Interim Results
Real Good Food Company Plc (The)
08 September 2005
Real Good Food Company Plc
Interim Results for the six months ended 30th June 2005
INTRODUCTION
I am pleased to report the Company's Interim Results for the six months to 30th
June 2005. The key highlights, for what has been an exceptionally busy time for
the Group, include:
• Offer for the acquisition of Napier Brown PLC, which subsequently
completed on 31st August 2005;
• Group sales from continuing operations increased by 85% to £20.2m and
normalised operating profits up by £2.0m from a loss of £1.2m in the
comparative period;
• Haydens Bakeries sales up by 17% on the prior year with profits of
£264k (2004: loss of £57k);
• Five Star Fish continued delivery of strong organic growth with
proforma sales up 13%, and profits of £1.6m;
• Seriously Scrumptious has now relocated to the Devizes factory with
production ceased at the Glastonbury plant;
• Closure of our loss making Sandwich division, following an aborted
acquisition in the sandwich sector.
In accordance with our expectations, the Company has made significant progress
in both financial and strategic terms in this period. Our two main operating
divisions are both showing double digit sales growth with improved margins. In
addition, the acquisition of Napier Brown, completed in late August, now
provides the enlarged Group with critical mass and moves us closer to our stated
strategic intent of building a focused food group servicing the retail,
industrial and foodservice sectors.
SUMMARY FINANCIAL INFORMATION
The Group's summary profit and loss account for the six month period ended 30th
June 2005 is detailed below:
Continuing Discontinued Total 6 months Total 7
Operations operations *1 ended 30th months end
June 2005 30th June
2004
£ 000s
Turnover 20,027 1,375 21,402 14,710
Gross Margin 5,698 340 6,038 2,877
Normalised Profit / (loss) 1,272 (425) 847 (1,181)
Goodwill amortisation (438) (50)
Exceptional costs *2 (2,418) (128)
Abortive acquisition costs (304) -
Earnings before interest & Tax (2,313) (1,359)
Interest (378) (42)
Tax (2) -
(Loss) after Tax (2,693) (1,401)
*1 - excludes consolidation adjustments (see note 7 to the accounts)
*2 - exceptional costs relate to the closure of Coolfresh and the Glastonbury
site.
OPERATING REVIEW CONTINUING OPERATIONS
2005 2004
£ 000s 6 months 7 months
Sales 20,154 10,871
Operating profit / (loss) * 1,272 (445)
* Normalised Profit before exceptional items, goodwill amortisation and aborted
acquisition costs
Group sales from continuing operations increased by 85% to £20.2m and operating
profits by £1.7m from a loss in the comparative period. These figures benefit
from the acquisition of Five Star Fish in May 2004 and exclude Coolfresh
operations which were closed during 2005.
Overall net debt levels as at 30th June 2005 were £10.1m up from £9.0m at the
year end, the increase reflecting incremental facilities relating to the first
payment of deferred consideration due under the purchase of Five Star Fish.
Due to the change in accounting periods during 2004, the prior year period
represents a 7 month period ending 30th June 2004. To aid improved understanding
of the underlying results, the remainder of the Operational Review will compare
to unaudited 6 month data ending 30th June 2004.
Haydens Bakeries
2005 2004
£ 000s 6 months 6 months
Sales 7,560 6,474
Operating profit / (loss) * 275 (57)
* Normalised Profit before exceptional items, goodwill amortisation and
central costs
The division produces a range of chilled and ambient baked and dessert products
from its premises in Devizes, Wiltshire.
Its principal products include croissants, doughnuts, Danish pastries, morning
goods, chilled cream cakes and family dessert products. This division also has a
particular expertise in laminated and hand finished products. A large proportion
of the items supplied by this division are categorised as 'premium' products and
form part of the high quality end of the range offered to retailers.
Sales from the Division business grew by 17% to £7.6m in the first half of the
current year, compared to the comparative period, boosted by product development
programmes which continue to deliver new listings. A major re-launch of
Waitrose's cream cake range was implemented in May and new customer listings
have been secured with Budgens and Marks & Spencer's.
Operating profit before exceptional items for the division was £275k, compared
to a loss of £57k on the prior year. The sales increase has been a major
contributor to this profit growth along with improved direct labour efficiency,
largely the beneficiary of the capital investment programme last year, this has
seen gross margins increase by over 5 percentage points.
