TIDMFIF
RNS Number : 5528Z
Finsbury Food Group PLC
21 September 2020
Date: 21 September 2020
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 52 week ended 27 June 2020.
Summary
-- Resilient Group revenue of GBP306.3m.
-- Adjusted * (1) EBITDA down 4.4% to GBP24.4m (up 2.8% to
GBP26.2m including impact of first-time adoption of IFRS16 of
GBP1.8m).
-- Adjusted * (1) profit before tax is GBP13.9m which is before
significant and non-recurring items of GBP10.3m.
-- Adjusted Basic EPS * (2) 7.9p.
-- Net bank debt of GBP26.5m, decreased by GBP9.1m (2019:
GBP35.6m) at 1.1 times annualised EBITDA of the Group (2019: 1.4
times).
The impact of the first-time adoption of IFRS 16 will be to
increase operating profit by GBP0.1m, interest costs by GBP0.2m,
EBITDA by GBP1.8m, debt by GBP11.8m (previously operating leases
under IAS 17) and assets of GBP9.4m.
Strategic highlights
-- The business has proven to be resilient, responding quickly
to Covid-19 to deliver a robust trading performance.
-- Covid-19 and resultant lockdown had an immediate and adverse
impact on Group revenue and profit.
o Foodservice business adversely impacted.
o Retail business had winners and losers depending on
subsector.
o Polish business struggled with fall in demand and logistics
barriers.
-- Responded rapidly to create a safe working environment for our employees.
-- Continued focus on driving productivity and efficiency:
o Integrated IT system embedded in all manufacturing sites, excluding Ultrapharm.
o Implementation of Group-wide review and standardisation of
bakery processes leading to improved quality and reduction of
waste.
o System focus on quality with a 10% reduction in complaints year on year.
-- Opening of new gluten free bakery in Poland to expand
capacity for the continental market.
-- Further innovation in line with consumer trends with:
o The launch of BOSH! branded plant based, vegan friendly whole cakes and celebration cakes.
o The Celebration Cake factory now nut free with reengineered
character licensed celebration cakes.
o A new Line of Harry Potter licensed cakes.
o A growing gluten free cake range rolled out across new retail customers.
-- Continued development of HomeSafe programme with 15% decrease
in number of accidents during the year.
-- Implementation of group wide environmental framework in line with ISO14001.
-- Product excellence illustrated by the winning of several
Quality Food and Drink 'Q' Awards.
* (1) Profit is before significant non-recurring and other
items.
* (2) Adjusted EPS has been calculated using earnings excluding
the impact of amortisation of intangibles and significant
non-recurring and other items as shown on the face of the Statement
of Comprehensive Income.
Commenting on the results, John Duffy, Chief Executive of
Finsbury Food Group Plc, said:
"The first three quarters of the financial year saw the Group
perform in line with market expectations as the benefits of our
long-term investment programme and operating initiatives continued
to bear fruit. The outbreak of Covid-19 saw unprecedented demand
swings and resulted in a challenging period for the Group, but I am
proud of how we responded and were able to play a part in ensuring
the UK's supermarkets had the food stocks needed at the time."
"After the initial shock, we took decisive action to protect the
business, our people and realign our operations to the changes in
demand, which resulted in a robust performance in the
circumstances. We have seen month-on-month improvement since the
outbreak which, encouragingly, has continued into the new financial
year. Our teams have worked hard in recent years to build Finsbury
into a more resilient business, and there is no doubt those
improvements were a key factor in enabling us to remain strongly
cash generative throughout the period.
"We remain focused on becoming a leading speciality bakery group
and, notwithstanding coronavirus-related disruption, we have
continued to make good progress towards that goal. There will
inevitably be further obstacles to overcome as the pandemic plays
out and with Brexit approaching, but there is a sense of cautious
optimism in the business, and we are confident that by continuing
to manage the business in a disciplined and pragmatic way, we will
emerge a stronger, more streamlined and efficient organisation
capable of delivering sustainable growth and healthy returns for
shareholders."
This announcement contains inside information.
Contact:
Finsbury Food Group
John Duffy (Chief Executive)
Steve Boyd (Finance
Director) www.finsburyfoods.co.uk 029 20 357 500
Cenkos Securities
Max Hartley (Corporate
Finance)
Alma PR
Rebecca Sanders-Hewett
Sam Modlin
David Ison finsbury@almapr.co.uk 020 3405 0205
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 27 June 2020 exceeding GBP306m.
