TIDMFIF
RNS Number : 9284A
Finsbury Food Group PLC
17 September 2018
Date: 17 September 2018
On behalf Finsbury Food Group Plc ('Finsbury', 'the Company'
of: or 'the Group')
Embargoed until: 0700hrs
Finsbury Food Group Plc
Preliminary Results
Finsbury Food Group Plc (AIM: FIF), a leading UK speciality
bakery manufacturer of cake, bread and morning goods for the retail
and foodservice channels, is pleased to announce its preliminary
results for the financial year ended 30 June 2018.
The Company has delivered a resilient performance in an
unprecedented inflationary environment with growth in like for like
sales and in adjusted profit in a year where the Company closed a
loss making bakery.
Adjusted operating profit, profit before tax and EBITDA exclude
significant and non-recurring and other items and includes
amortisation of intangibles. The adjusted operating profit has been
given as in the opinion of the Board this will allow shareholders
to gain a clearer understanding of the trading performance of the
Group. The adjusted figures are referred to as alternative
performance measures, the statutory performance measures have been
given for revenue, profit before tax and EPS.
Summary
-- Like for like(*1) Group Revenue GBP290.2m - up 2.4%,
- Group Revenue GBP303.6m - down 3.4%
-- Adjusted EBITDA GBP25.6m - up 2.7%
-- Adjusted Operating Profit GBP17.8m - up 2.3%
-- Adjusted Operating Profit margin 5.9% - up 40bps
-- Adjusted Profit Before Tax GBP17.2m - up 4.0%
-- Statutory Profit Before Tax, down 65.7% to GBP4.5m
-- Adjusted Basic EPS 10.2p - up 4.1%,
-- Statutory Basic EPS down 76.1% to 1.7p
-- Net Debt GBP15.6m - down 10.5%
-- Capital Investment GBP12.6m in line with last year
-- Total Dividend 3.3p - up 10.0%
Strategic highlights
-- Record capital investment of GBP12.6m, cumulatively GBP37.3m
over last 3 years and GBP50.8m over last 5 years
- Doubling of sales on Artisan bread following investment in 2016
- Newly installed 'automated craft' sharing cake line fully
commissioned and operational in the Cardiff bakery
- New business wide IT platform successfully introduced to 3
sites, with the remaining 3 sites planned for FY19
-- Successful full year product launches including:
- Our own Free From bakery brand, Wiso in Europe via Lightbody Europe
- Mary Berry licence in the UK
-- Successfully implemented key investment change management projects
-- Developed Finsbury "Recipe for Growth" Business Model and
Operating Principles to leverage future efficiency and growth
across the Group
-- Foodservice growth of 5.7%.
Post period highlights
-- Acquisition of Ultrapharm Limited, a gluten free bakery
manufacturer, for GBP17m cash at completion plus GBP3m of deferred
consideration.
Like for like(*1) revenue is the revenue from operations
excluding the revenue from closed bakeries during the first half of
the current year.
Adjusted operating profit, profit before tax and EBITDA exclude
significant and non-recurring and other items as shown in the
reconciliation tables below.
Adjusted EPS has been calculated using earnings, amortisation of
intangibles, significant and non-recurring and other items as shown
in the tables below and in Note 6. The adjusted EPS has been given
as in the opinion of the Board this will allow shareholders to gain
a clearer understanding of the trading performance of the
Group.
Commenting on the results, John Duffy, Chief Executive of
Finsbury Food Group Plc, said:
"Our performance over the period has further illustrated the
Group's resilience and our ability to deliver against our strategic
priorities, ultimately allowing us to grow like for like sales and
profit year on year, reduce our debt further after significant
investment, and continue to grow the dividend. The ongoing capital
investment programme and relentless efficiency focus of recent
years has enabled us to not only cope with this challenging market
environment but also maintain our margin.
Throughout this period, we have continued to drive product
innovation with the launch of both our Mary Berry cake brand with a
number of product formats across a broad customer base and also our
own Free From brand in Europe, Wiso. Complementing this, and in
line with our strategy to diversify the Group by category, channel
and geography, we were delighted to complete the acquisition of
Ultrapharm, which will provide the Group with a significant
opportunity to access the exciting and high growth marketplace,
Free From, and broadens the Group's manufacturing capabilities into
Europe.
We are confident that we are well positioned to deliver on our
strategic objectives and capitalise on growth opportunities both
organically and through future M&A."
For further information:
Finsbury Food Group Plc www.finsburyfoods.co.uk
John Duffy (Chief Executive) 029 20 357 500
Stephen Boyd (Finance Director)
Cenkos Securities plc
Max Hartley (Corporate Finance)
Alma PR finsbury@almapr.co.uk
Rebecca Sanders-Hewett 020 8004 4217
Sam Modlin
Susie Hudson
Notes to editors:
-- Finsbury Food Group Plc (AIM: FIF) is a leading UK
manufacturer of cake and bread bakery goods, supplying a broad
range of blue chip customers within both the grocery retail and
'out of home eating' foodservice sectors including major multiples
and leading foodservice providers.
-- The Company is one of the largest speciality bakery groups in
the UK and, with its Overseas division, has sales in the financial
year ending 30 June 2018 exceeding GBP300m.
-- The Company's bakery product range is comprehensive and includes:
o Large premium and celebration cakes.
o Small snacking cake formats such as cake slices and bites.
o Artisan, healthy lifestyle and organic breads through to
rolls, muffins (sweet and savoury) and morning pastries, all of
which are available both fresh and frozen dependent on customer
channel requirements.
-- The Company is one of the largest ambient cake manufacturers
in the UK, a market valued at over GBP950 million (source: IRI, 52
w/e 23(rd) June 2018). The annual retail bread and morning goods
market has a value of GBP4.3 billion (source: Kantar Worldpanel 52
weeks to 17(th) June 2018). The UK foodservice bread and savoury
morning goods bakery sector is worth approximately GBP691 million
per annum (source: derived from MCA data for 52 weeks to 31(st)
March 2018). The UK foodservice cake and sweet morning goods bakery
sector is worth approximately GBP807 million per annum (UK
foodservice data derived from MCA data for 52 weeks to 31(st) March
2018).
-- The Company comprises a UK Bakery division and an Overseas division:
o The UK Bakery division has manufacturing sites in Cardiff,
East Kilbride, Hamilton, Salisbury, Sheffield, and Manchester.
-- The Overseas division comprises the Company's 50% owned
company, Lightbody Stretz Ltd, which supplies and distributes the
Group's UK-manufactured products and third party products,
primarily to Europe.
-- Since the year end date of 30(th) June 2018, the Company
completed the acquisition of Free From baker Ultrapharm, giving the
Group a significant opportunity to access an exciting and high
growth marketplace and manufacturing facilities in Pontypool in the
UK and in Zywiec, Poland.
Adjusted Operating Profit reconciliation
statutory to adjusted 2018 2017
GBP000 GBP000
------------------------------------------------ --------- ---------
Results from operating activities 5,237 13,564
Significant and non-recurring items - SNR
(refer to Note 3 for detail) 13,067 4,000
Difference between defined benefit pension
scheme charges and cash cost (411) (200)
Movement in the fair value of foreign exchange
contracts (49) 71
Adjustments SNR and other items 12,607 3,871
------------------------------------------------ --------- ---------
Adjusted results from operating activities 17,844 17,435
================================================ ========= =========
Adjusted Profit Before Tax reconciliation
statutory to adjusted 2018 2017
GBP000 GBP000
------------------------------------------------ --------- ---------
Profit before tax 4,475 13,038
Significant and non-recurring items - SNR
(refer to Note 3 for detail) 13,067 4,000
Difference between defined benefit pension
scheme charges and cash cost (134) 4
Movement in the fair value of interest
rate swaps (143) (555)
Movement in the fair value of foreign exchange
contracts (49) 71
Adjustments SNR and other items 12,741 3,520
------------------------------------------------ --------- ---------
Adjusted profit before tax 17,216 16,558
================================================ ========= =========
The Financial Review section within the Strategic Report
provides further details on the adjusted profits.
Chairman's statement
The overall story from the year is one of a stable trading
performance by the Group, delivered in the face of unprecedented
cost inflation of commodity inputs, especially butter. We have
achieved a like for like top-line and underlying bottom-line growth
despite this cost pressure, and in a rapidly changing market. This
not only demonstrates our resilience, but also that we have the
operational abilities to adjust, keep our strategy on track, and
achieve the financial performance expected by our investors.
Revenues were up 2.4%, which excludes revenues from our closed
loss-making Grain D'Or factory. Including this, Group revenues are
down 3.4%. Profit before tax is GBP4.5m, reflecting significant
one-off closure costs, but is 4.0% up on last year on an adjusted
basis. Cash generated from operations increased by 19.8% to
GBP26.9m, due to the strong underlying performance, and net debt is
further reduced to 0.6 times EBITDA. We have also announced a
growth in the dividend. The final dividend per share of 2.2p will
take the total dividend for the year to 3.3p per share, up 10% from
last year's dividend of 3.0p per share.
There were no changes to the Board of Directors during the year.
The Board has adopted the Quoted Companies Alliance Code.
The vision remains the same
Our vision is to be a leading speciality bakery group, producing
a broad range of high-quality products that deliver growth and
differentiation for our customers, while fulfilling the needs of
end consumers, both in the UK and into Europe.
We continue to build a group of scale, but one that can deal
with the manufacturing complexity and flexibility required for
premium and higher-margin products. For ten years we've been doing
this while improving margins and efficiency, reducing debt and
improving diversification. We believe scale will become
increasingly important in the food manufacturing sector as we see
our main customers getting larger.
The bakery sector, outside of sliced bread, is reasonably
unconsolidated. Over the years we have made major acquisitions and
investments, targeting or evolving opportunities based on consumer
trends, market niches, growing channels and added-value products
that retail and foodservice customers are trying to develop.
Through a combination of organic growth and targeted
acquisitions, we will continue to invest to consolidate and grow in
existing areas, such as round cake and artisan bread, and expand
into new areas. To this end, our successful investment programme
will continue. We will invest to expand our capabilities in new
product formats, and to diversify into new channels such as
foodservice cake, and into healthier style products, particularly
'Free From'. We have further strengthened our capabilities, with
acquisition of Free From baker Ultrapharm after the year end.
The Group has increased in scale, and the individual businesses
benefit from this. A lot of work has gone into creating a structure
that enables Group-wide cost-effectiveness and allows innovation,
common process and best practice to flourish.
