Reunion Gold Corporation
Annual Report 2021

Plain-text annual report

A n n u a l R e p o r t a n d A c c o u n t s F o r t h e y e a r e n d e d 3 1 M a r c h 2 0 2 1 S t o c k c o d e : R G D Annual Report and Accounts For the year ended 31 March 2021 Stock code: RGD 30678 Real Good Food AR2021.indd 3 30678 Real Good Food AR2021.indd 3 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:15 20/09/2021 21:02:15 Contents STRATEGIC REPORT Overview The Group in Summary Chairman’s Statement 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 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 Notes to the Financial Statements OTHER INFORMATION Advisors and Company Information 01 02 04 05 07 08 10 12 13 14 15 16 23 25 26 31 32 33 34 35 36 37 38 77 The Group’s current objective: The Group’s current objective: To deliver a return on investment for all our stakeholders. To deliver a return on investment for all our stakeholders. The Group’s current strategy: The Group’s current strategy: To improve our profitability by focusing on and investing in our areas of To improve our profitability by focusing on and investing in our areas of competitive advantage, whilst partnering with our customers to competitive advantage, whilst partnering with our customers to enhance the consumer experience. enhance the consumer experience. www.realgoodfoodplc.com Navigating the Report For further information within this For further information within this document and relevant page numbers document and relevant page numbers Additional information online Additional information online STRATEGIC REPORT Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 3 30678 Real Good Food AR2021.indd 3 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:16 20/09/2021 21:02:16 STRATEGIC REPORT Overview Financial highlights { Revenue from continuing businesses decreased by 9.5% to £37.3 million (2020: £41.2 million), in a year affected by covid-19. { The Group delivered an adjusted underlying EBITDA* on continuing businesses of £0.2 million (2020: loss of £1.6 million), despite the impact of covid-19 on the continuing business. { Cake Decoration, the Group’s continuing business, was profitable (before depreciation, amortisation and significant items) and generated an adjusted EBITDA* of £0.8 million (2020: £1.8m). { Central costs reduced significantly by £2.9 million to £0.6m (2020: £3.5 million). { Net debt significantly reduced post year end, following the sale of Brighter Foods in May 2021: − Year-end net debt of £48.8 million (2020: £45.4 million). − Following the sale of Brighter Foods, net debt was reduced by £26.4m. { The Board renegotiated interest rates on convertible loan notes to a simple 12% per annum with effect from 1 January 2021, and in September 2021 extended the redemption dates to 2023. { The shareholder loans were extended in September 2021 to be repayable in May 2023. Operational highlights { Brighter Foods was sold to The Hut Group (THG) on 11 May 2021 for a cash consideration of £43 million. The sale price broadly equated to 8.6 times FY20 EBITDA and 11.7 times (unaudited) EBITDA for the 12 months ended 31 March 2021. { Cake Decoration (trading under the brand names of Renshaw and Rainbow Dust Colours) demonstrated an ability to win new business from its streamlined cost base: − Launched 66 new products in the year with in-year revenues of c. £1.6 million and secured an important new blue-chip customer. − Improved year-on-year frosting revenues by 17%, following investment in its soft icing plant in this growing market. Current trading { Group revenues and profit are in line with Board expectations, and ahead of pre-pandemic levels (FY20), for the first five months of the new financial year, with good retail and international sales. { Performance (underlying increased margins and increased revenues) achieved despite the recent logistics challenges seen across the UK economy. { Cake Decoration has a solid foundation to launch more innovative products whilst working with customers to maximise its sales opportunities. { Renshaw continues to win industry recognition, having been shortlisted in The Grocer, New Product Awards 2021, for its Luxury Bakers Caramel and Silver Shimmer Icing Kit. { The Board remains focussed on reviewing all initiatives to continue to improve the capital structure of the Group; including the intention to delist the Group from AIM to save costs and provide greater agility and flexibility to maximise shareholder value. * Underlying adjusted EBITDA (see note 5) 1 Kantar 52-week YOY to March 21st, 2021 GROUP REVENUE £37.3m 2020 £41.2m GROSS PROFIT £15.2m 2020 £17.6m GROUP EBITDA (adjusted) £0.2m 2020 £(1.6)m Financial information presented relates to continuing operations. www.realgoodfoodplc.com Stock Code: RGD 01 30678 Real Good Food AR2021.indd 1 30678 Real Good Food AR2021.indd 1 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:16 20/09/2021 21:02:16 The Group in Summary Real Good Food now has one division, Cake Real Good Food now has one division, Cake Decoration, comprising two businesses, following Decoration, comprising two businesses, following the sale of Brighter Foods in May 2021. the sale of Brighter Foods in May 2021. The businesses The businesses Cake Decoration, Renshaw and Rainbow Dust, has its own infrastructure and management Cake Decoration, Renshaw and Rainbow Dust, has its own infrastructure and management teams. The business generally has the resources to operate as a stand-alone unit, but teams. The business generally has the resources to operate as a stand-alone unit, but is able to call upon the centre as required. is able to call upon the centre as required. Discontinued Operation Discontinued Operation Food Ingredients is classed as a discontinued operation in the accounts for FY21 owing to the sale on 11 May 2021 of Brighter Foods Limited. Head Office Head Office Central functions comprise only Finance, in addition to the plc Board. REVENUE £37.3m 2020: £41.2m EBITDA Profit (adjusted)* £0.8m 2020: £1.8m OPERATING Profit (LOSS) £(1.7)m 2020: (£13.4)m EMPLOYEES 323 2020: 339 HEAD OFFICE EBITDA (adjusted)* £(0.6)m 2020: (£3.5)m OPERATING Profit £0.4m 2020: (£4.0)m EMPLOYEES 4 2020: 4 Read more on page 07 Read more on page *See note 5 for reconciliation 02 STRATEGIC REPORT Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 2 30678 Real Good Food AR2021.indd 2 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:17 20/09/2021 21:02:17 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, and food manufacturing as well as exports, primarily to America. 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, 302 employees Rainbow Dust Colours: Preston, 18 employees Renshaw Europe: Europe, 2 employees Renshaw Americas: New Jersey, 1 employee (now closed) (Discontinued operations) Brighter Foods 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. Brighter Foods: Tywyn, Wales, 216 employees www.realgoodfoodplc.com Stock Code: RGD 03 30678 Real Good Food AR2021.indd 3 30678 Real Good Food AR2021.indd 3 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:18 20/09/2021 21:02:18 Chairman’s Statement Overview As for most companies, the year to 31 March 2021 was a period of unprecedented uncertainty and challenges due to covid-19 and Brexit. There were three national lockdowns and restrictions on public gatherings impacting revenues and productivity within both the Group’s businesses. The priority for the Group during this period was to conserve cash and to keep employees safe and healthy, both physically and mentally. The Group’s continuing businesses claimed £1.2m (continuing and discontinued businesses: £1.7m) under the Government’s Job Retention Scheme and at its peak 254 employees (48% of staff) were on furlough. Despite these conditions, it is pleasing to be able to report that the Group has continued to progress and to restore shareholder value. Our plan for the financial year was to accelerate operational changes made within Renshaw and to generate revenue growth from new products and better customer service delivery. Whilst not immediately apparent from our financial results, due to covid-19 and post Brexit disruption, the Group has continued to improve and is moving forward with further operational improvement initiatives within Renshaw and Rainbow Dust Colours. In particular, the management team is leveraging our heritage brand through new and exciting product innovation and customer service. New product launches have been made with Marks and Spencer, Tesco, Asda, Aldi and more recently with Lidl. New product revenues from the launch of 66 new products, accounted for 7.6% (£1.6 million) of sales last year for Cake Decoration. Currently there are 413 new products in various stages of development. This is important given that the sugar paste market is in gradual decline and the demand for marzipan is not growing. The plan for the year was also to leverage investments made during FY20 within Brighter Foods. Shortly after year end, we sold Brighter Foods Limited to The Hut Group for £35.6million which valued the business at £43million. Given the high value of indebtedness of the Group, due to some poor acquisitions in the past, the current Board had been minded to dispose of Brighter Foods at the right value. The timing of the sale coincided with the end of the lock-in period of the Chief Executive Officer and Founder of Brighter Foods. At £43 million, the sale represented 8.6 times annualised FY20 EBITDA and 11.7 times (unaudited) FY21 EBITDA. The sale enabled us to effectively halve the level of shareholder loans (from £45.6 million to £22.0 million) and to eliminate the pension scheme deficit (by the injection of £8.5 million into the scheme’s assets). Dividend As with previous years, the Board is not recommending the payment of a dividend for the year. The focus is on reducing the level of debt and investing in Renshaw and Rainbow Dust Colours to deliver the best possible returns for shareholders. Corporate Governance The Group is governed through the Board and its Audit Committee and Remuneration Committee. The Board is very conscious of its related party connections and dealings. As appropriate, myself, Gail Lumsden (Senior Independent Non-Executive Director) and Maribeth Keeling (Chief Financial Officer) meet independently of the Board to discuss matters concerning Loan Note Holders and major Shareholders. Strategy The Group’s strategy is set out in more detail later in the Strategic Review. But in summary, the aim is to maximise value for shareholders by leveraging productive capacity by growing revenue (through product innovation and new customers) and improving operational performance. The Group is open to divesting parts of the remaining and continuing businesses for the right value at the right time. The Group has a valued heritage and the strategy is to leverage this with new products and class leading service. De-listing As stated at the time of announcing the sale of Brighter Foods Limited on 22 April 2021, the Board has been considering all options to save costs and to return shareholder value. At the AGM, the Independent Directors, with the support of the rest of the Board, will be proposing that the Company cancels the listing of the Company’s shares on AIM. This will save approximately £150,000 a year in costs and provide greater agility and flexibility to maximise shareholder value. The volume of shares traded is very small and an AIM listing adds a disproportionate expense and burden on the Company. The Company has arranged for a matched bargain facility to be in place by JP Jenkins. Outlook Since year-end, the Group has seen a pick-up in revenues across every sector. After five months of trading, revenues are 33% up on the same period last year and, more importantly, 1.3% ahead of the first five months of FY20. FY22 year-to-date EBITDA is a profit, trading ahead of FY21 EBITDA and FY20 EBITDA; this is particularly pleasing given the short-term challenges and increased costs of logistics due to driver shortages and limited availability of shipping containers. Prospects for the remainder of the year are good and the Board is confident of reporting further progress. It’s also encouraging to note that the business is being recognised for its innovation and quality of new products. Finally, I would like to thank our employees who have worked hard to overcome various challenges, during the covid-19 crisis, to ensure that products and customer service continued (and continue) to be delivered. Mike Holt Executive Chairman 20 September 2021 04 STRATEGIC REPORT Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 4 30678 Real Good Food AR2021.indd 4 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:19 20/09/2021 21:02:19 The turnaround of the Cake Decoration business continued in FY21, with overhead restructuring being expedited during the year. Overheads are now significantly reduced: the business has restructured the engineering function to meet the demands of the business with maintenance being undertaken outside of production periods. Additionally, there are a number of initiatives ongoing within the Cake Decoration business to improve profitability. The Cake Decoration business has reviewed the overseas businesses improving the customer experience. In America, the warehouse was closed during the year and the customers are now serviced directly from the Liverpool site. Cake Decoration is working with a distributor in Europe for its smaller customers, thereby improving the customer experience. There are also a range of other options being evaluated to enhance returns from this business. One key opportunity for sales growth has been in new product development and customers: indeed a review was undertaken of the current products leading to the delisting of c.110 and introducing c.66 new products to market, and a new blue-chip retailer was also secured. Cake Decoration will continue to evolve and look for opportunities to add value to the business. Importantly, the Cake Decoration infrastructure and operational facilities are able to deliver the sales growth and improved profitability that the Board believe achievable. The Group’s central resources are now limited to finance and the plc board. Opportunities are continually sought to reduce these further, consistent with good governance. The Group shareholder debt remains significant; the debt, however, was reduced by £23.6m following the sale of Brighter Foods, and the interest rates on the loans were reduced from 1 January 2021. The interest burden, almost all of which is rolled-up, will remain for the foreseeable future. 31 March 2021 £’000s 31 March 2020 £’000s Loss before taxation of continuing businesses (6,108) (23,060) Depreciation of property, plant, and equipment Impairment charge Amortisation of intangibles Significant items Finance costs Other finance costs EBITDA (adjusted) Profit 1,639 – 52 (203) 4,665 182 227 1,708 12,909 159 1,022 5,445 169 (1,648) STRATEGIC REPORT Strategic Review 2020/21 performance The report includes Cake Decoration as the continuing business. Overall revenue from continuing businesses decreased from £41.2 million to £37.3 million, a decrease of £3.9 million (9.5%) within Cake Decoration. The business was impacted by covid-19 with overall revenues down in the first half of the year by 23% versus FY20 and recovering in the second half of the year by 3% versus FY20. The majority of the revenue decline was in the Group’s first quarter (which coincided with the first UK lockdown) and predominantly in the Wholesale and Manufacturing sectors which were down by £2.5m (-9%), International revenues were up year on year with Europe broadly in line, and the US with a year-on-year increase of £1.1m (+18%). The International sector also had challenges with its export logistics including the global shortage of containers and the impact of border controls owing to Brexit. The UK came under pressure owing to the declining market for sugarpaste (-8.4%), however, UK Cake Decoration sales of sugarpaste outperformed the market by 2.4% in the year. Frostings revenues rose by 17% versus FY20, which is a growing market where Renshaw is developing and selling premium products. Retail, despite covid-19, saw revenues increase by 7% year-on-year. Brighter Foods business was sold in May 2021 for a consideration of £43m. Brighter Foods is included as a discontinued operation in the FY21 accounts. The decrease in revenues of 21.9% versus prior year within Brighter Foods reflects the impact of covid-19 and the closure of the ‘food on the go’ and health food market. Brighter Foods’ largest customer had to close its doors in March 2021 in line with the government covid-19 guidance and had limited sales in the year. Both businesses used the government job retention scheme claiming £1.7m in total (£1.2m in Cake Decoration). Food Ingredients maintained operating profit as a result of reduced operating costs. In Cake Decoration, underlying adjusted EBITDA decreased from £1.8 million in 2020 to £0.8 million in 2021, due to the covid-19 impact which reduced revenues, partly offset by the lower overhead costs and the furlough income of £1.2m. www.realgoodfoodplc.com Stock Code: RGD 05 30678 Real Good Food AR2021.indd 5 30678 Real Good Food AR2021.indd 5 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:19 20/09/2021 21:02:19 Summary and Outlook We believe we have the leadership, the senior management, and the resources capable of delivering a further uplift in performance in the Cake Decoration business, and a central cost base that is more fit for purpose. The Board continues to evaluate a range of options, to maximise shareholder returns. The country came out of the lockdown period in July 2021, and the business was and continues to be positioned to take advantage of the sales opportunities in new sectors and new innovations with a refocussed sales and marketing team. The Board continues actions to generate and conserve cash. The Group remains focused on continuing to improve its performance, reduce net debt further and thereby increase shareholder value and returns. The Board is grateful for the continued support of all stakeholders who have shown confidence in the Group during the past year and will make every effort to retain the positive momentum which is now evident in the underlying business. The Board is confident in the future prospects of the Group. Strategic Review (continued) Capital structure The Group manages the capital structure and reviews the requirements in response to economic conditions. The Group has a total credit facility of £8.87 million with Leumi ABL Limited. The facilities comprise of a £5.45m revolving credit facility and a £1.3m term loan both on 60 months ending August 2024. There is also a £2.12m plant and machinery facility on 36 months ending August 2022. During the year, the business increased the credit facility by £2.0 million secured on the Brighter Foods’ sales. On the disposal of Brighter Foods, this facility was cancelled. The maximum draw down value during FY21 occurred in December 2020, being £2.3m (FY20 occurred in September 2019, being £2.0m). The lowest month in FY21 was July 2020, being £0.4m (in FY20 it was August 2019, when no draw down was required, as there was a credit balance in the revolving credit facility of £0.4m). The Board recognises that the Group’s level of debt is higher than expected for a business like Real Good Food. However, given its business model and the presence of bank debt, the Group was restricted to asset-backed finance held by J F Renshaw and its revolving credit facility. As at 31 March 2021 there was no bank overdraft. At the same time, the Group’s balance sheet retains a significant tangible asset base, goodwill that has been written down to realistic levels, and has net assets significantly in excess of the Group’s current stock market capitalisation. This is an important measure in establishing the Group’s financial worth in the future. Operating performance and outlook Given the impact of covid-19 on the FY21 results, the business has set budgets for FY22 based on FY20. We prepare the business forecast on varying levels of revenues and have modelled the effect of these to ensure appropriate action can be taken if required. To date, the sales performance of the continuing business is in line with the Board’s expectations, and central costs are as expected. The Cake Decoration market in the UK, particularly in the retail sector, is proving increasingly competitive, but we are confident that we can leverage experience and expertise to deliver what our customers need and want. The Group is working to ensure that both businesses have a strong sustainable base to capitalise on opportunities that may arise from the current environment. Brexit and covid-19 caused some uncertainties in FY21, however the expectation is that logistics of moving goods to Europe will ease during FY22. After a particularly challenging year in the period to 31 March 2021, where employees and all stakeholders have experienced situations never seen before, the Board wishes to thank all the Group’s and businesses’ stakeholders for their understanding and continued support. Although covid-19 did impact FY21, the Group sales performance in quarter 4 FY21 was ahead of the pre covid-19 sales. Group strategy The Board’s strategy is to have a profitable cash generative business. Cake Decoration has a new invigorated strategy for the business. The outturn from FY21 has shown a year-on-year increase in revenues for the fourth quarter and this has continued into FY22. The changes made by Cake Decoration in the last couple of years have provided the business with a platform to concentrate on what it is good at. The outsourcing of the warehousing and distribution to a third-party provider continues to result in improvements in customer service. The New Product Development (NPD) and Marketing teams continue to drive focus on innovation and sales growth, and secured a new blue chip customer and delisted c. 110 and brought to market c. 66 new products in the year. Central resources are now limited to finance and general management. 06 STRATEGIC REPORT Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 6 30678 Real Good Food AR2021.indd 6 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:19 20/09/2021 21:02:19 STRATEGIC REPORT Marketplace Review The Group operated in two main divisions: Cake Decoration and Food Ingredients, in FY21. However Brighter Foods, the Food Ingredients business was sold in May 2021 and is classed as a discontinued operation in FY21 accounts. Our brief perspective on the major trends in the continuing business follows. The Group’s Cake Decoration division comprises, Renshaw in the UK, Europe and Rainbow Dust Colours. The home baking category is worth £1,136 million at RSP (Retail Selling Price). The category is in growth by 22%, with 94% of all households purchasing home baking in the last year. The baking category in which Cake Decoration trades is worth £587 million* at RSP (Retail Selling Price). The category is in growth by 23%, with 86% of all households having purchased home baking products in the last year*. This reflects a sector with high levels of interest and user engagement. Home bakers are continually looking for inspiration in the media, on TV with programmes such as Extreme Cake Makers and The Great British Bake Off (where several million people tuned in to watch the final); and through social media sites such as Pinterest, Instagram, and Facebook where there lives a real community of home bakers and cake decorators. Renshaw and Rainbow Dust are investing in bringing innovation to the market, leading new trends in the cake decorating sector and engaging the home baker with new ideas through digital channels to educate and inspire new and experienced cake decorators of all levels. Cake Decoration are working with a well-known cake decorator on their own label range for Rainbow Dust Colours to be launched in FY22. * 52 week ending Kantar data 21 March 2021 www.realgoodfoodplc.com Stock Code: RGD 07 30678 Real Good Food AR2021.indd 7 30678 Real Good Food AR2021.indd 7 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:19 20/09/2021 21:02:19 Divisional Business Review During the year, further changes have been made to the overhead structure to reduce costs and focus on customer service. Renshaw remains a strong brand in the sector. Further work and efforts will continue throughout FY22 to refresh existing products, develop new products, bring new customers on board and streamline our sales and operational processes. Forward plans The business continues to pursue a growth strategy focused on increased supply of everyday convenience products under its own and customers’ brands. The investment in the soft icings plant saw frostings grow year on year in FY21, and all indications including customer feedback suggest this is expected to continue in FY22. Export growth continues to be focused on North America where the company has identified the greatest potential to grow sales. Following the successful closure of the US based warehouse in FY21, with sales now being shipped directly from the factory in Liverpool to the US, this has streamlined the process and improved customer service. The business continues to implement operational changes including the restructure of the engineering function to carry out planned maintenance outside of production hours and improvements to the factory planning system. These changes will result in a more streamlined business which is focused on growth opportunities, efficiency savings and an improvement in overall performance. Covid-19 As a food manufacturer, the business remained open during the lockdown period. Our priority is the safety of our staff whilst supplying our customers with the quality product. All required changes to meet covid-19 requirements have been carried out at the sites. Going forward the expectation is that there will be no further lockdown periods and no covid-19 restrictions such as social distancing, that impacted the financial performance of the Group in FY21. 