Seriously Scrumptious
2005 2004
£ 000s 6 months 6 months
Sales 281 271
Operating profit / (loss) * (262) (296)
* Normalised Profit before exceptional items, goodwill amortisation and
central costs.
The Group announced in early May that the Seriously Scrumptious business would
be relocated from its current operation base in Glastonbury to the Haydens plant
based in Devizes; this move has now been completed. However, the preparation for
relocation has hindered sales growth leaving sales flat year on year. A modest
improvement in gross margins has aided a 10% reduction in the underlying losses.
The relocation to the Devizes facility will enable operational management to
concentrate upon development of the 'snacking' and convenience sectors of the
quality cake market. These sectors are highly fragmented presenting Seriously
Scrumptious with a significant opportunity to provide a high quality offering on
a direct basis to customers buying centrally.
Development is also underway to produce a range of chilled individual cakes and
desserts specifically designed for the foodservice sector.
Five Star Fish
2005 2004
£ 000s 6 months 6 months
Sales 12,313 10,886
Operating profit / (loss) * 1,650 1,341
* Normalised Profit before exceptional items, goodwill amortisation and
central costs
Five Star Fish was acquired by RGFC in May 2004 having been purchased on an
earn-out basis, the second year of which commences at the start of 2005. The
Division is a leading supplier of added value battered / breaded frozen fish to
the foodservice sector.
Whilst the food service market remains slow, reflecting the downturn in consumer
spending, Five Star Fish's commitment to product development and excellent
customer service puts the business in a strong position to increase market
share. Pro-forma sales for the first six months of the year were 13 per cent up
on the same period last year, which were the highest ever achieved. A positive
trend was also evident into higher added value product ranges and an
increasingly broader customer base. The improved sales in higher added value
products have aided a 1 percentage point improvement in gross margins, although
this has been offset in part due to raw material pricing pressure. We expect to
recover these costs increases through pricing developments during the second
half of 2005.
The Division has recently finished commissioning a spiral freezer and this
should aid some operational improvements in the second half.
OPERATING REVIEW DISCONTINUED OPERATIONS
Eurofoods / Coolfresh
2005 2004
£ 000s 6 months 6 months
Sales 1,375 3,453
Operating profit / (loss) * (425) (622)
* Normalised Profit before exceptional items, goodwill amortisation and
central costs
In the early part of 2005, detailed discussions were entered into to acquire a
competitor, which were taken to an advanced stage. However, unfortunately these
discussions ultimately proved to be unsuccessful.
The Board reviewed the business prospects of the stand-alone Coolfresh operating
division and believed the unit would continue to operate at a loss in the
short-term and prove to have a negative cash effect on the larger group.
Consequently, the Company announced that the Rayleigh site will be closed during
June 2005.
The production unit ceased substantive production in early June and vacated the
site with effect from the end of July.
EXCEPTIONALS
As a consequence of the closure of the Coolfresh division, Glastonbury site and
the aborted acquisition, the Group has incurred £2.7m of exceptional costs
during the period, including £0.8m relating to the impairment review of the
Coolfresh goodwill. Of the remaining £1.9m, £0.8m relates to the closure of
Coolfresh, just under half of which relates to non-cash items, mainly being the
write-down of assets. Aborted acquisition costs of £0.3m were also incurred
during the period.
The closure of Glastonbury has incurred £0.8m of exceptional items, although
this includes a £0.4m provision for a 10 year lease, which the company is
currently looking at re-assigning.
PEOPLE
I am delighted to announce that we have appointed Phil Wicks to the position of
Managing Director. Phil, who joins from Lions Seafood Limited, takes over from
Tony Harris, the interim MD.
Following the completion of the Napier Brown transaction, Pat Ridgwell, former
Chairman of Napier Brown Foods plc and Chris Thomas the former Chief executive
officer have agreed to join the Group as non-Executive Deputy Chairman and
non-executive Director respectively. Their experience of the sector will be
invaluable as we manage the opportunity brought about by regime change.
OUTLOOK / CURRENT TRADING
The focus for the remainder of the year is to drive the top line growth of our
Haydens and Seriously Scrumptious businesses and consolidate upon the margin
improvement within Five Star Fish.