Stability in a changing market
Markets, channels and customers are consolidating rapidly in
response to changing consumer shopping and 'on-the-move'
consumption behaviour - Tesco and Booker, Amazon and Whole Foods,
Coop and Nisa, the plans of Sainsbury's and Asda - each pairing
demonstrates a changing market environment, to which we can add
discounter and online shopping growth. In addition to adapting to
these changes, bakers and other food producers have faced commodity
price increases, with the weaker pound and the cost of butter
rocketing.
We believe Finsbury is increasingly well positioned to respond
to this fast-changing environment, due to our continuing focus on
operating excellence, quality and innovation, and cost
effectiveness, combined with our sustainable approach and our
commitment to our partners, all underpinned by people who care. We
have and continue to invest to manage the risks and grasp the
opportunities available for scale manufacturers.
Operational highlights
Some years ago, we may have struggled to cope with the degree of
volatility and unexpected cost increases we have seen of late.
However, our diversification over prior years has ensured we are in
a healthy position, and able to capitalise on opportunities
available to us.
We continued to invest heavily in capital this year, at 1.7
times depreciation, which has enabled us to implement key projects
such as our 'automated craft' cake line, now fully commissioned and
operational in Cardiff, and introduce our new business-wide IT
platform. These sorts of change management projects, often
Group-wide, do add a lot of pressure to the workload of our
employees. As does new operational equipment, or worries over, for
example, the decision to close our loss-making Grain D'Or factory.
Much of this added pressure is often on top of the commitment
people already put in to simply doing their jobs well. For this I
would like to thank all employees once again for their sterling
efforts and commitment during the year.
P Baker
Chairman 14 September 2018
Chief Executive's Report
Performance review
Finsbury Food Group has grown like for like sales and adjusted
profit year on year, reduced our debt further after significant
investment, and grown the dividend payable. This has been achieved
despite the volatile retail environment and unprecedented input
cost inflation we have seen over the period. The relentless
investment and efficiency focus of recent years has enabled us to
not only cope with this market environment but also maintain our
margin. At the same time, we have also ensured we are not
over-dependent on any one customer or product area. The true
measure of success is that we have achieved underlying growth ahead
of our market and have demonstrated the growth available from
premium, healthy and authentic on-trend innovation.
Illustrating this, we've introduced our own Free From brand in
Europe, Wiso which capitalises on the fact that making the choice
to avoid gluten is also now a lifestyle and health choice across
North America, Europe and UK.
In concurrence, our Mary Berry cake brand launched in the final
quarter of last year with a number of product formats across a
broad customer base. It's been hugely successful, with a
significant level of sales for the Group, illustrating the
potential of a licence with good consumer recognition and emotional
engagement, plus of course, some very good products - all
traditional, with an artisanal finish, and very much in keeping
with Mary's credentials.
In addition, there are artisan breads, which may be
hand-crafted, require long fermentation, and baking in stone ovens.
It was a slight trend we noticed a few years ago and we decided it
could have a big impact, so we invested in capacity in 2016. We
have now filled that capacity and are looking to invest further to
meet growing demand.
These all show that on top of productivity and efficiency, we're
very good at craft and innovation, and consumers are prepared to
pay for great products that have a lot of craft. These examples are
meaningful opportunities for Finsbury to achieve growth and sales,
and are what we're good at.
These successes, alongside hard work and ongoing investment have
delivered a resilient result for the year, one which we are proud
of.
Maintaining margins
Inflationary costs, larger customers and competitive markets all
present a margin challenge to manufacturers across the market.
Improving margins, or even maintaining them, is difficult in the
short term. But strong, innovative, well-invested manufacturers of
scale are an essential ingredient in helping our consolidating
customers achieve their own strategies. Finsbury is striving to be
exactly that - the leading speciality baker, providing our
customers with brilliant bakery products at affordable prices.
Whilst continuing to deliver on this ambition, the shock butter
price increase at the end of last year came on top of broader input
price inflation in everything from labour and commodities to
energy. We had to offset these increased costs with efficiency
improvements, reformulation and cost recovery, to protect margins.
We also had to take some big decisions at the same time, such as
the decision to close Grain D'Or.
Grain D'Or closure
The escalating butter price - triple what it was just a few
years ago - ultimately led to uncompetitive pricing, lost contracts
and widening financial losses at our London bakery, Grain D'Or.
With the losses caused by the butter increase, we had to change our
commercial plans. This precipitated the difficult decision to close
the business in the first half, following extensive employee
consultation. Thanks to the hard work of the Grain D'Or and wider
Finsbury team, we were able to maintain good customer
relationships, and we went out of our way with unions and employees
to help them find alternative local employment. All in all, it was
a necessary step back to take stronger steps forward.
Capital investment for efficiency
We've had another year of record capital investment at GBP12.6
million. The aim is to continue our strategy of establishing
efficient, cost-effective scale bakeries in our chosen product
areas. This brings the total capital spend over the last five years
to GBP50.8 million.
Our new IT platform is a sizeable investment for us. We have
successfully rolled it out to three of our six manufacturing sites,
with the remaining three sites due in the first half of the new
financial year. IT and management information goes to the heart of
all businesses, so this project is to define our business
processes, and get them up and running in each of the sites, to
provide managers with really good quality information. At the
businesses where we've done that, we are seeing much better
understanding of labour and waste costs by product, which allows us
to gain further insight into the true efficiency of our
manufacturing operations and make informed commercial
decisions.
We also commissioned the new GBP8 million cake line at our
Cardiff bakery and began continuous seven-day operations. Our new
line is completely up to date in oven and process technology, and
much faster. So, we're future-proofing an area where we are number
one in the marketplace, with around 50% share - making sure we gain
the process and quality benefits, as well as improve our cost
effectiveness.
Strength in a Group structure
In recent years, we have acquired a collection of very good, but
varied and historically independent businesses, making many
different products for many different markets. It pays to
diversify. But the truth is, they all have baking in common, and
this is where being a Group is important.
We've moved in recent years to a Group divisional structure and
brought in strong expertise in Group functional directors with the
aim to derive scale benefits from a common approach across the
Group. There's a lot of opportunity to define a way of working
across the Group, which won't take away from the individual
independence of our companies, but it means they can do their day
job, and do it well, without having to worry about say, IT change,
or Group purchasing of insurance, and the like. It also means we
benefit from common insights into consumer trends, or common
approaches to maintenance and safety, for example. It's really a
way of looking to improve the sum of the parts and gain some
leverage from being a larger Group.
We believe brilliant baking makes every day special, so are
applying brilliance to the entire process. To be brilliant we have
to constantly raise standards, inspire innovation and work
effectively as a Group. We've developed the Finsbury 'Recipe for
Growth' and Operating Principles, which allow all our businesses to
understand and use the strengths of the Group, and benefit from
common approaches such as the Group-wide IT platform mentioned
above, and our new Group-wide people strategy.
Our people
Our people strategy is now entering into its third year. It
includes talent management and leadership development programmes,
with increased investment in training. We've also conducted our
second employee engagement survey. It all underpins our belief that
maximising the potential and contribution of our people is
essential to unlocking the longer-term potential of the
business.
I must also say the scale of change management we've undertaken
this year is unprecedented. I travel around meeting people, who are
often also travelling around the Group. Our work is putting
additional demands on teams across the Group, over and above their
normal day jobs. And the jobs themselves, using craft skills to
develop and make craft products, for demanding customers, day in,
day out. Our people still take time to put the effort in. They have
responded brilliantly, and I'm very grateful for that.
Acquisition opportunities
With further acquisitions we can introduce new product, customer
or channel diversification, or accelerate market consolidation in
our main product areas. This year, we continued to explore several
acquisition opportunities without finding the right balance of risk
and reward but were delighted to have completed the acquisition of
Free From baker Ultrapharm shortly after the year end, giving the
Group a significant opportunity to access an exciting and high
growth marketplace. We remain committed to future acquisition-led
growth as part of our strategy.
Outlook
We are looking ahead at steady organic growth, which is no bad
thing in the market we're in, but the desire remains to be a strong
competitor within our bakery markets. The Free From growth
opportunity unlocked in the UK and Europe by the post year end
acquisition of Ultrapharm is a good example of the opportunity
ahead to increase scale via acquisition. This follows three years
where we've benefited from optimising the growth platform we've
built and are now capable of taking the next steps competently.
Three years which I think we've put to good use.
John Duffy
Chief Executive Officer 14 September 2018
Our Business
Manufacturing
Finsbury Food Group includes six manufacturing facilities and
bakery companies, and one distribution company, plus the newly
acquired Ultrapharm Group:
1. Salisbury
Nicholas and Harris
2. Cardiff
Memory Lane Cakes
3. Manchester
Kara Foodservice
4. Sheffield
Fletchers Bakeries
5. East Kilbride
Johnstone's Food Service
6. Hamilton
Lightbody of Hamilton
7. Rennes, France
Lightbody Europe (distribution company)
Acquired after year end:
8. Pontypool
Ultrapharm UK
9. Zywiec, Poland
Ultrapharm Poland
Our products
Our bakery division serves a UK bread and cake retail market of
over GBP6 billion and produces for our UK foodservice channel
serving a UK market of a further GBP1.5 billion.
Bread, morning goods and cakes
-- Artisan loaves
-- Buns and rolls
-- Celebration cakes
-- Sharing cakes
-- Snacking cakes
-- Retailer own-label bakery products
-- Memory Lane, our own cake brand
Foodservice
Kara
Kara is our own foodservice brand. The range covers an
ever-growing portfolio of sweet and savoury baked goods, including
floured baps, artisan breads, brioche buns, traybakes and large
premium cakes, focusing on the latest consumer trends.
Licensed brands
We have a long-standing relationship with many licensed brands,
manufacturing quality bread and cakes for some of the biggest names
in the market.
Thorntons
A partnership spanning two decades, with continuing innovation
in celebration.
Mary Berry
Loaf, sharing and celebration cakes, all true to Mary Berry's
original recipes, appealing to a broad customer base.
Disney
A long-term partner, we continue to help consumers enjoy the
Disney brand in cake.
Mars
Collaborating on an innovative cake range for classic
confectionery brands such as Galaxy, M&M and Malteser.
Baileys
New brand launches include a milkshake-shaped cake with an Irish
cream filling and topping.