12 months to March Revenue EBITDA (adjusted)* Impairment charge Operating (loss) Operating (loss)% 2021 £’m 37.3 0.8 – (1.7) (4.6%) 2020 £’m 41.2 1.8 (12.6) (13.4) (32.5%) * See note 5 for reconciliation 2 Kantar 52-week YOY to March 21st, 2021 REVENUE 37.3m EBITDA Profit (adjusted)* £0.8 m OPERATING LOSS £(1.7)m 2020/21 Performance FY20/21 was due to be a transitional year for the Cake Decoration division, with a significant restructure taking place in FY20 and the benefits expected to be seen in FY21. However, with three lockdown periods in the financial year, significantly impacting sales and EBITDA versus FY20. The FY21 result for Cake Decoration showed revenue progress in new product launches and a new blue-chip customer, however this was overshadowed by the shortfall in the wholesale and manufacturing sectors, both of which saw their customers having to close during the lockdown period. The second half of the year saw total revenues increase by 3% versus FY20. This is significant because even though the UK sugarpaste market declined by 8.4%2, the UK sugarpaste revenues only declined by 6% and sales of sugarpaste in the second half of the year were up on the previous year by 12%. Renshaw’s performance outperformed the underlying market decline. Retail despite covid-19 saw revenues increase by 7% year on year. The investment in the soft icing plant has resulted in year-on-year improved revenues of 17%, and this is expected to continue to grow in FY22 as frostings and other soft icing products are becoming increasingly popular due to their ease of use for the novice baker and decorator. Although still slightly behind, sales in the wholesale and manufacturing sectors had growing momentum in the final quarter. The International market is an important market for Cake Decoration; in FY20 we signed an exclusive agreement with the largest distributor of cake supplies in the US, Decopac, to help the Cake Decoration business grow market share in the US market. Despite covid-19, the revenues from Decopac increased by 25% year-on-year with further growth expected in FY22. Renshaw Europe recovered from the lockdown period with a good sales performance in the second half of the year. As part of the Cake Decoration strategy, Renshaw Europe appointed a distributor to service the smaller customers in Europe improving the customer service. 08 STRATEGIC REPORT Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 8 30678 Real Good Food AR2021.indd 8 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:20 20/09/2021 21:02:20 STRATEGIC REPORT 12 months to March Revenue EBITDA (adjusted)* Operating profit Operating profit % *See note 5 for reconciliation 2021 £’m 19.8 3.6 2.6 2020 £’m 25.3 5.0 2.9 13.1% 11.5% REVENUE £19.8m EBITDA Profit (adjusted)* £3.6m OPERATING profit £2.6m 2020/21 Performance Brighter Foods creates, develops, and manufactures snack bars for the healthy snacking market from its factories in Tywyn, Gwynedd in mid Wales. Brighter Foods is a multi-award-winning company which produces snacks which are targeted at areas such as diet control, gluten free, lactose free, low or no added sugar, sports nutrition, organic and fair trade and its manufacturing capabilities, and even before recent expansion was highly regarded throughout the industry. As well as manufacturing partner-branded products, Brighter Foods has its own healthier brands such as Wild Trail, which is stocked in retailers and health food stores. Brighter Foods is classed as a discontinued operation in the FY21 accounts owing to the sale to The Hut Group plc in May 2021. Forward plans Brighter Foods was sold to The Hut Group (THG) on 11 May 2021 for a consideration of £43m. www.realgoodfoodplc.com Stock Code: RGD 09 30678 Real Good Food AR2021.indd 9 30678 Real Good Food AR2021.indd 9 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:20 20/09/2021 21:02:20 12 months to March 2021 £’000s 2020 £’000s Revenue 37,292 41,243 Gross profit 15,164 17,628 Delivered margin 11,549 14,633 Delivered margin % 31.0% 35.5% Underlying EBITDA (adjusted)* Operating (loss) before impairment and significant items Operating loss after impairment and significant items 227 (1,648) (1,464) (3,515) (1,261) (17,446) Operating loss % (3.4%) (42.3%) Loss before tax (6,108) (23,060) All figures refer to continuing businesses. *See note 5 for reconciliation Finance Review Revenue Group revenue of the continuing businesses for the 12 months ending 31 March 2021 is £37.3 million (2020: £41.2 million), a decrease of 9.5% on revenue to 31 March 2021. Cake Decoration sales were impacted by covid-19, particularly in quarter 1, the initial lockdown period. Wholesale and manufacturing sectors were most affected with many of their customers having to close their operations. The sales recovered in the second half of the year with revenues ahead of H2 FY20 by 2.5%, retail revenues were 7% ahead of the previous year and the Wholesale and Manufacturing sectors gained momentum in the fourth quarter, although both sectors revenues were down on the prior year. Profit measure on operations Gross profit on the continuing businesses for the overall Group was £15.2 million (2020: £17.6 million). At 40.7%, the gross profit in the year, was adverse to the prior year by 2%, owing to the sales mix and the effect of covid-19 including the costs associated with social distancing in the factory. Delivered margin is defined as gross profit less costs of delivery. The operating loss in the year of £1.3 million is reported after depreciation and amortisation charges of £1.7m, significant items benefit of £0.2m and a furlough payment received of £1.2m. The benefit in the significant costs arises from the revaluation of the Brighter Foods put option of £1.3m; the other significant costs are £1.1m which relate to the restructuring in the Cake Decoration business. The adjusted EBITDA of the underlying continuing business is £0.2m. The items adjusted for are: Significant Items: £(1.1)m Revaluation of Brighter Put Option £1.3m There has been no requirement for an impairment charge on goodwill or fixed assets in FY21. The Board, having considered the trading forecasts, have reasonable expectations that the recoverable amount would support the value in the accounts. After finance costs of £4.8 million, this resulted in a loss before tax for the year of £6.1 million (2020: loss of £23.1 million) for continuing businesses. This equates to a basic loss per share of 6.50 pence on continuing operations (loss of 22.14 pence in 2020), (see note 15). Cash flow and net debt Conserving cash is a key measure for the Group. Covid-19 of course heightened the focus with the UK and European lockdown in March 2021. The business modelling included looking at varying levels of revenues and the effect of movements on cash planning to ensure appropriate action was taken if required. As part of the cash planning, the Group increased the revolving credit facility by £2m, to include Brighter Foods. This additional facility was completed in August 2020, and following the disposal of Brighter Foods in May 2021, the additional facility was removed. The Group used the Government job retention scheme (£1.2m in Cake Decoration), and deferred PAYE payments (£0.6m) to conserve cash during the lockdown period. Repayments of the PAYE have been made in line with the government ‘time to pay’ plan. The net debt at the end of FY21 stood at £48.8m versus £45.4m in FY20. This is predominantly shareholder loans of which £15.2m is in the form of convertible loan notes. Total £0.2m Net debt is a key performance indicator for the Group and is explained in note 13. The significant costs incurred relate to the restructuring costs in the Cake Decoration business and head office costs, and are for redundancy costs, project costs and closure costs associated with the warehouse in the US. In Head Office, the costs are for legal and financial costs associated with the disposal of Brighter Foods and benefit from a significant reduction in the provision for the minority shareholders’ put option. The number of indirect employees reduced year on year by 17 across the business. 10 STRATEGIC REPORT Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 10 30678 Real Good Food AR2021.indd 10 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:20 20/09/2021 21:02:20 STRATEGIC REPORT Going Concern and Post Balance Sheet Events 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 business consider reasonable possible changes in trading performance. The forecast for FY22 for the continuing businesses, is based on the national lockdown restrictions being removed in July 2021. Some of the sectors we serve have experienced growth during the covid-19 pandemic, namely retail and international. The sectors most affected by the pandemic owing to their customers having to close their own businesses are wholesale and manufacturing, these sectors are now returning to pre covid sales. The new customers and product launches during FY21 will have a full year impact in FY22. The overhead savings and operational efficiencies made in FY21 will have a full year impact in FY22. The Board consider the forecasts to be reasonable and these assumptions have been projected. The Board reviewed the sensitivity of the sales and have modelled the effects of these. The Directors considered the following scenarios: Scenario 1: Reduction in revenue of 5% all year; and Scenario 2: Reduction in revenue of 5% and the gross margin reduced by 10% all year. In Scenario 1 without any mitigating action the Group will not run out of cash and will have sufficient liquidity headroom with the low point for cash being September 2022 when cash would reduce to £2.1million as a result of the stock build for quarter 3, (October to December). In Scenario 2 without any mitigating action the Group would run out of cash in May 2022, some 14 months from the monthly reduction in revenue and gross margin from the start of FY22. If there was a reduction in gross margin of 10%, this would be as a result of commodity price increases that would be passed onto customers. The mitigating action would be taken quickly and would result in a price increase to customers, with a time lag factored in as negotiations took place with customers. A prudent approach of a 75% recovery in FY22 would result in the business not running out of cash with the low point for cash being September 2022 when cash would be £1.3million, owing to the stock build. The Group has various levers that it can use to mitigate the shortfall including: { Cessation of non-essential spend { Review of overhead costs The banking covenants that are in place for FY22 have been amended taking into account the seasonality of the Cake Decoration business. The covenants for FY22 are EBITDA being within 75% of the forecast and greater than £5 million tangible net worth. These covenants are not breached on the stressed scenarios referred to above. The principal shareholders of the Group have shown considerable support for the working capital requirements and as a result have extended the repayment period of the current loans from 19 May 2022 to 19 May 2023. Having carefully considered the liquidity of the Group and 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. 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 scheme valuation reported a gross deficit at 31 March 2021 of £7.5 million (2020: £7.9 million). The Plan assets increased by £0.8 million to £14.5 million (2020: £13.7 million) and the Plan liabilities are £21.9 million compared to £20.8 million at 31 March 2020. Following the sale of Brighter Foods on the 11 May 2021, a payment of £8.5 million was made to the Napier Brown Retirement Plan eliminating the current pension scheme deficit liability. Dividend The Directors, considering the Group’s performance and cash resources, do not recommend the payment of a final dividend for the year ended 31 March 2021 (2020: nil). www.realgoodfoodplc.com Stock Code: RGD 11 30678 Real Good Food AR2021.indd 11 30678 Real Good Food AR2021.indd 11 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:20 20/09/2021 21:02:20 Key Performance Indicators 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 has reviewed these key performance indicators and considers they remain appropriate. REVENUE GROWTH Revenue is calculated for continuing business and is from external sources only. £37.3m £41.2m £46.4m £47.7m 2021 2020 2019 2018 COMMENT Revenue in the year decreased by 9.5% (FY20 decreased by 11.2%) This was primarily driven by covid-19 and the underlying decline in the sugarpaste market. Cake Decoration outperfromed the sugarpaste market. The sustainable quality of the revenue is regarded as important. EBITDA (ADJUSTED)ON CONTINUING ACTIVITIES EBITDA (adjusted) is defined as earnings before significant items, interest, tax, depreciation, amortisation, and impairment charges. £0.2m £(0.9)m £(1.6)m 2021 2020 2019 2018 £(4.0)m The EBITDA (adjusted) profit was £0.2 million as against a loss in the prior year of £1.6 million. EBITDA measurement is to evidence improvement in line with the increase in revenue and/or reduced costs. NET DEBT Net debt is the total Group borrowings less cash at bank. £48.8m £45.4m £35.7m £37.8m 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 per 100,000 hours worked. 2021 2020 2019 2018 214.98 (27.38) 2021 2020 (37.82) 2019 (9.48) 2018 1.16 1.00 1.00 1.74 2021 2020 2019 2018 Net debt in the year has increased to £48.8 million (FY20 £45.4m); net debt is predominantly shareholder loans. Following the sale of Brighter Foods shareholder loans were reduced by £23.6m to £22.0m As a result of increased EBITDA (adjusted) profits in the year net debt cover stood at 214.98 at the end of FY21 and 85.67 following the sale of Brighter Foods. Covid-19 had a significant impact on EBITDA The Group measures the changes on debt cover year on year. A higher number denotes a higher risk. The number of RIDDOR accidents in FY21 was 5, on par with FY20. The target for RIDDOR accidents is nil. This has not been achieved; however, the Group continues to invest in training to further reduce accidents and will continue to support the businesses to achieve the target. 12 STRATEGIC REPORT Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 12 30678 Real Good Food AR2021.indd 12 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:21 20/09/2021 21:02:21 STRATEGIC REPORT 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. Embracing its corporate social responsibility to its stakeholders and within its communities is therefore an important part of building long term sustainable businesses in the Group. 2021/22 Priorities { We continue to maintain and improve our legal compliance and health and safety performance. An appropriate periodic audit process is being implemented to help ensure improving standards in this important area. { Targeting a further year on year reduction in the number of incidents. { Continue to work and support the local communities. Each business has a Corporate Social Responsibility Plan that is built around the Group’s Responsible Business Framework and is actively engaged in its fulfilment. The Responsible Business Framework in place has three key objectives: { To be the employer of choice in its local community. { To be actively involved within its communities and to build a reputation for social responsibility. { To continue to strengthen its reputation for respect, integrity and innovation with our customers, suppliers, employees, and partners. During the year it has been more difficult to engage with the community owing to covid-19 and employees having to work from home. However, J F Renshaw and Rainbow Dust donated £1,250 to the local foodbanks in Preston and Liverpool. As a small recognition of the work carried out by the NHS, Cake Decoration made cup-cakes for the NHS workers at the Liverpool Women’s Hospital. Health and safety Commentary 2020/21 The Board reviews the Health & Safety reports of both businesses at the monthly Board meetings. The Board, along with local management, fully support the H&S initiatives that have been taken in the business in the last year. Employees are encouraged to report all accidents and near misses to ensure that preventative training and actions can be undertaken. Covid-19 raised further challenges with health and safety in the factories, and it was a challenge that the whole workforce embraced and observed. The Group have fully complied with all Government legislation. A covid-19 group was formed in Cake Decorations including personnel from across the different functions. { Renshaw hasa full-time Health & Safety Manager. There has been a reduction in the number of accidents and incidents during the year reflecting the ongoing training and improved processes taking place in the business. www.realgoodfoodplc.com Stock Code: RGD 13 30678 Real Good Food AR2021.indd 13 30678 Real Good Food AR2021.indd 13 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:21 20/09/2021 21:02:21 Working capital In order for the Group to have sufficient working capital for its needs, the Board regularly monitors the Group’s cash position. 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. Regulatory and legal The Board monitors and considers corporate governance changes and makes the appropriate changes in the business. This report was approved by the Board on 20 September 2021 and is signed on its behalf by: Mike Holt Executive Chairman Risk Management The risks facing the Group 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, and over the past year has continued to implement improvements in the Group’s governance. The risk register is reviewed at least quarterly at the Group Board. The principal risks of the Group as a whole are set out below. Demand for products and market share Many factors affect the level of consumer spending in the food industry and consumer preferences and spending habits change as a result of 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 Group may experience increased competition from existing or new companies, especially at a time when the major retailers may experience more 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 customer 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 and Brexit The Group has no control over fluctuations in the longer-term price and availability of ingredients. Following Brexit, there has been a period of uncertainty with logistics and the transportation of goods through customs, this has started to settle down as the customs officials become more acquainted with the documentation. 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. Following the disposal of Brighter Foods, the Group agreed a one-off payment with the pension trustee of £8.5 million, effectively settling the current deficit and having c£1.5m on account. The pension fund is undergoing the 3-year valuation and a new payment plan will be agreed in due course taking account of the £1.5m. 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. 14 STRATEGIC REPORT Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 14 30678 Real Good Food AR2021.indd 14 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:22 20/09/2021 21:02:22 GOVERNANCE REPORT Board of Directors Mike Holt Executive Chairman Judith A MacKenzie Non-Executive Director 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. Appointed Non-Executive Chairman on 30 May 2019, having been Non-Executive Director since joining the Board on 7 August 2018, and appointed Executive Chairman on 21 October 2020. Mike has significant public company board, general management, financial management and M&A 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. Before 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, and a Non-Executive Director, and chair of the Audit Committee, at nmcn plc. In addition, Mike is a Trustee and Director of Hollybank Trust Ltd. and The Nottinghamshire Hospice Ltd. Maribeth Keeling Chief Financial Officer and Company Secretary Anthony Ridgwell Non-Executive Director Appointed 15 July 2019 Appointed 30 May 2019 Maribeth has considerable public company experience, having specialised particularly in the turnaround and performance improvement of various companies in a variety of sectors, and has worked predominantly in listed entities (main market and AIM), but also in private companies and the not-for-profit sector. Maribeth retains her role as Finance Director of the Cake Decoration division. Anthony Ridgwell has been working within the Napier Brown group of companies since leaving university. He is also a director of Napier Brown and of Napier Brown Holdings Limited where he deals with and manages their investments. Jacques d’Unienville Non-Executive Director Gail Lumsden 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) Ltd and Omnicane Thermal Energy Operations (St. Aubin) Ltd. He has served as president of the Mauritius Sugar Syndicate and as president of the Mauritius Sugar Producers’ Association. Appointed 24 October 2019 Gail has significant experience in driving profitable growth and leading major change in both large, global corporates and SMEs. Having held senior executive roles in strategy, finance, and commercial at Diageo Plc and SABMiller Plc for over 20 years, Gail now runs her own advisory business and serves as a non-executive director on the Industrial Development Advisory Board. www.realgoodfoodplc.com Stock Code: RGD 30678 Real Good Food AR2021.indd 15 30678 Real Good Food AR2021.indd 15 15 20/09/2021 21:02:22 20/09/2021 21:02:22 Report of the Directors The Directors present their report and the audited financial statements for the year ended 31 March 2021. Owing to covid-19 there have been restrictions on meetings and this impacted the AGM held in January 21 and the general meeting held in May 21. Corporate governance The Board recognises and understands the importance of good corporate governance. We have elected to adopt the Quoted Companies Alliance Corporate Governance Code (the ‘QCA Code’) which we believe has been constructed in a simple, practical and effective style and that meaningful compliance with its 10 main principles should provide shareholders with confidence in how the Group operates. Section 172 of the Companies Act 2016 requires Directors to take into consideration the interests of stakeholders and other matters in their decision making. The Directors continue to have regard to the interests of the Company’s employees and other stakeholders, the impact of our business in the communities we operate, the environment and the Company’s reputation for good business conduct, when making decisions. In this context, acting in good faith and fairly, the Directors consider what is most likely to promote the success of the Company for its stakeholders in the long term. We explain this in the report and below: Relationships with key stakeholders such as our customers, colleagues, suppliers, investors are explained in more detail on pages 16 to 18. The Directors are fully aware of their responsibilities to promote the success of the company in accordance with section 172 of the Companies Act 2006 and that sufficient consideration is given to issues relating to the matters set out in s172 (1) (a)-(f). The Board regularly reviews the Company’s principal stakeholders and how it engages with them. This is achieved through information provided by management and by direct engagement with stakeholders themselves. Below shows each principle, and how the Group complies: Principle How Real Good Food plc complies 1. Establish a strategy and business model which creates long-term value for shareholders. 2. Seek to understand and meet shareholder needs and expectations. 