Whilst the first six months of the year saw strong sales growth for Haydens
Bakeries, current trading is showing a lower level of growth. However, the
capital investment on the new frying line will increase capacity and efficiency
during the second half at the end of the year. This, combined with our strong
new product development programme, should continue to support sales growth.
Five Star Fish is well set for further growth in volume and, having adjusted
selling prices to reflect the higher raw material costs incurred in the earlier
part of the year, net margins are expected to remain at previous year levels.
Whilst the factory is operating at higher levels of throughput, there is ample
capacity for further growth.
The Board will also conduct a strategic review of the Napier Brown business
during the first few months of our ownership.
Overall, the outlook for the remainder of the year is promising as we look to
build upon the sales and margin improvements delivered during the first half.
During 2004/5, Napier Brown acquired two businesses and closed one; this
followed their 2003 re-organisation prior to joining AIM. It is our intention
to ensure that the consolidation of the businesses is completed and there is the
minimum disruption following our acquisition. However, we will ensure that any
changes in structure or direction are in the best interests of the Group and
provide long term stability and focus.
There are a number of elements of the Napier Brown business, which we believe
can be developed significantly and will provide long term growth opportunities.
It is essential to allow these areas to be stimulated and encouraged and we will
provide the resources and management to develop these areas.
The UK food market is always challenging. Consolidation in retail, food service
and industrial sectors continues apace. The structural changes arising from
regime change in sugar will need to be managed carefully over the next few
months and into 2006. We believe with the plans we have in place, implemented
by an experienced and professional management team, will allow us to turn the
challenges into opportunities.
Pieter Totte
Chairman
Consolidated Profit and Loss Account
For six month period ending 30th June 2005
6 months 7 months 16 months
ended 30 June ended 30 June 31st Dec 2004
Notes 2005 2004 2004
£'000s £'000s £'000s
(un-audited) (Un-audited) (Audited)
TURNOVER
Continuing operations 20,154 11,331 28,813
Acquisitions - 3,379 15,795
Discontinued operations 1,248 - -
21,402 14,710 44,608
Cost of sales (15,364) (11,833) (31,826)
GROSS PROFIT 6,038 2,877 12,782
Distribution costs (1,157) (1,494) (3,185)
Administration expenses (4,788) (2,614) (10,307)
Other operating income - - 54
OPERATING PROFIT/(LOSS) 93 (1,231) (656)
Continuing operations 471 (1,502) (2,674)
Acquisitions - 271 2,018
Discontinued operations (378) - -
EXCEPTIONAL ITEMS
Reorganisation costs 6 (874) (128) (440)
Termination of an operation 6 (1,532) - -
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES BEFORE (2,313) (1,359) (1,096)
INTEREST AND TAXATION
Interest receivable - 57 59
Interest payable (378) (99) (494)
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES
BEFORE TAXATION (2,691) (1,401) (1,531)
Taxation (2) - 833
PROFIT/(LOSS) FOR THE PERIOD (2,693) (1,401) (698)
Basic loss per share (0.246) (0.128) (0.064)
Diluted loss per share (0.244) (0.127) (0.063)
Consolidated Balance Sheet
30th June 2005
30th June 2005 31st Dec 2004 30th June 2004
(Un-audited) (Audited) (Un-audited)
£'000s £'000s £'000
FIXED ASSETS
Intangible assets 15,098 16,304 16,566
Tangible assets 6,330 6,377 6,033
21,428 22,681 22,599
CURRENT ACCOUNTS
Stock 4,062 4,218 3,552
Deferred tax asset 1,193 914 -
Debtors 6,139 6,315 6,651
Cash at bank and in hand 1,986 1,420 157
13,380 12,867 10,360
CREDITORS:
amounts falling due within one year (17,998) (16,132) (15,090)
NET CURRENT LIABILITIES (4,618) (3,265) (4,730)
