)
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
9. Finance costs
Adjusted for:
Interest on bank loans, overdrafts and investor loans
Interest on obligations under finance leases
Past service cost on pension
Continuing business
Discontinued business
10. Other finance costs
Adjusted for:
Interest on pension scheme liabilities (note 31)
Interest on pension scheme assets (note 31)
11. Directors’ remuneration
Adjusted for:
Directors salaries, benefits and fees (detailed overleaf)
Related party Directors fees and consultancy fees (see note 30)
12 months ended
31 March 2018
£’000s
12 months ended
31 March 2017
£’000s
(1,311)
(330)
(115)
(1,756)
(1,756)
–
(409)
(18)
–
(427)
(427)
–
12 months ended
31 March 2018
£’000s
12 months ended
31 March 2017
£’000s
(553)
389
(164)
(754)
538
(216)
12 months ended
31 March 2018
£’000s
12 months ended
31 March 2017
£’000s
(682)
(134)
(816)
(556)
(384)
(940)
The prior year disclosure has been amended to include the fees paid for directors as disclosed in note 30.
42
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
11. Directors’ remuneration (continued)
The emoluments of the Directors for the period were as follows:
Adjusted for:
M J McDonough (to Sept 2015)
P W Totté (to Aug 2017)
D P Newman (to Aug 2017)
P G Ridgwell
P C Salter (to Aug 2017)
J M d’Unienville
C O Thomas
H CL Cawley (from Aug 2017)
H Rai (from Aug 2017)
J A Mackenzie (from Jun 2017)
Fees/
Salaries inc
Er’s NIC
£’000’s
Taxable
Benefits
£’000’s
Pension
Contributions
£’000’s
12 months
ended
31 March 2018
£’000s
12 months
ended
31 March 2017
£’000s
Bonus
£’000’s
–
67
56
38
15
25
171
82
112
19
585
–
43
4
–
–
–
–
3
8
–
58
–
–
–
–
–
–
–
–
25
–
25
–
–
8
–
–
–
–
–
6
–
14
–
110
68
38
15
25
171
85
151
19
682
2
237
186
30
36
25
40
–
–
–
556
This includes salaries and fees (including Employer’s NI) received as an officer of the Company. Taxable benefits include car
allowance, health and other taxable payments for expenses paid by the Company.
All salaries and fees disclosed are included in current year trading results. Fees to P G Ridgwell (£23k) and J M d’Unienville
(£19k) disclosed but not paid in prior years were paid in the current year.
At 31 March 2018, there were £46k of salaries and fees outstanding for payment to Directors of the Group (H Rai £25k,
J M d’Unienville £19k and J A Mackenzie £2k). These were settled in April and May 2018 and have been included in
the numbers above.
Directors fees paid to J A Mackenzie are charged and paid to Downing LLP.
Consultancy fees and expenses paid to entities in which Directors hold a beneficial interest, for services provided to the
Group by the Directors, are disclosed as related party transactions in note 30.
The current Company Directors disclosed are considered as key management personnel.
The current base annual salaries of the Directors are as follows:
P G Ridgwell
J M d’Unienville
C O Thomas
J A Mackenzie
M J Holt
S Dawson
H CL Cawley
H Rai
Base Salary
£’000s
35
25
25
25
25
25
250
180
590
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
11. Directors’ remuneration (continued)
Directors’ interests in share options:
No of
Options at
31 March
2018
No of
Options at
31 March
2017
Date of
Grant
Exercise
Price
Earliest
Exercise
Date
Exercise
Expiry
Date
Adjusted for:
P W Totté
Unapproved options
Unapproved options
Jul–09
May–10
–
–
1,000,000
142,857
P W Totté (Menton) Unapproved options
Mar–11
3,817,725
3,817,725
P G Ridgwell
Unapproved options
Jul–09
476,190
476,190
5.25p
24.50p
25.00p
5.25p
Jul–12
May–13
Apr–11
Jul–12
Unapproved options
May–10
61,224
61,224
24.50p
May–13
P C Salter
Unapproved options
Unapproved options
Jul–09
May–10
–
–
285,714
102,040
5.25p
Jul–12
24.50p
May–13
C O Thomas
Unapproved options
Jul–09
304,762
304,762
5.25p
Jul–12
Unapproved options
D P Newman
Approved options
Approved options
Approved options
May–10
Jun–09
May–10
May–15
40,816
40,816
24.50p
May–13
–
–
–
333,333
20,408
16,666
5.25p
24.50p
45.00p
Jul–12
May–13
May–18
Jul–19
May–20
Mar–21
Jul–19
May–20
Jul–19
May–20
Jul–19
May–20
Jul–19
May–20
Jul–19
No new options were granted to Directors during the year (2017: nil). Options have historically 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 2018 was 16.00p and the range during the year was 36.90p
to 16.00p.
No Director exercised share options during the year.
During the period retirement benefits were accruing to two directors (2017: one) in respect of money purchase pension
schemes.
12. 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:
31 March 2018
Group
31 March 2018
Company
31 March 2017
Group
31 March 2017
Company
Adjusted for:
Continuing operations
Production
Selling and distribution
Directors and administrative
Discontinued operations
Production
Selling and distribution
Directors and administrative
Total no. of staff
895
141
171
1,207
2
–
2
4
1,211
–
–
47
47
–
–
–
–
47
573
304
163
1,040
3
–
2
5
1,045
–
–
46
46
–
–
–
–
46
44
OUR FINANCIALS
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
12. Staff numbers and costs (continued)
The aggregate payroll costs were as follows:
Adjusted for:
Continuing operations
Wages, salaries and fees
Social security costs
Other pension costs
Discontinued operations
Wages, salaries and fees
Social security costs
Other pension costs
31 March 2018
Group
£000’s
31 March 2018
Company
£000’s
31 March 2017
Group
£000’s
31 March 2017
Company
£000’s
(35,796)
(3,284)
(1,652)
(40,732)
(174)
(16)
(12)
(202)
(3,169)
(347)
(289)
(3,805)
–
–
–
–
(27,191)
(2,657)
(1,222)
(31,070)
(156)
(12)
(7)
(175)
(2,476)
(310)
(256)
(3,042)
–
–
–
–
Total payroll costs
(40,934)
(3,805)
(31,245)
(3,042)
13. Notes supporting the cash flow statement
The cash collateral figure for the Group is £2 million. This has been provided to Lloyds Banking Group as security for the
liabilities of the Group. The £2 million has been supplied as investor loans by Omnicane and Napier Brown (see note 23) and
attracts interest. This amount is not included in the cashflow.
Group
Adjusted for:
At 31 March 2017
Cash flows
Non-cash flows
− Cash collateral
− Loans and borrowings classified as non-current at 31 March 2017
becoming current before 31 March 2018
− Hire purchase assets procured by lender
− Government Grant
At 31 March 2018
Non-current Loans
and Borrowings
£000’s
(Note 23)
Current Loans
and Borrowings
£000’s
(Note 23)
4,701
12,562
–
(3,157)
2,006
278
16,390
11,375
7,124
2,000
3,157
455
49
24,160
Total
£000’s
16,076
19,686
2,000
–
2,461
327
40,550
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
13. Cash and Cash Equivalents (continued)
Company
Non-current Loans
and Borrowings
£000’s
(Note 23)
Current Loans
and Borrowings
£000’s
(Note 23)
Adjusted for:
At 31 March 2017
Cash flows
Non-cash flows
− Cash collateral
− Loans and borrowings classified as non-current at 31 March 2017
becoming current before 31 March 2018
At 31 March 2018
1,500
11,254
–
(1,500)
11,254
14. Taxation
Group
Adjusted for:
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
Origination and reversal of timing differences
Adjustments in respect of prior years
Total deferred tax
Tax – continuing operations
Tax – discontinued operations
Total tax
Tax (expense)/credit on loss
Total
£000’s
2,500
20,648
2,000
–
1,000
9,394
2,000
1,500
13,894
25,148
31 March
2018
£’000s
31 March
2017
£’000s
(58)
–
196
138
(213)
22
(191)
(53)
–
(53)
(53)
(84)
84
134
134
377
(28)
349
483
–
483
483
46
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
14. Taxation (continued)
Factors affecting tax charge for the period:
The tax assessed for the period differs from the standard rate of corporation tax in the UK of 19% (2017 : 20%).