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success. The objective and strategy of the Group is to deliver a return on investment for all our shareholders, providing a stable financial platform through improving the profitability of the Group as a whole and its constituent businesses. The execution of the strategy is to support and guide the Cake Decoration business in their daily operation by clear objectives and articulated strategies, such strategies being updated as necessary on a regular basis. The Board has representation of a large proportion of its shareholder base – they can, and do, communicate the thoughts and requirements of the shareholders regularly. Contact details of Executive Directors are made available to other shareholders who wish to make contact. This is actively encouraged. The Board receives share register analysis reports to monitor the shareholder base and identify the types of investors on the register. All shareholders are invited to attend the AGM and Directors make themselves available before and after the meeting for further discussion. However, due to the covid situation in 2020 this was not possible. Shareholders were given the opportunity to send questions to be raised at the AGM. The Chairman also did a separate presentation and question and answer session during the year for the benefit of shareholders. The Group regards its shareholders, employees, customers, suppliers, and advisors as all being important parts of the wider stakeholder group. Management regard our employees as our greatest asset, engaging with them on a regular basis as referred to in the directors’ report. Management clearly places particular importance on its day-to-day relationships with customers, with significant effort directed to ensuring these are managed appropriately. The businesses work with many customers and suppliers and have developed a partnership way of working to continue the successful trading relationships. During the covid-19 pandemic, this became more prevalent. The business supported customers who continued to trade during the pandemic with regular communication on availability of stock. Shareholders are important to the business and continue to support the businesses and the strategy in place. The Group records customer service levels – OTIF (on time in full), for example and customer communication including complaints. The Group had a reduction in complaints year on year and continues to strive to reduce this. There is a feedback system in place for service levels and issues raised can be addressed. 16 STRATEGIC REPORT Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 16 30678 Real Good Food AR2021.indd 16 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:22 20/09/2021 21:02:22 GOVERNANCE REPORT Principle How Real Good Food plc complies 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation. A risk register is compiled by the Audit Committee, detailing the risks identified within the businesses, and the Group as a whole. It is regularly updated and is presented at Board meetings for discussion each time a change has been made, or quarterly, whichever is the shorter period. 5. Maintain the Board as a well-functioning, balanced team led by the Chair. Following further changes to the Board since the year end, the Board, chaired by Mike Holt, currently comprises two Executive and four Non-Executive Directors. As executive chairman, Mike is primarily responsible for the Group’s approach to corporate governance and the application of the principles of the QCA Code. Gail Lumsden is the Group’s Independent Director. Each Board member commits sufficient time to fulfil her or his duties and obligations to the Board and the Group. Each Director attends monthly Board meetings and joins ad hoc Board discussions, as necessary. The Board is supported by its Audit Committee and its Remuneration Committee. The plc Board meets at least once a month, with additional meetings held as and when required. The Audit and Remuneration Committees meet at least twice a year. At the start of the Covid pandemic, the Board met virtually on a weekly basis. During the year, there were 29 Board meetings held primarily due to the sale of Brighter Foods. The descriptions on page 15 identify each member of the Board and describes her or his relevant experience, skills, and qualities. The Chairman and the Board as a whole believes that the Board has a more than sufficient and suitable mix of experience, skills and competence which covers all the disciplines essential to bring a balanced perspective to enable the Group to deliver its objective. The Board is currently comprised of two Executive Directors and four Non-Executive Directors, one of whom is independent and comprises three men and three women, ranging in age from their mid-40s to early 60s. Updates to members of the Board on regulatory matters are given by Board members themselves where appropriate and/or by Group’s professional advisors. Against the background of the articulated objective for the Group, the performance of the Board as a whole may be judged, through the eventual attainment of financial measures, including adjusted EBITDA, operating cash flow and net debt. The Board has opted for annual reselection at the AGM. The Board is planning to undertake a formal assessment in quarter 3 of 2022. Owing to challenges with covid-19, there has not been the opportunity to arrange this, once covid restrictions are lifted, this will be put in place. The Board recognises that the values it espouses provide the framework which influences all parts of the Group. The Executive Officer takes the lead in developing the corporate culture and looks to encourage all employees to contribute to the enjoyment and success of the business, the formulation of the tactics to deliver the objective and strategy and to the promulgation of the core values. The Human Resources team have long promoted the Group’s values which underpin conditions of employment. The Executive Board members generally have clear overall responsibility for managing the day-to-day operations of the Group and the Board as a whole is responsible for monitoring performance against the Group’s goals and objectives. The roles of the Audit Committee, the Remuneration Committee and the Board of Directors are clearly defined within this report. The Group strives to maintain a regular dialogue with stakeholders including shareholders to enable any interested party to make informed decisions about the Group and its performance. The Board believes that greater transparency in its dealings offers a level of comfort to stakeholders and an understanding that their views will be heard and considered appropriately. 6. Ensure that between them the Directors have all the appropriate experience, skills, and capabilities. 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement. 8. Promote a corporate culture that is based on ethical values and behaviours. 9. Maintain governance structures and processes that are fit for purpose and support good decision making by the Board. 10. Communicate how the Group is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders. 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 23 and 25. www.realgoodfoodplc.com Stock Code: RGD 17 30678 Real Good Food AR2021.indd 17 30678 Real Good Food AR2021.indd 17 26627 20 September 2021 9:01 pm Proof 1 20/09/2021 21:02:22 20/09/2021 21:02:22 Section 172 Statement Section 172 of the Companies Act 2006 requires Directors to take into consideration the interests of stakeholders and other matters in their decision making. The Directors continue to have regard to the interests of the Company’s employees and other stakeholders, the impact of our activities on the community, the environment and the Company’s reputation for good business conduct, when making decisions. In this context, acting in good faith and fairly, the Directors consider what is most likely to promote the success of the Company for its members in the long term. We explain in this annual report, and below, how the Board engages with stakeholders, customers, colleagues, suppliers and investors. The Directors are fully aware of their responsibilities to promote the success of the Company in accordance with section 172 of the Companies Act 2006 and that sufficient consideration is given to issues relating to the matters set out in s172(1) (a)–(f). The Board regularly reviews the Company’s principal stakeholders and how it engages with them. This is achieved through information provided by management and by direct engagement with stakeholders themselves. The key Board decisions made from 1 April 2020 to 31 March 2021 are set out below. Significant Events/decisions Stakeholders Affected Considerations Extension of shareholder loans (December 2020) Employees { Legacy issues/events have caused the Group to be very highly geared which inhibits its ability to Shareholders Minority shareholders refinance investor loans with third party commercial loans. { The Board is aware that a simpler and less costly capital structure will only be realised by either a significant equity issue or the sale of a business unit. { The independent directors consulted and sought advice from the Company’s lawyers to ensure that the terms of extension complied with the Whitewash process in 2018 and sought advice from our NOMAD as to whether it was fair and reasonable in so far as independent shareholders are concerned. Covid-19 cash management (March 2020 onwards) Disposal of Brighter Foods Employees { The company was unable to take advantage of CLBILs due to its leveraged position. Shareholders Communities HMRC { The Board have renegotiated the terms of the loan notes, with a reduction in interest rates from 1 January 2021. { In total, the Group has claimed £1.2m, for the continuing business, under the Government’s job retention scheme in order to preserve jobs and protect the communities in which our factories are situated. Shareholders { The Board undertook a process to review the Group businesses. An offer was received for Brighter Employees Foods of £43m, debt free/cash free, this equated to an 8.6 multiple of FY20 EBITDA and 11.7 multiple of (unaudited) EBITDA for FY21. The Board recommended this offer to the shareholders and it was subsequently approved at the general meeting on the 10 May 2021. This enabled the Board to reduce the shareholder loans by £23.6m and make a payment to the pension fund of £8.5m. Board interaction with businesses (April 2020) Shareholders { The Board meetings are held once a month and the MD of the Cake Decoration Division presents the Employees business and discusses both strategic and operational matters. This has strengthened the communication between the Board and the business unit and the quality and timeliness of decision making. { The Board had planned to visit the operational sites during the year; however, this has been curtailed pro tem owing to covid-19 but will resume when restrictions are lifted. Investor relations Shareholders { Increased interaction with our shareholders with direct access to the Board; the Chairman makes Minority shareholders himself available to minority shareholders and has maintained an ongoing dialogue with the principal minority shareholders. { The quality, frequency and relevance of investor communications is improving. Cake Decorations Employees { Cake Decorations expediated the planned overhead restructure during the year to reduce costs. Restructure Shareholders { Factory operational changes have started with the engineers carrying out the majority of planned preventative maintenance work in the evenings or at weekends to reduce the downtime of the lines. Board Changes Customers Communities Minority shareholders Employees Shareholders { Investment in New Product Development (NPD) has continued with 66 skus launched during the year and c.110 delisted. { Sales and Marketing teams are putting the customer at the forefront of what we do by actively engaging in long term partnerships evidenced by securing a new blue-chip customer through the innovation of new products, which meet their needs and objectives. { Chairman appointed as the part-time executive Chairman to accelerate the rate of progress in rebuilding shareholder value. { The non-shareholder directors meet independently of the loan note holders to discuss any issues that would give rise to conflict. The non-independent directors are not party to these meetings or minutes thereof. Environmental and sustainability Customers { Working with supply chain partners to have more recyclable packaging. Owing to covid-19 restrictions Employees this activity was curtailed in FY21, but will recommence in FY22. { Continue working with suppliers to source and use ethical products, such as palm oil. The palm oil used by the business is sustainable palm oil. 18 GOVERNANCE Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 18 30678 Real Good Food AR2021.indd 18 26627 20 September 2021 9:01 pm Proof 1 20/09/2021 21:02:23 20/09/2021 21:02:23 Section 172 Statement Report of the Directors (continued) GOVERNANCE REPORT 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 accounting standards 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 assume 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 are 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. Board Meetings There has been a substantial increase in the number of Board meetings in the year, the main reason for the increase is the meetings required to consider the disposal of Brighter Foods. 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. The forecast for FY22 for the continuing businesses, is based on the national lockdowns being removed in July 2021. Some of the sectors we serve have experienced growth during the covid-19 pandemic, namely retail and international. The wholesale and manufacturing sectors most affected by the pandemic owing to their customers having to close have returned to pre covid sales. The new customers and product launches during FY21 will have a full year impact in FY22. Overhead savings and operational efficiencies are also included in the forecast. The Board consider the forecasts to be reasonable and these assumptions have been projected and shared with the Group’s auditors. The Board reviewed the sensitivity of the sales and have modelled the effects of these. The Directors considered the following scenarios: Scenario 1: Reduction in revenue of 5% all year and Scenario 2: Reduction in revenue of 5% and the gross margin reduced by 10% all year In Scenario 1 without any mitigating action the Group does not run out of cash and has sufficient liquidity headroom post March 2023 with the low point for cash being September 2022 when cash would reduce to £2.1million as a result of the stock build for quarter 3, (October to December). In Scenario 2 without any mitigating action the Group would run out of cash in May 2022, some 14 months from the monthly reduction in revenue and gross margin from the start of FY22. If there was a reduction in gross margin of 10%, this would be as a result of commodity price increases that would be passed onto customers. The mitigating action would be taken quickly and would result in a price increase to customers, with a time lag factored in as negotiation took place with customers. A prudent approach of a 75% recovery in FY22 would result in the business not running out of cash with the low point for cash being September 2022 when cash would be £1.3million, owing to the stock build. The Group has various levers that it can use to mitigate the shortfall including: { Cessation of non-essential spend { Review of overhead costs The banking covenants that are in place for FY22 have been amended taking into account the seasonality of the Cake Decoration business. The covenants for FY22 are plus or minus 20% of the forecast EBITDA and greater than £5 million tangible net worth. These covenants are not breached on the stressed scenarios referred to above. The principal shareholders of the Group have shown considerable support for the working capital requirements and as a result have extended the repayment period of the current loans from 19 May 2022 to 19 May 2023. Having carefully considered the liquidity of the Group and 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. www.realgoodfoodplc.com Stock Code: RGD 19 30678 Real Good Food AR2021.indd 19 30678 Real Good Food AR2021.indd 19 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:23 20/09/2021 21:02:23 Report of the Directors (continued) 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, manufacturing, wholesale, and export sectors. Business review and future developments These topics are covered in detail within the Strategic Review and Divisional Reviews on pages 5, 6, 8 and 9. Non-current assets Details of changes in non-current assets are given in notes 16 - 20 to the financial statements. Directors During the financial year, Mike Holt Non- Executive Chairman of the Company agreed to become the Executive Chairman of the Group. Details of the Directors are given on page 15. Substantial interests There were the following substantial interests (3% or more) in the Company’s ordinary share capital: 31 March 2021 NB Ingredients Limited Omnicane International Investors Limited Downing LLP Mr J & Mrs S O’Driscoll % Holding in ordinary share capital 22.3% 20.8% 7.9% 5.9% Directors’ indemnities The Company has paid £95.0k (2020: £32.1k) in respect of Directors’ and Officers’ Indemnity Insurance. Financial instruments The Group’s financial instruments comprised bank term loans and a revolving credit facility, 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 26 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 encouraged by a variety of means including team working, team briefings, consultative committees and working parties. The employees are integral to achieving the business objectives of the Group. The Group is committed to creating an environment where all individuals feel respected and supported. RGF plc has established policies for recruitment, training and development and is committed to achieving excellence in health and safety welfare. RGF plc is an equal opportunities employer and will continue to ensure that it offers opportunities without discrimination. Full consideration is given to applications for employment from disabled persons, having regard for their particular aptitudes and abilities and in accordance with relevant legislation. The Group continues the employment wherever possible of any person who becomes disabled during their employment, providing assistance and modifications where possible. Opportunities for training and career development do not operate to the detriment of disabled employees. Employee engagement The employees are integral to achieving the business objectives of the Group. The Group is committed to creating an environment where all individuals feel respected and supported. RGF plc ensure that employees are kept informed of performance and strategy through regular updates from the management teams in the businesses. Meeting up during FY21 has been more difficult owing to covid-19 and the requirement to work from home, however regular briefings have been carried out using virtual meetings. The majority of the Board meetings in FY21 have been virtual meetings, however the meetings have continued in the same format with the MDs attending and the messages from the Board taken back to the businesses. Within the individual businesses, there are team briefings for all staff with updates on the business and how it is performing. The employees have the opportunity to raise questions, that are fed back to the Management and responded to. 20 GOVERNANCE Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 20 30678 Real Good Food AR2021.indd 20 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:24 20/09/2021 21:02:24 GOVERNANCE REPORT This allows the views of employees to be taken into account in making decisions which are likely to affect their interests. The divisional Management Teams have been unable to hold ‘Town Halls’ owing to covid-19, however the virtual team briefs have continued and all staff are encouraged to raise questions and feedback. Covid-19 has been a challenge, with uncertainty and three lockdowns in the year. Our priority is the safety of our staff whilst still supplying our customers with the highest quality product. RGF has a robust crisis management plan that we have been implementing including taking actions to mitigate risks. We are following all government guidelines, with most back-office staff working from home and full risk assessments have been completed in terms of social distancing at our manufacturing sites. There is a covid-19 working party, made up of employees across all areas and levels within the business, the meetings were weekly during the height of the pandemic. In July 2021, legal restrictions were lifted relating to covid-19. The Board, however, continue to meet on a bi-weekly basis to review government updates and any changes required to current working practices. 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 reviewed 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. The government, owing to covid-19, deferred the gender pay reporting until October 2021. The Group continues through our Leadership Framework to creating the opportunities for developing greater diversity throughout our management structures in the future. Stakeholder engagement The Group strives to maintain a regular dialogue with stakeholders including shareholders to enable any interested party to make informed decisions about the Group and its performance. The Board believes that greater transparency in its dealings offers a level of comfort to stakeholders and an understanding that their views will be heard and considered appropriately. The Chairman holds regular meetings with minority shareholders to discuss the business and reports the discussions back to the Board. Streamlined Energy and Carbon Reporting SECR (Streamlined Energy and Carbon Reporting) was introduced by the government on 1 April 2019. The table below shows the information for RGF plc from the 1st of April 2020 to 31 March 2021. The Group collated the data using the billing data. Scope 1 – All Direct Emissions from the activities of Real Good Food PLC or under their control. Including fuel combustion on site such as gas boilers, fleet vehicles and air conditioning leaks. Scope 2 – Indirect Emissions from electricity purchased and used by Real Good Food PLC. Also included are the generation or consumption of heat or steam. Emissions are created during the production of the energy and eventually used by Real Good Food PLC. The assumptions made are: All conversion data was taken from the most up to date supplied data at the time of delivery of this report. The government website for Greenhouse gas reporting: conversion factors 2020 was used to calculate the data. www.realgoodfoodplc.com Stock Code: RGD 21 30678 Real Good Food AR2021.indd 21 30678 Real Good Food AR2021.indd 21 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:24 20/09/2021 21:02:24 Report of the Directors (continued) Streamlined Energy and Carbon Reporting (continued) Information Required Current Reporting Year UK and offshore [mandatory] Energy consumption used to calculate emissions: kWh [mandatory]– optional to provide separate figures for gas, electricity, transport fuel and other energy sources Gas – 5,984,990 kWh LPG – 26.95 kWh Petrol company cars – n/a Diesel company cars – n/a Electricity – 9,217,506 kWh Petrol private cars – n/a Diesel private cars – n/a Total - 15,202,523 kwh Emissions from combustion of gas tCO2e (Scope 1) 1,100.5 tCO2e Emissions from LPG (Scope 1) Emissions from business travel in company owned vehicles (Scope 1) 6.2 tCO2e N/A Emissions from purchased electricity (Scope 2, location-based) 2,149 tCO2e Emissions from business travel in rental cars or employee-owned vehicles where company is responsible for purchasing the fuel (Scope 3) N/A Total gross CO2e based on above 3,256 tCO2e Intensity ratio: tCO2e gross figure based on mandatory fields above/e.g. £100,000 revenue (taken from 5 Results) Tonnes of output produced 0.17 tCO2e per Tonne of output produced Methodology Data from Joe Castille DEFRA published Conversion Factors for Company Reporting 2020 version 1.0 Energy Efficient Actions taken (taken from 5.1 Energy Efficiency Actions) Replacement of inefficient lighting with LED equivalent. No longer the use of company cars. Charitable and political donations During the current financial period, the Group made charitable donations of £1,250 (2020: £3,160). No political donations were made during the current or previous financial period. This report was approved by the Board on 20 September 2021 and is signed on its behalf by: Mike Holt Executive Chairman Director Mike Holt Maribeth Keeling Jacques d’Unienville Judith MacKenzie Anthony Ridgwell Gail Lumsden Eligible to attend Meetings attended 29 29 29 29 29 29 29 28 28 29 28 29 The above table sets out the number of Directors’ meetings held during the year and the eligibility and attendance by members of the Board. 