TOTAL ASSETS LESS CURRENT
LIABILITIES 16,810 19,416 17,869
CREDITORS:
amounts falling due after more than one year (6,508) (6,421) (6,884)
NET ASSETS 10,302 12,995 10,985
CAPITAL AND RESERVES
Called up share capital 282 282 267
Share premium account 13,643 13,643 12,662
Profit and loss account (3,623) (930) (1,944)
SHAREHOLDERS' FUNDS 10,302 12,995 10,985
Consolidated Cash Flow Statement
6 month 7 month 16 month
Note Period ended Period ended Period ended
30 June 30 June 31 December
2005 2004 2004
£'000s £'000s £'000s
Net cash (outflow)/inflow from operating
from operating activities B 841 (2,244) (1,354)
Returns on investment and servicing of finance
Interest received - 57 59
Interest paid on bank loans and overdrafts (270) (51) (391)
Interest element on finance lease rental payments (15) - -
Net cash outflow from returns on investments
and servicing of finance (285) 6 (332)
Taxation paid - - (10)
Capital expenditure
Purchase of tangible fixed assets (232) (1,069) (1,934)
Sale of tangible fixed assets 22 - 24
(210) (1,069) (1,910)
Acquisitions and disposals
Purchase of subsidiary undertakings (1,280) (14,198) (15,178)
Overdrafts and cash received with acquisition - (788) (788)
Net cash outflow from acquisitions and disposals (1,280) (14,986) (15,966)
Net cash outflow before use of liquid resources
and financing (934) (18,293) (19,572)
Financing D 472 18,219 17,127
Decrease in cash (462) (74) (2,445)
NOTES TO THE CASH FLOW STATEMENT
A. RECONCILLIATION OF NET CASHFLOW TO MOVEMENT IN NET DEBT (NOTE C)
6 month 7 month 16 month
Period ended Period ended Period ended
30 June 30 June 31 December
2005 2004 2004
£'000s £'000s £'000s
Increase/(Decrease) in cash in the period (462) (74) (2,445)
Cash inflow from increase in debt and lease financing (472) (10,670) (5,610)
Change in net debt resulting from cashflows (934) (10,744) (8,055)
Loans and finance leases acquired with subsidiary - (32) (32)
New finance leases (133) 394 (408)
Movement in net debt in the period (1,067) (10,382) (8,495)
Net debt brought forward (9,007) (6) (512)
Net debt carried forward (10,074) (10,388) (9,007)
B. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES
6 month 7 month 16 month
Period ended Period ended Period ended
30 June 30 June 31 December
2005 2004 2004
£'000s £'000s £'000s
Operating (loss)/profit 93 (1,231) (656)
Amortisation of goodwill 438 50 559
Depreciation 399 371 939
Bad debts - - 125
Exceptional items (excluding goodwill write-off) (1,628) (128) (440)
Profit/Loss on disposal (11) - -
Movement in working capital:
Increase in stocks 156 (614) (1,073)
Increase in debtors 176 263 (349)
(Decrease)/increase in creditors 1,218 (955) (459)
841 (2,244) (1,354)
C. ANALYSIS OF CHANGES IN NET DEBT
As at 31
As at 30 June Non-cash December Non-cash At 30 June
2004 Cash Flow Movements 2004 Cash Flow Movement 2005
£'000s £'000s £'000s £'000s £'000s £'000s £'000s
Cash at bank 157 1,263 - 1,420 566 - 1,986
and in hand
Overdraft (221) (793) - (1,014) (956) - (1,970)
Invoice (2,752) (595) - (3,347) (72) - (3,419)
discounting
(2,816) (125) - (2,941) (462) - (3,403)
Bank loan (6,148) 423 - (5,725) (600) - (6,325)
Hire purchase (1,424) 1,491 (408) (341) 128 (133) (346)
NOTE A (10,388) 1,789 (408) (9,007) (934) (133) (10,074)
D. FINANCING
6 month 7 month 16 month
Period ended Period ended Period ended
30 June 30 June 31 December
2005 2004 2004
£'000s £'000s £'000s
Issue of ordinary share capital - 10,000 12,400
Expenses paid in connection with share issues - (681) (883)
Increase in short term borrowings - 2,752 -
Debt due beyond a year: - - -
New secured loan 1,100 6,148 6,100
Repayment of secured loan (500) - (375)
Capital element of finance leases (128) - (115)
472 18,219 17,127
NOTES TO THE INTERIM RESULTS
1. BASIS OF PREPARATION
The results for the six months ended 30th June 2005 which are unaudited, have
been prepared in accordance with applicable accounting standards and under the
historical cost convention.