The differences are explained below:
Adjusted for:
Tax reconciliation
Loss per accounts before taxation
Tax on loss on ordinary activities at standard tax rate of 19% (2017: 20%)
Expenses not deductible for tax purposes
Share option relief
Current year losses not recognised – deferred tax
Adjustments in respect of change in deferred tax rate
Adjustments to tax in respect of prior years
Total tax
Tax on continuing operations
Tax on discontinued operations
Tax (expense)/credit for the period
31 March
2018
£’000s
31 March
2017
£’000s
(26,512)
5,037
(2,191)
–
(3,202)
85
218
(53)
(53)
–
(53)
(6,462)
1,292
(709)
26
(204)
(28)
106
483
483
–
483
Details of the deferred tax asset is shown in note 20.
The Finance (No. 2) Act 2015 introduced a reduction in the main rate of corporation tax from 20% to 19% from 1 April 2017
and from 19% to 18% from 1 April 2020. These reductions were substantively enacted on 26 October 2015.
The Finance Act 2016 introduced a further reduction in the main rate of corporation tax to 17% from 1 April 2020. This was
substantively enacted on 6 September 2016. Accordingly, deferred tax balances that are expected to reverse after 1 April
2020 have been valued at the lower rate of 17%.
15. Earnings per share
Basic earnings per share
Basic earnings per share is calculated on the basis of dividing the profit/(loss) attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares in issue during the year.
12 months
ended
31 March 2018
Continuing
Operations
12 months
ended
31 March 2018
Discontinued
Operations
12 months
ended
31 March 2017
Continuing
Operations
12 months
ended
31 March 2017
Discontinued
Operations
Adjusted for:
Loss after tax attributable to ordinary shareholders (£’000s)
Weighted average number of shares in issue for basic EPS (’000s)
Employee share options (‘000s)
Weighted average number of shares in issue for diluted EPS (’000s)
(25,220)
(1,345)
(5,753)
(226)
76,179
1,790
77,969
76,179
1,790
77,969
70,272
4,234
74,506
70,272
4,234
74,506
Basic and diluted loss per share
(33.10)p
(1.76)p
(8.18)p
(0.32)p
The total loss per share (continuing and discontinued operations) for 2018 is (34.86)p (2017: (8.50)p).
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
15. Earnings per share (continued)
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.
The weighted average number of shares in issue for the year was 76,179,123 and the number of options outstanding
was 6,930,748. If these were all exercised the cash raised would be equivalent to that which would be raised by issuing
1,789,851 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 77,968,974.
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.
12 months
ended
31 March 2018
Continuing
Operations
12 months
ended
31 March 2018
Discontinued
Operations
12 months
ended
31 March 2017
Continuing
Operations
12 months
ended
31 March 2017
Discontinued
Operations
Adjusted for:
Loss after tax attributable to ordinary shareholders (£’000s)
(25,220)
(1,345)
(5,753)
Add back significant items (£’000s) (note 6)
5,009
Adjusted loss after tax attributable to ordinary shareholders (£’000s)
(20,211)
Weighted average number of shares in issue for basic EPS (’000s)
Weighted average number of shares in issue for diluted EPS (’000s)
76,179
77,969
476
(869)
76,179
77,969
87
(5,666)
70,272
74,506
(226)
–
(226)
70,272
74,506
Adjusted loss per share
(26.53)p
(1.14)p
(8.06)p
(0.32)p
*Prior year basic and diluted loss per share was (8.16)p after adjusting for tax on significant items
The total adjusted loss per share (continuing and discontinued operations) for 2018 is (27.67)p (2017: (8.38)p).
16. Goodwill
Goodwill acquired on business combinations is allocated at acquisition to the cash generating units that are expected to
benefit from that business combination. The carrying amount of goodwill has been allocated as follows:
Adjusted for:
Cost
Carried forward balance 31 March 2017
Additions – Brighter Foods (note 33)
Impairment
Carried forward balance 31 March 2018
Group
£’000s
69,416
5,031
(4,492)
69,955
48
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Annual Report and Accounts for the year ended 31 March 2018
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
16. Goodwill (continued)
Adjusted for:
Garrett Ingredients
Renshaw
Rainbow Dust Colours
Haydens Bakery - Chantilly Patisserie
Brighter Foods
Carried forward
OUR FINANCIALS
31 March 2018
£’000s
31 March 2017
£’000s
905
57,796
6,223
–
5,031
69,955
4,411
57,796
6,223
986
–
69,416
Assumptions:
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill may be impaired.
The recoverable amount of any cash generating unit is determined based on the higher of fair value less costs of disposal and
value-in-use calculations. The cashflows used in the value-in-use calculation are EBITDA (adjusted) performance less capital
expenditure based on the latest Board approved forecasts in respect of the following three years. The key assumptions when
forecasting cash flows are revenue growth, divisional contribution margin and overhead cost.
Revenue growth is forecast based on known or forecast customer sales initiatives taking into account customer business plans,
new product development, category and marketing strategy. The average compound annual growth rate over the three years is
11%.
Divisional contribution margin is forecast based on the projected mix of revenue, raw material input costs and operational costs.
Overhead cost is forecast on the expected cost the division will incur.
Long term growth rate assumptions:
For the purposes of impairment testing, the cashflows are extrapolated over 11 years reflecting the recent capital investment
and allowing for the businesses to settle following implementation of turnaround plans. The growth rate beyond the first three
years based on relevant economic data has been assessed at 2%. The discounted cash flow forecasts include discounted
disposal proceeds based upon ten times the year eleven forecast EBITDA (adjusted).
Discount rate assumptions:
The discount rate applied to the cash flows is 11% (2017: 11%). This rate has been increased from the Company’s actual
weighted average cost of capital of 5% to take account of the increased risk of being listed on AIM rather than the main market
and represents a figure more in line with businesses operating within the food sector.
Impairment charge:
An impairment charge of £4.5m was recognised during the period (2017: £1.6m). This comprised Garrett Ingredients of £3.5
million and Chantilly Patisserie (part of Haydens Bakery) of £1.0 million. The impairment reflected the challenging trading
conditions faced by the businesses.
Goodwill recognition:
The acquisition of Brighter Foods resulted in the recognition of £5.0 million of goodwill. See note 33 for full acquisition
accounting.
Sensitivity analysis:
An illustration of the sensitivity to reasonable possible changes in the discount rate assumption or the long term growth rate are
shown below:
{ An increase of 0.5% in the Group’s weighted average cost of capital of 11% to 11.5% would cause an impairment of
£1.2 million on the carrying value of goodwill on Renshaw.
{ A reduction of 0.5% to the growth rate from 2.0% to 1.5% would cause an impairment of £0.5 million on the carrying value
of goodwill on Renshaw.