22 GOVERNANCE Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 22 30678 Real Good Food AR2021.indd 22 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:24 20/09/2021 21:02:24 GOVERNANCE REPORT Audit Committee Report The Committee seeks to ensure continual improvements in the Group’s governance in order to be and remain compliant with the QCA’s Code of Best Practice for small to medium sized 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. The Audit Committee held 4 meetings in the year, the following table sets out attendance during the year. Director Members Judith MacKenzie Gail Lumsden By Invitation Mike Holt Maribeth Keeling Meetings attended 4 4 4 4 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 Chairperson of the Committee also maintains a close dialogue with them throughout the year to ensure they remain apprised of relevant events. The Audit Committee met on four occasions during the year. Executive Directors are ordinarily present at Committee meetings by invitation only, with the CFO 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. The committee assesses whether suitable accounting policies have been adopted and whether management have made appropriate estimates and judgements. 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. www.realgoodfoodplc.com Stock Code: RGD 23 30678 Real Good Food AR2021.indd 23 30678 Real Good Food AR2021.indd 23 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:25 20/09/2021 21:02:25 Audit Committee Report (continued) Description of Risk Overview of Risk Company response Asset Impairment The Group now has £32.7 million of goodwill, relating to excess of consideration paid to the fair value of acquisitions, and £8.6 million of property, plant and equipment, and intangible assets. The carrying value of goodwill is reviewed at least annually to check that it is not in excess of its recoverable amount. Cash flow projections 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 Cake Decoration. A sensitivity analysis was also applied to stress test the assumptions and future economic value of assets. These resulted in no impairment required. 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 Risk Register The value of property, plant and equipment and intangible assets are stated at cost less accumulated depreciation or amortisation and impairment losses. 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 the sale of Brighter Food, the reduction in the Net debt, the reduction in the interest rates for the loan notes, and the deferral of shareholder loan note repayments, the Committee, and the Board, as a whole, is satisfied that a going concern approach is fully justified. The Group is encouraged to identify business risks. The CFO presents the Risk Register to the Board on a quarterly basis. Significant business risks are identified and recorded on the Risk Register that is presented to the Group Board quarterly, or sooner if appropriate. As part of the covid-19 pandemic, the Board had weekly update calls to monitor the impact on the business; the Board meets outside of the planned monthly Board meetings as required. Senior Managers The MD is invited to each Board meeting to present on their division. Auditors Audit Rotation. The Board have the opportunity to talk directly with the MD of the division on a monthly basis and understand the business behind the numbers. The Board also plan to visit the Liverpool site in FY22 where they will be able to meet the Leadership team for the business and hold a meeting with them, this was not possible in FY21 owing to covid-19. The Committee is responsible for recommending to the Board the appointment, reappointment, and removal of external auditors. The Committee has discussions on audit planning, plans, fees and audit findings and controls. The Committee assessed the effectiveness of the external audit through the review of audit plans, reports, and conclusions. Also, through discussions with management (with and without the auditor present) and with the auditors (with and without management present). The Commitment and Authorities schedule within the business is reviewed annually by the Group Board. Stock count at Brighter Foods for year ended 31 March 2020 Due to restrictions in relation to covid-19, the external auditors were unable to attend the annual stock take undertaken at Brighter Foods on 28 March 2020. The stock value at 31 March 2020 was £2.6m. Due to restrictions in relation to covid-19, the external auditors were unable to attend the annual stock take undertaken at Brighter Foods on 28 March 2020. For the year ended 31 March 2021, the auditors attended the counts at Brighter Foods. Brighter Foods has been classified as a discontinued operation and the value of the stock is shown in assets held for sale. Disclosure of Related Party Transactions To ensure that related party transactions are transparent and approved. 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. 24 GOVERNANCE Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 24 30678 Real Good Food AR2021.indd 24 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:25 20/09/2021 21:02:25 GOVERNANCE REPORT Remuneration Committee Report The Remuneration Committee comprises Gail Lumsden, as Chair, Judith MacKenzie and Anthony Ridgwell. 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 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 and long-term incentive arrangements for senior management, and { agree the policy for authorising claims 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 three months’ written notice. The Non-Executive Directors are not 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. for expenses from the Chairman and plc Directors. Current Directors’ base salaries and fees are disclosed in note 11. The table below shows the FY21 attendance: Director Members Gail Lumsden Anthony Ridgwell Judith Mackenzie Meetings attended 2 2 2 The Directors’ remuneration policy aims to align the interests of management with all shareholders and recognises the need to recruit, retain and appropriately incentivise high-calibre individuals to deliver the strategy set by the Board. This report outlines the base salary, pension, benefits, and long-term incentive plans, where appropriate, of all Board Executives. Directors’ remuneration The salaries of the Executive Directors are benchmarked against other AIM-listed businesses of a similar size and complexity. www.realgoodfoodplc.com Stock Code: RGD 25 30678 Real Good Food AR2021.indd 25 30678 Real Good Food AR2021.indd 25 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:25 20/09/2021 21:02:25 Independent Auditor’s Report to the members of Real Good Food plc Qualified Opinion on the financial statements In our opinion, except for the possible effects of the matter described in the basis for qualified opinion section of our report: { 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 2021 and of the Group’s loss for the year then ended; { the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; { the Parent Company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and 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. 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 2021 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 their preparation is applicable law and international accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. Basis for qualified opinion We were not able to observe the counting of physical inventories at the end of the previous year ended 31 March 2020 for inventories held by Brighter Foods Limited, a subsidiary and significant component of Real Good Food plc, due to restrictions in the attendance of external visitors at the company and third party premises, specifically as a result of Covid-19. We were unable to satisfy ourselves by alternative means concerning the inventory balance of £2,574,000 held by that component and included in the consolidated statement of financial position as at 31 March 2020. We were therefore unable to determine whether any adjustment to that amount was necessary, or what the impact of any such adjustment would be on the consolidated statement of comprehensive income, consolidated statement of changes in equity, consolidated statement of financial position or consolidated cash flow statement for the year ended 31 March 2021. Any adjustment to the inventory balance at 31 March 2020 would also have an impact on the comparative figure shown in the consolidated statement of comprehensive income for profit from discontinued operations and on the comparative consolidated cash flow statement for the period then ended. In addition, were any adjustment to the inventory balance at 31 March 2020 to be required, the strategic report would also need to be amended. 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. Independence We remain 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. Conclusions relating to going concern In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Going concern was considered a key audit matter. See also the disclosures in Notes 2 and 3. Our evaluation of the Directors’ assessment of the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting and our response to the key audit matter included: { Obtaining and examining management’s business plan for at least the next 12 months, which is also used as a basis for the discounted cash flow model in the impairment assessment of goodwill and other non-current assets. These forecasts were based on the continuing operations of the group, following the disposal of Brighter Foods Limited post year end. Management also performed sensitised stressed forecasts, including a reverse stress test to identify the point at which available cash facilities would run out or covenants would be breached. We examined these cash flow forecasts as well as considered the downside sensitivities to these; { We challenged management’s assumptions used in the forecast period by considering available evidence, including recent performance post the impact of Covid-19, as well as past trading performance, to support these assumptions; { We evaluated the forecast compliance with covenants for at least the next 12 months, including sensitivities applied on these; { We also reviewed the renegotiated financing arrangements in relation to borrowings from shareholder loans and convertible loan notes, of which the amounts previously due in May 2022 have now been extended to May 2023; and { We reviewed the wording of the going concern disclosures, and assessed its consistency with management’s forecasts. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group and the Parent Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report. 26 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 26 30678 Real Good Food AR2021.indd 26 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:26 20/09/2021 21:02:26 OUR FINANCIALS Overview Coverage of areas subject to a full scope audit Key audit matters 89% (2020: 78%) of total group revenue 90% (2020: 94%) of group net assets Going Concern Asset Impairment Pension Scheme Assumptions 2021 ✓ 2020 ✓ ✓ – ✓ ✓ Materiality Pension Scheme Assumptions are no longer considered to be a key audit matter because the suitability of these assumptions is no longer considered one of the most significant assessed risks of material misstatement. Group financial statements as a whole £428,000 (2020: £486,000) based on 0.75% of total revenue including discontinued operations (2020: 0.75% of total revenue) An overview of the scope of our audit Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have represented a risk of material misstatement. 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 three (2020: three) significant components for the purposes of the group audit. The audit of all of the significant components was performed by ourselves and a full scope audit was performed in each case. 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. 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. In addition to the matter described in the Basis for qualified opinion section we have determined the matters described below to be the key audit matters to be communicated in our report. Key Audit Matter How We Addressed the Key Audit Matter in the Audit Asset impairment 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. Management’s assessment showed that no impairment was required. This impairment review is also considered in Note 2 (significant accounting policies) and Note 3 (critical accounting estimates and judgements). Management’s impairment review focussed on the Cake Decoration operating segment, given that Brighter Foods Limited (the Food Ingredients operating segment) was disposed of for a profit shortly after the year end. 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 in relation to the Cake Decoration operating segment: { 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, and reviewed the components of the cash flow forecasts. { We challenged management on their cash flow forecasts and the growth rates for 2021/22 and beyond by considering evidence available to support these assumptions including sales plans and cost forecasts, their consistency with findings from other areas of our audit and analysis against forecasting and results in previous periods, 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. Key observations Based on the audit procedures above we considered management’s judgements in relation to the impairment of assets to be appropriate. www.realgoodfoodplc.com Stock Code: RGD 27 30678 Real Good Food AR2021.indd 27 30678 Real Good Food AR2021.indd 27 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:26 20/09/2021 21:02:26 Independent Auditor’s Report (continued) to the members of Real Good Food plc Our application of materiality We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole and performance materiality as follows: Group financial statements Parent company financial statements 2021 £428,000 2020 £486,000 2021 £79,600 2020 £57,700 0.75% of total revenue, including discontinued operations 0.75% of total revenue 2% of net assets excluding intercompany balances 2% of net assets excluding intercompany balances We consider that using this basis for determining materiality is most appropriate as this provides a consistent year on year basis for determining materiality based on the underlying trading performance of the Group. We consider this basis is most appropriate for a holding company. £299,000 £315,000 £55,700 £37,500 The performance materiality threshold was chosen as 70% to reflect some areas subject to estimation uncertainty. This has been increased from 65% in the prior year given there have been few changes to the key areas of the financial statements in the current year. Materiality Basis for determining materiality Rationale for the benchmark applied Performance materiality Basis for determining performance materiality Component materiality We set materiality for each component of the Group based on a percentage of between 19% and 90% of Group materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality ranged from £79,600 to £385,000. In the audit of each component, we further applied performance materiality levels of 70% of the component materiality to our testing to ensure that the risk of errors exceeding component materiality was appropriately mitigated. Reporting threshold We agreed with the Audit Committee that we would report to them all individual audit differences in excess of £17,000 (2020: £19,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds. 28 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 28 30678 Real Good Food AR2021.indd 28 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:26 20/09/2021 21:02:26 OUR FINANCIALS Other information The directors are responsible for the other information. The other information comprises the information included in the Annual Report and Accounts 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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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. As described in the basis for qualified opinion section of our report, we were unable to satisfy ourselves concerning inventory quantities of £2,574,000 held at the prior year ended 31 March 2020 by Brighter Foods Limited. We have concluded that where the other information refers to the inventory balance or related balances such as cost of sales or profit for the year relating to discontinued operations, it may be materially misstated for the same reason. Other Companies Act 2006 reporting Based on the responsibilities described below and our work performed during the course of the audit, we are required by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below. Strategic report and Directors’ report Except for the possible effects of the matter described in the basis for qualified opinion section of our report, 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 Except for the possible effects of the matter described in the basis for qualified opinion section of our report, in the light of the knowledge and understanding of the Group and 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. Arising solely from the limitation on the scope of our work relating to inventory at the prior year end, referred to above: { we have not obtained all the information and explanations that we considered necessary for the purpose of our audit. 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. Responsibilities of Directors As explained more fully in the Statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, 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 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. www.realgoodfoodplc.com Stock Code: RGD 29 30678 Real Good Food AR2021.indd 29 30678 Real Good Food AR2021.indd 29 30678 21 September 2021 9:31 am V12 21/09/2021 09:32:39 21/09/2021 09:32:39 Independent Auditor’s Report (continued) to the members of Real Good Food plc Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we are to become aware of it. A further description of our responsibilities is available 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, United Kingdom 20 September 2021 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Extent to which the audit was capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below: Based on our understanding of the laws and regulations applicable to the Group and accumulated knowledge of the Group and the sectors in which it operates we considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud and whether such actions or non-compliance might have a material effect on the financial statements. These included but were not limited to those that relate to the form and content of the financial statements, such as the Group accounting policies, international accounting standards, the UK Companies Act 2006 and the AIM Rules; and industry related such as compliance with health and safety legislation, employment law and taxation legislation. All team members were briefed, including component audit teams, to ensure they were aware of any relevant regulations in relation to their work. We obtained an understanding of the control environment in monitoring compliance with laws and regulations, enquired with management regarding matters pertaining to laws and regulations during the year, and reviewed any relevant correspondence arising to ensure these had been considered appropriately. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries, revenue cut off around the year end and management bias in accounting estimates. Our audit procedures included, but were not limited to: { Agreement of the financial statement disclosures to underlying supporting documentation; { Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in relation to the Group’s defined benefit pension scheme and impairment of goodwill to identify any potential bias; { Detailed testing of a sample of items for revenue cut off around the year end for all significant components to ensure they were accounted for in the correct period; { Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or including specific keywords to identify potential irregularities; { Discussions with management and those charged with governance, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud; and { Review of minutes of Board meetings throughout the period, to identify any inconsistencies with our audit work or matters of which we needed to be aware. 30 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 30 30678 Real Good Food AR2021.indd 30 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:27 20/09/2021 21:02:27 Consolidated Statement of Comprehensive Income Year ended 31 March 2021 OUR FINANCIALS Revenue Cost of sales Gross profit Income from Government Furlough Scheme Other operating income Distribution expenses Administrative expenses Operating loss before impairment and significant items Impairment charge on goodwill Impairment charge on tangible fixed assets Significant items Operating loss after impairment and significant costs Finance costs Other finance costs Loss before tax Income tax credit Loss from continuing operations Profit from discontinued operations (assets held for sale) Net loss Attributable to: Owners of the parent Non-controlling interests Net loss Items that will or may be reclassified to profit or loss Foreign exchange differences on translation of subsidiaries Items that will not be reclassified to profit or loss 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 Notes 4, 5 16 18 6 8 9 10 14 32 20 12 months ended 31 March 2021 £’000s 12 months ended 31 March 2020 (restated*) £’000s 37,292 41,243 (22,128) (23,615) 15,164 1,205 48 17,628 – 10 (3,615) (2,995) (14,266) (18,158) (1,464) – – 203 (1,261) (4,665) (182) (3,515) (12,622) (287) (1,022) (17,446) (5,445) (169) (6,108) (23,060) 27 1,692 (6,081) (21,368) 2,617 2,913 (3,464) (18,455) (3,856) (19,121) 392 666 (3,464) (18,455) 65 (106) (107) (102) (144) (1,097) 215 (988) (3,608) (19,443) (4,000) (20,109) 392 666 (3,608) (19,443) *The result for the year ended 31 March 2020 has been restated to reflect the change in continuing and discontinued operations. Basic and diluted loss per share – continuing operations Basic earnings per share – discontinued operations Diluted earnings per share – discontinued operations The notes on pages 38 to 76 form part of these financial statements. 12 months ended 31 March 2021 £’000s 12 months ended 31 March 2020 (restated*) £’000s (6.50)p (22.14)p 2.63p 0.82p 2.92p 0.96p Notes 15 15 15 www.realgoodfoodplc.com Stock Code: RGD 31 30678 Real Good Food AR2021.indd 31 30678 Real Good Food AR2021.indd 31 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:27 20/09/2021 21:02:27 Consolidated Statement of Changes in Equity Year ended 31 March 2021 Issued Share Capital £’000s Share Premium Account £’000s Other Reserves £’000s Share Option Reserve £’000s Foreign Exchange Translation Reserve £’000s Retained Earnings £’000s Total £’000s Non– Controlling Interest £’000s Total Equity £’000s Balance as at 31 March 2019 1,987 3,286 (4,796) 238 (19) 23,786 24,482 2,140 26,622 Loss for the year Other comprehensive (loss)/gain for the year Total comprehensive (loss)/gain for the year Transactions with owners of the Group, recognised directly in equity Shares issued in the year (note 27) Share-based payments (note 29) Deferred tax on share-based payments Total contributions by and distributions to owners of the Group – – – 4 – – 4 – – – 8 – – 8 – – – – – – – Balance as at 31 March 2020 1,991 3,294 (4,796) Total comprehensive (loss)/gain for the year Loss for the year Other comprehensive (loss)/gain for the year Total comprehensive (loss)/gain for the year Transactions with owners of the Group, recognised directly in equity Shares options lapsed in year Total contributions by and distributions to owners of the Group – – – – – – – – – – – – – – – – – – – (35) – (35) 203 – – – – (19,121) (19,121) 666 (18,455) (106) (882) (988) – (988) (106) (20,003) (20,109) 666 (19,443) – – – – – – – – 12 (35) – (23) – – – – 12 (35) – (23) (125) 3,783 4,350 2,806 7,156 – (3,856) (3,856) 392 (3,464) 65 (209) (144) – (144) 65 (4,065) (4,000) 392 (3,608) (200) (200) – – – – (200) (200) – – (200) (200) Balance as at 31 March 2021 1,991 3,294 (4,796) 3 (60) (282) 150 3,198 3,348 The notes on pages 38 to 76 form part of these financial statements. 