Character licensed portfolio
Developing products to meet consumer trends and occasions, and
to bring popular characters to life across different cake formats.
Successful licences this year include Batman, Pokemon, Paw Patrol,
Peppa, Jurassic World 2 and JoJo Siwa.
Vogel's
Alfred Vogel was a pioneering Swiss nutritionist who used
natural ingredients. Vogel's loaves are baked without added sugar,
emulsifiers, enzymes, or artificial preservatives or flavourings,
and are bursting with seeds and grains.
Village Bakery
The range of organic fresh rye bread brands for those looking to
avoid wheat. All made with no added yeast, emulsifiers or
enzymes.
Cranks
Wholesome, simple, nutritious bread baked with organic
stoneground wholemeal flour and fermented for longer, made without
any additives such as emulsifiers and enzymes.
Our Customers
Our bakery segment covers the following.
UK retail
-- UK retailers, supermarkets, discounters and convenience.
UK foodservice
-- Hotels
-- Pubs
-- Restaurants
-- High-street chains
-- Fast-food outlets
-- Contract caterers
International markets
-- France
-- Belgium
-- Netherlands
-- Ireland
Market Overview
Our markets
UK Bakery is a large market valued at over GBP6.2 billion. In
its broadest sense, UK Bakery comprises the cake market and the
bread and morning goods market. Both these markets straddle the
grocery retail market and foodservice market, often also known as
out-of-home (OOH) eating.
We can break the whole market down further into smaller sub
categories:
-- Cake: sharing, bites, celebration and seasonal
-- Bread and morning goods: 'plant' (packaged or factory) bread,
artisan bread, buns and rolls, seasonal hot cross buns, pastry,
muffins, doughnuts, Italian and many more.
Both markets also have a wide range of ingredients that can be
allergens - including wheat, dairy, eggs and nuts - in which there
are growing sub markets such as Free From.
Cake
The total UK ambient cake market (including prepacked cake and
in-store bakery is valued at over GBP950 million (source: IRI, 52
weeks to 23rd June 2018). We trade across all categories, with
large presences in celebration, sharing and seasonal.
Bread
The annual retail bread and morning goods market has a value of
over GBP4 billion (source: Cantor World panel 52 weeks to 17th June
2018). This market is further divided as plant bread (GBP1.8
billion) and the rest, Bread and morning goods (B&MG) (GBP2.2
billion). We trade only in B&MG, with sizeable presences in
buns and rolls, hot cross buns and artisan bread.
Foodservice
UK foodservice spans many sub-sectors including coffee chains,
restaurants, pubs, hotels and the non-profit sector such as the
prison service or education. Each has different routes to
market.
The UK foodservice cake and sweet treat bakery sector is worth
approximately GBP807 million per annum (source: derived from MCA
data 52 weeks to 31 March 2018). Our presence is primarily within
the coffee chains and, through the larger wholesalers, restaurants
and pubs. The UK foodservice B&MG sector is worth GBP691
million per annum (source: derived from MCA data 52 weeks to 31
March 2018). We have a significant presence primarily with our buns
and rolls business.
Overseas
Our overseas markets are primarily Europe, principally France
and Ireland, with a smaller presence in the Benelux countries and
some of eastern Europe. The size of these markets is significant,
and their structure is similar to the UK.
Broad consumer trends
Innovation and product development are essential to the Group's
strategy, helping our customers differentiate themselves and meet
the needs of their end customers. Our challenge is to maintain a
dynamic product portfolio that matches and satisfies macro consumer
trends and niches. We show some of these current trends below.
Economic
Consumer confidence has been weak for some time, and price and
value will remain important. Although consumers will remain
cautious and price-conscious, they will continue to want affordable
treats, so pricing policies need to reflect household
economics.
Grocery
Consolidation has started to reshape the grocery market in
recent times and this will continue. Online and discount will be
the two fastest growing grocery channels, and will account for 22%
share of grocery expenditure by 2023 (IGD). The convenience channel
is also forecast to see strong growth.
Out-of-home
In the out-of-home (OOH) market, volume growth is forecast to be
negative as weakening consumer confidence and general consumer
caution mean people will eat out less. The casual dining restaurant
sector is likely to struggle, but fast-food outlets, coffee shops,
supermarket cafés and food-to-go offers will see better growth.
Healthy eating
Consumers continue to pursue more healthy eating options
generally, though indulgence is also a key trend in
'sweet-treating'. Media focus and regulatory pressure will continue
to drive recipe reformulation and portion size. The 'Better for
you' market is proliferating rapidly, with protein, gut health, low
sugar, vegetarian, plant health, grains and seeds, and slow energy
release all growing in popularity over recent years.
Free From
The overall 'Free From' market continues to grow, doubling in
size in the past five years. Mintel forecasts it to grow by an
additional 25% to GBP899m by 2022. It's boosted by consumers who
don't cite a specific allergy or intolerance, but choose to avoid
certain ingredients as part of a general healthy lifestyle. Dairy
free and gluten free are the biggest sub-sectors. The 'Free From'
bakery market is valued at GBP129m and has grown 14.5% year on
year.
Artisan bread
The market has grown due to the perceived health benefits, the
wider trend of provenance and the 'craft' movement. Consumers
respond well to products they perceive to be less
mass-manufactured.
Fragmentation
Social and demographic trends have a major bearing on the food
sector. These include smaller households, single-person mealtimes,
an ageing UK population, urbanisation, and an increasingly mobile
population with less time to eat. These are fuelling the growth of
convenience, online and out-of-home channels. But the growing
fragmentation of consumers, channels, eating moments and needs will
also translate into increasing demand for personalised products to
meet individual needs. Thus single-serve and individually wrapped
products are becoming more prevalent and important.
Technology
Technology is fundamentally changing the relationship between
businesses and customers, who are increasingly using mobile devices
to make purchases. Demand for anytime, anywhere purchasing and
access to information will accelerate. Online ordering is not just
for the weekly shop, it is also for top-up and 'dinner tonight'
shopping.
Our Purpose and Strategy
Our purpose
People love the high-quality products we make. They are
essential parts of their daily lives and enjoyable treats and
choices for every occasion. So, we are committed to building the
leading speciality bakery group - because baking brilliance makes
every day special.
Our Vision and Strategy
Our strategic objective is to create sustainable value for our
shareholders, customers and other stakeholders by building the
leading speciality bakery group. We produce a broad range of
high-quality bread, cake and bakery snacking products targeted at
growing channels and market niches. These offer growth potential
and differentiation for our major customers, while fulfilling the
changing needs and desires of end consumers.
To achieve this our strategy is to:
-- Invest in our people and our manufacturing sites to form a
strong foundation for our strategy
-- Create innovative, high-quality bakery products that
anticipate key market trends
-- Ensure customer and consumer needs are at the heart of our
decision making
-- Develop a strong licensed brand portfolio to complement our
core retailer brand relationships
-- Aim to succeed in both the retail grocery and out-of-home
channels
-- Grow through a combination of organic growth and targeted
acquisitions.
Operating Principles in action
Operating excellence
-- Sustained strategy to invest in the capability and capacity of our manufacturing assets:
o GBP8 million new cake line with scale and automation.
o New IT platform across all sites - 50% complete.
-- Group manufacturing process blueprint leading to specific
product design framework and improved efficiency and quality.
Sustainable approach
-- Most Finsbury sites are sending zero waste to landfill
already. All will have achieved this by 2020.
-- All sites have a nominated energy champion responsible for
identifying and reducing consumption. Heat recovery projects are
underway at several sites, and all lighting will be converted to
LED by 2020. The asset investment strategy includes a focus on
energy consumption.
-- All sites are involved in the reducing and eliminating
single-use plastics. With good progress already, we are targeting a
50% reduction by 2020.
Quality and innovation
-- Extensive insight capabilities mean new product development is in line with market trends.
-- Over 60 employees are engaged in developing new products.
-- Leading organic bakery in the UK.
-- Manufacturing process blueprint embraces the production of high-quality premium product.
-- All sites hold BRC A-grade or above.
-- Health agenda embedded into development process, with over
90% of products achieving FSA salt targets. Good progress made
across all categories in reducing sugar in line with PHE targets,
and further research underway to achieve their 2020 objectives.
-- Acquisition of Ultrapharm after year end gives us scale in Free From.
Cost effectiveness
-- Centralised Group Buying focused on high-quality and cost effective ingredients.
-- Operational excellence initiatives focused on achieving
lowest-cost-producer status in areas where we have niche strength
e.g. artisan breads or round sharing cake.
-- Group logistics leverages our scale to achieve lowest cost route to customers.
Growth with partners
-- Our scale and diversity of products across UK bakery means
the relationship with grocery retail customers is a
partnership.
-- Our business with discounters is growing in line with their growth within UK grocery.
-- Our channel diversification into foodservice, our Kara
foodservice brand, and our broad frozen foodservice range of
products, sees us as the leading foodservice partner to the
industry, growing at 6% in the year
People who care
-- A health and safety risk management team with a mantra of
'Home Safe Everyday', supported by resources and a common
Group-wide strategy and programme.
-- Values of teamwork, honesty, ownership, respect and communication:
- New workplace Facebook communication tool to facilitate communication between all employees.
-- A people strategy for all employees, embracing courses in
basic English, an engineering apprenticeship programme, a graduate
recruitment programme and leadership development programmes.
-- Annual employee survey to obtain our employees' views.
Risk Report
Principal Risks and Uncertainties
The Board recognises the need for a robust system of internal
controls and risk management. The assessment of risks and the
development of strategies for dealing with these risks are achieved
on an ongoing basis through the way in which the Group is
controlled and managed internally. A formal review of these risks
is carried out by the Group on an annual basis. The review process
involves the identification of risks, assessment to determine the
relative likelihood of them impacting the business and the
potential severity of the impact and determination of what needs to
be done to manage them effectively. Risk management is integral to
the ability of the Group to deliver on its strategic
objectives.
The Directors have identified the following as the principal
risks and uncertainties that face the Group currently:
Strategic Risks:
Retailer Consolidation
There have been a number of high profile mergers and prospective
mergers reported in the press in the past year including the merger
of Tesco and Booker and the current proposed merger of Asda and JS
Sainsbury's. There is always a risk in these situations that as the
newly merged entities seek to offer the best prices to the consumer
through economies of scale, the supplier base is rationalised.
Furthermore, the buying power of such a this newly created
entity would be exceptional which poses a risk to suppliers who
could
be pressured to lower prices to ensure that current and future
trade is preserved.