The Board has considered these sensitivities but believe that, owing to trading expectations and a strong brand, the recoverable
amount would support the value.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
16. Goodwill (continued)
Adjusted for:
Garrett Ingredients
Renshaw
Rainbow Dust Colours
Haydens Bakery - Chantilly Patisserie
17. Other intangible assets
Adjusted for:
Cost
At 1 April 2017
Reclassification
Acquired through business
combinations
Additions
Disposals
At 31 March 2018
Amortisation
At 1 April 2017
Reclassification
Charge
Disposals
At 31 March 2018
Net book value at 31 March 2018
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
Book Value
of Cash
Generating Unit
£’000s
Estimated
Recoverable Amount/
Value in Use
£’000s
1,092
68,132
6,628
175
1,092
69,069
7,038
175
Customer
Relationships
£’000s
Computer
Software
£’000s
Development
Costs
£’000s
Group
£’000s
Company
£’000s
473
(32)
4,128
25
(19)
1,181
99
–
98
(6)
4,575
1,372
264
(2)
1,573
(12)
1,823
2,752
473
–
473
55
209
264
209
497
22
433
(2)
950
422
786
395
1,181
370
127
497
684
291
(67)
–
126
–
350
29
(20)
268
–
277
73
–
291
291
–
29
29
262
1,945
–
4,128
249
(25)
6,297
790
–
2,274
(14)
3,050
3,247
1,259
686
1,945
425
365
790
1,155
249
–
–
47
–
296
22
–
57
–
79
217
–
249
249
–
22
22
227
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.
The intangible assets held by the Company at 31 March 2018 consist of £180k computer software and £37k development costs.
There is no indication of any impairment of these intangible assets.
50
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
Land and
Buildings
£’000s
Plant and
Equipment
£’000s
Assets in the
course of
construction
£’000s
9,825
1,251
197
5,089
(114)
16,248
33,716
2,456
2,053
7,466
(817)
44,874
4,829
18,487
309
14
395
(13)
–
5,534
10,714
(309)
337
2,534
(695)
6,002
26,356
18,518
9,477
27,088
43
313
(8)
299
6,800
(471)
9,825
33,716
2,935
327
(8)
1,575
4,829
4,996
15,906
2,107
(471)
945
18,487
15,229
3,707
(3,707)
–
866
–
866
–
–
–
–
–
–
–
866
342
(342)
3,707
–
3,707
–
–
–
–
–
3,707
Total
£’000s
47,248
–
2,250
13,421
(931)
61,988
23,316
–
351
2,929
(708)
6,002
31,890
30,098
36,907
–
10,820
(479)
47,248
18,841
2,434
(479)
2,520
23,316
23,932
18. Property, plant and equipment
Group
Adjusted for:
Cost
At 1 April 2017
Reclassifications
Acquired through business combinations
Additions
Disposals
At 31 March 2018
Depreciation
At 1 April 2017
Reclassifications
Acquired through business combinations
Charge
Disposals
Impairment charge*
At 31 March 2018
Net book value at 31 March 2018
Cost
At 1 April 2016
Reclassifications
Additions
Disposals
At 31 March 2017
Depreciation
At 1 April 2016
Charge
Disposals
Impairment charge*
At 31 March 2017
Net book value at 31 March 2017
* An impairment review conducted in accordance with IAS36 ‘Impairment of assets’ resulted in an impairment of fixed assets of £6.0m for Haydens Bakery
(2017: £2.0m for R&W Scott, and £0.5m for Head Office).
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
18. Property, plant and equipment (continued)
The net book value of assets held under finance leases or hire purchase contracts, included above, is as follows:
Adjusted for:
Plant and equipment
Capital commitments in relation to property, plant and equipment are disclosed in note 29.
Details of assets which are secured against borrowings are detailed in note 23.
31 March 2018
£’000s
31 March 2017
£’000s
7,661
4,990
Company
Adjusted for:
Cost
At 1 April 2017
Additions
Disposals
At 31 March 2018
Depreciation
At 1 April 2017
Charge
Disposals
At 31 March 2018
Net book value at 31 March 2018
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
Land and
Buildings
£’000s
Plant and
Equipment
£’000s
Total
£’000s
553
–
(55)
498
11
10
–
21
477
498
55
553
–
–
11
11
542
3,629
4,182
68
(25)
68
(80)
3,672
4,170
1,802
418
(3)
2,217
1,455
3,451
178
3,629
745
520
537
1,802
1,827
1,813
428
(3)
2,238
1,932
3,949
233
4,182
745
520
548
1,813
2,369
The net book value of assets held under finance leases or hire purchase contracts, included above, is as follows:
Adjusted for:
Plant and equipment
31 March 2018
£’000s
31 March 2017
£’000s
–
–
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
19. Investments
Company
Investments in shares of subsidiary undertakings:
N Brown Foods
Limited
£’000s
R&W Scott
Limited
£’000s
Garrett
Ingredients
Limited
£’000s
Haydens
Bakery Limited
£’000s
Eurofoods plc
£’000s
Real Good
Food Europe SA
£’000s
Total
Investments
£’000s
Adjusted for:
At 31 March 2017
Impairment
53,900
–
At 31 March 2018
53,900
4,095
(4,095)
–
2,500
(1,595)
905
3,248
(3,248)
–
79
(79)
–
772
64,594
(2)
(9,019)
770
55,575
A review of the investments held by the Company was undertaken in the year. This resulted in an impairment charge of £9.0m
(2017: £1.0m).
The methodology and assumptions used in reviewing the investments were the same as that used in the Goodwill review. See
note 16 for full details.
The Group through Brighter Foods holds a 15% investment in Boka Foods Limited (£81k). Boka Foods is not a subsidiary of Real
Good Food plc.
A full list of subsidiary undertakings (showing registered address and shares held) as at 31 March 2018 is disclosed below:
Principal Activities
Description and
Number of Shares Held
Proportion of Nominal
Value of Shares Held
Adjusted for:
Hayden’s Bakeries Limited*
Eurofoods plc*
Dormant
Dormant
4,052,659 Ordinary £1
260,000 Ordinary £1
50,000 Preference £1
N Brown Foods Limited*
Holding Company
28,248,096 Ordinary 50p
Renshaw US Incorporated*
Cake Decoration Supplier
200 Ordinary $1
JF Renshaw Limited
RGFC Dust Limited*
Cake Decoration Supplier
15,685,164 Ordinary £1
Holding Company
1 Ordinary £1
500 Ordinary £1
Rainbow Dust Colours Limited
Cake Decoration Supplier
R&W Scott Limited*
Food Ingredients Supplier
5,000,000 Ordinary £1
Garrett Ingredients Limited*
Food Ingredients Supplier
2,500,000 Ordinary £1
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Whitworths Sugars Limited
Haydens Bakery Limited*
Renshaw Europe NV*
Brighter Foods Limited
* Held directly by Real Good Food plc.
Dormant
2 Ordinary £1
Premium Bakery
2,000,00 Ordinary £1
Cake Decoration Supplier
461,500 Ordinary €1
Food Ingredients Supplier
506,000 Ordinary £1
84.33%
The registered name of Garretts Ingredients Limited was subsequently changed to Real Good Food Ingredients Limited.
The registered name of Hayden’s Bakeries Limited was subsequently changed to RGF Devizes Limited.
See note 34.