32 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 32 30678 Real Good Food AR2021.indd 32 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:28 20/09/2021 21:02:28 Company Statement of Changes in Equity Year ended 31 March 2021 OUR FINANCIALS Balance as at 31 March 2019 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 Share-based payments Deferred tax on share-based payments Total contributions by and distributions to owners of the Group Issued Share Capital £’000s 1,987 Share Premium Account £’000s 3,286 – – – 4 – – 4 – – – 8 – – 8 Balance as at 31 March 2020 1,991 3,294 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 options lapsed in the year Total contributions by and distributions to owners of the Group – – – – – – – – – – Share Option Reserve £’000s 238 – – – – (35) – (35) 203 – – – (200) (200) Retained Earnings £’000s 2,990 (9,819) (883) Total Equity £’000s 8,501 (9,819) (883) (10,702) (10,702) – – – – 12 (35) – (23) (7,712) (2,224) (6,174) (6,174) 93 93 (6,081) (6,081) – – (200) (200) (8,505) Balance as at 31 March 2021 1,991 3,294 3 (13,793) The notes on pages 38 to 76 form part of these financial statements. www.realgoodfoodplc.com Stock Code: RGD 33 30678 Real Good Food AR2021.indd 33 30678 Real Good Food AR2021.indd 33 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:28 20/09/2021 21:02:28 Consolidated Statement of Financial Position Year ended 31 March 2021 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 Assets classed as held for sale TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Borrowings Lease liabilities NCI put option Liabilities classed as held for sale NON-CURRENT LIABILITIES Borrowings Lease liabilities Long-term liabilities – NCI put option Derivative liability - convertible loan notes Deferred tax liabilities Retirement benefit obligation TOTAL LIABILITIES NET ASSETS EQUITY Share capital Share premium account Other reserves Share option reserve Foreign exchange translation reserve Retained earnings EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT Non-controlling Interest TOTAL EQUITY 31 March 2021 £’000s 31 March 2020 £’000s Notes 16 17 18 19 20 21 22 13 33 25 23 24 26 33 23 24 26 26 20 32 27 32,722 9 8,548 – 1,426 42,705 3,597 7,248 – 215 622 11,682 20,157 74,544 8,087 2,659 93 1,553 12,392 4,442 46,624 – – 17 216 7,505 54,362 71,196 3,348 1,991 3,294 (4,796) 3 (60) (282) 150 3,198 3,348 37,753 61 16,199 81 1,508 55,602 6,823 10,232 182 215 1,363 18,815 1,148 75,565 9,097 2,717 390 2,900 15,104 – 43,059 567 1,520 – 223 7,936 53,305 68,409 7,156 1,991 3,294 (4,796) 203 (125) 3,783 4,350 2,806 7,156 These financial statements were approved by the Board of Directors and authorised for issue on 20 September 2021. They were signed on its behalf by: Mike Holt Executive Chairman Maribeth Keeling Chief Financial Officer The notes on pages 38 to 76 form part of these financial statements. 34 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 34 30678 Real Good Food AR2021.indd 34 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:29 20/09/2021 21:02:29 Company Statement of Financial Position Year ended 31 March 2021 Registered Company Number: 04666282 OUR FINANCIALS 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 Assets classed as held for sale TOTAL ASSETS CURRENT LIABILITIES Trade and other payables NON-CURRENT LIABILITIES Borrowings Derivative liability - Convertible loan notes Retirement benefit obligation TOTAL LIABILITIES NET LIABILITIES EQUITY Share capital Share premium account Share option reserve Retained earnings TOTAL EQUITY 31 March 2021 £’000s 31 March 2020 £’000s Notes 19 17 18 20 22 13 33 25 23 26 32 27 54,670 54,670 – 118 1,426 56,214 18 143 1,508 56,339 7,855 71,125 – 215 17 8,087 1,000 (4) 215 8 71,344 1,000 65,301 128,683 20,845 20,845 82,294 82,294 45,439 40,677 17 7,505 52,961 73,806 – 7,936 48,613 130,907 (8,505) (2,224) 1,991 3,294 3 (13,793) (8,505) 1,991 3,294 203 (7,712) (2,224) Real Good Food plc (the Company) reported a total comprehensive loss for the year ended 31 March 2021 of £6,081k (2020: loss of £10,702k). The Directors have taken advantage of the exemption available under Section 408 of the Companies Act and have not presented a statement of comprehensive income for the Company. These financial statements were approved by the Board of Directors and authorised for issue on 20 September 2021. They were signed on its behalf by: Mike Holt Executive Chairman Maribeth Keeling Chief Financial Officer The notes on pages 38 to 76 form part of these financial statements. www.realgoodfoodplc.com Stock Code: RGD 35 30678 Real Good Food AR2021.indd 35 30678 Real Good Food AR2021.indd 35 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:29 20/09/2021 21:02:29 Consolidated Cash Flow Statement Year ended 31 March 2021 CASH FLOW FROM OPERATING ACTIVITIES Adjusted for: (Loss) before taxation Finance and other finance costs Share options reserve credit Foreign Exchange movement Goodwill impairment charge Impairment charge on fixed assets Share based payment expense Loss on disposal of investment Loss on disposal of property, plant and equipment Past service cost on pension Fair value of derivative liability Fair value of NCI put option Depreciation of property, plant, and equipment Amortisation of intangibles Operating Cash Flow Decrease in inventories Decrease/(increase) in receivables Pension contributions Decrease in cash collateral Increase in payables Cash from operations Income taxes received Interest paid Interest on leases Net cash inflow from operating activities CASH FLOW FROM INVESTING ACTIVITIES Purchase of property, plant, and equipment Proceeds from sale of investment Disposal of discontinued business, net of cash disposed of Net cash outflow from investing activities CASH FLOW USED IN FINANCING ACTIVITIES Shares issued in year Repayment of lease liabilities Repayment / (Inflow) of term loans Repayment of other loans Repayment of investor loans Drawdowns on revolving credit facilities Repayments on revolving credit facilities Net cash outflow 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 Continuing operations Discontinued operations Cash and cash equivalents at end of period Notes 9, 10 16 18 32 18 17 32 27 23 23 23 23 33 31 March 2021 £’000s 31 March 2020 £’000s (3,491) 4,856 (200) 308 – – – 31 7 – 17 (1,302) 2,435 52 2,713 676 23 (720) – 953 3,645 – (86) (26) 3,533 (20,147) 5,617 – (115) 12,622 287 (35) – – 16 (294) (577) 2,375 1,538 1,287 17 (2,327) (733) 1,785 1,279 1,308 52 (189) (27) 1,144 (567) (1,819) 50 – – 550 (517) (1,269) – (402) (865) (35) – 42,816 (42,876) (1,362) 1,654 1,363 63 1,654 3,080 622 2,458 3,080 4 (504) 3,420 (1,636) (4,519) 28,261 (26,409) (1,383) (1,508) 2,909 (38) (1,508) 1,363 1,363 – 1,363 36 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 36 30678 Real Good Food AR2021.indd 36 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:30 20/09/2021 21:02:30 Company Cash Flow Statement Year ended 31 March 2021 CASH FLOW FROM OPERATING ACTIVITIES Adjusted for: Loss before taxation Finance and other finance costs Impairment charge fixed asset Share based payment expense Past service cost on pension Fair value of derivative liability Depreciation of property, plant and equipment Amortisation of intangibles Operating Cash Flow Decrease / (Increase) in receivables Pension contributions (Decrease) / Increase in payables Decrease in cash collateral Cash from operations Interest paid Net cash inflow from operating activities CASH FLOW FROM INVESTING ACTIVITIES Net cash /(outflow) from investing activities CASH FLOW USED IN FINANCING ACTIVITIES Shares issued in year (Repayment) of investor loans Net cash outflow from financing activities NET INCREASE / (DECREASE) 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 OUR FINANCIALS 31 March 2021 £’000s 31 March 2020 £’000s Notes 33 32 18 17 32 27 23 (6,194) (9,819) 4,921 5,448 – – – 17 25 18 (1,213) 63,353 (720) 287 (35) 16 (294) 187 132 (4,078) (910) (733) (61,402) 7,318 – 18 (9) 9 – – – – 9 8 9 17 1,786 3,383 – 3,383 – 4 (4,519) (4,515) (1,132) 1,140 (1,132) 8 www.realgoodfoodplc.com Stock Code: RGD 37 30678 Real Good Food AR2021.indd 37 30678 Real Good Food AR2021.indd 37 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:30 20/09/2021 21:02:30 Notes to the Financial Statements Year ended 31 March 2021 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 accounting standards 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 notes 2 and 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 operation that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification of a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative income statement is presented as if the operation had discontinued from the start of the comparative period. During the twelve months to 31 March 2021, the Group did not dispose of any major lines or businesses. However, the Group sold Brighter Foods Limited in May 2021 and this has been classified as held for sale in the accounts. At 31 March 2021, some remaining assets in relation to the previously disposed businesses are classed as held for sale, in addition to the net assets of Brighter Foods Limited. For further details please refer to note 33. Any references to discontinued operations throughout this report refers to Brighter Foods Limited. IFRS standards and interpretations adopted New standards and amendments which are effective from 1 January 2020, and have been adopted within the Group’s accounting policies are: { Amendments to IFRS 3 Business combinations - definition of a business (effective for periods beginning after 1 January 2020); { Amendments to IAS 1 Presentation of financial statements and IAS 8 Accounting policy changes in accounting estimates and errors - definition of material (effective for periods beginning after 1 January 2020); { Amendments to IFRS 9, Financial Instruments, IAS 39 Financial Instruments and IFRS 17 Financial Instruments: disclosures - interest rate benchmark reform (effective for periods beginning after 1 January 2020); and { Amendments to the conceptual framework. The adoption of the amendments to IFRS 3, IAS 1, IAS 8, IFRS 9, IAS 39, IFRS 17 and the conceptual framework have not had an impact on the financial statements of the Group. The Group does not expect any standards issued by the IASB, but not yet effective, to have a material impact on the Group. 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, on a going concern basis. 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 9. The financial position of the Group, its cash flows and liquidity position are described in the Finance Review on page 10. 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. 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. The forecast for FY22 for the continuing businesses, is based on the national lockdowns being removed in July 2021. Some of the sectors we serve have experienced growth during the covid-19 pandemic, namely retail and international. The sectors most affected by the pandemic owing to their customers having to close, wholesale and manufacturing, have returned to pre covid sales. The new customers and product launches during FY21 will have a full year impact in FY22. The overhead savings and operational efficiencies are also included in the forecast. The Board consider the forecasts to be reasonable and these assumptions have been projected. The Board reviewed the sensitivity of the sales and have modelled the effects of these. The Directors considered the following scenarios: Scenario 1: Reduction in revenue of 5% all year; and Scenario 2: Reduction in revenue of 5% and the gross margin reduced by 10% all year. In Scenario 1 without any mitigating action the Group does not run out of cash and has sufficient liquidity headroom with the low point for cash being September 2022 when cash would reduce to £2.1 million as a result of the stock build for quarter 3, (October to December). In Scenario 2 without any mitigating action the Group would run out of cash in May 2022, some 14 months from the monthly reduction in revenue and gross margin from the start of FY22. If there was a reduction in gross margin of 10%, this would be as a result of commodity price increases that would be passed onto customers. The mitigating action would be taken quickly and would result in a price increase to customers, with a time lag factored in as negotiation took place with customers. A prudent approach of a 75% recovery in FY22 would result in the business not running out of cash with the low point for cash being September 2022 when cash would be £1.3million, owing to the stock build. 38 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 38 30678 Real Good Food AR2021.indd 38 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:30 20/09/2021 21:02:30 OUR FINANCIALS 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 marketing 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. Refunds: Refunds are issued to customers when product is damaged or not fit for purpose upon receipt. Refunds are recorded net of discounts, Value Added Tax (VAT) and other sales-related taxes. 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 enacted or substantially enacted by the balance sheet date. Deferred tax is charged or credited to the Statement of Comprehensive Income, except where it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, and when they relate to income taxes levied by the same taxation authority, and the Group intends to settle its current tax assets and liabilities on a net basis. 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 32 to the financial statements. 2. Significant accounting policies continued The Group has various levers that it can use to mitigate the shortfall including: { Cessation of non-essential spend { Review of overhead costs The banking covenants that are in place for FY22 have been amended taking into account the seasonality of the Cake Decorations business. The covenants for FY22 are plus or minus 25% of the forecast EBITDA and greater than £5 million tangible net worth. These covenants are not breached on the stressed scenarios referred to above. The principal shareholders of the Group have shown considerable support for the working capital requirements and as a result have extended the repayment period of the current loans from 19 May 2022 to 19 May 2023. Having carefully considered the liquidity of the Group and 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. Also detailed in note 23 to the financial statements, the Group has a long-term banking arrangement with ABL Leumi 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. Following the post year end sale of Brighter Foods Limited and the subsequent repayment of Shareholder Loans, the Board has agreed with Investors to continue to roll up interest on the loans and would expect to make further Investor loan repayments on any future divestment of a business. 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 dispatched. Sales are recorded net of discounts, Value Added Tax (VAT) and other sales-related taxes. Goods are deemed to be dispatched when the distribution company has collected the goods from the warehouse and is delivering them to the customer. 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 include net interest costs on the net defined benefit pension scheme liabilities. www.realgoodfoodplc.com Stock Code: RGD 39 30678 Real Good Food AR2021.indd 39 30678 Real Good Food AR2021.indd 39 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:30 20/09/2021 21:02:30 Notes to the Financial Statements (continued) Year ended 31 March 2021 The lease payments included in the measurement of the lease liability comprise lease payments in addition to any other payments reasonably certain to be made such as termination penalties upon early termination of the lease. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease using the effective interest rate method and reducing the carrying amount to reflect the lease payments made. The lease liability is remeasured if: { The lease term has changed; in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; { The lease payments change due to changes in an index or rate, in which case the lease liability is remeasured using the initial discount rate; or { The lease contract is modified, and the modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. The right of use asset is measured at an amount equal to the corresponding lease liability and is subsequently measured at cost less accumulated depreciation and impairment losses. Right of use assets are depreciated over the lease term. Right of use assets are included in the Property, Plant & Equipment. 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 are capitalised and depreciated in accordance with the Group’s policy. 2. Significant accounting policies continued 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: Right of use assets Land and buildings Freehold buildings Plant and equipment Plant and equipment Motor vehicles Fixtures and fittings Computer equipment Length of lease 40 to 50 years 2 to 13 years 4 years 4 to 13 years 4 years 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 Development costs, and business relationships 5 years 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 The Group leases manufacturing facilities, company cars and other plant and machinery. Upon inception of a contract, an assessment is performed to determine whether the contract is or contains a lease. A right of use asset and a corresponding lease liability is recognised on the statement of financial position for all lease arrangements where the Group is a lessee, except for those which are short-term or low value. Short-term and low value leases are accounted for by recognising the lease payment within administrative expenses on a straight-line basis over the lease term. The lease liability is initially measured at the present value of the future lease payments at the commencement date, discounted using the rate implicit in the lease if this is readily determined, or otherwise using the incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Group would have to pay to borrow, over a similar term and with similar security, the funds necessary to obtain an asset of a similar value to the right of use asset in a similar economic environment. 40 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 40 30678 Real Good Food AR2021.indd 40 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:31 20/09/2021 21:02:31 OUR FINANCIALS 2. Significant accounting policies continued 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. n) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment. The Group calculates impairments using an expected credit loss model, based upon the payment history of their customers, and any resultant bad debt write downs they have incurred. The occurrence of bad debt has been rare in the business. o) Trade payables Trade payables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest rate 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 a revolving credit facility of £5.45 million with Leumi ABL Limited secured on the trade debtors on a 60-month term. This facility is secured against the debtors of JF Renshaw Limited and Rainbow Dust Colours Limited, with an interest rate of 2.25% above London Inter Bank Offer Rate (LIBOR). Trade debtors remain assets of the Group and are shown at the total amount collectable. Liabilities under this arrangement are shown in borrowings. The Group has shareholder loans including convertible loan notes previously repayable on or before 19 May 2022 on which the repayment date has been agreed to move to 19 May 2023. They can be converted at any time into shares at the holder’s option. The majority of interest on the shareholder loans is deferred. A host loan at amortised cost and an embedded derivative liability, being measured at fair value with changes in value being recorded in profit or loss, have been recognised. 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 expenses 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. Grants which have been received in respect of the Coronavirus job retention scheme has been accounted for and presented separately on the face of the Statement of Comprehensive Income, rather than by reducing the related expense. The Group has used the Government deferred PAYE payment scheme. The costs were accounted for as incurred. All deferred PAYE has been fully repaid. t) Non-controlling Interest (NCI) put option Upon acquisition of Brighter Foods Limited, the Group entered into a shareholder agreement regarding the management stake whereby the 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 stake is based upon an agreed valuation linked to profit, cash and capital expenditure. The net present value of the estimated financial liability in the event of the exercise of the non-controlling interest put option is recognised in long-term liabilities and other reserves. Subsequent changes in the carrying amount resulting from remeasurement of the amount payable on exercising the options would be recognised in the Statement of Comprehensive Income. The put option for 2020 was not called. www.realgoodfoodplc.com Stock Code: RGD 41 30678 Real Good Food AR2021.indd 41 30678 Real Good Food AR2021.indd 41 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:31 20/09/2021 21:02:31 Notes to the Financial Statements (continued) Year ended 31 March 2021 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 owing 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. a) Impairment of goodwill An impairment of goodwill has the potential to impact significantly 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 5-year period, with a terminal value applied to the fifth year, 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 4%. An increase in the discount rate would result in a reduction of the Plan liabilities and an increase in the rate of inflation would increase the liabilities of the Plan. 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 changes 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 interest income from Plan assets and an interest charge on Plan liabilities. These calculations are based on the discount rate at the start of the financial year. The Statement of Comprehensive Income is most sensitive to changes in the discount rate used to calculate the interest income from Plan assets and 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 32. 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. 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. The Directors considered the following scenarios: Scenario 1: Reduction in revenue of 5%; and Scenario 2: Reduction in EBITDA of 5% and the gross margin reduced by 10% all year. In Scenario 1 without any mitigating action the Group does not run out of cash and has sufficient liquidity headroom post March 2023 with the low point for cash being September 2022 when cash would reduce to £2.1 million as a result of the stock build for quarter 3, (October to December). In Scenario 2 without any mitigating action the Group would run out of cash in May 2022, some 8 months from the monthly reduction in revenue and gross margin. If there was a reduction in gross margin of 10%, this would be as a result of commodity price increases that would be passed onto customers. The mitigating action would be taken quickly and would result in a price increase to customers, with a time lag factored in as negotiation took place with customers. A prudent approach of a 75% recovery in FY22 would result in the business not running out of cash with the low point for cash being September 2022 when cash would be £1.3million, owing to the stock build. The Group has various levers that it can use to mitigate the shortfall including: { Cessation of non-essential spend { Review of overhead costs The banking covenants that are in place for FY22 have been amended taking into account the seasonality of the Cake Decorations business. Following the post year end sale of Brighter Foods Limited and the subsequent repayment of Shareholder Loans, the Board has agreed with Investors to roll up interest on the loans and would expect to make further Investor loan repayments on any future divestment of a business. 42 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 42 30678 Real Good Food AR2021.indd 42 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:31 20/09/2021 21:02:31 OUR FINANCIALS 3. Critical accounting estimates and judgements continued The covenants for FY22 are plus or minus 25% of the forecast EBITDA and greater than £5 million tangible net worth. These covenants are not breached on the stressed scenarios referred to above. The principal shareholders of the Group have shown considerable support for the working capital requirements and as a result have extended the repayment period of the current loans from 19 May 2022 to 19 May 2023. The banking covenants in place are positive 3 month rolling EBITDA and positive tangible net worth and have not been breached on the stressed scenarios referred to above. The maximum draw down value during FY21 of the facility was in December 2020. This was £2.3m. Having carefully considered the liquidity of the Group and 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. Long term funding The Board has reviewed the forecasts for FY23, and the group has agreed with the Investors to continue to roll up interest on the loans. The Board would expect to make Investor loan repayments on a divestment of a business. 4. Revenue The revenue for the Group for the current year arose from the sale of goods in the following areas: Cake Decoration Held for sale (Food Ingredients) £37.3 million (2020 £41.2m) £19.8 million (2020 £25.3m) Manufactures, sells, and supplies cake decorating products and ingredients for the baking sector. Manufactures and supplies a range of snack bars to the retail sector. 