As a supplier to all parties of the aforementioned mergers, the
Group is not immune to this risk. However, we continue to strive to
be the highest quality, most innovative and lowest cost supplier
and believe this, along with our robust relationships with our
customers, will ensure that we are strongly placed to continue to
supply our current and future customer base.
Competitive environment and Customer requirements
The environment remains competitive within the Bakery sector.
The monitoring of key performance indicators at customer
level such as service levels and customer complaints is part of
the risk management process associated with this specific risk.
Providing quality products, investing in innovation and competing
on value helps to strengthen customer relations and support growth
initiatives. The Group invests heavily in category management, new
product development and marketing skills. This investment has
helped create an insight into customers and consumer demands.
Consumer Trends
Post EU referendum, consumer optimism and spending has remained
resilient. However, trends now suggest that as we move closer to
the exit deadline, uncertainty over what Brexit deal will be
implemented is having an impact on sentiment. British consumers
have stopped taking on more debt and started saving their money
again in a reversal to the trends that have upheld economic growth
over the last year. The risk to the Group in that spending on
non-essential goods and treats will fall, impacting on the demand
for our key products The Group will continue to focus on quality
and value and will explore new channels, new products and new
formats to gain competitive advantage.
Health continues to be a major focus for the business. Dedicated
resource continues to work on sugar and salt reduction targets as
part of the Government Obesity Strategy and Public Health England
recommendations. Our development teams work closely with our
customers to ensure we meet or exceed all guidelines for health and
nutrition, and work continuously with suppliers to reduce salt, fat
and sugar in our products. We are committed to meet the FSA 2017
salt targets and are already over 90% compliant. Good progress has
been made across all categories in reducing sugar in line with PHE
targets.
Operational Risks:
Health & Safety
The importance of Health and Safety is widely recognised amongst
the Group. Failure to adhere to health and safety regulations
within the workplace not only puts our employees at risk, it could
also carry serious financial, reputational and legal risk. A Group
Head of Health and Safety has been appointed to create a largely
uniform H&S system across all business units and to drive
forward the "Home Safe Every Day" strategy. The Group's technical
function is responsible for the implementation and maintenance of
high standards for food safety, striving for best practice. Quality
assurance procedures are managed at site level, are reviewed
continuously with improvements made as appropriate and are audited
by internal teams. All manufacturing sites are registered under the
British Retail Consortium ('BRC') Unannounced Scheme. The sites are
subject to regular internal and independent food safety and quality
control audits, both announced and unannounced including those
carried out by, or on behalf of, our customers. The Group maintains
appropriate insurance cover, including product recall insurance, to
mitigate the potential financial impact of a breach in food safety
compliance.
External Risks:
Brexit
There is significant uncertainty over the type of Brexit deal
the UK will agree with its European neighbours. Whatever the
structure of the final deal, anything different from the current
status quo is likely to have an impact on both the Food
Manufacturing industry and on the Group.
The majority of the Group's trading is in the UK but there are
sales into Europe which includes to Lightbody Europe, our 50%
subsidiary. A material proportion of bakery commodities such as
dairy and egg are sourced in Europe. Any tariffs on trade therefore
will have a bearing on the UK Bakery market, the UK manufacturing
industry and the Group. Contingency planning is already in place
looking at alternative UK sources of products.
The Group is also likely to face higher logistic costs and
administration costs due to increased custom border checks and will
require higher stock levels due to lengthening delivery times for
ingredients.
Equally, the Food Manufacturing industry, including Finsbury is
typically reliant on low skilled labour. Labour strategies are
being developed to retain and develop existing workers, attracting
and hiring new workers and reducing labour whilst boosting
productivity with its capital investment program.
Finsbury is not being complacent in its response to likely
Brexit scenarios and has a cross functional team preparing a number
of strategies in order to minimise the impact of Brexit.
Cyber Security
The Group is exposed to potential random and malicious attacks
from Cyber criminals. The maintenance of protections software is
one tool in the fight to protect our data. In addition, the Group
is investing to implement common information systems across all
companies with standardised protection operating requirements and
security protection. Real time back-up, training and regular
communication pulls the Group's defences together.
During 2017-18, the Audit Committee formally reviewed cyber
security in four areas: Network security, hardware and software
maintenance / updates, disaster recovery and related controls and
governance. Where recommendations for improvements were made these
are being implemented. An annual security review will be
implemented including penetration testing, auditing of all software
and hardware, and testing of disaster recovery plans.
Financial Risks:
Commodity & labour pressures
Bakery entails the use of commodities whose price is determined
by worldwide demand and macro-economic factors. Commodity pressures
have increased as a consequence of a number of factors; 1) A step
change in the value of Sterling against both the Euro and Dollar
following the EU Referendum. 2) The commodity cycle which, in the
recent past has been relatively low. The cycle has seen significant
increases in the price of a number of commodities which are over
and above any exchange rate deterioration. Finally, 3) European
policies particularly in the areas of butter and sugar.
The Group maintains a high level of expertise in its buying team
and will consider long term contracts where appropriate to reduce
uncertainty in input prices. The team also cultivates strong
relationships with major suppliers to ensure continuity of supply
at competitive prices. Regular renovation and innovation in our
product range can help to manage margin pressures in an effective
manner as far as the competitive environment allows. The Group also
purchases forward foreign currency in order to minimise the
fluctuation of input costs linked to future currency conversion
rates.
The National Living Wage is driving forward the cost of labour
ahead of inflation and demand related adjustments. More recently
the future availability of labour has become a concern. Ongoing
capital investment and improvements in operational efficiency help
reduce the impacts of both labour availability and cost as well as
material inflation.
Pension Fund Deficit
The Group has one defined benefit pension scheme within its
Memory Lane Cakes Limited business in Cardiff. The Scheme was
closed to new members in 2010 to reduce the funding risk to Memory
Lane Cakes. The valuation of the Scheme on a technical provision
basis as well as the underlying performance of the invested assets
can cause large fluctuations in valuations. There is an agreed
deficit recovery plan fixed until September 2023 or until a new
schedule is agreed based on the next valuation which will be at 31
December 2018.
Foreign Exchange
The Group supplies UK manufactured products to Lightbody Stretz
Ltd, its 50% owned selling and distribution business trading in
Mainland Europe. The Group also purchases a small amount of
commodities and capital equipment in foreign currency. As a
consequence, the Group is exposed to fluctuations in foreign
currency rates. This risk is managed by the continual monitoring of
the exposure to foreign currency transactions. Forward currency
contracts are used when required and the Group procurement team
work hard to ensure the best prices for commodities and equipment,
giving special consideration to the benefits of those contracts
denominated in foreign currency.
Financial Review
Group revenue for the 52 week period to 30 June 2018, including
the revenues for the bakeries closed during the year, is GBP303.6m,
3.4% lower than last year. Continuing Group revenue (i.e. excluding
the revenues of the bakeries closed) is, at GBP290.2m up 2.4% or
GBP6.8m. Growth in continuing revenues is within markets which are
seeing value growth with slight volumes decline.
Significant and non-recurring costs of GBP13,067,000 which
primarily relate to the closure of the bakeries have been stripped
out of operating profit to give adjusted operating profit, which
provides a clearer presentation of the underlying trading
performance of the Group. Adjusted operating profit at GBP17.8m is
up 2.3% on last year. Adjusted operating profit margins are 5.9%
(2017: 5.5%), a consequence of removing the losses of the bakeries
closed. The Group's performance is seen as resilient in the face of
severe commodity and labour inflation. This resilience is
underpinned by capital investment, a focus on operational
efficiency and removing low profit business to optimise product
mix.
Dividend
Subject to Shareholder approval at the Company's AGM on 21
November 2018, the final dividend of 2.2 pence per share will be
paid on 21 December 2018 to all shareholders on the register at 23
November 2018 and will be recognised in the year ending 29 June
2019.
The tables below show what the Directors consider to be the
underlying performance of the Group, the adjustments eliminate the
impact of significant and non-recurring items and other accounting
items.
52 week period ended 30 June 2018
Fair value As per
Defined of interest Consolidated
Adjusted Significant benefit rate swaps/ Statement of
Operating and non-recurring pension foreign exchange Comp-rehensive
performance items scheme contracts Income
GBP000 GBP000 GBP000 GBP000 GBP000
------------------- ------------------ ------------------ --------- ------------------ ------------------
Revenue 303,600 - - - 303,600
Cost of sales (211,511) - - - (211,511)
------------------- ------------------ ------------------ --------- ------------------ ------------------
Gross profit 92,089 - - - 92,089
Other costs
excluding
depreciation
& amortisation (66,489) (13,067) 411 49 (79,096)
EBITDA 25,600 (13,067) 411 49 12,993
Depreciation
& amortisation (7,756) - - - (7,756)
------------------- ------------------ ------------------ --------- ------------------ ------------------
Results from
operating
activities 17,844 (13,067) 411 49 5,237
------------------- ------------------ ------------------ --------- ------------------ ------------------
Finance income 24 - - 143 167
Finance costs (652) - (277) - (929)
------------------- ------------------ ------------------ --------- ------------------ ------------------
Profit before
tax 17,216 (13,067) 134 192 4,475
------------------- ------------------ ------------------ --------- ------------------ ------------------
Taxation (3,708) 2,452 (23) (32) (1,311)
------------------- ------------------ ------------------ --------- ------------------ ------------------
Profit for
the year 13,508 (10,615) 111 160 3,164
------------------- ------------------ ------------------ --------- ------------------ ------------------
52 week period ended 1 July 2017
Fair value
Defined of interest As per Consolidated
Adjusted Significant benefit rate swaps/ Statement
Operating and non-recurring pension foreign exchange of Comp-rehensive
performance items scheme contracts Income
GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- ------------- ------------------- --------- ------------------ --------------------
Revenue 314,296 - - - 314,296
Cost of sales (216,493) - - - (216,493)
--------------------- ------------- ------------------- --------- ------------------ --------------------
Gross profit 97,803 - - - 97,803
Other costs
excluding
depreciation &
amortisation (72,883) (4,000) 200 (71) (76,754)
EBITDA 24,920 (4,000) 200 (71) 21,049
Depreciation &
amortisation (7,485) - - - (7,485)
--------------------- ------------- ------------------- --------- ------------------ --------------------
Results from
operating
activities 17,435 (4,000) 200 (71) 13,564
--------------------- ------------- ------------------- --------- ------------------ --------------------
Finance income - - - 555 555
Finance costs (877) - (204) - (1,081)
--------------------- ------------- ------------------- --------- ------------------ --------------------
Profit before tax 16,558 (4,000) (4) 484 13,038
--------------------- ------------- ------------------- --------- ------------------ --------------------
Share of losses of
equity accounted
investees
after tax (22) - - - (22)
--------------------- ------------- ------------------- --------- ------------------ --------------------
Taxation (3,578) 680 1 (62) (2,959)
--------------------- ------------- ------------------- --------- ------------------ --------------------
Profit for the year 12,958 (3,320) (3) 422 10,057
--------------------- ------------- ------------------- --------- ------------------ --------------------
Earnings Per Share (EPS)
EPS comparatives to the prior year can be distorted by
significant and non-recurring items and other items highlighted in
the tables above. The Board is focused on growing adjusted diluted
EPS, which is calculated by eliminating the impact of the items
highlighted above as well as amortisation of intangibles and
incorporates the dilutive effect of share options. Adjusted diluted
EPS is 9.8p (2017: 9.5p).