-- 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.
o Gluten Free bread, morning goods and cake ranges.
-- The Company is one of the largest ambient cake manufacturers
in the UK, a market valued at over GBP965 million (source: IRI 52
w/e 20th June 2020). The retail bread and morning goods market has
a value of GBP4.7 billion (source: Kantar Worldpanel 52 w/e 19th
April 2020). The retail Free From cake market is valued at GBP52
million (source: Kantar Worldpanel 52 w/e 17th May 2020). The
retail Free From bread & morning goods market is valued at
GBP137 million (source: Kantar Worldpanel 52 w/e 19th April 2020).
The UK Out of Home Foodservice Bakery sector is worth approximately
GBP1bn per annum (source: UK foodservice data derived from MCA data
for 52 weeks to 31st December 2019).
-- The Company comprises a core UK Bakery division and an Overseas division:
o The UK Bakery division has manufacturing sites in Cardiff,
East Kilbride, Hamilton, Salisbury, Sheffield, Manchester, and
Pontypool.
-- 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, and the Company's manufacturing facilities in
Rybarzowice and Zywiec in Poland.
Adjusted EBITDA and profit reconciliation of statutory to
adjusted
In order to understand the business performance adjusted
measures for the Group are presented which exclude the impact of
significant non-recurring items and new accounting standards to
present adjusted EBITDA, operating profit and profit before tax.
The analyses below show the movement from Adjusted to Statutory
measures, the figures are for the 52 weeks ended 27 June 2020 and
52 weeks ended 29 June 2019:
Adjusted EBITDA 2020 2019
GBP000 GBP000
---------------------------------------------------------- --------- --------
Adjusted EBITDA excluding IFRS 16 impact 24,408 25,527
---------------------------------------------------------- --------- --------
IFRS 16 lease costs 1,840 -
---------------------------------------------------------- --------- --------
Adjusted EBITDA including IFRS 16 impact 26,248 25,527
---------------------------------------------------------- --------- --------
Significant non-recurring items - Reorganisation
(Note 4) (1,594) (1,200)
Significant non-recurring items - Impairment of (8,737) -
goodwill and non-current assets (Note 4)
Difference between defined benefit pension scheme
charges and cash cost 200 (162)
Movement in the fair value of foreign exchange contracts (73) (178)
---------------------------------------------------------- --------- --------
Adjustments, Significant non-recurring and other
items (10,204) (1,540)
---------------------------------------------------------- --------- --------
EBITDA 16,044 23,987
---------------------------------------------------------- --------- --------
Adjusted Operating Profit 2020 2019
GBP000 GBP000
---------------------------------------------------------- --------- ----------
Adjusted operating profit excluding IFRS 16 impact 14,833 16,833
---------------------------------------------------------- --------- ----------
IFRS 16 impact on operating profit 106 -
---------------------------------------------------------- --------- ----------
Adjusted operating profit including IFRS 16 impact 14,939 16,833
---------------------------------------------------------- --------- ----------
Significant non-recurring items - Reorganisation
(Note 4) (1,594) (1,200)
Significant non-recurring items - Impairment of goodwill (8,737) -
and non-current assets (Note 4)
Difference between defined benefit pension scheme
charges and cash cost 200 (162)
Movement in the fair value of foreign exchange contracts (73) (178)
---------------------------------------------------------- --------- ----------
Adjustments, Significant non-recurring and other
items (10,204) (1,540)
---------------------------------------------------------- --------- ----------
Operating profit 4,735 15,293
---------------------------------------------------------- --------- ----------
Adjusted Profit before Tax 2020 2019
GBP000 GBP000
---------------------------------------------------------- --------- --------
Adjusted Profit before tax excluding IFRS 16 impact 13,869 15,919
---------------------------------------------------------- --------- --------
IFRS 16 impact on profit before tax (141) -
---------------------------------------------------------- --------- --------
Adjusted profit before tax including IFRS 16 impact 13,728 15,919
---------------------------------------------------------- --------- --------
Significant non-recurring items - (Note 4) (1,594) (1,200)
Significant non-recurring items - Impairment of goodwill (8,737) -
and non-current assets (Note 4)
Difference between defined benefit pension scheme
charges and cash cost (56) (444)
Movement in the fair value of foreign exchange contracts (73) (178)
Discounting of deferred consideration (14) (139)
Movement in the fair value of interest rate swaps (386) (382)
---------------------------------------------------------- --------- --------
Adjustments, Significant non-recurring and other
items (10,860) (2,343)
---------------------------------------------------------- --------- --------
Profit before tax 2,868 13,576
---------------------------------------------------------- --------- --------
Adjusted EBITDA, operating profit and profit before tax exclude
significant and non-recurring and other items as shown in the
tables. 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.