5. Segment reporting Business segments The divisional structure reflects the management teams in place and ensures all aspects of trading activity have the specific focus they need in order to achieve our growth plans. The Group operates in one main division: Cake Decoration. The Head Office has a finance function that supports the subsidiary as required. 12 months ended 31 March 2021 Total revenue Intercompany sales External revenue Cost of sales Gross profit Income from Furlough Scheme Other operating income Distribution expenses Administrative expenses Operating (loss) / profit before impairment and significant items Significant Items Operating (loss)/profit after impairment and significant items Finance costs Other finance costs (Loss)/profit before tax Income tax credit/(expense) (Loss)/profit after tax as per comprehensive statement of income Cake Decoration £’000s Head Office and non-trading subsidiaries £’000s 40,206 (2,914) 37,292 (22,128) 15,164 1,205 – (3,615) (13,657) (903) (763) (1,666) (95) – (1,761) – – – – – – – 48 – (609) (561) 966 405 (4,570) (182) (4,347) 27 Continuing Operations £’000s Discontinued Operations £’000s 40,206 (2,914) 37,292 19,788 – 19,788 Total Group £’000s 59,994 (2,914) 57,080 (22,128) (12,992) (35,120) 15,164 1,205 48 (3,615) (14,266) (1,464) 203 (1,261) (4,665) (182) (6,108) 27 6,796 461 49 (411) (4,100) 2,795 (169) 2,626 (9) – 2,617 – 21,960 1,666 97 (4,026) (18,366) 1,331 34 1,365 (4,674) (182) (3,491) 27 (1,761) (4,320) (6,081) 2,617 (3,464) www.realgoodfoodplc.com Stock Code: RGD 43 30678 Real Good Food AR2021.indd 43 30678 Real Good Food AR2021.indd 43 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:32 20/09/2021 21:02:32 Notes to the Financial Statements (continued) Year ended 31 March 2021 5. Segment reporting continued 12 months ended 31 March 2020 Total revenue Intercompany sales External revenue Cost of sales Gross profit/(loss) Other operating income Distribution expenses Administrative expenses Cake Decoration £’000s Head Office and non-trading subsidiaries £’000s Continuing Operations £’000s Discontinued Operations £’000s 48,621 (7,378) 41,243 25,323 – 25,323 Total Group £’000s 73,944 (7,378) 66,566 (23,615) (15,980) (39,595) 17,628 9,343 26,971 10 (2,995) – (444) 10 (3,439) – – – – – 10 – (3,805) (18,158) (5,974) (24,132) 48,621 (7,378) 41,243 (23,615) 17,628 _ (2,995) (14,353) Operating profit/(loss) before impairment and significant items 280 (3,795) (3,515) 2,925 (590) Significant items Impairment charge Operating (loss)/profit after impairment and significant items Finance costs Other finance costs (Loss)/profit before tax Income tax credit/(expense) (Loss)/profit after tax as per comprehensive statement of income (1,081) (12,622) (13,423) (198) – (13,621) – 59 (287) (1,022) (12,909) (9) – (1,031) (12,909) (4,023) (5,247) (169) (9,439) 1,692 (17,446) 2,916 (14,530) (5,445) (169) (3) – (5,448) (169) (23,060) 2,913 (20,147) 1,692 – 1,692 (13,621) (7,747) (21,368) 2,913 (18,455) Geographical segments The Group earns revenue from countries outside the United Kingdom, as shown below: 12 months ended 31 March 2020 UK Europe USA Rest of World Total Cake Decoration £’000s 28,266 4,631 7,293 1,053 Discontinued Operations £’000s 22,309 3,014 – – 41,243 25,323 The Group has two customers which constitute over 10% of revenue: one providing 21% of revenue, and the other 13%. 12 months ended 31 March 2021 UK Europe USA Rest of World Total The Group has one customer which constitutes over 18% of revenue in the Cake Decoration division. Cake Decoration £’000s Discontinued Operations £’000s 25,795 19,788 4,465 6,191 841 – – – 37,292 19,788 44 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 44 30678 Real Good Food AR2021.indd 44 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:32 20/09/2021 21:02:32 OUR FINANCIALS 5. Segment reporting continued Reconciliation of operating (loss)/profit to underlying adjusted EBITDA to 31 March 2021 Operating (loss)/profit Significant items Depreciation Amortisation Underlying adjusted EBITDA Reconciliation of operating (loss)/profit to underlying adjusted EBITDA to 31 March 2020 Operating (loss)/profit Significant items Impairment charge Depreciation Amortisation Underlying adjusted EBITDA 31 March 2021 Segment assets Segment liabilities Net operating assets / (liabilities) Non–current asset additions Depreciation Amortisation 31 March 2020 Segment assets Segment liabilities Net operating assets / (liabilities) Non–current asset additions Depreciation Amortisation Cake Decoration £’000s Head Office and non-trading subsidiaries £’000s (1,666) 763 1,614 87 798 405 (966) 25 (35) (571) Continuing Operations £’000s Discontinued Operations £’000s (1,261) 2,626 (203) 1,639 52 227 169 796 – 3,591 Cake Decoration £’000s Head Office and non-trading subsidiaries £’000s Continuing Operations £’000s Discontinued Operations £’000s Total Group £’000s 1,365 (34) 2,435 52 3,818 Total Group £’000s (13,423) (4,023) (17,446) 2,916 (14,530) 1,081 12,622 1,521 34 1,835 (59) 287 187 125 1,022 12,909 1,708 159 (3,483) (1,648) 9 – 667 1,379 4,971 Cake Decoration £’000s Head Office and non-trading subsidiaries £’000s Continuing Operations £’000s Discontinued Operations £’000s 52,180 11,305 40,875 444 (1,614) (87) 3,355 55,449 55,535 66,754 (52,094) (11,219) – (25) 35 444 (1,639) (52) 19,009 4,442 14,567 185 (796) – Cake Decoration £’000s Head Office and non-trading subsidiaries £’000s Continuing Operations £’000s Discontinued Operations £’000s 57,032 13,835 43,197 330 (1,521) (34) (1,570) 51,451 (53,021) – (187) (125) 55,462 65,286 (9,824) 330 (1,708) (159) 20,103 3,123 16,980 1,489 (667) (1,379) 1,031 12,909 2,375 1,538 3,323 Total Group £’000s 74,544 71,196 3,348 629 (2,435) (52) Total Group £’000s 75,565 68,409 7,156 1,819 (2,375) (1,538) In line with the Group strategy of allowing each business to understand its true cost base as a stand-alone business, during the 12 months ended 31 March 2021, Head Office costs of £0.8 million (2020: £1.1m) have been re-allocated to the Cake Decoration division. www.realgoodfoodplc.com Stock Code: RGD 45 30678 Real Good Food AR2021.indd 45 30678 Real Good Food AR2021.indd 45 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:33 20/09/2021 21:02:33 Notes to the Financial Statements (continued) Year ended 31 March 2021 6. Significant items Costs relating to disposal of Brighter Foods Professional fees in relation to refinancing costs Movement in provisions relating to the non-controlling interest put option Change in value of convertible loan notes derivative liability Professional fees in relation to Liverpool factory Closure of Renshaw US warehouse Management restructuring Significant items - Continuing business Continuing business Discontinued business Total significant items 12 months ended 31 March 2021 £’000s 12 months ended 31 March 2020 (restated*) £’000s (269) (38) 1,302 – (113) (171) (508) 203 203 (169) 34 – – – 294 – – (1,316) (1,022) (1,022) (9) (1,031) * The significant items for the year ended 31 March 2020 have been restated to reflect the change in continuing and discontinued operations. The Group’s underlying profit figure excludes a number of items which are material and non-recurring and are detailed separately to ensure the underlying operating performance of the businesses is clearly visible, without the distortions of these non-recurring costs. The year to 31 March 2021 significant item expenditure is explained in the note below: 1. The legal and due diligence costs involved in preparing the Brighter Food business for disposal. 2. The legal costs associated with including Brighter Foods in the CID facility with ABL Leumi. 3. Project management costs for projects running in the Crown Street factory. 4. Costs associated with closing the Renshaw US warehouse, the lease terminating in July 2021, with stockholding relocated to Crown Street Liverpool. 5. Redundancy costs of the restructuring plan started in FY20. 6. Brighter Foods incurred costs in relation to a proposed sale, as the disposal has occurred, Brighter Foods is now shown as a discontinued operation. The year to 31 March 2020 had the following significant costs: 1. The fair value of the CLNs was reduced in FY20 from the FY19 estimate. This was a significant item in the accounts. 2. Restructure costs relating to the Cake Decoration business and Head Office infrastructure. 46 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 46 30678 Real Good Food AR2021.indd 46 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:33 20/09/2021 21:02:33 7. Auditor’s remuneration 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 OUR FINANCIALS 12 months ended 31 March 2021 £’000s 12 months ended 31 March 2020 £’000s (215) (208) (27) (25) (1) (6) (25) (25) (10) (6) (274) (274) The fee payable to the Company’s auditor for the audit of the annual accounts has been split between Real Good Food plc, and its subsidiaries, as follows: Annual Accounts audit fee apportioned by division Real Good Food plc Brighter Foods Ltd Real Good Food Ingredients Ltd J F Renshaw Ltd Rainbow Dust Colours Ltd 12 months ended 31 March 2021 £’000s 12 months ended 31 March 2020 £’000s (105) (20) – (70) (20) (215) (108) (20) –- (60) (20) (208) www.realgoodfoodplc.com Stock Code: RGD 47 30678 Real Good Food AR2021.indd 47 30678 Real Good Food AR2021.indd 47 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:33 20/09/2021 21:02:33 Notes to the Financial Statements (continued) Year ended 31 March 2021 8. Operating loss Operating loss for continuing operations External Sales Staff Costs Inventories: 12 months ended 31 March 2021 £’000s 12 months ended 31 March 2020 (restated*) £’000s Notes 37,292 41,243 12 (12,276) (13,239) – cost of inventories as an expense (included in cost of sales) (16,294) (16,889) Depreciation of property, plant, and equipment Amortisation of intangible assets Significant items Impairment charges Research and development expenditure Impairment of trade receivables Foreign exchange gains/(losses) Other net operating expenses Total Operating loss 5, 18 5, 17 6 16, 18 22 (1,639) (52) 203 – (626) (38) (308) (7,523) (38,553) (1,261) (1,708) (159) (1,022) (12,909) (665) (27) 138 (12,209) (58,689) (17,446) * The operating profit note for the year ended 31 March 2020 has been restated to reflect the change in continuing and discontinued operations. 9. Finance costs Interest on bank loans, overdrafts, and investor loans Interest on lease liabilities Interest on non-controlling interest put option Finance cost on substantial modification of convertible loan notes** Past service cost on pension (note 32) Continuing business Discontinued business 12 months ended 31 March 2021 £’000s 12 months ended 31 March 2020 £’000s (4,600) (5,466) (26) 43 (91) – (4,674) (4,665) (9) (12) 46 – (16) (5,448) (5,445) (3) ** On 2nd December 2020, a substantial modification to the convertible loan note terms was made requiring derecognition of the existing loans and recognition of new loans. As a result of this modification, the value of the liability increased leading to a loss in the year. 48 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 48 30678 Real Good Food AR2021.indd 48 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:34 20/09/2021 21:02:34 10. Other finance costs Interest on pension scheme liabilities (note 32) Interest on pension scheme assets (note 32) Interest on effect of asset ceiling/IFRIC 14 11. Directors’ remuneration Directors’ salaries, benefits, and fees The emoluments of the Directors for the period were as follows: Fees/Salaries inc. Er’s NIC £’000s Taxable Benefits £’000s Bonus £’000s Pension Contributions £’000s OUR FINANCIALS 12 months ended 31 March 2021 £’000s 12 months ended 31 March 2020 £’000s (465) 312 (29) (182) (497) 328 – (169) 12 months ended 31 March 2021 £’000s (482) (482) 12 months ended 31 March 2020 £’000s (786) (786) 12 months ended 31 March 2021 £’000s 12 months ended 31 March 2020 £’000s M Holt J M d’Unienville M Keeling J A Mackenzie A Ridgwell G Lumsden P G Ridgwell (to May 19) C O Thomas (to Jul 19) H C L Cawley (to Feb 20) S Downing (to Oct 19) P Richardson (to Apr 20) 160 25 178 25 27 42 – – – – – – – 10 – – – – – – – – – – 15 – – – – – – – – 457 10 15 – – – – – – – – – – – 160 25 203 25 27 42 – – – – – 482 88 25 132 25 23 18 6 10 387 21 51 786 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. 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 31. The current Company Directors disclosed are considered as key management personnel. www.realgoodfoodplc.com Stock Code: RGD 49 30678 Real Good Food AR2021.indd 49 30678 Real Good Food AR2021.indd 49 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:34 20/09/2021 21:02:34 Notes to the Financial Statements (continued) Year ended 31 March 2021 11. Directors’ remuneration continued The current base annual salaries and fees paid to the Directors are as follows: M Holt J M d’Unienville J A MacKenzie A Ridgwell G Lumsden M Keeling Base Salary £’000s 135 25 25 25 38 142 390 There were no options for directors at 31 March 2021 or 31 March 2020. No new options were granted to Directors during the year (2020: 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 2021 was 2.75p and the range during the year was 2.50p to 8.00p. No Director exercised share options during the year. During the period, retirement benefits were accruing to one director (2020: one). 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: Continuing operations Production Selling and distribution Directors and administrative Discontinued operations Production Directors and administrative Total no. of staff 31 March 2021 Group 31 March 2021 Company 31 March 2020 (restated*) Group 31 March 2020 Company 258 40 30 328 170 46 216 544 – – 5 5 – – – 5 259 51 33 343 228 53 281 624 – – 7 7 – – – 7 50 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 50 30678 Real Good Food AR2021.indd 50 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:34 20/09/2021 21:02:34 OUR FINANCIALS 31 March 2021 Group £’000s 31 March 2021 Company £’000s 31 March 2020 Group (restated*) £’000s 31 March 2020 Company £’000s 10,575 1,066 635 12,276 4,473 379 115 4,967 17,243 338 44 20 402 – – – – 402 11,259 1,271 7,009 13,239 5,466 399 104 5,969 19,208 923 197 28 1,148 – – – – 1,148 12. Staff numbers and costs continued The aggregate payroll costs were as follows: Continuing operations Wages, salaries, and fees Social security costs Other pension costs Discontinued operations Wages, salaries, and fees Social security costs Other pension costs Total payroll costs * Payroll numbers and costs for the year ended 31 March 2020 have been restated to reflect the change in continuing and discontinued operations. Key management personnel compensation Key management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Group, other than those already listed in the Directors remuneration in note 11. Wages, salaries, and fees Social security costs Other pension costs Total payroll costs 31 March 2021 Group £’000s 31 March 2021 Company £’000s 31 March 2020 Group £’000s 31 March 2020 Company £’000s 484 67 33 584 – – – – 462 63 32 557 – – – – www.realgoodfoodplc.com Stock Code: RGD 51 30678 Real Good Food AR2021.indd 51 30678 Real Good Food AR2021.indd 51 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:35 20/09/2021 21:02:35 Notes to the Financial Statements (continued) Year ended 31 March 2021 13. Notes supporting the cash flow statement The cash collateral figure for the Group is £0.2million (FY20: £0.2m). This has been provided to Lloyds Bank plc as security for insurance claims of the Group. This amount is not included in the cash flow. Group Real Good Food plc (Group) At 31 March 2019 Cash Flows Non-cash flows – Interest accruing on loans – Redemption premiums added to accrued interest cost on shareholder loans – Transaction costs of issuance of convertible loan notes included in liability Loans and borrowings classified as non-current at March 2019 becoming current before March 2020 At 31 March 2020 Cash Flows Non-cash flows – Interest accruing on loans – Finance loss on change of terms for convertible loan notes Loans and borrowings classified as non-current at March 2020 becoming current before March 2021 At 31 March 2021 Company Real Good Food plc (Company) At 31 March 2019 Cash Flows Non-cash flows – Interest accruing on loans – Redemption premiums added to accrued interest cost on shareholder loans – Transaction costs of issuance of convertible loan notes included in liability At 31 March 2020 Cash Flows Non-cash flows – Interest accruing on loans – Finance cost of change of terms for convertible loan notes At 31 March 2021 Non-current Loans and Borrowings £’000s (Note 23) 37,961 (2,661) Current Loans and Borrowings £’000s (Note 23) 668 1,184 5,425 3,084 115 (865) 43,059 (37) 4,376 91 (865) 46,624 Non-current Loans and Borrowings £’000s (Note 23) 36,715 (4,248) 5,011 3,084 115 40,677 – 4,671 91 45,439 – – – 865 2,717 (923) – _ 865 2,659 Current Loans and Borrowings £’000s (Note 23) – – – – – – – – _ – Total £’000s 38,629 (1,477) 5,425 3,084 115 – 45,776 (960) 4,376 91 – 49,283 Total £’000s 36,715 (4,248) 5,011 3,084 115 40,677 – 4,671 91 45,439 52 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 52 30678 Real Good Food AR2021.indd 52 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:35 20/09/2021 21:02:35 OUR FINANCIALS 13. Notes supporting the cash flow statement continued Net Debt Net debt is a key performance indicator for the Group. It is defined as short term and long-term borrowings less cash. See table below: Short term borrowings Short term lease liabilities Long term borrowings Long term lease liabilities Cash Total Net Debt Group At 1 April 2019 Cash flow1 Other non-cash movements2 At 31 March 2020 Cash flow Other non-cash movements At 31 March 2021 Company At 1 April 2019 Cash flow1 Other non-cash movements2 At 31 March 2020 Cash flow Other non-cash movements At 31 March 2021 Note 23 23 23 23 31 March 2021 Group £’000s (2,659) (93) 31 March 2021 Company £’000s – – 31 March 2020 Group £’000s (2,717) (390) 31 March 2020 Company £’000s – – (46,624) (45,439) (43,059) (40,677) – 622 – 17 (567) 1,363 – 8 (48,754) (45,422) (45,370) (40,669) Net cash and current borrowings £’000s Non-current borrowings £’000s (2,241) 37,961 1,882 2,103 1,744 386 – 2,130 Net cash and current borrowings £’000s (1,140) 1,132 – (8) – (9) (17) (1,723) 7,388 43,626 (1,748) 4,746 46,624 Non-current borrowings £’000s 36,715 (4,519) 8,481 40,677 – 4,762 45,439 Net debt £’000s 35,720 159 9,491 45,370 (1,362) 4,746 48,754 Net debt £’000s 35,575 (3,387) 8,481 40,669 – 4,753 45,422 1 Includes investor loans of £3.7m and accrued interest of £0.5m repaid in 2020 from new borrowings of £3.6m. 2 Includes additional accrued interest of £5.0m on investor loans and convertible loan notes and redemption premiums of £3.1m on shareholder loan. www.realgoodfoodplc.com Stock Code: RGD 53 30678 Real Good Food AR2021.indd 53 30678 Real Good Food AR2021.indd 53 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:35 20/09/2021 21:02:35 Notes to the Financial Statements (continued) Year ended 31 March 2021 14. Taxation Group Current tax UK current tax on loss of the period UK current tax on significant items Adjustments to tax 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 31 March 2021 £’000s 31 March 2020 £’000s – – – – 27 _ 27 27 – 27 – – – – 1,692 – 1,692 1,692 – 1,692 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% (2020: 19%).The differences are explained below: Tax reconciliation Loss per accounts before taxation - continuing operations Loss per accounts before taxation - discontinued operations Total loss before taxation Tax on loss on ordinary activities at standard corporation tax rate of 19% Expenses not deductible for tax purposes Movement on unrecognised 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 charge for the period Details of the deferred tax asset is shown in note 20. 31 March 2021 £’000s 31 March 2020 £’000s (6,108) (23,060) 2,617 2,913 (3,491) (20,147) 663 (499) (137) – – 27 27 – 27 3,828 (2,209) – 73 – 1,692 1,692 – 1,692 Factors that may affect future tax charges An increase in the main corporation tax rate to 25% from 1 April 2023, from the previously enacted 19% was announced at the budget on 3 March 2021, and subsequently enacted on 24 May 2021. The deferred tax balance at 31 March 2021 has been calculated based on the rate as at the reporting date of 19% (2020: 19%) 54 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 54 30678 Real Good Food AR2021.indd 54 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:36 20/09/2021 21:02:36 OUR FINANCIALS 15. Earnings per share Basic earnings per share Basic earnings per share is calculated on the basis of dividing the loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the year. (Loss)/profit after tax attributable to ordinary shareholders (£’000s) Weighted average number of shares in issue for basic EPS (’000s) Employee share options (’000s) Convertible loan notes (’000s) Weighted average number of shares in issue for diluted EPS (’000s) 12 months ended 31 March 2021 Continuing Operations (6,473) 99,564 340 220,980 320,884 12 months ended 31 March 2021 Discontinued Operations 2,617 99,564 340 220,980 320,884 12 months ended 31 March 2020 Continuing Operations (restated*) (22,034) 99,505 1,830 200,571 301,906 12 months ended 31 March 2020 Discontinued Operations (restated*) 2,913 99,505 1,830 200,571 301,906 Basic and diluted (loss)/earnings per share (6.50)p 2.63p (22.14)p 2.92p *The loss after tax attributable to ordinary shareholders for the year ended 31 March 2020 has been restated to reflect the change in continuing and discontinued operations. The total loss per share for 2021 is (3.87)p for continuing and discontinued operations (2020 continuing and discontinued loss per share: (19.22)p). Diluted earnings per share The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of all outstanding share options. The potential ordinary shares are considered anti-dilutive as they decrease the loss per share for continuing operations. Therefore, diluted EPS is the same as basic for continuing operations. However, the discontinued operations can be diluted. The impact of this is a diluted earnings per share of 0.82p for discontinued operations (2020: 0.96p). If all of the share options had been exercised before the period end, the earnings per share would then have been a loss per share of (6.50)p on the continuing operations and earnings of 2.63p on the discontinued operations (2020: loss of (22.14)p on the continuing operations and earnings of 2.92p on the discontinued operations). The weighted average number of shares in issue for the year was 99,564,430 and the number of options outstanding was 33,333. If these were all exercised the cash raised would be equivalent to that which would be raised by issuing 339,750 shares at the average share price during the year. There were also 8,806,571 convertible loan notes outstanding, of which the weighted average number of shares was 220,979,796. Therefore, the weighted average number of dilutive potential ordinary shares is 320,883,976. 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: Cost At 1 April 2020 Less assets held for sale At 31 March 2021 Cake Decoration Brighter Foods (discontinued operations - assets held for sale) Carried forward Group £’000s 37,753 (5,031) 32,722 31 March 2020 £’000s 32,722 5,031 37,753 31 March 2021 £’000s 32,722 – 32,722 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 cash flows 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. www.realgoodfoodplc.com Stock Code: RGD 55 30678 Real Good Food AR2021.indd 55 30678 Real Good Food AR2021.indd 55 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:36 20/09/2021 21:02:36 Notes to the Financial Statements (continued) Year ended 31 March 2021 16. Goodwill continued Long-term growth rate assumptions: For the purposes of impairment testing, the cash flows are extrapolated over 5 years with a terminal value applied to the fifth year. The terminal value is calculated using the fifth year forecasted EBITDA (adjusted) performance and applying a 2% growth rate. Discount rate assumptions: The discount rate applied to the cash flows is 10% (2020: 10%). This rate is in line with the Company’s actual weighted average cost of capital of 9.67% which takes account of the increased risk of being listed on AIM rather than the main market. It is representative of businesses operating within the food sector. Impairment charge: The impairment review did not result in an impairment of the goodwill held for Cake Decoration (2020: impairment of £12.6 million for Cake Decoration). Cake Decoration is a core division for the Group and is currently in turnaround. The investments made in manufacturing capability in recent years have not yet started to deliver the returns that could be expected, for example, and the Board believes that the current valuation, reflected here, necessarily, and materially underplays the potential value of this division. Plans to improve the strategic positioning, service delivery and commercial performance of this business are also in progress. 