22 April 2021

Real Good Food plc

("RGF" or "the Group")

Disposal of Brighter Foods Limited, Notice of General Meeting and Trading Update

Real Good Food plc, (AIM: RGD) the diversified food business, announces that it and the Managers have conditionally agreed to sell the entire issued share capital of Brighter Foods Limited for an aggregate cash consideration of £43.0 million on a cash free/debt free basis to THG 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 will therefore receive cash proceeds of £35.64 million.

The consideration due to the Sellers is subject to customary adjustments for (amongst other things) the actual working capital at Completion against an agreed target level. The net assets being disposed of amount to £17.3 million, resulting in a profit on disposal of approximately £20.4 million.

The Board believes that the Disposal provides the Company with the opportunity to crystallise an attractive return on invested capital with respect to Brighter Foods, reduce net debt, make a material contribution towards the Group's pension deficit and also to provide additional financial flexibility to support the operation and growth of the Continuing Group. Following the Disposal, the Continuing Group will consist of the Company's Cake Decorations businesses being Renshaw and Rainbow Dust Colours, and two vacated properties held as assets for sale. The offer from THG broadly equates to 8.6 times FY20 EBITDA and 11.7 times (unaudited) EBITDA for the last 12 months ended 31 March 2021.

Use of Disposal proceeds

It has been agreed with the Group's pension trustee that £8.5m of the aggregate net consideration will be paid 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.

The Continuing Group has also agreed to pay £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. Approximately £3.0 million of net proceeds will be retained to provide working capital to support the financing needs of Renshaw and Rainbow Dust Colours.

As a result, RGF's total net debt is expected to reduce from £47.6 million (as at 31 March 2021) to £21.2 million. The Board will be undertaking a thorough review of the Group's working capital needs in the coming weeks, which may result in further payments to Loan Note Holders and the Plan to further de-risk the balance sheet.

Summary of use of proceeds:

Notice of General Meeting

The Disposal is of sufficient size relative to that of the Existing Group to constitute a disposal resulting in a fundamental change of business pursuant to Rule 15 of the AIM Rules and Completion is, therefore, conditional upon the approval of Shareholders at a general meeting of the Company.

Accordingly, Shareholder approval of the Disposal will be sought at the General Meeting expected to be held at 10.00 a.m. on 10 May 2021. The notice convening the General Meeting and setting out the Resolution to be considered at it will be set out in a circular which is expected to be posted to Shareholders later today, extracts of which can be found in the appendix to this announcement. Irrecoverable undertakings to vote in favour of the Disposal have been received by the Company in respect of approximately 51.2% of the Company's issued share capital.

Capitalised terms, unless otherwise defined, have the same meaning as will be set out in the circular to be posted to Shareholders later today.

Trading update

As reported on 26 January 2021, the impact of COVID-19 was most severe in Q1 (April to June 2020), during the first lockdown. However, as lockdown restrictions eased, trading in both divisions improved during the second half of the year ended 31 March 2021. Group revenues were 2.4% ahead of FY20 in Q3.  For Q4, revenues within Cake Decorations were marginally ahead of last year, but revenues within Brighter were lower, mainly due to a particularly strong Q4 last year and the timing of limited edition launches. Unaudited EBITDA for the Existing Group for the year ended 31 March 2021 was £2.8 million (FY20: £5.4 million).

Mike Holt, Executive Chairman, said:

"We are very pleased with the disposal which crystallises substantial value for the Group and enables us to halve our debt burden at a stroke, whilst materially improve the funding of the pension scheme. It also provides a basis for further balance sheet restructuring, as we look to accelerate and maximise value within Renshaw and Rainbow Dust Colours.

Brighter Foods is a very good business and I am sure it will continue to grow and develop with the direction and support of THG.  We wish Robin Williams, Brighter's founder, and his team at Brighter Foods all the best. I would also like to thank Shaun Brownell and his team at Spayne Lindsay for helping to secure best value for the Group on Brighter's sale."

Spayne Lindsay & Co. LLP acted as Financial Adviser to Real Good Food plc on the disposal of Brighter Foods Limited.

Enquiries:

About Real Good Food

Real Good Food plc is a food manufacturing business serving several market sectors including retail (own label and private label), manufacturing and export.  The Group has two businesses, Cake Decoration (Renshaw and Rainbow Dust Colours) and Food Ingredients (Brighter Foods), with leading brands in their chosen markets.  

Appendix - EXTRACTS FROM THE CIRCULAR

LETTER FROM THE CHAIRMAN

1. Introduction

The Company has today announced that its subsidiary NBF and the Managers have conditionally agreed to sell the entire issued share capital of Brighter for an aggregate consideration of £43.0 million on a cash free/debt free basis. The Existing Group, through the Company's subsidiary, NBF, has an interest in 84.334 per cent. of the issued share capital of Brighter.