All entities have their registered office at 61 Stephenson Way, Wavertree, Liverpool L13 1HN (changed on 12th July 2018),
except for the following:
Renshaw Europe NV registered office at Rue Scailquin 60 Boite 29 – 1210 Bruxelles (Sait-Josse-Ten-Noode)
Renshaw US Incorporated registered office at 400 Commons Way, Rockaway, New Jersey, USA
Brighter Foods Limited registered office at 17-18 2nd Floor, Agincourt Square, Monmouth NP25 3DY
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
20. Deferred taxation liability/(asset)
The gross movements on the deferred tax account are as follows:
Adjusted for:
Opening position
Arising on business combination
Charge/(credit) to income statement
(Credit) to other comprehensive income –
defined benefit pension scheme movement
Charge to equity/(credit) -
deferred tax on share based payments
Closing position
Shown as follows:
Liabilities
Assets
31 March 2018
Group
£’000s
31 March 2018
Company
£’000s
31 March 2017
Group
£’000s
31 March 2017
Company
£’000s
(157)
872
191
(100)
100
906
2,035
(1,129)
906
(1,274)
–
98
(100)
100
(1,176)
–
(1,176)
(1,176)
369
–
(352)
–
(174)
(157)
1,278
(1,435)
(157)
(1,462)
–
362
–
(174)
(1,274)
–
(1,274)
(1,274)
Group
Deferred tax assets
The deferred tax balances arise from temporary differences in respect of the following:
Adjusted for:
At 31 March 2017
Charge/(credit) to income
(Credit) to other comprehensive
income
Charge to equity
At 31 March 2018
Within 12 months
Greater than 12 months
Losses
£’000s
Options
£’000s
Provisions
£’000s
Pension scheme
£’000s
Total
£’000s
–
–
–
–
–
–
–
(138)
3
–
100
(35)
–
(35)
(177)
177
–
–
–
–
–
(1,120)
(1,435)
126
(100)
–
(1,094)
–
(1,094)
306
(100)
100
(1,129)
–
(1,129)
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
20. Deferred taxation liability/(asset) (continued)
Deferred tax provisions
Adjusted for:
At 31 March 2017
Charge / (credit) to income statement
Arising on business combinations (note 33)
At 31 March 2018
Intangible
Assets
£’000s
Tangible
Assets
£’000s
1,205
(480)
872
1,597
73
365
–
438
Total
£’000s
1,278
(115)
872
2,035
There were £13.2 million of unused tax losses on which deferred tax of £2.3 million is not recognised due to uncertainty over
when those losses will be utilised. The losses have no expiration date.
Company
The deferred tax balances arise from temporary differences in respect of the following:
Adjusted for:
At 31 March 2017
Charge/(credit) to income statement
Charge/(credit) to other
comprehensive income
Charge/(credit) to equity
At 31 March 2018
Within 12 months
Greater than 12 months
21. Inventories
Adjusted for:
Materials
Work in progress
Finished goods
Continuing business
Discontinued business
Provisions
£’000s
(20)
(27)
–
–
(47)
–
(47)
Pension
Scheme
£’000s
(1,120)
126
(100)
–
(1,094)
–
(1,094)
Tangible
Assets
£’000’s
Share
Options
£’000s
Total
£’000s
4
(4)
–
–
–
–
–
(138)
(1,274)
3
–
100
(35)
–
(35)
98
(100)
100
(1,176)
–
(1,176)
31 March 2018
Group
£’000s
31 March 2018
Company
£’000s
31 March 2017
Group
£’000s
31 March 2017
Company
£’000s
5,738
364
4,480
10,582
10,582
–-
–
–
–
–
–
–
8,159
45
5,119
13,323
12,954
369
–
–
–
–
–
–
Inventories totalling £10,582k (2017 : £13,323k) 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.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
22. Trade and other receivables
Current 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
Amount due within 12 months
Amount due after 12 months
Total
31 March 2018
Group
£’000s
31 March 2018
Company
£’000s
31 March 2017
Group
£’000s
31 March 2017
Company
£’000s
14,556
(135)
14,421
408
–
467
15,296
15,296
–
15,296
3
–
3
150
76,692
63
76,908
3,370
73,538
76,908
13,584
(68)
13,516
1,300
–
1,200
16,016
16,016
–
16,016
–
–
–
31
35,871
220
36,122
251
35,871
36,122
At 31 March 2018, £13.2m of trade receivables were pledged as security for the invoice discounting facility with Lloyds
Banking Group. This was in relation to the following subsidiaries; J F Renshaw, Garrett Ingredients, R&W Scott, Rainbow Dust
Colours and Haydens Bakery, and was supplied on GBP, USD and EUR receivables.
Provision for impairment of receivables
Adjusted for:
At 31 March 2017
Charge for period (note 8)
Uncollectable amount written off
At 31 March 2018
31 March 2018
Group
£’000s
31 March 2018
Company
£’000s
31 March 2017
Group
£’000s
31 March 2017
Company
£’000s
(68)
(146)
79
(135)
–
–
–
–
(204)
92
44
(68)
–
–
–
–
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 charge of £146k (2017: credit of £92k) 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.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
22. Trade and other receivables (continued)
Trade receivables of £3.7 million were past due but not impaired. The ageing analysis of these receivables is as follows:
Adjusted for:
Up to 30 days past due
One to three months past due
Over three months past due
23. Borrowings and capital management
Secured borrowings at amortised cost
Secured borrowings at amortised cost
Bank term loans
Revolving credit facilities
Hire purchase
Investor loans*
Investor loans - cash collateral
Government grants
Amount due for settlement within 12 months
Amount due for settlement after 12 months
Total
31 March 2018
Group
£’000s
31 March 2017
Group
£’000s
2,967
555
216
3,738
1,846
126
122
2,094
31 March 2018
Group
£’000s
31 March 2018
Company
£’000s
31 March 2017
Group
£’000s
31 March 2017
Company
£’000s
1,750
8,669
6,406
21,398
2,000
327
40,550
24,160
16,390
40,550
1,750
–
–
21,398
2,000
–
25,148
13,894
11,254
25,148
2,500
9,333
4,243
–
–
–
16,076
11,375
4,701
16,076
2,500
–
–
–
–
–
2,500
1,000
1,500
2,500
* Accrued interest of £0.7m at 31 March 2018 is not shown in the above Investor loans, this is shown within accruals in payables.
Government grants represents the amount of grants received for which the criterion to ensure that repayment is not required
has not yet been met. Grant monies in respect of which the criteria have been met are included in operating income.
All existing shareholder loans were renegotiated in June 2018 to require repayment in June 2020.
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, investor loans and various items arising directly from its operations such as trade payables and receivables. The
main purpose of these financial instruments is to finance the Group’s operations. The government grant is specific to Brighter
Foods.
The main risks from the Group’s financial instruments are interest rate risk and liquidity risk. Liquidity risk arises from the
Group’s management of working capital and the finance charges and principal repayments on its debt instruments. The
Group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due.
The Group also has some currency exposure in relation to its Euro and US Dollar commodity purchases. However, this is
mitigated by matching in part against foreign currency sales. The Board reviews and agrees policies, which have remained
substantially unchanged for the year under review, for managing these risks.
The Group’s policies on the management of interest rate, liquidity and currency exposure risks are set out in the Report of
the Directors.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
23. Borrowings and capital management (continued)
During the year ended 31 March 2018 the Group continued with the borrowing facilities in place and secured loans from
investors. The borrowings comprised:
{ A term loan with Lloyds Banking Group (“LBG”) repayable in quarterly instalments of £250k with a final repayment in
October 2018. Interest on this loan is charged at 2.75% above Bank of England base rate (Base Rate).