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 10% to 10.5% would cause an impairment of £0.1 million on the carrying value of goodwill on Cake Decoration. { A reduction of 0.5% to the growth rate from 2.0% to 1.5% would cause a reduction in headroom of £1.8 million on the carrying value of goodwill on Cake Decoration. The Board has considered these sensitivities and believe that, owing to trading expectations and a strong brand, the recoverable amount would support the value. Cake Decoration 17. Other intangible assets Cost At 1 April 2020 At 31 March 2021 Amortisation At 1 April 2020 Charge At 31 March 2021 Net Book Value at 31 March 2021 Cost At 1 April 2019 At 31 March 2020 Amortisation At 1 April 2019 Charge At 31 March 2020 Net Book Value at 31 March 2020 Book value of cash generating unit £’000s Estimated recoverable amount/value in use £’000s 44,260 46,782 Customer Relationships £’000s Computer Software £’000s Development Costs £’000s Group £’000s Company £’000s 4,170 4,170 4,170 – 4,170 – 4,170 4,170 2,794 1,376 4,170 – 332 332 285 41 326 6 332 332 153 132 285 47 111 111 97 11 108 3 111 111 67 30 97 14 4,613 4,613 4,552 52 4,604 9 4,613 4,613 3,014 1,538 4,552 61 296 296 278 18 296 – 296 296 146 132 278 18 56 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 56 30678 Real Good Food AR2021.indd 56 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:37 20/09/2021 21:02:37 OUR FINANCIALS 17. Other intangible assets continued 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 2021 consist of £nil computer software (2020: £18k). There is no indication of any impairment of these intangible assets. 18. Property, plant and equipment Group Cost At 1 April 2020 Reclassified to non-current assets discontinued operations Reclassified to non-current assets discontinued operations IFRS16 Additions Disposals At 31 March 2021 Depreciation At 1 April 2020 Reclassified to non-current assets discontinued operations Reclassified to non-current assets discontinued operations IFRS16 Charge Disposals At 31 March 2021 Net Book Value at 31 March 2021 Cost At 1 April 2019 Transfer from assets under construction Reclassified to non-current assets held for sale IFRS 16 Adjustments Additions At 31 March 2020 Depreciation At 1 April 2019 Reclassified to non-current assets held for sale Charge Impairment At 31 March 2020 Net Book Value at 31 March 2020 Land and Buildings £’000s Plant and Equipment £’000s Assets in the course of construction £’000s 4,872 (944) (771) 44 – 23,302 (6,532) – 585 (207) 3,201 17,148 1,177 (130) (208) 469 – 1,308 1,893 10,798 (2,075) – 1,966 (196) 10,493 6,655 3,355 22,920 – – 1,256 261 4,872 734 – 443 – 1,177 3,695 494 (1,878) 208 1,558 23,302 9,457 (878) 1,932 287 10,798 12,504 – – – – – – – – – – – – – 494 (494) – – – – – – – – – – Total £’000s 28,174 (7,476) (771) 629 (207) 20,349 11,975 (2,205) (208) 2,435 (196) 11,801 8,548 26,769 – (1,878) 1,464 1,819 28,174 10,191 (878) 2,375 287 11,975 16,199 www.realgoodfoodplc.com Stock Code: RGD 57 30678 Real Good Food AR2021.indd 57 30678 Real Good Food AR2021.indd 57 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:37 20/09/2021 21:02:37 Notes to the Financial Statements (continued) Year ended 31 March 2021 18. Property, plant and equipment continued Right of use assets From 1 April 2019, the Group has adopted IFRS 16 Leases. Right of use assets recognised upon adoption of the standard are reflected in the underlying asset classes of property, plant and equipment. The initial adjustments to cost are reflected in the table above as IFRS 16 adjustments. Set out below are the carrying amounts of right of use assets recognised and the movements during the year: Cost At 1 April 2020 Additions Leases terminated Reclassified to non-current assets discontinued operations At 31 March 2021 Depreciation At 1 April 2020 Charge Leases terminated Reclassified to non-current assets discontinued operations At 31 March 2021 Net Book Value at 31 March 2021 Land and Buildings £’000s Plant and Equipment £’000s 1,256 34 – (771) 519 (313) (354) – 208 (459) 60 208 29 (4) – 233 (175) (61) 4 – (232) 1 Total £’000s 1,464 63 (4) (771) 752 (488) (415) 4 208 (691) 61 Capital commitments in relation to property, plant and equipment are disclosed in note 30. Details of assets which are secured against borrowings are detailed in note 23. Company Cost At 1 April 2020 At 31 March 2021 Depreciation At 1 April 2020 Charge At 31 March 2021 Net Book Value at 31 March 2021 Cost At 1 April 2019 Additions At 31 March 2020 Depreciation At 1 April 2019 Reclassified to non-current assets held for sale Charge Impairment At 31 March 2020 Net Book Value at 31 March 2020 The company does not have any right of use assets. Land and Buildings £’000s Plant and Equipment £’000s Total £’000s – – – – – – 498 (498) – 31 (41) 10 – – – 299 299 156 25 181 118 299 299 156 25 181 118 1,679 (1,380) 299 2,177 (1,878) 299 529 (837) 177 287 156 143 560 (878) 187 287 156 143 58 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 58 30678 Real Good Food AR2021.indd 58 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:37 20/09/2021 21:02:37 OUR FINANCIALS 19. Investments Company Investments in shares of subsidiary undertakings: At 31 March 2020 At 31 March 2021 N Brown Foods Limited £’000s 53,900 53,900 Real Good Food Ingredients Limited £’000s – – Renshaw Europe NV £’000s Total Investments £’000s 770 54,670 770 54,670 A review of the investments held by the Company was undertaken in the year. This did not result in an impairment charge (2020: nil charge). 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 Limited, held a 15% investment in Boka Foods Limited until its disposal in March 2021 FY21 (2020: £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 2021 is disclosed below: RGF Devizes Ltd* Eurofoods Ltd* N Brown Foods Ltd* Renshaw US Incorporated* JF Renshaw Ltd RGFC Dust Ltd* Rainbow Dust Colours Ltd Principal Activities Dormant Dormant Description and Number of Shares Held 4,052,659 Ordinary £1 260,000 Ordinary £1 50,000 Preference £1 Holding Company 28,248,096 Ordinary 50p Cake Decoration Supplier 200 Ordinary $1 Cake Decoration Supplier 15,685,164 Ordinary £1 Holding Company Cake Decoration Supplier 1 Ordinary £1 500 Ordinary £1 Real Good Food Ingredients Ltd* Food Ingredients Supplier 2,500,000 Ordinary £1 Proportion of Nominal Value of Shares Held 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Whitworths Sugars Ltd Renshaw Europe NV* Brighter Foods Ltd * Held directly by Real Good Food plc. Dormant 2 Ordinary £1 Cake Decoration Supplier 461,500 Ordinary €1 Food Ingredients Supplier 506,000 Ordinary £1 84.33% All entities have their registered office at 61 Stephenson Way, Wavertree, Liverpool L13 1HN, except for the following: Renshaw Europe NV registered office at 1348 Ottignies-Louvain-la-Neuve, Chemin du Cyclotron 6, Bruxelles Renshaw US Incorporated registered office at 400 Commons Way, Rockaway, New Jersey, USA Brighter Foods Ltd registered office at 5th Floor Voyager House Chicago Avenue, Manchester Airport, Manchester, England, M90 3DQ www.realgoodfoodplc.com Stock Code: RGD 59 30678 Real Good Food AR2021.indd 59 30678 Real Good Food AR2021.indd 59 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:38 20/09/2021 21:02:38 Notes to the Financial Statements (continued) Year ended 31 March 2021 20. Deferred taxation liability/(asset) The gross movements on the deferred tax account are as follows: Opening position (Credit) to income statement Charge / (Credit) to other comprehensive income – defined benefit pension scheme movement Charge to equity - deferred tax on share-based payments Closing position Shown as follows: Liabilities Assets Group 31 March 2021 Group £’000s 31 March 2021 Company £’000s (1,285) (1,508) (27) (20) 102 – 102 – 31 March 2020 Group £’000s 622 (1,692) (215) – 31 March 2020 Company £’000s (1,259) (35) (215) 1 (1,210) (1,426) (1,285) (1,508) 216 (1,426) (1,210) – (1,426) (1,426) 223 (1,508) (1,285) – (1,508) (1,508) Deferred tax assets The deferred tax balances arise from temporary differences in respect of the following: At 31 March 2020 (Credit) to income statement Charge to other comprehensve income At 31 March 2021 Within 12 months Greater than 12 months Deferred tax liabilities At 31 March 2020 (Credit) to income statement At 31 March 2021 Pension Scheme £’000s (1,508) (20) 102 Total £’000s (1,508) (20) 102 (1,426) (1,426) – – (1,426) (1,426) Tangible Assets £’000s 223 (7) 216 Total £’000s 223 (7) 216 There were £20.0 million of unused tax losses (2020: £16.9 million) on which deferred tax of £3.8 million (2020: £3.2 million) is not recognised owing to uncertainty over when those losses will be utilised. The losses have no expiration date. 60 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 60 30678 Real Good Food AR2021.indd 60 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:38 20/09/2021 21:02:38 20. Deferred taxation liability/(asset) continued Company The deferred tax balances arise from temporary differences in respect of the following: At 31 March 2020 (Credit) to income statement Charge to other comprehensive income At 31 March 2021 Within 12 months Greater than 12 months 21. Inventories Materials Work in Progress Finished Goods Continuing Business Discontinued Business OUR FINANCIALS Pension Scheme £’000s (1,508) (20) 102 Total £’000s (1,508) (20) 102 (1,426) (1,426) – – (1,426) (1,426) 31 March 2021 Group £’000s 31 March 2021 Company £’000s 31 March 2020 Group £’000s 31 March 2020 Company £’000s 1,225 112 2,260 3,597 3,597 – 3,597 – – – – – – – 4,227 149 2,447 6,823 4,249 2,574 6,823 – – – – – – – Inventories totalling £5,893k (2020: £6,823k) are valued at the lower of cost and net realisable value. The Directors consider that this value represents the best estimate of the fair value of those inventories net of costs to sell. The company does not hold inventory. 22. 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 Deferred consideration for disposals Prepayments Total Amount due within 12 months Amount due after 12 months Total 31 March 2021 Group £’000s 31 March 2021 Company £’000s 31 March 2020 Group £’000s 31 March 2020 Company £’000s 5,941 (230) 5,711 762 – 50 725 7,248 7,248 – 7,248 – – – 120 7,620 50 65 7,855 691 7,164 7,855 9,828 (192) 9,636 220 – 50 326 10,232 10,232 – 10,232 15 – 15 215 70,811 50 34 71,125 5,265 65,860 71,125 At 31 March 2021, the Group had an outstanding balance on the revolving credit facility of £1,794k (2020: £1,853k) for which the trade receivables were pledged as security. The facility is available in relation to Brighter Foods, J F Renshaw and Rainbow Dust Colours GBP, USD, and EUR receivables. www.realgoodfoodplc.com Stock Code: RGD 61 30678 Real Good Food AR2021.indd 61 30678 Real Good Food AR2021.indd 61 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:38 20/09/2021 21:02:38 Notes to the Financial Statements (continued) Year ended 31 March 2021 22. Trade and other receivables continued Provision for impairment of receivables At 31 March 2020 Charge for period At 31 March 2021 31 March 2021 Group £’000s (192) (38) (230) 31 March 2021 Company £’000s – – – 31 March 2020 Group £’000s (108) (84) (192) 31 March 2020 Company £’000s – – – The Group applies the IFRS 9 simplified approach to calculating its expected credit loss, using a lifetime expected loss provision for trade receivables. To measure expected credit loss, trade receivables are grouped based upon their ageing. The expected losses are based on the Group’s historical credit losses and are then adjusted by 50% to account for the current economic climate. At 31 March 2021, the lifetime expected credit loss for trade receivables in the Group is as follows: Expected loss rate Gross carrying amount Loss provision Less than 30 days old £’000s 1% 3,273 32 30-60 days old £’000s 2% 1,376 28 60-90 days old £’000s 3% 365 11 90-365 days old £’000s 6% 817 49 Over 365 days old £’000s 100% 110 110 Total £’000s 5,941 230 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 creation and release of the provision for impaired receivables has been included in the income statement within administration costs. The Group recognised a charge of £38k (2020: charge of £84k) for impairment of its trade receivables during the period, to reflect debts significantly past their due dates. 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. This risk is mitigated by the Group’s credit insurance policies. Trade receivables of £1.1 million were past due but not impaired. The ageing analysis of these receivables is as follows: Up to 30 days past due One to three months past due Over three months past due 31 March 2021 Group £’000s 582 204 323 31 March 2020 Group £’000s 2,043 413 106 1,109 2,562 62 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 62 30678 Real Good Food AR2021.indd 62 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:39 20/09/2021 21:02:39 OUR FINANCIALS 23. Borrowings and capital management Secured borrowings at amortised cost Bank term loans Revolving credit facilities Leases Other loans Investor loans* Convertible loan notes** Government grants Borrowings due for settlement within 12 months Lease liabilities due for settlement within 12 months 31 March 2021 Group £’000s 31 March 2021 Company £’000s 31 March 2020 Group £’000s 31 March 2020 Company £’000s 2,050 1,794 93 – 30,240 15,199 – – – – – 30,240 15,199 – 2,916 1,853 957 102 28,336 12,341 228 – – – – 28,336 12,341 – 49,376 45,439 46,733 40,677 2,659 93 – – 2,717 390 – – Borrowings due for settlement after 12 months 46,624 45,439 43,059 40,677 Lease liabilities due for settlement after 12 months -- – 567 – Total 49,376 45,439 46,733 40,677 * The investor loans shown consists of £20.6 million principal amount, £6.5 million accrued interest up to 31 March 2021 and redemption premiums of £3.1 million. ** Convertible loan notes shown at 31 March 2021 consist of £8.8 million investment (2020: £8.8 million), £6.3 million accrued interest (2020: £3.6 million), and £nil million of transaction costs (2020: £(0.1) million) being spread over the remaining life of the liability and a finance cost £0.1m resulting from a substantial modification to the Convertible Loan Note terms requiring derecognition of the existing loans and recognition of new loans. 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 December 2020 to require repayment in May 2022, then subsequently extended post year end to May 2023. Convertible loan notes In May 2018, the Company secured further funding from each of its major shareholders totalling £8.8 million. NB Holdings Ltd and Omnicane Investors Ltd each providing £3.4 million, and funds managed by Downing LLP provided £1.9 million. This instrument has since, with shareholder approval, been replaced with convertible loan notes (“CLN’s”) of £8.8 million with a conversion price of 5 pence. The loan is repayable in 3 years from the date of issue or can be converted at any time into shares at the holder’s option. In December 2020, the shareholders agreed to amend the repayment date of the loans to 19 May 2022, then subsequently extended post year end to May 2023. Also, the Amendment Deed amends the CLNs minimum annual return from 30% per annum to 12% per annum, effective from 31 December 2020. The instrument accrues interest at a rate of 12 percent per annum accruing daily and will mature and be due for repayment in full on 19 May 2023, unless they are redeemed before that date. On that date, unless the convertible loan notes are converted into ordinary shares on the conversion date, a redemption premium fee will be payable. The redemption fee will be an amount which, when added to the interest accrued on the relevant notes, provides a total return equal to the amount which would have accrued in respect of such notes from the date of the convertible loan note instrument until and including the date the notes are redeemed in full had the interest rate been 12 per cent per annum. A host loan at amortised cost and an embedded derivative liability, being measured at fair value with changes in value being recorded in profit or loss, have been recognised. At 31 March 2021, the derivative liability was valued at £17k (2020: £nil). The convertible loan notes shown consist of a host loan at amortised cost of £8.8 million, £6.3 million of finance costs and £0.1 million of costs resulting from substantial modification to the convertible loan notes up to 31 March 2021. Features of the Group’s borrowings are as follows: The Group’s financial instruments comprised cash, leases, a revolving credit facility, 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. www.realgoodfoodplc.com Stock Code: RGD 63 30678 Real Good Food AR2021.indd 63 30678 Real Good Food AR2021.indd 63 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:39 20/09/2021 21:02:39 Notes to the Financial Statements (continued) Year ended 31 March 2021 23. Borrowings and capital management continued The Group also has some currency exposure in relation to its Euro and US Dollar commodity purchases. However, this is mitigated by matching in part against foreign currency sales. The Board reviews and agrees policies, which have remained substantially unchanged for the year under review, for managing these risks. The Group’s policies on the management of interest rate, liquidity and currency exposure risks are set out in the Report of the Directors. During the year ended 31 March 2021, the Group continued with the borrowing facilities in place and secured loans from investors. As at 31 March 2021, the borrowings comprised: { revolving credit facility of £5.45 million with Leumi ABL Limited on a revolving basis with a term of 60 months. This facility is secured against the debtors of JF Renshaw Limited, Rainbow Dust Colours Limited and Brighter Foods Limited with an interest rate of 2.25% above 3-month LIBOR. Because the group retains the risks and rewards of ownership of the underlying debts, these continue to be recognised in these financial statements. { The Group secured facilities against specific plant and machinery with Leumi ABL Limited £2.1 million for 36 months ending August 2022. The facilities interest payable is 2.75% above LIBOR. { The Group secured a £1.3m term loan facility with the term being 60 months. The three major shareholders, NB Holdings Ltd, Omnicane Investors Ltd, and certain funds managed by Downing LLP, supported the business, and provided significant funding to the Group by way of loans. The loans at 31 March 2021 were as follows: Date May 2018 Amount £8.8m Method of Funding Major Shareholder(s) Secured convertible loan notes March 2018 £4.0m Secured loan notes January 2018 £3.0m Secured loan notes September 2017 £4.0m Secured loan notes August 2017 June 2017 June 2017 Total £0.8m £2.7m £6.1m* £29.4m Secured loan notes Secured loan notes Secured loan notes NB Holdings Ltd (£3.4m), Omnicane Investors Ltd (£3.4m), Funds managed by Downing LLP (2.0m) NB Holdings Ltd (£1.7m), Omnicane Investors Ltd (£1.7m), Funds managed by Downing LLP (£0.6m) NB Holdings Ltd (£1.3m), Omnicane Investors Ltd (£1.3m), Funds managed by Downing LLP (£0.4m) NB Holdings Ltd (£1.33m), Omnicane Investors Ltd £1.33m), Funds managed by Downing LLP (£1.33m) NB Holdings Ltd (£0.4m), Omnicane Investors Ltd (£0.4m) NB Holdings Ltd (£1.35m), Omnicane Investors Ltd (£1.35m) Funds managed by Downing LLP * Interest is payable on a quarterly basis to the MI Downing Monthly Income Fund up to a principal amount of £0.9 million. At 31 March 2021, Leumi ABL Limited had a debenture incorporating a floating charge over the undertaking and all property and assets present and future including goodwill, book debts, uncalled capital, buildings, fixtures, intangible assets, fixed plant, and machinery. In addition, the banking arrangements with Lloyds Bank plc had a guarantee over the Wavertree property. 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. 64 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 64 30678 Real Good Food AR2021.indd 64 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:39 20/09/2021 21:02:39 OUR FINANCIALS 23. Borrowings and capital management continued 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 2021 Trade and other payables 7,138 Investor loans Convertible loan notes Bank term loans Revolving credit facilities Leases NCI put option liability Interest Redemption premiums Total 2020 Investor loans Convertible loan notes Bank term loans Revolving credit facilities Leases Government grants NCI put option liability Interest Redemption premiums Total – – 72 – 8 1,553 8,771 – – 893 – – 144 – 15 – 56 – – 649 1,794 70 – 1,052 2,569 – – – – 8,771 1,052 2,569 – 20,562 8,807 1,185 – – – 30,554 13,029 3,084 46,667 – – – – – – – – – – – 8,087 20,562 8,807 2,050 1,794 93 1,553 42,946 13,029 3,084 59,059 Less than 1 month £’000s 1–3 months £’000s 3 months to 1 year £’000s 1–5 years £’000s 5+ years £’000s Total £’000s – – 72 – 45 5 – – – 144 – 59 12 – 6,860 1,925 – – – – – – 649 1,853 261 32 2,900 6,115 – – 20,562 8,807 2,051 – 335 179 1,520 33,683 8,771 3,084 – – – – – 257 – – 257 – – 9,097 20,562 8,807 2,916 1,853 957 228 4,420 48,840 8,771 3.084 Trade and other payables 6,738 1,710 420 229 6,860 1,925 6,115 45,538 257 60,695 The profile of the trade payables has been taken as being consistent with the Group’s payment terms to suppliers. Analysis of market risk sensitivity Currency risks: The Group is exposed to currency risks on purchases of commodities from USA and Europe. The risk associated with these purchases is mitigated by sales also made to customers in these countries, however, to the extent that these do not cover each other there is a risk of exposure to the Group. The effect of the exposure is calculated as being: { With an excess of $ assets to $ liabilities, a 10% strengthening of the US dollar would result in an increase in pre-tax profits of £112k. A 10% weakening of the US dollar would result in a decrease of pre-tax profits of £92k. { With an excess of € liabilities to € assets a 10% strengthening of the Euro would result in a decrease in pre-tax profits of £37k. A 10% weakening of the Euro would result in an increase of pre-tax profits of £30k. Interest rate risks: The Group has an exposure to interest rate risk arising from borrowings based upon the Bank of England base rate. However, at the balance sheet date, the Group did not have any outstanding balance on these borrowing facilities, and so the impact of an increase in the applicable interest rates would, all other factors remaining unchanged, not have impacted profits. www.realgoodfoodplc.com Stock Code: RGD 65 30678 Real Good Food AR2021.indd 65 30678 Real Good Food AR2021.indd 65 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:40 20/09/2021 21:02:40 Notes to the Financial Statements (continued) Year ended 31 March 2021 24. Lease liabilities Lease liabilities are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows: Current lease liabilities Non-current lease liabilities Continuing Operations 31 March 2021 £’000s Discontinued Operations* 31 March 2021 £’000s 31 March 2021 £’000s 31 March 2020 £’000s 93 _ 93 91 456 547 184 456 640 390 567 957 The maturity of lease liabilities as at 31 March 2021 is further analysed as set out below: Due in less than one year Due between one to five years Due in over five years Continuing Operations 31 March 2021 £’000s Discontinued Operations * 31 March 2021 £’000s 31 March 2021 £’000s 31 March 2020 £’000s 93 _ _ 93 91 257 199 547 184 257 199 640 390 336 231 957 * The lease liabilities relating to discontinued operations are shown as part of assets held for sale for Brighter Foods Limited in note 33. Lease liabilities have been discounted using an average annual rate of 4.41% (2020: 4.41%), which corresponds to the rate at which the Group has borrowed against assets. If a rate of 10% were applied, then the charge to profit would be increased by £49k (2020: £15k). The movements in the lease liability in the year are set out below: Lease liability at 1 April 2020 Lease additions Leases terminated Repayments of lease liabilities Interest expense Less assets classified as discontinued operations Lease liability at 31 March 2021 31 March 2021 Group £’000s 957 63 (4) (402) 26 (547) 93 31 March 2020 Group £’000s 1,464 _ _ (519) 12 _ 957 The total cash outflow in respect of leases is equal to the repayments of lease liabilities. The Group applies exemptions available under IFRS 16 in relation to leases for assets of a low-value, and short-term leases. These leases are not reflected in the measurement of lease liabilities. The future cash outflows to which the Group is exposed in respect of these leases and the expenses charged to the income statement are not considered material. 