2018 2017
Basic EPS 1.7p 7.1p
------ -----
Adjusted basic EPS 10.2p 9.8p
------ -----
Diluted basic EPS 1.6p 6.9p
------ -----
Adjusted* diluted** EPS 9.8p 9.5p
------ -----
Further details can be found in Note 6.
Diluted EPS takes basic EPS and incorporates the dilutive effect
of share options.
Cash Flow
There was a decrease in our working capital requirement of
GBP1.3 million (2017: GBP2.5 million increase) in the financial
year, corporation tax payments made in the financial year totalled
GBP3.3 million (2017: GBP2.7 million), the payments in the current
and prior year took account of the research and development tax
relief due to the Group, tax losses being utilised and a higher tax
rate charged on overseas profits. Capital expenditure in the year
amounted to GBP12.6 million (2017: GBP12.5 million).
Debt and Bank Facilities
The Group's total net debt is GBP15.6 million (2017: GBP17.5
million) down GBP1.9 million from the prior year. During the year
the Group refinanced its debt facilities. The new facility is a
GBP45m revolving credit facility provided by a club of three banks
- HSBC, Rabobank and RBS. The facility is on improved terms, is
available for five years and also includes scope for the facility
to be increased by up to a further GBP45m.
The Group is able to offer strong asset backing to secure its
borrowings. The Group owns freehold sites at Memory Lane in
Cardiff, Fletchers' site at Sheffield and Lightbody in Scotland. In
addition, the Group has a strong trade debtor book, made up
primarily of the UK's major multiple retailers. This debtor book
stood at GBP40.0 million (2017: GBP45.2 million) at the period end
date.
The Group recognises the inherent risk from interest rate rises,
and uses interest rate swaps to mitigate these risks. The Group
entered into a swap for GBP20.0m for five years from 3 July 2017
(fixed) at 0.455%. The total balance of swaps at 30 June 2018 is
GBP20 million (2017: GBPnil). The counterparty to these
transactions is HSBC Bank Plc.
The effective interest rate for the Group at the year end,
taking account of the interest rate swap in place with base rate at
0.5% and LIBOR at 0.501%, was 1.66% (2017: 2.15%).
Financial Covenants
The Board reviews the Group's cash flow forecasts and key
covenants on a regular basis to ensure that it has adequate
facilities to cover its trading and banking requirements with an
appropriate level of headroom. The forecasts are based on
management's best estimates of future trading. There has been no
breach of covenants during the year.
Interest cover (based on adjusted earnings before interest, tax,
depreciation and amortisation - EBITDA) for the 52 weeks to 30 June
2018 was 40.7 (2017: 28.4). Net bank debt to EBITDA (based on
adjusted EBITDA) for the year to 30 June 2018 was 0.6 (2017:
0.7).
Taxation
The Group taxation charge for the year was GBP1.3 million (2017:
GBP3.0 million). This represents an effective rate of 21.5% on
profits before significant and non-recurring and other items (2017:
21.6%) as shown in the tables above. Further details on the tax
charge can be found in Note 5.
Financial and Non-Financial Key Performance Indicators
A range of financial and non-financial key performance
indicators are monitored at site level covering, amongst others,
customer service, quality and health and safety. The Group board
receives a regular overview of these.
Stephen Boyd
Director 14 September 2018
Consolidated Statement of Profit and Loss and Other
Comprehensive Income
for the 52 weeks ended 30 June 2018 and 52 weeks ended 1 July
2017
2018 2017
Note GBP000 GBP000
Revenue 1 303,600 314,296
Cost of sales (211,511) (216,493)
----------------------------------------- --------- ---------
Gross profit 92,089 97,803
----------------------------------------- ---- --------- ---------
Administrative expenses -- underlying (73,785) (80,239)
Administrative expenses -- significant
and non-recurring (13,067) (4,000)
----------------------------------------- ---- --------- ---------
Administrative expenses 2 (86,852) (84,239)
----------------------------------------- --------- ---------
Results from operating activities 5,237 13,564
----------------------------------------- --------- ---------
Finance income 4 167 555
Finance cost 4 (929) (1,081)
--------- ---------
Net finance cost (762) (526)
----------------------------------------- --------- ---------
Profit before tax and share of
losses of equity-accounted investees 4,475 13,038
Share of losses of equity accounted
investees - (22)
Profit before tax 4,475 13,016
Taxation 5 (1,311) (2,959)
----------------------------------------- --------- ---------
Profit for the financial year 3,164 10,057
----------------------------------------- --------- ---------
Other comprehensive (expense)/income
Items that will not be reclassified
to profit and loss
Remeasurement on defined benefit
pension scheme (172) (4,031)
Movement in deferred taxation
on pension scheme liability 29 621
Other comprehensive expense for
the financial year, net of tax (143) (3,410)
----------------------------------------- --------- ---------
Total comprehensive income for
the financial year 3,021 6,647
========================================= ========= =========
Profit attributable to:
Equity holders of the parent 2,180 9,048
Non-controlling interest 984 1,009
----------------------------------------- --------- ---------
Profit for the financial year 3,164 10,057
========================================= ========= =========
Total comprehensive income attributable
to:
Equity holders of the parent 2,037 5,638
Non-controlling interest 984 1,009
----------------------------------------- --------- ---------
Total comprehensive income for
the financial year 3,021 6,647
========================================= ========= =========
Earnings per ordinary shares
Basic 6 1.7 7.1
Diluted 6 1.6 6.9
The Notes on pages 20 to 28 form an integral part of these
Financial Statements
Consolidated Statement of Financial Position
at 30 June 2018 and 1 July 2017
Note 2018 2017
GBP000 GBP000
Non-current assets
Intangibles 7 83,313 80,302
Property, plant and equipment 49,922 48,857
Investments in equity accounted investees - 269
Other financial assets 28 28
Deferred tax assets 3,890 4,063
137,153 133,519
-------------------------------------------- --------- --------
Current assets
Inventories 13,456 12,684
Trade and other receivables 44,575 50,018
Cash and cash equivalents 9,363 3,024
Other financial assets -- fair value of
derivatives 558 560
67,952 66,286
-------------------------------------------- --------- --------
Total assets 205,105 199,805
-------------------------------------------- --------- --------
Current liabilities
Other interest-bearing loans and borrowings 8 (24,685) (14,586)
Trade and other payables (55,598) (60,461)
Provisions (3,798) (18)
Other financial liabilities - fair value
of derivatives (40) (234)
Current tax liabilities - (1,650)
-------------------------------------------- --------- --------
(84,121) (76,949)
-------------------------------------------- --------- --------
Non-current liabilities
Other interest-bearing loans and borrowings 8 - (5,800)
Provisions and other liabilities (4,623) (221)
Deferred tax liabilities (1,243) (1,335)
Pension fund liability (10,536) (10,498)
-------------------------------------------- --------- --------
(16,402) (17,854)
-------------------------------------------- --------- --------
Total liabilities (100,523) (94,803)
-------------------------------------------- --------- --------
Net assets 104,582 105,002
============================================ ========= ========
Equity attributable to equity holders of
the parent
Share capital 1,304 1,304
Share premium account 64,956 64,956
Capital redemption reserve 578 578
Employee share reserve (3,282) (3,585)
Retained earnings 38,954 39,862
-------------------------------------------- --------- --------
102,510 103,115
Non-controlling interest 2,072 1,887
-------------------------------------------- --------- --------
Total equity 104,582 105,002
-------------------------------------------- --------- --------
These Financial Statements were approved by the Board of
Directors on 14 September 20018 and were signed on its behalf
by:
Stephen Boyd (Director)
Registered Number 00204368
The Notes on pages 20 to 28 form an integral part of these
Financial Statements
Consolidated Statement of Changes in Equity
for the 52 weeks ended 30 June 2018 and 1 July 2017
Capital Employee
Share Share redemption share Retained Non-controlling Total
Capital premium reserve reserve Earnings interest equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- --------------- ------------- ------------- ----------- --------- --------------- -------------
Balance at 2
July
2016 1,304 64,956 578 (3,920) 36,569 1,583 101,070
Profit for the
financial
year - - - - 9,048 1,009 10,057
Other
comprehensive
(expense)/
income:
Remeasurement on
defined benefit
pension - - - - (4,031) - (4,031)
Deferred tax
movement
on pension
scheme
remeasurement - - - - 621 - 621
Total other
comprehensive
expense - - - - (3,410) - (3,410)
---------------- --------------- ------------- ------------- ----------- --------- --------------- -------------
Total
comprehensive
income for the
period - - - - 5,638 1,009 6,647
---------------- --------------- ------------- ------------- ----------- --------- --------------- -------------
Transactions
with
owners,
recorded
directly in
equity:
Shares issued
from
EBT - - - 335 (158) - 177
Impact of share
based payments - - - - 1,240 - 1,240
Deferred tax on
share options - - - - 47 - 47
Foreign
exchange
translation
differences - - - - 171 - 171
Dividend paid - - - - (3,645) (705) (4,350)
---------------- --------------- ------------- ------------- ----------- --------- --------------- -------------
Balance at 1
July
2017 1,304 64,956 578 (3,585) 39,862 1,887 105,002
---------------- --------------- ------------- ------------- ----------- --------- --------------- -------------
Balance at 1
July
2017 1,304 64,956 578 (3,585) 39,862 1,887 105,002
Profit for the
financial
year - - - - 2,180 984 3,164
Other
comprehensive
(expense)/
income:
Remeasurement on
defined benefit
pension - - - - (172) - (172)
Deferred tax
movement
on pension
scheme
remeasurement - - - - 29 - 29
Total other
comprehensive
expense - - - - (143) - (143)
---------------- --------------- ------------- ------------- ----------- --------- --------------- -------------
Total
comprehensive
income for the
period - - - - 2,037 984 3,021
---------------- --------------- ------------- ------------- ----------- --------- --------------- -------------
Transactions
with
owners,
recorded
directly in
equity:
Shares issued
from
EBT - - - 303 (217) - 86
Impact of share
based payments - - - - 1,138 - 1,138
Deferred tax on
share options - - - - 58 - 58
Foreign exchange
translation
differences - - - - 34 - 34
Dividend paid - - - - (3,958) (799) (4,757)
---------------- --------------- ------------- ------------- ----------- --------- --------------- -------------
Balance at 30
June
2018 1,304 64,956 578 (3,282) 38,954 2,072 104,582
================ =============== ============= ============= =========== ========= =============== =============
The notes on pages 20 to 28 form an integral part of these Financial
Statements.
