Liverpool / UK. (rgf) British Real Good Food Company PLC announces Final Results for the Year Ending 31 March 2017.
Financial Highlights
- Revenue increased by 8 percent from 100.4 million GBP to 108.2 million GBP
- Gross profit reduced by 1 percent from 26.7 million GBP to 26.4 million GBP
- Ebitda reduced from 5.0 million GBP to 1.2 million GBP leading to an operating loss of (5.8) million GBP (2016: 2.1 million GBP)
- Delay in passing on raw material price inflation post-Brexit vote
- Significant sugar trading dispute unresolved during the financial year
- Increases in overheads and costs as part of growth plan
- Poor control of central costs
- Impairment of assets and goodwill
- Net debt at 31 March 2017 was 16.2 million GBP (2016: 5.0 million GBP)
Operational Highlights and post period end events
- Strategic decision taken to invest in increasing capacity at main Cake Decoration and Premium Bakery sites
- Re-financing undertaken post-year end to fund growth plan
- Significant Board changes
- Review of financial processes and procedures and corporate governance being undertaken
- Focus on cash generation
- New banking covenants agreed
Commenting on the results Chris Thomas, Executive Director said: «Real Good Food has recently experienced a period of substantial management change at the executive leadership and Board level as well as challenging trading conditions. These management changes have principally been instigated following the recognition that the financial performance of the business during the reported period was substantially below the level that might reasonably have been anticipated. Poor corporate governance and controls were also identified and are being addressed.
He added: «The Board remains confident in the future prospects for the Company. With new leadership, a commitment to improve the Group’s financial controls and corporate governance, the Board believes the business is now well positioned to capitalise on the investment being made to improve profitability and cashflow over the coming years for the benefit of all shareholders».
The Company’s Annual General Meeting will be held at the Real Good Food Development Centre, 61 Stephenson Way, Wavertree Technology Park, Liverpool, L13 1HN at 11am on Thursday 26th October 2017.
2016/2017 Performance
Real Good Food has recently experienced a period of substantial management change at the executive leadership and Board level as well as challenging trading conditions. These management changes have principally been instigated following the recognition that the financial performance of the business during the reported period was substantially below the level that might reasonably have been anticipated. Poor corporate governance and controls were also identified and are being addressed.
While sales grew from 100.4 million GBP in 2015/16 to 108.2 million GBP in 2016/17, Ebitda dropped from 5.0 million GBP in 2015/16 to 1.2 million GBP in 2016/17 leading to an operating loss of (5.8 million GBP.
There were three main reasons for this. First, there was the adverse effect of the exchange rate on key commodity prices following the Brexit vote and a lag in implementing price increases to restore margins. Secondly, there was poor financial control of central costs. Finally, a significant trading dispute regarding the non-supply of contracted sugar to Garrett Ingredients, remained unexpectedly unresolved by the year end.
The Board recognised these failings and as a result has taken the following actions.
Re-capitalisation
Shortly after the year end, the acquisition of Brighter Foods took place. The Board sees this as a very strong addition to the Group’s portfolio. Following this acquisition, it became clear that the business was seriously under-funded and was not in a position to pursue its growth plan, particularly at Renshaw and Haydens.
In June, a major re-capitalisation was effected by raising 4.0 million GBP of loans from two existing shareholders and 10.0 million GBP of loan notes and equity from a new shareholder.
There is a peak in capital investment during the year 2017/18 and so in July 2017 a further 2.0 million GBP was invested by the two existing major shareholders to secure an overdraft facility with Lloyds Bank PLC and a further 4.0 million GBP has been raised by all three major shareholders in September 2017 to ensure that sufficient working capital is now available to enable the Company to execute its strategy.
The major shareholders have also stated that, while this is not anticipated, they are prepared to support as required any short term working capital shortfall. In September, following the conclusion of these cash injections, new agreements on covenants were concluded with Lloyds Bank which has confirmed its continued support for the business for at least 12 months.
Board changes
On 1st August Peter Salter (Non-Executive Director) resigned and Pieter Totté (Executive Chairman) and Dave Newman (Finance Director and Company Secretary) resigned on 7th August.
The Board has been significantly strengthened by the appointment of three new Directors. Judith MacKenzie (non independent Non-Executive Director) was appointed on 29th June and Hugh Cawley (independent Non-Executive Director) joined on 7th August. Harveen Rai, was appointed as Finance Director and Company Secretary on 14th August and on 8th August, Christopher Thomas was appointed as Executive Director (from Non-Executive) and Pat Ridgwell assumed the post of Interim Non-Executive Chairman (from Deputy Chairman).
These changes were made to improve the independence and corporate governance structure of the Board and to further strengthen the strategic and turnaround expertise for the Group. The Board intends to undertake a full independent review of the Group’s financial processes and procedures, corporate governance and controls in light of the previous failings.
Operating performance and outlook
Following this challenging period, the operating businesses are now focused on cash generation and on achieving short term targets with the aim of creating strategic value for all shareholders in the longer term.
Despite these unsettling times the Board is confident that the underlying position of each business is fundamentally sound. Sales growth performance is strong-in the first 22 weeks of the FY 2018, like-for-like revenue is up 10 percent year-on-year in both Cake Decoration and Premium Bakery and up 28 percent in Food Ingredients though this latter sector is partly impacted by increased commodity prices-but it is recognised that this must be converted into operating profit and operating cash flow at the Group level.
For the remainder of the 2017/2018 year, prior to the critical Christmas trading period, sales prospects continue to remain positive. The re-capitalisation and cash injections have enabled the investment programmes (11 million GBP at Haydens on freezing capability and a new Yum Yum line and 8 million GBP at Renshaw on new automated icing discs and soft icing production lines) to proceed. The delays have, however deferred the delivery of benefits which are now anticipated to be fully realised in FY 2019.
Banking agreements and Debt Position
The Group and Lloyds Banking Group (LBG) have reached agreement in relation to the resetting of covenants and other conditions on the Group’s term debt as follows:
- No covenant tests at 30 September 2017.
- New Net Debt and Interest Cover covenant tests at 31 December 17 for the 9 month period up to that date.
- New Net Debt and Interest Cover covenant tests at 31 Mar 18, 30 June 18 and 30 Sept 18, each for a 12 month period up to these dates.
- Repayment of the outstanding term loan by 31 Oct 18.
- A capital expenditure covenant from 1 Nov 17 to 31 Oct 18.
The Group’s principal debt facilities now comprise:
- A term loan with LBG subject to the above revised covenants (2.25 million GBP outstanding at 31 August 2017)
- An invoice discounting facility with LBG of up to 20 million GBP (circa 10.0 million GBP utilised as at 31 August 2017)
- An overdraft facility with Lloyds Bank PLC of 2 million GBP.
- Asset finance with ABN Amro (circa 3.9 million GBP outstanding at 31 August 2017)
- Asset finance with LBG (circa 3.2 million GBP outstanding at 31 August 2017)
- Shareholder facilities of circa 17.25 million GBP
Summary
The Board remains confident in the future prospects for the Company. With new leadership, a commitment to improve the Group’s financial controls and corporate governance, the Board believes the business is now well positioned to capitalise on the investment being made to improve profitability and cashflow over the coming years for the benefit of all shareholders.