66 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 66 30678 Real Good Food AR2021.indd 66 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:40 20/09/2021 21:02:40 OUR FINANCIALS 25. Trade and other payables Amount due within one year Trade payables Other tax & social security Accruals Amounts owed to Group undertakings Other payables Total 31 March 2021 Group £’000s 3,837 377 3,400 – 473 31 March 2021 Company £’000s 186 15 479 20,154 11 31 March 2020 Group £’000s 4,419 1,326 2,640 – 712 31 March 2020 Company £’000s 28 22 698 81,546 – 8,087 20,845 9,097 82,294 Trade payables and accruals principally comprise amounts outstanding for trade purchases and continuing costs. The Directors consider that the carrying amount of trade payables approximates to their fair value. 26. 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. Loans and receivables at amortised cost Cash and cash equivalents Cash collateral Trade receivables Other debtors Deferred consideration Amounts owed by Group undertakings Financial liabilities at amortised cost Trade payables Accruals Other payables Bank term loans Revolving Credit Facility Lease assets Investor loans Convertible loan notes Amounts owed to Group undertakings Financial liabilities at fair value through profit and loss NCI put option Derivative liability - Convertible loan notes Total financial liabilities 31 March 2021 Group £’000s 31 March 2021 Company £’000s 31 March 2020 Group £’000s 31 March 2020 Company £’000s 622 215 5,711 762 50 – 7,360 3,837 3,400 473 2,050 1,794 93 30,240 15,199 – 57,086 1,553 17 1,570 58,656 17 215 – 120 50 7,620 8,022 186 479 11 – – – 30,240 15,199 20,154 66,269 1,363 215 9,828 220 50 – 11,676 4,419 2,640 1,535 2,916 1,853 957 28,336 12,341 – 8 215 15 215 50 70,811 71,314 28 698 – – – – 28,336 12,341 81,546 54,997 122,949 – 17 17 4,420 – 4,420 – – – 66,286 59,417 122,949 The fair value of the NCI put option and the embedded derivative liability as disclosed in the above table are classified as Level 3 in the fair value hierarchy. The fair value of the NCI put option has been determined using discounted cash flow pricing models. The significant inputs include profit, capital expenditure and the discount rate used to reflect the credit risk. The fair value of the embedded derivative liability has been determined using a Monte-Carlo simulation. The significant inputs include volatility, risk-free rate, and the time period under analysis. www.realgoodfoodplc.com Stock Code: RGD 67 30678 Real Good Food AR2021.indd 67 30678 Real Good Food AR2021.indd 67 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:41 20/09/2021 21:02:41 Notes to the Financial Statements (continued) Year ended 31 March 2021 26. Financial instruments continued 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. Capital is defined as the net assets of the Group, including cash. 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 Ltd, Omnicane Investors Ltd, and certain funds managed by Downing LLP, support the business, and have provided significant funding to the Group by way of loans (note 23). 27. Share capital Allotted, called up and fully paid equity share capital At the beginning of the year (1 April) Issued in the year At the end of the year (31 March) Number of Shares 2021 Number of Shares 2020 31 March 2021 £’000s 31 March 2020 £’000s 99,564,430 99,326,335 – 238,095 99,564,430 99,564,430 1,991 – 1,991 1,987 4 1,991 The ordinary shares have a par value of £0.02. Ordinary shares carry the right to participate in dividends and each share entitles the holder to one vote on matters requiring shareholder approval. Shares issued in 2020 relate to employee options being exercised. There are 33,333 shares reserved for issue under options, with expiry dates beyond 2021, outstanding at the end of the year. 28. 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 Limited put option. 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, rather than Real Good Food plc. 68 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 68 30678 Real Good Food AR2021.indd 68 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:41 20/09/2021 21:02:41 OUR FINANCIALS 29. 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: 31 March 2021 Number of Share Options 31 March 2021 Weighted Average Exercise Price (£) 31 March 2020 Number of Share Options 31 March 2020 Weighted Average Exercise Price (£) Outstanding at the beginning of the period 4,060,835 0.26 5,554,550 Exercised during the year Forfeited during the year Outstanding at the end of the period* Exercisable at the end of the period – – (238,095) (4,027,502) (0.25) (1,255,620) 33,333 33,333 0.45 4,060,835 0.45 4,060,835 0.23 (0.05) (0.39) 0.26 0.26 * All of the outstanding options have an exercise price within the range of £0.45 in 2021 (2020: between £0.00 and £0.46). The weighted average remaining contractual life of share options outstanding at the end of the period is 4.1 years (2020: 1.3 years). No new options have been issued during this current period. At the time of the issue of options the inputs into the Black–Scholes option pricing model were as follows: Expected volatility Expected life Risk-free rate Dividend yield Weighted average exercise price Weighted average share price 35% 3 years 2.88% Nil £0.33 £0.30 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 £200k (2020: a credit of £35k). This is shown in administration expenses in the Company as the charge relates to employees of the Company. 30. Commitments Capital commitments Commitments for the acquisition of property, plant, and equipment 31 March 2021 £’000s 31 March 2020 £’000s 74 177 www.realgoodfoodplc.com Stock Code: RGD 69 30678 Real Good Food AR2021.indd 69 30678 Real Good Food AR2021.indd 69 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:41 20/09/2021 21:02:41 Notes to the Financial Statements (continued) Year ended 31 March 2021 31. Related party transactions There have been no consultancy fees paid to entities in which Directors hold a beneficial interest. Further to the disposal of Brighter Foods Limited on 11 May 2020 (a post-year end activity), each of NB. Ingredients Limited (“Napier Brown”), Omnicane International Investors Limited (“Omnicane”), and certain funds managed by Downing LLP (“Downing”) (together the “Major Shareholders”) each agreed to contribute £0.18 million towards the costs incurred by the Group in relation to the Disposal. The total contribution of £0.54 million is by way of a waiver of certain of the outstanding loan notes held by each of the Major Shareholders (the “Loan Note Waivers”) reducing the amount of loan notes outstanding to £22.0 million. This waiver has been agreed in respect of certain costs related to the Disposal. The £540,000 attributable to waiver is split between c.£0.35 million of capital, £0.1 million relating to management compensation with the remainder being in respect of interest and redemption premium. As Napier Brown and Omnicane are substantial shareholders of the Company and Judith MacKenzie, a director of the Company, is also a Partner of Downing, each of the Loan Note Waivers are deemed to be related party transactions pursuant to the AIM Rules for Companies. Maribeth Keeling, Mike Holt, and Gail Lumsden, the Independent Directors of the Company for this purpose, having consulted with the Company’s Nominated Adviser, finnCap Ltd, consider the terms of the Loan Note Waivers to be fair and reasonable insofar as the Company’s shareholders are concerned. Charges of Group services to related parties Real Good Food plc charged its subsidiaries management fees for the year as follows: Brighter Foods Ltd J F Renshaw Ltd Rainbow Dust Colours Ltd 12 months ended 31 March 2021 £’000s 240 720 60 12 months ended 31 March 2020 £’000s 240 720 60 1,020 1,020 Amounts due to subsidiaries Drawdowns on the revolving credit facility are paid into the Real Good Food plc bank account, and cash is allocated to the relevant divisions, as required. These amounts are treated as loans between Real Good Food plc and the subsidiaries, both for the money Real Good Food plc has taken from the subsidiary, and any money the subsidiary has received from Real Good Food plc. At 31 March, the balances owed by Real Good Food plc to the subsidiaries are as follows: Brighter Foods Ltd Eurofoods plc J F Renshaw Ltd RGF Devizes Ltd Rainbow Dust Colours Ltd Real Good Food Ingredients Ltd (discontinued) N Brown Foods Ltd 12 months ended 31 March 2021 £’000s 12 months ended 31 March 2020 £’000s 7,872 4,660 69 7,558 1,248 786 1,803 818 69 66,017 1,248 7,737 1,815 – 20,154 81,546 JF Renshaw Ltd and Brighter Foods Ltd are related parties because they are subsidiaries of N Brown Foods Ltd, which is a 100% owned subsidiary of Real Good Food plc. 70 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 70 30678 Real Good Food AR2021.indd 70 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:42 20/09/2021 21:02:42 OUR FINANCIALS 31. Related party transactions continued Amounts due from subsidiaries Real Good Food plc secures some facilities, such as insurance, on a Group basis and recharges an element to the relevant subsidiaries. These, along with the management recharges, are due for payment from the subsidiaries to Real Good Food plc. The below balances reflect these payable trading elements, and the loan payments due from the transfer of funds for use in working capital and capital projects. Brighter Foods Ltd J F Renshaw Ltd N Brown Foods Ltd Rainbow Dust Colours Ltd Renshaw Europe SA Renshaw USA Incorporated RGFC Dust Ltd Real Good Food Ingredients Ltd (discontinued) 12 months ended 31 March 2021 £’000s 144 5,063 – 312 1,082 230 755 34 12 months ended 31 March 2020 £’000s 144 5,097 57,659 175 1,103 254 6,345 34 7,620 70,811 32. Pension arrangements Defined Contribution Scheme. The Group operates a defined contribution scheme for all employees, including provision to comply with auto-enrolment requirements laid down by law. In addition, the Company operates one defined benefits scheme which was closed to new members in 2000 and closed to future accrual with effect from 5 April 2004. The Defined Benefit scheme is a funded arrangement with assets held in a separate trustee-administered fund. Members of the Plan are entitled to retirement benefits based on their final salary at the date of leaving the Plan (or 5 April 2004 if earlier), and length of service. An arrangement was previously agreed with the Trustees under which employer contributions to the scheme are £1 million per year from 1 August 2019. For the purposes of IAS 19 the data provided for the 31 March 2018 actuarial valuation, has been approximately updated to reflect defined benefit obligations on the accounting basis at 31 March 2021. This has resulted in a deficit in the Plan of £7,505k. The present value of contributions payable exceeds the net liability and, in accordance with IFRIC14, the additional liability has been recognised. Present values of defined benefit obligations, fair value of assets and deficit Present value of defined benefit obligation Fair value of Plan assets Deficit in Plan Effect of asset ceiling/IFRIC14 Gross amount recognised Deferred tax* Net liability * Deferred tax rate 2020 & 2021: 19%, 2017, 2018 & 2019: 17% 31 March 2021 £’000s 21,885 (14,527) 7,358 147 7,505 (1,426) 6,079 31 March 2020 £’000s 20,750 (13,735) 7,015 921 7,936 (1,508) 6,428 31 March 2019 £’000s 21,177 (13,774) 7,403 – 7,403 (1,258) 6,145 31 March 2018 £’000s 21,448 (13,529) 7,919 – 7,919 (1,094) 6,825 31 March 2017 £’000s 21,319 (13,946) 7,373 – 7,373 (1,120) 6,253 www.realgoodfoodplc.com Stock Code: RGD 71 30678 Real Good Food AR2021.indd 71 30678 Real Good Food AR2021.indd 71 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:42 20/09/2021 21:02:42 Notes to the Financial Statements (continued) Year ended 31 March 2021 32. Pension arrangements continued Reconciliation of opening and closing balances of the present value of the defined benefit obligations Defined benefit obligation at start of period Interest cost Actuarial losses / (gains) Past service cost Benefits paid Defined benefit obligation at end of period Reconciliation of opening and closing balances of the fair value of Plan assets Fair value of Plan assets at start of period Interest income on Plan assets Return on assets less interest income Contributions paid by the Group Benefits paid, death-in-service insurance premiums and expenses Fair value of Plan assets at end of period UK equities Other investments Total plan assets at end of period 31 March 2021 £’000s 31 March 2020 £’000s 20,750 21,177 465 1,698 – (1,028) 497 (8) 16 (932) 21,885 20,750 31 March 2021 £’000s 31 March 2020 £’000s 13,735 13,774 312 788 720 (1,028) 328 (168) 733 (932) 14,527 13,735 2,408 12,119 2,210 11,525 14,527 13,735 The actual return on the Plan assets over the period ended 31 March 2021 was £1,100k (2020: £(82)k). Total expense recognised in the Statement of Comprehensive Income within other finance income Interest on liabilities Interest on assets Interest on effect of asset ceiling / IFRIC 14 Net interest cost Past service cost Total cost Statement of recognised income and expenses Actuarial gain/(loss) on the Plan assets Actuarial gain/(loss) on the Plan liabilities arising from changes in demographic assumptions Actuarial (loss)/gain on the Plan liabilities arising from changes in financial assumptions Change in the effect of the asset ceiling / IFRIC14 31 March 2021 £’000s 31 March 2020 £’000s 465 (312) 29 182 – 182 31 March 2021 £’000s 788 17 (1,715) 803 497 (328) – 169 16 185 31 March 2020 £’000s (168) (151) 143 (921) Total amount recognised in Statement of Other Comprehensive Income (107) (1,097) 72 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 72 30678 Real Good Food AR2021.indd 72 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:42 20/09/2021 21:02:42 32. Pension arrangements continued Assets UK equity Absolute return fund Corporate Bonds Gilts Multi-Asset Funds Cash Total assets OUR FINANCIALS 31 March 2021 £’000s 2,408 1,412 2,936 2,769 4,827 175 31 March 2020 £’000s 2,210 1,522 2,746 3,112 3,927 218 31 March 2019 £’000s 2,667 1,013 2,699 3,137 4,055 203 14,527 13,735 13,774 The investment strategy for the Plan is controlled by the Trustees, in consultation with the Company. None of the fair values of the assets shown above includes any of the Group’s own financial instruments or any property occupied by, or other assets used by, the Group. Absolute return funds are invested in a diverse range of assets in order to achieve equity-like returns with reduced volatility. Alternative assets include infrastructure and derivatives. Assumptions Inflation Salary increases Rate of discount Allowance for pension in payment increases RPI max 5% RPI min 3% max 5% Allowance for revaluation of deferred pensions Allowance for commutation of pension for cash at retirement 31 March 2021 £’000s 31 March 2020 £’000s 31 March 2019 £’000s 31 March 2018 £’000s 3.40 – 2.00 3.30 3.60 2.70 2.70 – 2.30 2.70 3.20 2.20 3.30 – 2.40 3.10 3.50 2.30 3.10 – 2.65 3.00 3.40 2.10 90% of max allowance 90% of max allowance 90% of max allowance 90% of max allowance The obligations of the Plan have been calculated by projecting forwards the figures from the initial results of the latest valuation as at 31 March 2018 and then making appropriate adjustments for known experience and for differences in assumptions. The mortality assumptions adopted at 31 March 2021 and 31 March 2020 imply the following life expectancies from age 65: Male retiring at age 65 in current year Female retiring at age 65 in current year Male retiring at age 65 in 20 years’ time Female retiring at age 65 in 20 years’ time The weighted–average duration of the defined benefit obligation at 31 March 2021 was 15 years (2020: 15 years). 31 March 2021 21 years 23 years 22 years 25 years 31 March 2020 21 years 23 years 22 years 25 years www.realgoodfoodplc.com Stock Code: RGD 73 30678 Real Good Food AR2021.indd 73 30678 Real Good Food AR2021.indd 73 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:43 20/09/2021 21:02:43 Notes to the Financial Statements (continued) Year ended 31 March 2021 32. Pension arrangements continued Historic funding positions The funding positions applicable at the start of each period are as follows: 12 months ended 31 March 2021 £’000s 14,527 (21,885) (147) (7,505) – – 12 months ended 31 March 2020 £’000s 13,735 (20,750) (921) (7,936) (168) – 12 months ended 31 March 2019 £’000s 13,774 (21,177) – (7,403) 518 427 12 months ended 31 March 2018 £’000s 13,529 (21,448) – (7,919) (232) – 12 months ended 31 March 2017 £’000s 13,946 (21,319) – (7,373) 652 (103) Fair value of assets Defined benefit obligation Effect of asset ceiling / IFRIC14 (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: In order to counter asset volatility and changes in bond yields, investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. Investment Strategy: The Trustees are required to review their investment strategy on a regular basis and consult with the Company on any changes. The Trustees’ investment strategy is set out in the Statement of Investment Principles. Funding positions: The Trustees are required to assess the funding position annually by means of a formal actuarial report which must be shared with the Company. Sensitivity analysis The impact to the value of the defined benefit obligation of a reasonably possible change to one actuarial assumption, holding all other assumptions constant, is presented in the table below: Discount Rate RPI Inflation Assumed Life expectancy Reasonably Possible Change Obligation Increase Obligation Decrease (+/– 0.5%) (+/– 0.5%) (+/–) 1 Year 8% 3% 4% 7% 3% 4% Small changes to other assumptions, such as the allowance for commutation of pension for cash at retirement, and the proportion of members assumed to be married at retirement, do not have such a significant effect on the obligations of the Plan. 74 OUR FINANCIALS Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 74 30678 Real Good Food AR2021.indd 74 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:43 20/09/2021 21:02:43 OUR FINANCIALS 33. Assets held for sale Following the sale of the trade and assets of Real Good Food Ingredients Ltd, the Group was left with an office building near Bristol, which was no longer required. The property has been advertised for sale with local estate agents since July 2018, and we hope to find a suitable buyer. As such, the asset is classified as held for sale within the consolidated statement of financial position at 31 March 2021. Following the restructure of the RGF Group Head Office, the property at Wavertree, Liverpool is no longer required, with remaining staff relocating to the Crown Street property. The property is currently advertised for sale. The asset is within the Head Office operating segment. An impairment has been made in the accounts of £287k on classification of the asset as held for sale, to reduce the carrying value to the amount at which the property is being marketed. The Directors began the process for the sale of Brighter Foods Limited as a going concern and at 31 March 2021, the Group had entered into an exclusivity contract with The Hut Group. The sale was completed in May 2021. The assets classified as held for sale within the consolidated statement of financial position at 31 March 2021 are as follows: Real Good Food Plc N Brown Foods Limited Brighter Foods Limited – – – – 5,031 4,457 31 March 2021 £’000s 5,031 4,457 Real Good Food Plc N Brown Foods Limited – – – – 31 March 2020 £’000s – – 1,000 148 814 1,962 1,000 148 1,148 Goodwill Plant and equipment Property (land and buildings) Right of use assets (IFRS 16) Stock Trade and other receivables Cash _ – – – _ – – – Total assets held for sale 1,000 148 Trade and other payables Hire purchase IFRS16 Lease liabilities Deferred income Liabilities held for sale – – _ – – – – _ – – 563 2,296 3,390 2,458 19,009 3,598 167 547 130 563 2,296 3,390 2,458 20,157 3,598 167 547 130 4,442 4,442 _ – – – _ – – – _ – – – 1,000 148 1,148 – – _ – – – – _ – – – – _ – – The statement of cash flows includes the following amounts in relation to Brighter Foods Limited: Operating activities Investing activities Financing activities Net cash from discontinued operation 12 months ended 31 March 2021 £’000s 1,224 234 (156) 1,302 www.realgoodfoodplc.com Stock Code: RGD 75 30678 Real Good Food AR2021.indd 75 30678 Real Good Food AR2021.indd 75 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:43 20/09/2021 21:02:43 Notes to the Financial Statements (continued) Year ended 31 March 2021 34. Contingent liability The Directors have taken legal advice regarding a communication from the liquidators of Five Star Fish Limited (FSF) regarding a claim for repayment of an alleged £610k debt owed by RGF to FSH. The Directors have the view, following the legal advice, that th claim is not valid and accordingly have not made a provision for it within the accounts. 35. Post-year end activities 1. Disposal of Brighter Foods Limited on 11 May 2021 for an aggregate cash consideration of £43.0 million on a cash free/debt free basis to The Hut Group plc (“THG”). RGF, through its subsidiary NBF, has an interest in 84.334 per cent. of the issued share capital of Brighter Foods Limited with the balance owned by Brighter’s Managers. The Group received cash proceeds of £35.64 million. 2. In May 2021, the Group made a payment of £8.5m net consideration to the Continuing Group’s pension scheme (the Napier Brown Retirement Plan) (the “Plan”), which is broadly equivalent to the Plan’s low dependency technical provisions basis. As such, it is expected that the Group will not have to pay further deficit contributions, which currently amount to £1.0 million per annum, until a new schedule of contributions is agreed based on the valuation to be agreed as at 31 March 2021 for the Plan; such agreement would take into account this cash injection, which may result in payments of up to £1.5 million (in aggregate) being paid between 1 January 2023 and 30 June 2025 to close the gap towards a buy-out basis. 3. In May 2021, the Group paid £23.1 million to the Loan Note Holders, reducing the amount repayable from £45.6 million to £22.5 million in respect of the loan notes, resulting in a significant reduction in the financial liabilities attached to the loan notes. Also, in May 2021 the Loan Note Holders waived £0.5m of certain of the outstanding loan notes held by each of the Major Shareholders (the “Loan Note Waivers”) reducing the amount of loan notes outstanding to £22.0 million. This waiver has been agreed in respect of certain costs related to the Disposal. The £540,000 attributable to waiver is split between c.£350,000 of capital, £100,000 relating to certain management compensation with the remainder being in respect of interest and redemption premium. 4. The Company’s three major shareholders, NB. Ingredients Limited (“Napier Brown”), Omnicane International Investors Limited (“Omnicane”), and certain funds managed by Downing LLP (“Downing”) (together the “Major Shareholders”), have finalised an amendment deed relating to the funding agreements. The Amendment Deed amends the final repayment dates of each of the Agreements, including the convertible loan notes; they have all been extended to 19 May 2023 (the “Final Repayment Date”) with no further change to the interest rate payable by the Company pursuant to each Agreement. 5. At the forthcoming AGM, the Independent Directors, with the support of the rest of the Board, will be proposing that the Company cancels the listing of the Company’s shares on AIM. This is expected to save approximately £150,000 a year in costs and provide greater flexibility and agility to maximise shareholder value. 76 76 76 OUR FINANCIALS OTHER INFORMATION OTHER INFORMATION Annual Report and Accounts for the year ended 31 March 2021 Annual Report and Accounts for the year ended 31 March 2021 Annual Report and Accounts for the year ended 31 March 2021 30678 Real Good Food AR2021.indd 76 30678 Real Good Food AR2021.indd 76 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:44 20/09/2021 21:02:44 Advisors and Company Information OTHER INFORMATION 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 Banker Lloyds Bank plc 5 St Paul’s Square Old Hall Street Liverpool L3 9SJ Directors M J Holt M Keeling J M d’Unienville A P Ridgwell J A Mackenzie G Lumsden Company Secretary M Keeling Registered Office 61 Stephenson Way Wavertree Liverpool L13 1HN Registered Number 04666282 Auditor BDO LLP 3 Hardman Street Spinningfields Manchester M3 3AT www.realgoodfoodplc.com Stock Code: RGD www.realgoodfoodplc.com Stock Code: RGD 77 77 30678 Real Good Food AR2021.indd 77 30678 Real Good Food AR2021.indd 77 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:44 20/09/2021 21:02:44 A n n u a l R e p o r t a n d A c c o u n t s F o r t h e y e a r e n d e d 3 1 M a r c h 2 0 2 1 S t o c k c o d e : R G D 61 Stephenson Way, Wavertree, Liverpool L13 1HN T: 0151 706 8200 enquiries@realgoodfoodplc.com www.realgoodfoodplc.com 30678 Real Good Food AR2021.indd 3 30678 Real Good Food AR2021.indd 3 30678 20 September 2021 9:01 pm V12 20/09/2021 21:02:14 20/09/2021 21:02:14 

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