{ Invoice discount facility of £20 million with LBG on a revolving basis with a minimum term of 12 months and a six-month
notice period. This facility is secured against the debtors across the whole of the Group’s UK businesses (excluding
Brighter Foods) with an interest rate of 1.5% above Base Rate.
{ An overdraft facility with LBG of up to £2.0m with two major shareholders (Napier Brown Holdings and Omnicane Limited)
each putting £1.0m into an account as security. The interest rate on the overdraft is at 3.5% above Base Rate.
{ The Group also secured facilities against specific plant and machinery with LBG and ABN Amro Lease NV totalling £6.3m.
The facilities interest payable is varied per specific agreement, but is generally between 3.5% and 4.0%.
The three major shareholders, NB Holdings Limited, Omnicane Investors Limited and certain funds managed by Downing LLP,
supported the business and provided significant funding to the Group by way of loans.
The loans are summarised as follows:
Date
Amount
Method of Funding
Major Shareholder(s)
March 2018
£4.0m*
Unsecured loan notes
January 2018
September 2017
August 2017
June 2017
June 2017
TOTAL
£3.0m
£4.0m
£2.0m
£4.0m
£7.3m**
£24.3m
NB (£1.7m), Omnicane (£1.7m)
Downing (£0.6m)
NB (£1.3m), Omnicane (£1.3m)
Downing (£0.4m)
Unsecured loan notes
Loan Facility & loan notes
Secured on specific chattel assets
NB (£1.3m), Omnicane (£1.3m)
Downing (£1.3m)
Loan facility
(applied as collateral for bank overdraft)
NB (£1.0m), Omnicane (£1.0m)
Investor loans
Loan notes
NB (£2.0m), Omnicane (£2.0m)
Downing
* £0.9m of the funding agreed in March 2018 was received in April 2018
** Interest is payable on a quarterly basis to the MI Downing Monthly Income Fund up to a principal amount of £0.9m
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, the banking arrangements with Lloyds Bank plc contain certain cross-guarantees.
Post-year end borrowings
{ In May 2018 the Company secured further funding from each of its major shareholders totalling £8.5m. NB and Omnicane
each provided £3.3m and Downing provided £1.9m (with a further £0.2m to be provided at the sole discretion of Downing
prior to 30 September 2018). This instrument has since, with shareholder approval, been converted into a “Convertible
Loan Note” instrument with a conversion price of 5 pence. This instrument accrues interest at 12%, maturing in full on
17 May 2021, unless converted before that date. Should the shareholders exercise the right to convert the “CLN” into
Ordinary shares, this would result in dilution of current shareholdings.
{ A further £1.0m was raised through an Open Offer in August 2018, with a further 20,115,190 shares admitted on
17 August 2018.
{ Following the sales of Garrett Ingredients Limited and Haydens Bakeries Limited the invoice discount facility with LBG was
reduced to £10 million.
{ The residue of the term loan of £1.8 million at 31 March 2018 was repaid in full in September 2018 with the proceeds of
the Haydens disposal.
{ The terms of the investor loans were amended post the year end subject to the “Amendment Deed” with all loans (except
the Convertible Loan Notes) accruing interest at a rate of 10%, repayable with the principal amount on 30 June 2020.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
23. Borrowings and capital management (continued)
Liquidity risk management
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its
debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Board reviews the Group’s liquidity position on a monthly basis and monitors its forecast and actual cash flows against
maturing profiles of its financial assets and liabilities.
The following table details the Group’s maturity profile of its financial liabilities:
Less than
1 month
£’000s
1–3
months
£’000s
3 months to
1 year
£’000s
1–5
years
£’000s
5+
years
£’000s
Total
£’000s
Adjusted for:
2018
Trade and other payables
Bank term loans
Revolving credit facilities
Investor loans
Government grants
Hire purchase
NCI put option liability
Interest
Total
13,346
250
–
–
5
152
–
6,008
–
–
10,144
12
267
–
2,864
1,500
8,669
2,000
32
1,129
–
13,753
16,431
16,194
35
640
684
13,788
17,071
16,878
267
–
–
11,254
198
4,858
4,796
21,373
1,671
23,044
1
–
–
–
80
–
–
81
–
81
22,486
1,750
8,669
23,398
327
6,406
4,796
67,832
3,030
70,862
Less than
1 month
£’000s
1–3
months
£’000s
3 months to
1 year
£’000s
1–5
years
£’000s
5+
years
£’000s
Total
£’000s
Adjusted for:
2017
Trade and other payables
11,022
3,101
Bank term loans
Revolving credit facilities
Hire purchase
Interest
Total
–
–
87
11,109
7
11,116
250
–
260
3,611
43
3,654
1,120
750
9,333
695
11,898
295
12,193
–
1,500
–
3,201
4,701
318
5,019
–
–
–
–
–
–
–
15,243
2,500
9,333
4,243
31,319
663
31,982
The profile of the trade payables has been taken as being consistent with the Group’s payment terms to suppliers.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
23. Borrowings and capital management (continued)
Analysis of market risk sensitivity
Currency risks:
The Group is exposed to currency risks on purchases of commodities from USA and Europe. The risk associated with these
purchases is mitigated by sales also made to customers in these countries, however to the extent that these do not cover
each other there is a risk of exposure to the Group.
The effect of the exposure is calculated as being:
{ With an excess of $ debtors to $ creditors, a 10% strengthening of the US dollar would result in an increase in pre-tax
profits of £134k. A 10% weakening of the US dollar would result in a decrease of pre-tax profits of £109k.
{ With an excess of € creditors to € debtors a 10% strengthening of the Euro would result in a decrease in pre-tax profits of
£209k. A 10% weakening of the Euro would result in a increase of pre-tax profits of £171k.
Interest rate risks:
The Group has an exposure to interest rate risk arising from borrowings based upon the Bank of England base rate. 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 £104k.
Obligation under finance leases
Adjusted for:
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 2018
£’000s
31 March 2017
£’000s
1,764
5,128
6,892
(486)
6,406
1,548
4,858
6,406
1,042
3,201
4,243
(365)
3,878
1,010
2,868
3,878
It is the Group’s policy to lease certain property, plant and equipment under finance leases. For the period ended 31 March
2018 the average effective borrowing rate was 4.0% (2017: 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.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
24. Trade and other payables
Adjusted for:
Amount due within one year
Trade payables
Social security
Deferred consideration
Accruals
Amounts owed to Group undertakings
Other payables
Total
31 March 2018
Group
£’000s
31 March 2018
Company
£’000s
31 March 2017
Group
£’000s
31 March 2017
Company
£’000s
11,419
849
4,520
5,253
–
445
624
95
–
2,506
72,837
25
10,634
913
–
3,336
–
360
238
99
–
1,594
39,896
–
22,486
76,087
15,243
41,827
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.
The deferred consideration of £4.5million is in relation to the acquisition of Brighter Foods, payable (and paid) in May 2018.
The Directors consider that the carrying amount of trade payables approximates to their fair value.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
25. Financial instruments
Set out below are the Group’s financial instruments. The Directors consider there to be no difference between the carrying
value and fair value of the Group’s financial instruments.