The consideration due to the Sellers is subject to customary adjustments for (amongst other things) the actual working capital at Completion against an agreed target level.

The Board believes that the Disposal provides the Company with the opportunity to crystallise an attractive return on invested capital with respect to Brighter, reduce net debt, make a material contribution towards the Continuing Group's pension deficit and also to provide additional financial flexibility to support the operation and growth of the Continuing Group. Following the Disposal, the Continuing Group will consist of the Company's Cake Decorations businesses being Renshaw and Rainbow Dust Colours.

As mentioned above, it has been agreed with the pension trustee that £8.5 million of the aggregate net consideration receivable by the Continuing Group will be paid to its 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 Continuing 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 a valuation to be agreed as at 31 March 2021 for the Plan which 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. The Continuing Group has also agreed to pay £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 held by them. As a result, total net debt is expected to reduce from £47.6 million to £21.2 million taking into account cash of £6.1 million (which includes approximately £3.0 million of net proceeds receivable by the Continuing Group which will be retained to provide working capital to support Renshaw and Rainbow Dust Colours).

Should surplus cash be generated over the coming six months, or the required level of working capital investment is lower than forecast, additional payments may be made to the Loan Note Holders and to the Plan.

The Disposal is of sufficient size relative to that of the Existing Group to constitute a disposal resulting in a fundamental change of business pursuant to Rule 15 of the AIM Rules and Completion is, therefore, conditional upon the approval of Shareholders at a general meeting of the Company.

Accordingly, your approval of the Disposal is being sought at the General Meeting to be held at the offices of J F Renshaw Limited at Crown Street, Liverpool L8 7RF at 10.00 a.m. on 10 May 2021. The notice convening the General Meeting and setting out the Resolution to be considered at it is set out at the end of this document. A summary of the action you should take is set out in paragraph 11 below and on the Form of Proxy which accompanies this document.

Further details of the SPA are set out below and in Part 2 of this document.

The purpose of this document is to give you details of the Disposal, including the background to and reasons for it, and to explain why the Directors consider it to be in the best interests of the Company and its Shareholders as a whole and therefore recommend that you vote in favour of the Resolution.

Certain Shareholders have irrevocably undertaken to vote in favour of the Resolution in respect of, in aggregate, 51,001,232 Ordinary Shares, representing approximately 51.2 per cent. of the current issued ordinary share capital of the Company.

2.      Background to and reasons for the Disposal

Brighter is one of the largest developers and manufacturers of snack bars in the UK and has grown rapidly since it was acquired by the Continuing Group in April 2017. It has proven to be resilient during the current COVID-19 pandemic, albeit sales and profits for the current year have naturally been affected. Given the high level of indebtedness of the Continuing Group, due to some poor acquisitions in the past, the current Board has been minded to dispose of Brighter at the right value. The timing of the sale is appropriate in the view of the Board as it also coincides with the end of the lock-in period of the current CEO and founder of Brighter. The offer from THG broadly equates to 8.6 times annualized FY20 EBITDA and 11.7 times (unaudited) EBITDA for the last 12 months ended 31 March 2021.

Information on Brighter

Brighter is an award-winning company which develops and manufactures snack bars, principally as a contract manufacturer for large branded companies. From its factory in Tywyn, Gwynedd in mid-Wales it produces snack bars which are targeted at markets such as diet control, gluten free, lactose free, low or no added sugar, sports nutrition, organic and fair trade. In addition to being a contract manufacturer to large branded companies, it produces its own brand Wild Trail, which is stocked in retailers and health food stores, and also develops and manufactures for innovative small and medium sized companies.

In the Existing Group's financial year ended 31 March 2020, Brighter contributed £25.3 million of revenue, £5.0 million EBITDA and a profit before non-recurring items and tax of £2.9 million, and a pre-tax profit of £2.9 million. As at 28 March 2021, the net assets of Brighter amount to £17.3 million. The Continuing Group expects to report an accounting profit on disposal of Brighter of approximately £20.4 million.

Principal terms of the Disposal

Pursuant to the terms of the SPA, the Sellers have conditionally agreed to sell the entire issued share capital of Brighter to the Purchaser for an aggregate consideration of £43.0 million on a cash free/debt free basis and subject to their being a normal level of working capital in the Company at Completion. NBF's share of that consideration, as a 84.334 per cent. shareholder in Brighter, is approximately £35.6 million before transaction costs.

Completion is conditional on the Resolution being passed by the requisite majority at the General Meeting (or any adjournment thereof).

Further details of the SPA are set out in Part 2 of this document.