Consolidated Cash Flow Statement
for the 52 weeks ended 30 June 2018 and 1 July 2017
Note 2018 2017
GBP000 GBP000
Cash flows from operating activities
Profit for the financial year 3,164 10,057
Adjustments for:
Taxation 5 1,311 2,959
Net finance costs 4 762 526
Depreciation 7,041 6,948
Amortisation of intangibles 7 715 537
Significant and non-recurring items 13,067 4,000
Share of losses of equity accounted investees
after tax - 22
Contributions by employer to pension scheme (411) (200)
Change in fair value of foreign exchange
contracts (49) 71
Operating profit before changes in working
capital 25,600 24,920
Changes in working capital:
Increase in inventories (757) (39)
Decrease in trade and other receivables 6,235 153
Decrease in trade and other payables (4,160) (2,566)
-------------------------------------------------- -------- --------
Cash generated from operations before costs
of disposals and acquisitions 26,918 22,468
Costs relating to closure of bakeries and
acquisitions (4,594) -
Interest paid (634) (892)
Tax paid (3,338) (2,650)
-------- --------
Net cash from operating activities 18,352 18,926
-------------------------------------------------- -------- --------
Cash flows from investing/divesting activities
Purchase of property, plant and equipment (12,606) (12,542)
Disposal of property, plant and equipment 768 -
Purchase of companies/investments - (80)
Net cash used in investing activities (11,838) (12,622)
-------------------------------------------------- -------- --------
Cash flows from financing activities
(Repayment)/drawdown of invoice discounting 9 (11,646) 822
Drawdown of revolving credit 9 25,000 -
Repayment of mortgage and bank loans 9 (8,794) (2,937)
Repayment of asset finance liabilities 9 (57) (133)
Options exercised 86 177
Dividend paid to non-controlling interest (799) (705)
Dividend paid to shareholders (3,958) (3,645)
-------------------------------------------------- -------- --------
Net cash from financing activities (168) (6,421)
-------------------------------------------------- -------- --------
Net increase/(decrease) in cash and cash
equivalents 6,346 (117)
Opening cash and cash equivalents 3,024 3,024
Effect of exchange rate fluctuations on
cash held (7) 117
-------------------------------------------------- -------- --------
Cash and cash equivalents at end of period 9,363 3,024
-------------------------------------------------- -------- --------
The Notes on pages 20 to 28 form an integral part of these Financial
Statements.
Presentation of Financial Statements
Basis of Preparation
The financial information set out above does not constitute the
company's statutory accounts for the 52 week period ended 30 June
2018 or the 52 week period ended 1 July 2017, but is derived from
those accounts. Statutory accounts for 2017 have been delivered to
the registrar of companies, and those for 2018 will be delivered in
due course. The auditor has reported on those accounts; their
reports were (i) unqualified (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
1. Revenue and Segmental Information
Operating segments are identified on the basis of internal
reporting and decision making. The Group's Chief Operating Decision
Maker is considered to be the Board as it is primarily responsible
for the allocation of resources to segments and the assessment of
performance by segment.
The Board uses adjusted operating profit, reviewed on a regular
basis, as the key measure of the segments' performance. Operating
profit in this instance is defined as profit before the
following:
- Net financing expense
- Significant and non-recurring items
- Pension charges or credits in relation to the net pension position
- Revaluation of interest rate swaps and forward foreign currency contracts.
The UK Bakery segment manufactures and sells bakery products to
the UK's multiple grocers and foodservice sectors. This segment
primarily comprises the operations of Memory Lane Cakes Ltd,
Lightbody Group Ltd, Johnstone's Food Service Ltd, Fletchers
Bakeries Ltd and Nicholas & Harris Ltd. These subsidiaries are
aggregated into a single UK Bakery segment as they share similar
characteristics. The characteristics considered are:
- The nature of the products - products are similar in nature
and are classed as manufactured bakery products
- The production process - the production processes have the same or similar characteristics
- The economic characteristics - the average gross margins are expected to be similar
- The type and class of customer - customers are the same
grocery retailers and foodservice customers
- The method of distribution - method is the same or similar throughout the segment
- The regulatory environment - the environment is the same.
Costs of Group operations plus a 10% premium have been allocated
across the segments on the basis of their operating profit. The
premium has been charged to reflect the synergies achieved from
obtaining resources centrally giving benefits across the operating
segments
A purchasing premium of 2% is charged from Group operations, and
is calculated on materials and packaging spend at segmental level.
This charge is based on the rationale that Group operations,
through its Group buyers, optimises the Group's procurement spend
through leveraging its purchasing power. This has resulted in a
loss from continuing operations of GBP0.1m (2017: GBP0.2m loss)
being presented within the Group Operations segment. The Group's
finance income and expenses cannot be meaningfully allocated to the
individual operating segments.
52 week period ended 30 UK Bakery Overseas Group Operations Total Group
June 2018 GBP000 GBP000 GBP000 GBP000
------------------------------------ ---------- --------- ----------------- ------------
External revenue continuing 271,127 32,473 - 303,600
------------------------------------ ---------- --------- ----------------- ------------
Adjusted operating profit 15,607 2,348 (111) 17,844
------------------------------------ ---------- --------- ----------------- ------------
Fair value foreign exchange
contracts (145) 194 - 49
Defined benefit pension
scheme 411 - - 411
Significant and non-recurring
items (13,067) - - (13,067)
Results from operating activities 2,806 2,542 (111) 5,237
------------------------------------ ---------- --------- ----------------- ------------
Finance income 167
Finance cost (929)
------------------------------------ ---------- --------- ----------------- ------------
Net finance cost (762)
------------------------------------ ---------- --------- ----------------- ------------
Share of losses of equity -
accounted investees after
tax
------------------------------------ ---------- --------- ----------------- ------------
Profit before taxation 4,475
------------------------------------ ---------- --------- ----------------- ------------
Taxation (1,311)
------------------------------------ ---------- --------- ----------------- ------------
Profit for the financial
year 3,164
------------------------------------ ---------- --------- ----------------- ------------
At 30 June 2018
------------------------------------ ---------- --------- ----------------- ------------
Segment assets 187,260 7,138 752 195,150
Unallocated assets 9,955
------------------------------------ ---------- --------- ----------------- ------------
Consolidated total assets 205,105
------------------------------------ ---------- --------- ----------------- ------------
Segment liabilities (64,358) (4,684) (6,661) (75,703)
Unallocated liabilities (24,820)
------------------------------------ ---------- --------- ----------------- ------------
Consolidated total liabilities (100,523)
------------------------------------ ---------- --------- ----------------- ------------
Other segment information
Capital expenditure 12,354 173 - 12,527
Depreciation included in
segment profit 6,979 62 - 7,041
Amortisation 715 - - 715
Impairment of assets 987 - - 987
Inter-segmental sale / (purchases) 9,538 (9,538) - -
------------------------------------ ---------- --------- ----------------- ------------
Analysis of unallocated assets and liabilities:
Assets Liabilities
GBP000 GBP000
Investments 28 Loans and borrowings (24,685)
Financial instruments 558 Financial instruments (40)
Cash and cash equivalents 9,363 Cash and cash equivalents -
Taxation balances 6 Taxation balances (95)
Unallocated assets 9,955 Unallocated liabilities (24,820)
--------------------------- ------- -------------------------- ------------
With regard to revenue, five customers with sales of GBP60m,
GBP40m, GBP31m, GBP24m and GBP18m account for 57% of revenue, which
is attributable to the UK Bakery and Overseas segments above.
52 week period ended 1 July UK Bakery Overseas Group Operations Total Group
2017 GBP000 GBP000 GBP000 GBP000
------------------------------------ ---------- --------- ----------------- ------------
External revenue continuing 281,580 32,716 - 314,296
Adjusted operating profit 15,369 2,219 (153) 17,435
------------------------------------ ---------- --------- ----------------- ------------
Fair value foreign exchange
contracts (350) 279 - (71)
Defined benefit pension
scheme 200 - - 200
Significant and non-recurring
items (4,000) - - (4,000)
Results from operating activities 11,219 2,498 (153) 13,564
------------------------------------ ---------- --------- ----------------- ------------
Finance income 555
Finance cost (1,081)
------------------------------------ ---------- --------- ----------------- ------------
Net finance cost (526)
------------------------------------ ---------- --------- ----------------- ------------
Share of losses of equity
accounted investees after
tax (22)
------------------------------------ ---------- --------- ----------------- ------------
Profit before taxation 13,016
------------------------------------ ---------- --------- ----------------- ------------
Taxation (2,959)
------------------------------------ ---------- --------- ----------------- ------------
Profit for the financial
year 10,057
------------------------------------ ---------- --------- ----------------- ------------
At 1 July 2017
------------------------------------ ---------- --------- ----------------- ------------
Segment assets 188,628 6,543 712 195,883
Unallocated assets 3,922
------------------------------------ ---------- --------- ----------------- ------------
Consolidated total assets 199,805
------------------------------------ ---------- --------- ----------------- ------------
Segment liabilities (62,483) (5,041) (6,564) (74,088)
Unallocated liabilities (20,715)
------------------------------------ ---------- --------- ----------------- ------------
Consolidated total liabilities (94,803)
------------------------------------ ---------- --------- ----------------- ------------
Other segment information
Capital expenditure 12,430 112 - 12,542
Depreciation included in
segment profit 6,906 42 - 6,948
Amortisation 537 - - 537
Impairment of assets 4,000 - - 4,000
Inter-segmental sale / (purchases) 8,710 (8,710) - -
------------------------------------ ---------- --------- ----------------- ------------
Analysis of unallocated assets and liabilities:
Assets Liabilities
GBP000 GBP000
Investments 297 Loans and borrowings (20,386)
Financial instruments 560 Financial instruments (234)
Cash and cash equivalents 3,024 Cash and cash equivalents -
Taxation balances 41 Taxation balances (95)
Unallocated assets 3,922 Unallocated liabilities (20,715)
--------------------------- ------- -------------------------- ------------
With regard to revenue, five customers with sales of GBP64m,
GBP39m, GBP31m, GBP22m and GBP22m account for 57% of revenue, which
is attributable to the UK Bakery and Overseas segments above.