31 March 2018
Group
£’000s
31 March 2018
Company
£’000s
31 March 2017
Group
£’000s
31 March 2017
Company
£’000s
Adjusted for:
Loans and receivables at amortised cost
Cash and cash equivalents
Cash collateral
Trade receivables
Other debtors
Amounts owed by Group undertakings
Financial liabilities at amortised cost
Trade creditors
Accruals
Other payables
Bank term loans
Revolving credit facilities
Hire purchase
Investor loans
Deferred consideration
Amounts owed to Group undertakings
Financial liabilities at fair value through profit and loss
Forward foreign exchange contracts
NCI put option
Total
2,731
2,000
14,421
408
–
19,560
11,419
5,253
445
1,750
8,669
6,406
23,398
4,520
–
61,860
–
4,796
4,796
66,656
477
2,000
3
150
76,692
79,322
624
2,506
26
1,750
–
–
23,398
–
72,837
101,141
–
–
–
464
–
13,516
1,300
–
15,280
10,634
3,336
360
2,500
9,333
4,243
–
–
–
30,406
146
–
146
–
–
–
–
35,871
35,871
238
1,594
–
2,500
–
–
–
–
39,896
44,228
–
–
–
101,141
30,552
44,228
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.
The three major shareholders, NB Holdings Limited, Omnicane Investors Limited and certain funds managed by Downing LLP,
supported the business and provided significant funding (£23.4million) to the Group by way of loans.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
26. Share capital
Number of
Shares
2018
Number of
Shares
2017
31 March
2018
£’000s
31 March
2017
£’000s
Adjusted for:
Allotted, called up and fully paid equity share capital
At 31 March 2017
Issued in the year
At 31 March 2018
70,563,501
70,066,903
7,885,740
496,598
78,449,241
70,563,501
1,411
158
1,569
1,402
9
1,411
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 6,930,748 shares reserved for issue under options, with expiry dates beyond 2018, outstanding at the end of the
year.
Downing subscribed for Ordinary shares representing 10% of the share capital in July 2017 at a price of 35 pence per share,
raising a further £2.75 million. Admission of a total of 7,844,924 new ordinary shares occurred on 5 July 2017 and 24 July
2017. A further 40,816 shares were issued in April 2017 as a result of share options being exercised.
27. Reserves
Share premium: The share premium reserve comprises the premium paid over the nominal value of shares for shares
issued.
Share option reserve: The share option reserve represents the cumulative share option charge.
Other reserve: Long-term liability arising from non-controlling interest payable upon exercise of the Brighter Foods put option
(see note 33).
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.
Non-controlling interest: The non-controlling interest represents the 15.67% of Retained Earnings that are owned by the
management of Brighter Foods Limited, and not Real Good Food plc.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
28. Equity-settled share option scheme
The Company has a share option scheme for certain employees of the Group. Options are exercisable at a price equal to the
average quoted market price of the Company’s shares at the date of grant. The vesting period is three years. If the options
remain unexercised after a period of ten years from the date of grant the options expire. Options are forfeited if the option
holder leaves the Group before the options vest.
Details of the share options outstanding during the year are as follows:
Adjusted for:
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
31 March
2018
Number of
Share Options
31 March
2018
Weighted Average
Exercise Price (£)
31 March
2017
Number of
Share Options
31 March
2017
Weighted Average
Exercise Price (£)
9,171,350
0.20
9,969,454
–
(40,816)
(2,199,786)
6,930,748
6,322,757
–
(0.25)
(0.13)
0.23
0.21
–
(496,598)
(301,506)
9,171,350
5,899,624
0.20
–
(0.05)
(0.46)
0.20
0.17
* 3,817,726 options granted to P. Totte not exercisable until share price exceeds £1.00.
All of the outstanding options have an exercise price within the range of £0.00 - £0.50 in both 2018 and 2017.
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 35%
Expected life
Risk-free rate
Dividend yield
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.
Owing to the number of forfeited options during the year, the impact on the income statement in relation to the share options
was a credit of £5k. This is shown in administration expenses in the Company as the majority of the charge relates to
employees of the Company.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
OUR FINANCIALS
29. Commitments
Operating lease arrangements
At the balance sheet date the Group had total future minimum lease payments under non-cancellable operating leases for
each of the following periods:
Adjusted for:
Due within one year
Due between one and five years
31 March
2018
£’000s
31 March
2017
£’000s
441
672
757
1,222
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
Adjusted for:
Commitments for the acquisition of property, plant and equipment
31 March
2018
£’000s
31 March
2017
£’000s
550
5,954
30. Related party transactions
Consultancy fees paid to the following entities in which Directors hold a beneficial interest. Fees payable relate to additional
services provided to the Group by the Directors.
Adjusted for:
Osmond Consultancy Limited
P Totté
Menton Investments
P G Ridgwell
The Salter Consultancy LLP*
More Hours Limited*
Director
P Totté
P Totté
P Totté
P G Ridgwell
P Salter
H CL Cawley
12 months ended
31 March
2018
£’000s
12 months ended
31 March
2017
£’000s
–
30
–
18
31
55
134
220
10
5
55
94
–
384
* includes expenses in the current year of £3k to P Salter (2017: £11k) and £1k to Hugh CL Cawley
A loan of £39k provided to P Totté in the year to March 2016 was repaid in June 2017
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
30. Related party transactions (continued)
Charges of Group services to related parties
Transactions between the Company and its subsidiaries are as follows:
Adjusted for:
J F Renshaw Limited
Haydens Bakery Limited
Rainbow Dust Colours Limited
R&W Scott Limited
Garrett Ingredients Limited
Amounts due to subsidiaries
Adjusted for:
J F Renshaw Limited
Rainbow Dust Colours Limited
Eurofoods plc
Hayden’s Bakeries Limited
R&W Scott Limited
Brighter Foods Limited
12 months ended
31 March
2018
£’000s
12 months ended
31 March
2017
£’000s
720
360
60
240
120
720
360
60
240
120
1,500
1,500
12 months ended
31 March
2018
£’000s
12 months ended
31 March
2017
£’000s
59,019
7,729
69
1,248
2
4,770
72,837
58,352
5,768
–
–
–
–
64,120
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.
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
30. Related party transactions (continued)
Amounts due from subsidiaries
Adjusted for:
Renshaw Europe SA
JF Renshaw Limited
Rainbow Dust Colours Limited
Haydens Bakery Limited
Renshaw USA Incorporated
Napier Brown Foods Limited
RGFC Dust Limited
R&W Scott Limited
Garrett Ingredients Limited
OUR FINANCIALS
12 months ended
31 March
2018
£’000s
12 months ended
31 March
2017
£’000s
1,082
1,082
2,021
167
9,433
288
53,139
6,345
1,364
2,853
76,692
–
–
4,612
723
45,801
8,255
809
204
61,486
31. Pensions arrangements
Defined Contribution Scheme. The Group operates a defined contribution scheme for all employees, including provision to
comply with auto-enrolment requirements laid down by law.
In addition, the Company operates one defined benefits scheme which was closed to new members in 2000. From 1 April
2016 the Company annual contributions were agreed at £320k for 11 years and eight months, increasing at 4% per annum
each April. The Company expects to pay £346k to the Plan for the year commencing 1 April 2018 (2018: £333k). The defined
benefit scheme is funded by the Company.
For the purposes of IAS 19 the data provided for the 31 March 2015 actuarial valuation has been approximately updated
to reflect defined benefit obligations on the accounting basis at 31 March 2018. This has resulted in a deficit in the Plan of
£6,440k.