4.    Information on the Purchaser

The Purchaser is an indirect subsidiary of THG plc. THG is a vertically integrated, digital-first consumer brands group, retailing its own brands predominantly in beauty and nutrition, plus third-party brands, via its proprietary, end-to-end, e-commerce technology, infrastructure and brand-building platform (THG Ingenuity) to an online and global customer base.

5.    Financial effects of the Disposal and use of the proceeds

The Board will continue to evaluate opportunities to enhance Shareholder value from the Continuing Group. As noted above, it has been agreed that £23.1 million of the net proceeds will be used to partially repay Loan Note Holders and £8.5 million will be paid to the Plan so that it is fully funded on an ongoing basis. Leumi ABL Limited ("Leumi"), which provides the Company with a term loan of £1.3 million, a plant and machinery loan of £2.1 million and an invoice discounting facility of up to £5.45 million, has confirmed that it will continue to provide funding to the Continuing Group following Completion.

The Board intends to retain £3.0 million from the aggregate net proceeds of the sale to provide working capital to support the needs of Renshaw and Rainbow Dust Colours. Should the required level of working capital investment be lower than forecast, additional payments may be made to the Loan Note Holders and to the Plan.

6.    Strategy for the Continuing Group

Following the Disposal, the Continuing Group will consist of the Cake Decorations business, being Renshaw and Rainbow Dust Colours. For the year ended 31 March 2020, revenue of the Continuing Group was £41.2 million, EBITDA was £1.8 million and profit before non-recurring items and tax was £0.3 million (excluding Head Office and share option costs). The Continuing Group will be operated out of Crown Street and Wavertree in Liverpool and, immediately following Completion, will have approximately 310 employees.

Whilst the Board will seek to accelerate the improvement initiatives within the Continuing Group, it will also continue to explore and consider carefully all appropriate options to grow the businesses, further improve operational efficiency and reduce costs. Continuing Group costs within Head Office will also be reduced where possible and the Continuing Group will explore further opportunities to refinance and restructure, including the possibility of putting a proposal to Shareholders to approve the cancellation of the admission of the Shares to AIM.

Renshaw

Renshaw has a leading position in the UK cake decorating market, with a renowned and respected heritage brand. It is a multi-channelled business with a broad range of branded and private label products, well known for superior quality. During the last 18 months, a new business unit CEO and several new managers have been recruited to drive value within the business. A number of operational improvement initiatives are underway to improve and sustain margins and reduce overhead costs. There is also a real focus on new product and service innovations to expand into adjacent and growing market segments, as the core market of sugar paste is a mature market and volumes of certain products are in gradual decline. New products and markets recently developed include caramels and frostings. Renshaw is also successfully winning new business and broadening its customer base in retail and wholesale channels.

Rainbow Dust Colours

Rainbow Dust Colours is a market leader in the UK cake colours and edible decorations market. Its products are listed in all major sugarcraft outlets and specialist retailers, such as Hobbycraft and Lakeland. Its products include edible colours, glitters, paint, confetti, powders, sugar crystals and lustres. The aim is to continue to innovate and maintain its leading position in the growth sugarcraft segment as well as expanding sales into the other markets which Renshaw supplies.

7.    Current trading

As reported on 26 January 2021, the impact of COVID-19 was most severe in Q1 (April to June 2020), during the first lockdown. However, as lockdown restrictions eased, trading in both divisions improved during the second half of the year ended 31 March 2021. For Q3, Existing Group revenues were 2.4 per cent. ahead of FY20 and revenues for Q4 ended 31 March 2021 were £13.5 million compared to £15.1 million last year; revenues within Cake Decoration were marginally ahead of last year's Q4, but revenues within Brighter lower, mainly due to a particularly strong Q4 in the prior year. Total net debt as at 31 March 2021 was £47.6 million. Looking further ahead to the upcoming financial year, it is expected that the Cake Decorations division will be back to FY20 levels of revenue and in terms of EBITDA at a similar level to FY19.

8.      Irrevocable undertakings

Irrevocable undertakings to vote in favour of the Resolution have been received by the Company in respect of, in aggregate, 51,001,232 Ordinary Shares, representing approximately 51.2 per cent. of the Company's current issued share capital as follows:

% of

No. of                 current

Ordinary                  issued

Shareholder                                                                                                                                            Shares      share capital

Downing                                                                                                                                           7,844,924                    7.9%

NB                                                                                                                                                   22,139,998                  22.2%

Patrick Ridgwell                                                                                                                                 362,356                    0.4%

Omnicane International                                                                                                              20,653,954                  20.7%

Total                                                                                                                                               51,001,232                  51.2%

9.      General Meeting

You will find set out at the end of this document a notice convening the General Meeting to be held on 10 May 2021 at the offices of J F Renshaw Limited at Crown Street, Liverpool L8 7RF at 10.00 a.m. at which the Resolution will be proposed.