The financial information set out in this document does not comprise of the
statutory accounts of the Company within the meaning of section 240(5) of the
Companies Act 1985.
2. CASH AND LIQUID RESOURCES
Cash, for the purposes of the cash flow statement, comprises cash in hand, any
overdraft facility, deposits repayable on demand and the invoice discounting
facility.
Liquid resources are current asset investments which are disposable without
curtailing or disrupting the business and are either readily convertible into
cash or are traded in an active market. Liquid resources comprise term deposits
of less than one year.
3. LOSS PER ORDINARY SHARE
The calculation of the loss per share is based on the loss on ordinary
activities for the six month period ended 30th June 2005 of £2,693,000 and the
weighted average number of ordinary shares in issue during the period, being
10,964,662.
4. DIVIDENDS
No dividend is proposed for the six months ended 30th June 2005.
5. MAJOR NON CASH TRANSACTIONS
During the period, the Group entered into finance lease arrangements in respect
of assets with a total capital value at the inception of the leases of £133,000.
6. TAXATION
The charge for taxation is based on the results for the period and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes.
Provision is made in full for taxation deferred in respect of timing differences
that have originated but not reversed by the balance sheet date, except for
gains on disposal of fixed assets which will be rolled over into replacement
assets. No provision is made for taxation on permanent differences. Deferred
tax is not discounted.
Deferred tax assets are recognised to the extent that it is more likely than not
that they will be recovered.
7. EXCEPTIONAL COSTS
6 month 7 month 16 month
Period ended Period ended Period ended
30 June 30 June 31 December
2005 2004 2004
Exceptional costs*:-
Reorganisation costs 874 128 427
Termination of an operation 1,532 - -
Loss on disposal - - 13
2,406 128 440
Other exceptional costs and
amortisation**:-
Amortisation 438 50 559
Redundancy costs 12 - -
Abortive acquisitions 304 - 107
754 50 666
* Costs in respect of reorganisation costs and on the termination of an
operation have been classified as exceptional costs in accordance with FRS 3 '
Reporting Financial Performance'. As such these costs have been shown separately
as exceptional items on the face of the profit and loss account after operating
profit/(loss) and before interest. These costs have been partly allowed for
taxation purposes and have resulted in an overall reduction of the tax charge of
£339,000.
** In the opinion of the directors the abortive acquisition costs are
exceptional due to their size and nature. However, they do not fall into the
category of exceptional items to be disclosed on the face of the profit and loss
account as described under FRS 3 'Reporting Financial Performance'. These costs
have therefore been included within administration costs in accordance with FRS
3 'Reporting Financial Performance'.
8. DIVISIONAL INFORMATION
RGFC Head Haydens Five Star Scrumptious Consolidation Continuing Euro Foods Total
Office Fish adjustments operations
Turnover - 7,560 12,313 281 (127) 20,027 1,375 21,402
Cost of sales - (4,792) (9,291) (246) - (14,329) (1,035) (15,364)
Gross Margin - 2,768 3,022 35 (127) 5,698 340 6,038
Distribution - (351) (529) (18) 124 (774) (383) (1,157)
costs
Administration (391) (2,142) (843) (279) 3 (3,652) (382) (4,034)
costs
Normalised (391) 275 1,650 (262) - 1,272 (425) 847
Profit / (loss)
Goodwill amortisation (438)
Exceptional costs (2,406)
Abortive acquisition costs (304)
Exceptional redundancy
Costs (12)
Earnings before interest
& Tax (2,313)
Interest (378)
Tax (2)
(Loss) after Tax (2,693)
Enquiries to:
The Real Good Food Company plc
Pieter Totte/John Gibson/Lee Camfield Tel: 01428 644099
Numis Securities Tel: 020 7776 1500
Andrew Dawber/Nick Westlake
Redleaf Communications Tel: 020 7955 1410
Emma Kane/Duncan McCormick
Notes to Editors:
• The Real Good Company plc is a food group servicing high end
niche markets. It aims to grow both through acquisitions and organically. It
acquires underperforming businesses lacking critical mass, product focus and
wide ranging retail relationships, and profitable businesses lacking business
focus or access to markets. It is listed on AIM (Symbol: RGD).
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