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
Adjusted for:
Present value of defined benefit obligation
Fair value of Plan assets
Deficit/(surplus) in Plan
Gross amount recognised
Deferred tax at 17%*
Net liability
* Deferred tax rate 2016 & 2017: 19%, 2014 & 2015: 20%
31 March
2018
£’000s
31 March
2017
£’000s
31 March
2016
£’000s
31 March
2015
£’000s
31 March
2014
£’000s
19,969
(13,529)
6,440
6,440
(1,095)
5,345
19,840
(13,946)
5,894
5,894
(1,120)
4,774
21,094
(15,013)
6,081
6,081
(1,155)
4,926
21,799
(16,111)
5,688
5,688
(1,138)
4,550
19,033
(15,360)
3,673
3,673
(735)
2,938
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
31. Pensions arrangements (continued)
Reconciliation of opening and closing balances of
the present value of the defined benefit obligations
Adjusted for:
Defined benefit obligation at start of period
Interest cost
Actuarial (gains)/losses
Settlements
Past service loss/(gains)
Benefits paid
31 March
2018
£’000s
31 March
2017
£’000s
19,840
21,094
553
367
–
115
(906)
754
2,499
(2,060)
(1,584)
(863)
Defined benefit obligation at end of period
19,969
19,840
Reconciliation of opening and closing balances of
the fair value of Plan assets
Adjusted for:
Fair value of Plan assets at start of period
Interest income on Plan assets
Actuarial (losses)/gains
Contributions paid by the Group
Settlements
Benefits paid, death in service insurance premiums and expenses
Fair value of Plan assets at end of period
31 March
2018
£’000s
31 March
2017
£’000s
13,946
15,013
389
(232)
332
–
(906)
13,529
538
652
920
(2,314)
(863)
13,946
The actual return on the Plan assets over the period ended 31 March 2018 was £157k (2017: £1.2m).
Total expense recognised in the Statement of
Comprehensive Income within other finance income
Adjusted for:
Interest on liabilities
Interest on assets
Net interest cost
Past service (income)/cost
Total (income)/cost
31 March
2018
£’000s
31 March
2017
£’000s
553
(389)
164
115
279
754
(538)
216
(1,330)
(1,114)
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31. Pensions arrangements (continued)
Statement of recognised income and expenses
Adjusted for:
Actuarial (losses)/gains on the Plan assets
Experience gains and losses arising on the Plan liabilities
Actuarial gains/(losses) arising on the Plan liabilities from changes in demographic assumptions
Actuarial gains/(losses) arising on the Plan liabilities from changes in financial assumptions
Total amount recognised in Statement of Other Comprehensive Income
OUR FINANCIALS
31 March
2018
£’000s
31 March
2017
£’000s
(232)
–
114
(481)
(599)
652
(103)
228
(2,624)
(1,847)
Assets
Adjusted for:
UK equity
Overseas equity
Absolute return fund
Corporate Bonds
Gifts
Property
Cash
Alternative assets
Current assets
Current liabilities
Total assets
31 March
2018
£’000s
31 March
2017
£’000s
31 March
2016
£’000s
1,511
2,952
3,136
1,105
945
83
1,122
2,675
–
–
1,907
4,120
3,732
1,139
1,646
152
284
2,671
610
(2,315)
1,608
4,462
3,826
1,020
2,104
72
473
1,448
–
–
13,529
13,946
15,013
None of the fair values of the assets shown above includes any of the Group’s own financial instruments or any property
occupied by, or other assets used by, the Group. All assets stated above have a quoted market price in an active market.
Assumptions
Adjusted for:
Inflation
Salary increases
Rate of discount
Allowance for pension in payment increases
Allowance for revaluation of deferred pensions
12 months ended
31 March
2018
% per annum
12 months ended
31 March
2017
% per annum
12 months ended
31 March
2016
% per annum
12 months ended
31 March
2015
% per annum
3.10
–
2.65
3.00
2.10
3.20
–
2.85
3.10
2.20
2.80
–
3.65
2.70
1.80
2.90
–
3.45
2.80
1.90
Allowance for commutation of pension for cash at
retirement
90% of max
allowance
90% of max
allowance
90% of max
allowance
90% of max
allowance
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
31. Pensions arrangements (continued)
The mortality assumptions adopted at 31 March 2018 imply the following life expectancies:
Male retiring at age 65 in 2018
22 years
Female retiring at age 65 in 2018 24 years
Male retiring at age 65 in 2038
23 years
Female retiring at age 65 in 2038 25 years
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.
The weighted - average duration of the defined benefit obligation at 31 March 2018 was 15 years (2017: 14 years).
Expected long-term rates of return
The expected long term rates of return applicable at the start of each period are as follows:
12 months
ended
31 March
2018
£’000s
12 months
ended
31 March
2017
£’000s
12 months
ended
31 March
2016
£’000s
12 months
ended
31 March
2015
£’000s
12 months
ended
31 March
2014
£’000s
13,529
(19,969)
(6,440)
(232)
–
13,946
(19,840)
(5,894)
652
(103)
15,013
(21,094)
(6,081)
(1,122)
–
16,111
(21,799)
(5,688)
885
–
15,360
(19,033)
(3,673)
(382)
–
Adjusted for:
Fair value of assets
Defined benefit obligation
Surplus/(deficit) in scheme
Experience adjustment on scheme assets
Experience adjustment on scheme liabilities
Risks
The scheme is exposed to a number of risks, including:
Asset volatility: the Plan’s defined benefit obligation is calculated using a discount rate set with reference to corporate bond
yields; however, the Plan invests significantly in equities. These assets are expected to outperform corporate bonds in the
long-term but provide volatility and risk in the short term.
Changes in bond yields: a decrease in corporate bond yields would increase the Plan’s defined benefit obligation; however,
this would be partially offset by an increase in the value of the Plan’s bond holdings.
Inflation risk: a proportion of the Plan’s defined benefit obligation is linked to inflation; therefore, higher inflation will result
in a higher defined benefit obligation (subject to the appropriate caps in place). The majority of the Plan’s assets are either
unaffected by inflation, or only loosely correlated with inflation; therefore, an increase in inflation would also increase the deficit.
Life expectancy: if Plan members live longer than expected, the Plan’s benefits will need to be paid for longer, increasing the
Plan’s defined benefit obligation.
The Trustees and Company manage risks in the Plan through the following strategies:
Diversification: investments are well diversified, such that the failure of any single investment would not have a material
impact on the overall level of assets.
Investment strategy: the Trustees are required to review their investment strategy on a regular basis.
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OUR FINANCIALS
31. Pensions arrangements (continued)
Sensitivity analysis
The impact to the value of the defined benefit obligation of a reasonably possible change to one actuarial assumption,
holding all other assumptions constant, is presented in the table below:
Actuarial
Assumption
Adjusted for:
Discount rate
RPI inflation
Assumed life expectancy
Reasonably
Possible Change
Obligation Increase
£’000’s
Obligation Decrease
£’000’s
(+/- 0.5%)
(+/- 0.5%)
(+/-) 1 Year
1,433
390
700
1,285
330
692
32. Discontinued operations
On 31 October 2017, Garretts Ingredients Nutrition (a division of Garretts Ingredients Limited) ceased trading. This was
consistent with the Group’s strategy and allows it to focus on its remaining businesses. The results of the ceased business
are shown below. This is the only discontinued operation referred to within these accounts and the subsequent notes.