The Resolution, which will be proposed at the General Meeting as an ordinary resolution, is to approve the Disposal and to authorise the Directors to take all steps necessary or desirable to complete the Disposal.

A simple majority (being more than 50 per cent.) of votes cast must be in favour of the Resolution in order for it to be passed.

Shareholders should read the Notice of General Meeting at the end of this document for the full text of the Resolution and for further details about the General Meeting.

10.    Arrangements for the General Meeting

Given the uncertainty, in light of the COVID-19 pandemic, around whether Shareholders will be able to attend the General Meeting it is recommended that all Shareholders appoint the chairman of the General Meeting as their proxy to vote in accordance with their instructions. This will ensure that their vote will be counted even if attendance is restricted or they are unable to attend in person.

The results of the General Meeting will be available on the Company's website shortly after the General Meeting has closed.

If you would like to raise questions concerning the business of the General Meeting

In light of the uncertainty as to whether Shareholders will be able to attend the General Meeting, Shareholders are encouraged to participate at the General Meeting by raising any questions in advance of the meeting by emailing our Company Secretary, Maribeth Keeling, at RGFplc@realgoodfoodplc.com by 10.00 a.m. on 5 May 2021. Answers to questions on key themes will be provided via a 'Questions and Answers' document which will be available to view on the Company's website from or about the date of the General Meeting.

If you would like to participate in the General Meeting via electronic means
 

If you would like to participate in the General Meeting via electronic means you will need to email RGFplc@realgoodfoodplc.com by 3.00 p.m. on 5 May 2021 to confirm this, giving details of your name and Shareholder reference number. We are asking Shareholders to do this so that we can engage with those Shareholders and provide them with the required details of how to access the General Meeting via electronic means. To participate via electronic means Shareholders will need access to an internet enabled device that allows the business of the General Meeting to be heard by them and for the Shareholder to be heard, when wishing to address the General Meeting. Shareholders should note that the only place at which the General Meeting is being held is at the offices of J F Renshaw Limited at Crown Street, Liverpool L8 7RF.

If you plan to seek to physically attend the General Meeting

If you plan to seek to physically attend the General Meeting, we would ask that you email RGFplc@realgoodfoodplc.com by 3.00 p.m. on 5 May 2021 to confirm your intention to attend, giving details of your name and Shareholder reference number. We are asking Shareholders to do this so that we can engage with those Shareholders about the likely running of the General Meeting and the Board's expectation concerning whether Shareholders will be permitted to attend and also to enable the Company to comply with the then current Government COVID-19 restrictions.

The Board continues to follow advice issued by Government with respect to the COVID-19 pandemic and will issue further guidance if necessary. Up to date information and any changes to the General Meeting arrangements contained in this document will be available on the website at http://www.realgoodfoodplc.com. Please continue to check that website for updates.

11. Action to be taken

A Form of Proxy for use at the General Meeting accompanies this document.

Given the uncertainty, in light of the COVID-19 pandemic, around whether Shareholders will be able to attend the General Meeting it is recommended that all Shareholders appoint the chairman of the General Meeting as their proxy to vote in accordance with their instructions. This will ensure that their vote will be counted even if attendance is restricted or they are unable to attend in person.

The Form of Proxy should be completed and signed in accordance with the instructions thereon and returned to the Company's registrars, Link Group, as soon as possible, but in any event so as to be received by no later than 10.00 a.m. on 6 May 2021 (or, if the General Meeting is adjourned, 48 hours (excluding any part of a day that is not a working day) before the time fixed for the adjourned meeting).

If you hold your Ordinary Shares in uncertificated form in CREST, you may vote using the CREST Proxy Voting Service in accordance with the procedures set out in the CREST Manual. Further details are also set out in the notes accompanying the Notice of General Meeting at the end of this document. Proxies submitted via CREST must be received by Link Group (ID RA10) by no later than 10.00 a.m. on 6 May 2021 (or, if the General Meeting is adjourned, 48 hours (excluding any part of a day that is not a working day) before the time fixed for the adjourned meeting).

The return of a completed Form of Proxy or the appointment of a proxy using the CREST Proxy Voting Service will not prevent a Shareholder from attending the General Meeting and voting in person (should this be permitted under applicable COVID-19 restrictions) if a Shareholder wish to do so (such Shareholders are referred to paragraph 7 above, which should be read and considered carefully).

12. Recommendation

The Directors consider the Disposal to be in the best interests of the Company and its Shareholders as a whole and accordingly unanimously recommend Shareholders to vote in favour of the Resolution to be proposed at the General Meeting.

Certain Shareholders have irrevocably undertaken to vote in favour of the Resolution in respect of, in aggregate, 51,001,232 Ordinary Shares, representing approximately 51.2 per cent. of the current issued ordinary share capital of the Company.