Impairment relates to the assets held in Grain D'Or, which fall
under the UK Bakery segment.
An analysis by geographical segment is shown below:
Geographical split of revenue by 2018 2017
destination
GBP000 GBP000
Continuing:
United Kingdom 257,701 276,177
Europe 45,899 38,119
Total continuing 303,600 314,296
========================================== =============== ======= =========
Capital expenditure on segment assets is detailed in Note 1.
Geographical split by United Kingdom Europe Total
country of origin
GBP000 GBP000 GBP000
2018
Continuing Revenue 271,127 32,473 303,600
Adjusted operating
profit 15,496 2,348 17,844
Unadjusted operating
profit 2,695 2,542 5,237
Total assets 197,874 7,231 205,105
Total liabilities (95,748) (4,775) (100,523)
------------------------------------- --------------- ------- ---------
Net assets 102,126 2,456 104,852
========================================== =============== ======= =========
United Kingdom Europe Total
GBP000 GBP000 GBP000
2017
Continuing Revenue 281,580 32,716 314,296
Adjusted operating
profit 15,216 2,219 17,435
Unadjusted operating
profit 11,066 2,498 13,564
Total assets 193,262 6,543 199,805
Total liabilities (89,762) (5,041) (94,803)
------------------------------------ --- --------------- ------- ---------
Net assets 103,500 1,502 105,002
========================================== =============== ======= =========
The net assets shown under Europe comprises Lightbody Stretz Ltd,
being the 50% owned parent company of Lightbody Europe SAS, the
French based selling and distribution business.
2. Expenses and Auditor's Remuneration
Included in profit are the following:
2018 2017
GBP000 GBP000
------------------------------------------------------- ------------------ ------------------
Amortisation of intangibles 715 537
Depreciation of owned tangible assets 6,859 6,715
Depreciation on assets under finance leases
and hire purchase contracts 182 233
Impairment of assets & goodwill 987 4,000
Loss on foreign exchange 260 1,360
Hire of plant and machinery -- operating leases 797 1,006
Hire of other assets -- operating leases 1,302 1,833
Movement on fair value of foreign exchange
contracts (49) 71
Research and development 1,567 2,328
Share option charges 1,138 1,240
Government grants 25 -
Amortisation of intangibles for the year was GBP715,000 (2017:
GBP537,000) relating to the Fletchers acquisition in October
2014.
Auditor's remuneration:
2018 2017
GBP000 GBP000
-------------------------------------------------------- ------------------ ------------------
Audit of these Financial Statements 60 50
Amounts receivable by the auditor and its
associates in respect of:
Audit of the Financial Statements of subsidiaries
of the Company 120 123
Taxation compliance services 24 35
Other tax advisory 10 7
Other services 173 100
-------------------------------------------------------- ------------------ ------------------
The auditor's remuneration is in respect of KPMG LLP. Fees for
other services relates to corporate finance transactions, pension
advisory services and services relating to information technology.
3. Significant and Non-Recurring Items
The Group presents certain items as non-recurring and
significant. These relates to items which, in management's
judgement, need to be disclosed by virtue of their size or
incidence in order to obtain a more meaningful understanding of the
financial information. They reflect costs that will not be repeated
and therefore do not reflect ongoing trading of business which is
most meaningful to users.
Included within significant and non-recurring items shown in the
table in the Financial Review section are the following costs:
2018 2017
GBP000 GBP000
Site closures - reorganisation
people costs 2,266 -
Site closures -- property, leases
and contract costs 9,604 -
Site closures -- Legal and professional
costs 121 -
Impairment of assets and investments 373 4,000
Acquisition related costs 703 -
13,067 4,000
---------------------------------------- ------ ------
The site closure provision relates primarily to the closure of
the Grain D'Or site during the year, the provision is based on best
estimates of the outcome of negotiations. Whilst site exit
negotiations are still ongoing, the expectation is that these will
conclude within the new financial year.
4. Finance Income and Expenses
Recognised in the Consolidated Statement of Profit and Loss
2018 2017
GBP000 GBP000
Finance income
Change in fair value of interest rate swaps 143 555
Interest on interest rate swap agreements 18 -
Bank interest receivable 6 -
Total finance income 167 555
-------------------------------------------- ------ -------
Finance cost
Interest on net pension position (277) (204)
Bank interest payable (638) (752)
Interest on interest rate swap agreements (14) (125)
-------------------------------------------- ------ -------
Total finance cost (929) (1,081)
-------------------------------------------- ------ -------
5. Taxation
Recognised in the Consolidated Statement of Profit and Loss
2018 2017
GBP000 GBP000
Current tax
Current year 1,236 3,270
Adjustments for prior years (93) (196)
---------------------------------------- -------- --------
Total current tax 1,143 3,074
---------------------------------------- -------- --------
Deferred tax
Origination and reversal of temporary
differences 328 (222)
Retirement benefit deferred tax
charge - 1
Adjustments for prior years (160) 106
---------------------------------------- -------- --------
Total deferred tax 168 (115)
---------------------------------------- -------- --------
Total tax expense 1,311 2,959
---------------------------------------- -------- --------
Reconciliation of effective tax rate
The weighted average hybrid rate of UK and French tax is 22.5%
(2017: 22.2%). The tax assessed for the period is lower (2017:
lower) than the hybrid rate of UK and French tax. The UK
corporation tax rate for the period is 19% (2017: 20.00 %). The
differences are explained below:
2018 2017
GBP000 GBP000
Profit before taxation before losses from equity
accounted investees 4,475 13,038
------------------------------------------------- ------ ------
Tax using the UK corporation tax rate of 19.00%,
(2017: 19.76%) 850 2,577
Overseas profits charged at different taxation
rate 277 344
Non-deductible expenses 586 160
Restatement of opening net deferred tax due
to rate change and differences in rates (49) 68
R&D uplift current year (100) (100)
Adjustments to tax charge in respect of prior
periods (253) (90)
Tax expense (excluding prior year disallowable
impairment) 1,311 2,959
================================================= ====== ======
The UK corporation tax rate reductions from 20% to 19% from 1
April 2017 and 18% from 1 April 2020 were substantively enacted on
26 October 2015. An additional reduction to 17% from 1 April 2020
was substantively enacted on 6 September 2016. The deferred tax
assets and liabilities at 30 June 2018 have been calculated based
on these rates.
The adjustment of GBP253,000 for prior year includes, ineligible
capital spends and disallowable expenses being different to the
assumed levels at the time of preparation of the Annual Report.
The Company has an unrecognised deferred tax asset of GBP162,605
(2017: GBP162,605) relating to capital losses carried forward. This
asset has not been recognised in the financial statements as it is
not expected that suitable gains will arise in the future in order
to utilise the underlying capital losses.
6. Earnings Per Ordinary Share
Basic earnings per share for the period is calculated on the
basis of profit for the year after tax, divided by the weighted
average number of shares in issue being 127,611,000 (2017:
126,979,000).
Basic diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares in issue to assume
conversion of all potential dilutive ordinary shares. At 30 June
2018, the diluted weighted average number of shares in issue was
132,162,000 (2017: 130,992,000).
An adjusted earnings per share has been calculated to show the
trading performance of the Group. These adjusted earnings per share
exclude:
-- Reorganisation and other significant and non-recurring items
-- IAS 39 'Financial Instruments: Recognition and Measurement'
fair value adjustment relating to the Group's interest rate swaps
and foreign exchange contracts
-- IAS 19 (revised) 'Accounting for retirement benefits' relating to net income
-- The taxation effect at the appropriate rate on adjustments
-- Amortisation of intangible assets
52 weeks to 52 weeks to
30 June 2018 1 Jul 2017
--------------------------------- -------------------- --------------------
Profit GBP000 GBP000
Profit attributable
to equity holders of
Company (basic) 2,180 9,048
Significant and non-recurring
and other items as per
strategic Report 10,344 2,901
Intangible amortisation
net of deferred tax 446 446
Numerator for adjusted
earnings per share calculation
(adjusted basic) 12,970 12,395
Basic Diluted Basic Diluted
'000 '000 '000 '000
--------------------------------- --------- --------- --------- ---------
Shares
Weighted average number
of ordinary shares in
issue during the period 127,611 127,611 126,979 126,979
Dilutive effect of share
options - 4,551 - 4,013
--------------------------------- --------- --------- --------- ---------
127,611 132,162 126,979 130,992
--------------------------------- --------- --------- --------- ---------
Earnings per share (pence Basic Diluted Basic Diluted
per share) pence pence pence pence
--------------------------------- --------- --------- --------- ---------
Basic and diluted 1.7 1.6 7.1 6.9
Adjusted basic and adjusted
diluted 10.2 9.8 9.8 9.5
--------------------------------- --------- --------- --------- ---------
Significant and non-recurring and other items are tabled in the
Strategic Report and comprise: significant and non-recurring
charges (GBP10,615,000), defined benefit pension scheme GBP111,000
and fair value of interest rate swaps and foreign exchange
contracts GBP160,000.
7. Intangibles
Intangible assets comprise business system, customer
relationships, brands and goodwill.