The post-tax loss on disposal of discontinued operations follows:
Adjusted for:
Cash consideration received (£1)
Net assets disposed of:
Property, Plant and Equipment
Intangibles (Software)
Other financial assets
Total Assets disposed of
Pre-tax loss on disposal of discontinued operation
Related tax expense
Loss on disposal of discontinued operation
31 March
2017
£’000s
–
116
14
12
142
142
–
142
The trade payables and trade receivables were wound down following the closure of the business. At 31st March 2018, there
were still £290k of trade payables outstanding. The result of the discontinued business contained within these accounts is:
Adjusted for:
Revenue
Cost of sales
(Loss) / income
Distribution
Administration
Exceptional costs (note 6)
Operating loss
31 March
2018
£’000s
31 March
2017
£’000s
284
(698)
(414)
(51)
(404)
(476)
(1,345)
472
(446)
26
(53)
(199)
–
(226)
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Notes to the Financial Statements (continued)
Year ended 31 March 2018
32. Discontinued operations (continued)
The loss per share from the discontinued operations are below. Please see note 15 for full details.
Adjusted for:
Basic and diluted loss per share
31 March
2018
31 March
2017
(1.76)p
(0.32)p
The statement of cash flow includes the following amounts in relation to the discontinued operation:
Adjusted for:
Operating activities
Investing activities
Financing activities
Net cash from discontinued operations
31 March
2018
£’000s
(1,345)
–
–
(1,345)
33. Acquisitions
Real Good Food plc (Group) acquired Tywyn-based Brighter Foods Limited on 4th April 2017; a food manufacturing company,
with Robin Williams remaining as CEO. Real Good Food plc acquired a 84.33% interest in Brighter Foods, with senior
management of Brighter Foods retaining the other 15.67% stake in the business. As expected on acquisition, Brighter Foods
has enhanced earnings for the Group in the current year. For the year ending 31st March 2018, it contributed £16.1million
revenue and £3.4million net profit to the Real Good Food Group. As the acquisition was made within the first few days of the
financial year, the result is not materially different from what it would have been, if Brighter Foods had been part of the Group
for the full year. The Non-controlling interest is measured using a percent of net assets basis.
Details of the assets and liabilities acquired, purchase consideration and goodwill are as follows:
Adjusted for:
Property, plant & equipment
Intangible assets
Investment in Boka Foods
Inventories
Trade and other receivables
Cash
Trade and other payables
VAT liability
Income tax
Deferred tax
Government Grant
Total net assets
Book Value
£000’s
Adjustment
£000’s
Fair Value
£000’s
1,899
28
82
1,048
1,033
5,557
(2,988)
(1,034)
(235)
(170)
(377)
4,843
–
4,100
–
–
–
–
(36)
–
(109)
(702)
–
3,253
1,899
4,128
82
1,048
1,033
5,557
(3,024)
(1,034)
(344)
(872)
(377)
8,096
The book value was adjusted for legal fees and March 17 income tax liability which were not present in the original book
value. The Group believe that all receivables are fully recoverable.
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33. Acquisitions (continued)
Purchase price
Paid April 2017
Paid June 2017
Deferred consideration paid May 2018
Total paid or payable
RGF consideration
Non-Controlling Interest on FV of assets -
15.67%
Less acquired assets
Goodwill upon acquisition
£000’s
4,520
2,818
4,520
11,858
£000’s
11,858
1,269
(8,096)
5,031
Costs incurred in acquiring this company amount to £462k,
of which £311k has been included in these accounts as part
of significant items (note 6). The remaining £151k was taken
into the March 2017 accounts.
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%
of the management stake to the Group after March 2020
and 50% after March 2021. The consideration for the entire
management stake will be based upon an agreed valuation
formula, linked to profit, cash and capital expenditure of
Brighter Foods in the years ending 31 March 2020 and
31 March 2021 respectively, and is capped at £8 million in
aggregate. The net present value of the estimated amount
payable (£4.8 million), in the event of the exercise of the
non-controlling interest put option, has been recognised
within long-term liabilities and equity. Additionally the Group
can elect to acquire the management stake after March
2021 based upon the same valuation formula.
We do not consider the NCI option gives rise to a present
ownership interest.
OUR FINANCIALS
34. Post-year end activities
1. On 23 April 2018, a sale of assets was completed for
Garrett Ingredients Limited, for a consideration of £1.8
million payable in cash, on a debt free/cash free basis. In
the Group’s financial year ended 31 March 2017, Garretts
contributed £21.3m of revenues and an operating loss of
£0.9m. It had net assets of £1.9m.
2. On 6 September 2018 the sale of Haydens Bakery Limited
to Bakkavor Group plc was completed for a consideration
of £12m, payable by means of a cash payment of £9.6m
and the assumption by the buyer of £2.4m of third-party
debt. The cash funds received were used to reduce the
Group’s indebtedness, first settling the lending secured
against Haydens’ assets (£2.3m), then repaying in full the
outstanding term loan with the Group’s bankers (£1.3m).
In the Group’s financial year ended 31 March 2017,
Haydens (excluding the Chantilly Patisserie business which
is not a part of this transaction) contributed £31.3m of
revenue, and broke even at profit before tax, closing that
year with net liabilities of £0.8m.
3. Further borrowings of up to £8.7 million in the form of
Convertible Loan Notes were secured in May 2018
(see note 23).
4. Open offer was executed for £1.0 million at a share price
of 5 pence per share. (see note 23).
5. The bank term loan was fully repaid in September 2018.
(See note 23).
6. Chantilly Patisserie (formerly part of Haydens Bakery Ltd)
was incorporated as a new separate legal entity on 31 July
2018 with the name RGF Patisserie Ltd. Real Good Food
plc has one Ordinary £1 share in RGF Patisserie.
7. Name changes post year-end: Garretts Ingredients Limited
was changed to Real Good Food Ingredients Limited.
Hayden’s Bakeries Limited (dormant) was changed to RGF
Devizes Limited.
8. Following the closure of the London office, the registered
office of Real Good Food plc was changed to 61
Stephenson Way, Wavertree, Liverpool L13 1HN on 12
July 2018. This change was also reflected in the following
companies:
Eurofoods plc (dormant)
RGF Devizes Limited (dormant) (formerly Hayden’s Bakeries
Limited)
Haydens Bakery Limited
J F Renshaw Limited
N Brown Foods Limited (holding company)
R & W Scott Limited
Rainbow Dust Colours Limited
Real Good Food Ingredients Limited (formerly Garrett
Ingredients Limited)
RGFC Dust Limited (holding company)
Whitworths Sugars Limited (dormant)
RGF Patisserie Limited (formerly Chantilly Patisserie, part
of Haydens Bakery Limited)
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Shareholder Notes
74
74
OUR FINANCIALS
OUR FINANCIALS
Annual Report and Accounts for the year ended 31 March 2018
Annual Report and Accounts for the year ended 31 March 2018
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Advisors and Company Information
OTHER INFORMATION
Directors
P G Ridgwell
C O Thomas
H CL Cawley
H Rai
J M d’Unienville
J A Mackenzie
S Dawson
M J Holt
Company Secretary
H Rai
Registered Office
61 Stephenson Way
Wavertee
Liverpool
L13 1HN
Registered Number
4666282
Auditor
BDO LLP
3 Hardman Street
Spinningfields
Manchester
M3 3AT
Solicitors
Walker Morris LLP
Kings Court
12 King Street
Leeds
LS1 2HL
Nominated Advisor and Broker
finnCap Ltd
60 New Broad Street
London
EC2M 1JJ
Bankers
Lloyds Bank plc
5 St Paul’s Square
Old Hall Street
Liverpool
L3 9SJ
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www.realgoodfoodplc.com Stock Code: RGD
www.realgoodfoodplc.com Stock Code: RGD
IBC
06
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61 Stephenson Way, Wavertree,
Liverpool L13 1HN
T: 0151 541 3790
enquiries@realgoodfoodplc.com
www.realgoodfoodplc.com
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