Goodwill Business Brands and Customer Total
systems licences relationships
GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- --------- --------- ----------- --------------- ---------
Cost at 2 July 2016 73,458 600 3,683 5,909 83,650
Transfer from tangible
assets - 548 - - 548
Additions - 2,695 - - 2,695
------------------------- --------- --------- ----------- --------------- ---------
Cost at 1 July 2017 73,458 3,843 3,683 5,909 86,893
------------------------- --------- --------- ----------- --------------- ---------
Transfer from tangible - - - - -
assets
Additions - 3,726 - - 3,726
------------------------- --------- --------- ----------- --------------- ---------
Cost at 30 June 2018 73,458 7,569 3,683 5,909 90,619
------------------------- --------- --------- ----------- --------------- ---------
Amortisation/impairment
at 2 July 2016 (4,290) - (1,073) (691) (6,054)
------------------------- --------- --------- ----------- --------------- ---------
Charge for the year
1 July 2017 - - (143) (394) (537)
------------------------- --------- --------- ----------- --------------- ---------
Amortisation/impairment
at 1 July 2017 (4,290) - (1,216) (1,085) (6,591)
------------------------- --------- --------- ----------- --------------- ---------
Charge for the year
30 June 2018 - (178) (143) (394) (715)
------------------------- --------- --------- ----------- --------------- ---------
Amortisation/impairment
at 30 June 2018 (4,290) (178) (1,359) (1,479) (7,306)
------------------------- --------- --------- ----------- --------------- ---------
Net book value at
2 July 2016 69,168 600 2,610 5,218 77,596
------------------------- --------- --------- ----------- --------------- ---------
Net book value at
1 July 2017 69,168 3,843 2,467 4,824 80,302
------------------------- --------- --------- ----------- --------------- ---------
Net book value at
30 June 2018 69,168 7,391 2,324 4,430 83,313
------------------------- --------- --------- ----------- --------------- ---------
The brand and customer relationships recognised were purchased
as part of the acquisition of Fletchers Group of Bakeries in
October 2014. They are considered to have finite useful lives and
are amortised on a straight line basis over their estimated useful
lives of twenty years for the brand and fifteen years for customer
relationships. The intangibles were valued using an income
approach, using Multi-Period excess earnings Method for customer
relationships and Relief from Royalty Method for brand valuation.
The amortisation of intangibles has been charged to administrative
expenses in the Income Statement. Amortisation on business systems
commenced during the year as the systems are brought into use.
Goodwill has arisen on acquisitions and reflects the future
economic benefits arising from assets that are not capable of being
identified individually and recognised as separate assets. The
goodwill reflects the anticipated profitability and synergistic
benefits arising from the enlarged Group structure. The goodwill is
the balance of the total consideration less fair value of assets
acquired and identified. The carrying value of the goodwill is
reviewed annually for impairment. The carrying value of all
goodwill has been assessed during the year.
The Group tests goodwill for impairment on an annual basis, or
more frequently if there are indications that the goodwill may be
impaired. The recoverable amounts of the cash generating units are
determined from value in use calculations. The key assumptions for
the value in use calculations are the discount rate used for future
cash flows and the anticipated future changes in revenue, direct
costs and indirect costs. The assumptions used reflect the past
experience of management and future expectations.
The Group prepares cash flow forecasts covering a five year
period based on the detailed financial forecasts approved by
management for the next three years with estimated growth and
inflation of 3% (2017: 3%) and 3% (2017: 3%) respectively
thereafter. The cashflows beyond this forecast are extrapolated to
perpetuity using a nil growth rate on a prudent basis, to reflect
the uncertainties of forecasting further than five years. Changes
in revenue and direct costs are based on past experience and
expectations of future changes in the market.
The revenue growth rate combines volume, mix and price of
products. An inflation factor has been applied to costs of sales,
variable costs and indirect costs and takes into consideration the
general rate of inflation, movements in commodities, improvement in
efficiencies from capital investment and operations and purchasing
initiatives.
A pre-tax discount rate of 10% (2017: 10%) has been used in
these calculations. The Group has considered the economic
environment and higher level of return expected by equity holders
due to the perceived risk in equity markets when selecting the
discount rate. The discount rate used for each cash generating unit
has been kept constant as the market risk is deemed not to be
materially different between the different segments of the bakery
sector, nor over time.
Sensitivity analyses have been carried out by the Directors on
the carrying value of all remaining goodwill using discount rates
ranging between 6.4% and 15.0% which would not result in an
impairment of any cash generating units. Management believe any
increase in discount rates above 15% to be remote.
The carrying amount of goodwill has been allocated to cash
generating units or groups of cash generating units as follows:
2018 2017
GBP000 GBP000
-------------------------- -------- --------
Nicholas & Harris 2,980 2,980
Lightbody of Hamilton 45,698 45,698
Fletchers Bakeries 20,118 20,118
Johnstone's Food Service 372 372
-------------------------- -------- --------
69,168 69,168
-------------------------- -------- --------
8. Other Interest-Bearing Loans and Borrowings
This note provides information about the contractual terms and
repayment terms of the Group's interest-bearing loans and
borrowings, which are measured at amortised cost, using the
effective interest rate method.
2018 Margin Frequency Year of Facility Drawn Current Non-Current
of maturity GBP000 GBP000 GBP000 GBP000
Repayments
-------------------------- ------------ ------------ ---------- --------- -------- -------- -----------
Revolving credit 1.30%/LIBOR Varies 2023 45,000 25,000 25,000 -
Unamortised transaction
costs (315) (315) -
---------------------------------------- ------------ ---------- --------- -------- -------- -----------
24,685 24,685 -
---------------------------------------------------- ---------- --------- -------- -------- -----------
2017 Margin Frequency Year of Facility Drawn Current Non-Current
of maturity GBP000 GBP000 GBP000 GBP000
Repayments
-------------------------- ------------ ------------ ---------- --------- -------- -------- -----------
Invoice Discounting 1.50%/base On demand Revolving* 22,000 11,646 11,646 -
Term loan 2.00%/LIBOR Quarterly 2019 13,400 6,337 2,568 3,769
Revolving credit 2.00%/LIBOR Varies 2019 8,000 - - -
Mortgage 1.75%/LIBOR Quarterly 2022 3,470 2,457 369 2,088
Finance lease liabilities 1.76%/base Monthly various 2,000 57 57 -
Overdraft 2.00%/base On demand - 2,000 - - -
-------------------------- ------------ ------------ ---------- --------- -------- -------- -----------
50,870 20,497 14,640 5,857
---------------------------------------------------- ---------- --------- -------- -------- -----------
Unamortised transaction
costs (111) (54) (57)
---------------------------------------- ------------ ---------- --------- -------- -------- -----------
20,386 14,586 5,800
---------------------------------------------------- ---------- --------- -------- -------- -----------
Secured bank loans and mortgages over one
year 5,857
Unamortised transaction
costs (57)
-----------
5,800
-----------
Repayments are as follows:
Between one and two years 2,894
Between two and
five years 2,292
Between five and
ten years 614
-----------
5,800
-----------
* Revolving maturity above relates to the payment terms on the
invoice discounting which is up to 90 days from the date of
invoice.
Finance lease liabilities are payable as follows:
2018 2017
Minimum Minimum
lease payments Interest Principal lease payments Interest Principal
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- --------------- -------- --------- --------------- -------- ---------
Less than one year - - - 58 1 57
- - - 58 1 57
------------------- --------------- -------- --------- --------------- -------- ---------
All of the above loans are denoted in pounds Sterling, with
various interest rates and maturity dates. The main purpose of the
above facilities is to finance the Group's operations.
As part of the bank borrowing facility the Group needs to meet
certain covenants every six months. There were no breaches of
covenants during the year. The covenant tests required are Net bank
debt : EBITDA, Interest cover, debt service cover and capital
expenditure.
The bank facilities available for drawdown are GBP45 million
plus a further GBP45 million accordion facility (2017: GBP48.9
million). At the period end date, the facility utilised was GBP25
million (2017: GBP20.5 million), giving GBP20 million (2017:
GBP28.4 million) headroom, a further GBP45 million of unutilised
accordion facility is available for drawdown.
9. Analysis of net debt
At year ended Cash flow At year ended
1 July GBP000 30 June
2017 2018
GBP000 GBP000
----------------------------- ------------- ---------- -------------
Cash at bank 3,024 6,339 9,363
Debt due within one year (2,937) (22,063) (25,000)
Debt due after one year (5,857) 5,857 -
Invoice discounting due
within one year (11,646) 11,646 -
Hire purchase obligations
due within one year (57) 57 -
Total net bank debt (17,473) 1,836 15,637
------------------------------ ------------- ---------- -------------
Debt (20,386) (4,229) (24,685)
Cash at bank 3,024 6,339 9,363
Unamortised transaction
costs (111) (204) (315)
------------------------------ ------------- ---------- -------------
Total net bank debt (17,473) 1,836 (15,637)
------------------------------ ------------- ---------- -------------
Cash at bank 3,024 6,339 9,363
------------------------------ ------------- ---------- -------------
Total debt payable excluding
cash (20,497) (4,503) (25,000)
10. Post Balance Sheet Events
On 3(rd) September 2018, the Company acquired 100% of the share
capital of Ultrapharm Limited, a Free From bakery manufacturer,
supplying an extensive product range including bread, buns and
rolls and other morning goods to a diverse blue chip customer
base.
The acquisition of Ultrapharm supports the Group's ongoing
strategy to further diversify its product capability into high
growth areas and to expand the Group's existing facilities to
manufacture Free From products, a category of which the Group has
previous expertise.
Ultrapharm employs more than 240 people across manufacturing
sites in the UK and in Poland, for the year ended 31 December 2017,
Ultrapharm generated EBITDA of GBP1.6 million and a profit before
tax of GBP0.8 million on revenues of GBP19.5 million. As at the 31
December 2017, gross assets were GBP10.8 million.
The total consideration is split between GBP17.0 million payable
in cash on completion, up to GBP3.0 million in annual instalments
to the period to 30 June 2021 subject to the continued employment
of key management and a final incentive payment subject to
performance criteria over the period to 30 June 2021 estimated at
approximately GBP1.0 million. The consideration will be funded from
the Group's existing cash and debt facilities. The professional
costs associated with the acquisition included with significant and
non-recurring items under administrative expenses in the Group's
Profit and Loss for the 52 weeks ended 30 June 2018 is
GBP432,500.
Given the timing of the acquisition, the initial accounting for
the business combination including the associated fair value
exercise has not been completed at the time the Annual Report is
authorised.
Therefore, it is impracticable to provide certain related
information required by IFRS 3.B64 at this time.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GGUQGBUPRPGQ
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