Group Performance Measures Group Performance Statutory Measures
(excluding IFRS 16) Measures
(Including IFRS 16)
Group Revenue *(2) *(2)
GBP306.3 down 2.8%
Adjusted EBITDA(*1) Adjusted EBITDA(*1) EBITDA
GBP24.4m down 4.4% GBP26.2m up 2.8% GBP16.0m
Adjusted Operating Adjusted Operating Operating Profit
Profit(*1) Profit(*1) GBP4.7m
GBP14.8m down 11.9% GBP14.9m down 11.3%
Adjusted Profit(*1) Adjusted Profit(*1) Profit before Tax
before Tax before Tax GBP2.9m
GBP13.9m down 12.9% GBP13.7m down 13.8%
Adjusted EPS Adjusted EPS Basic EPS
7.9p down 15.1% 8.0p down 14.0% (0.6)p
Capital investment *(2) *(2)
GBP4.7m down 57.3%
Net Bank Debt Net Debt (incl. leases) Net Debt (incl leases)
GBP26.5m down 25.6% GBP38.3m up 7.6% GBP38.3m
Group performance measures have been calculated including and
excluding the impact of the first time adoption impact of IFRS 16.
This is to allow year on year comparability of the key performance
measures. Statutory measures include first time adoption impact of
IFRS 16.
The impact of first time adoption of IFRS 16 is as follows:
27 June 2020
GBP000
---------------------------------- -------------
Net increase in operating profit 106
Increase in interest costs (247)
Net decrease in PBT (141)
Net increase in EBITDA 1,840
Increase in debt (11,823)
Increase in assets 9,434
*(1) The Group uses Alternative Performance Measures (APMs)
which are non-IFRS measures to monitor performance of its
operations and of the Group as a whole. These APMs along with their
definitions and reconciliations to IFRS measures are provided in
the Adjusted EBITDA, operating profit and profit before tax tables
on the previous page and the tables in the Financial Review
Section. APMs are disclosed as, in the opinion of the Board, this
will allow shareholders to gain a clearer understanding of the
trading performance of the Group.
Adjusted EPS has been calculated using profit, excluding
amortisation of intangibles, significant non-recurring and other
items as shown in the tables above net of associated taxation. In
the opinion of the Board, the adjustments made will allow
shareholders to gain a clearer understanding of the trading
performance of the Group.
*(2) Measures that do not vary are shown in the first column
only.
Chairman's Statement
As we reported in our interim results in February, the first
half of the financial year was a period of encouraging progress for
the Group, with the benefits of our long-term investment programme
and operating initiatives coming on stream. Indeed, this continued
through until almost the end of our third quarter.
The outbreak of the coronavirus, with the consequential lockdown
in March, had a major impact on businesses across the UK and
Finsbury was no exception. Food was suddenly consumed almost
entirely in the home. The demand profile across our product
portfolio underwent rapid change and we had to act decisively and
adapt quickly to continue producing food products in a way that
kept our colleagues safe, whilst at the same time protecting the
long-term sustainability of the business.
There are now encouraging signs that we are moving in the right
direction once again, after a challenging few months. However, it
is important that the pandemic does not overshadow the significant
operational progress the Company has continued to make, which will
stand it in good stead to deliver on its longer-term growth
ambitions, once more normal trading patterns return.
A resilient performance
Considering the extent of the impact of the pandemic from March,
the financial performance for the year was a very credible one.
Group revenues were GBP306.3m (2019: GBP315.3m), adjusted EBITDA
was GBP24.4m (excluding GBP1.8m uplift from first time adoption of
IFRS 16 leases). We have impaired assets that are considered to be
overvalued considering their expected cash generation by GBP8.7
million delivering a profit before tax of GBP2.9m (see Note 8).
From the start of our new financial year strong sales growth,
profit and cash generation were driven by ongoing delivery against
our strategy of selling an ever-expanding and diverse range of
innovative products through a broad range of channels while seeking
opportunities to drive increased productivity and efficiency. This
pattern continued until the nationwide lockdown in March.
Since then sales in the largest part of our business, Retail,
have remained relatively resilient and have continued to recover
month-by-month since April. Everyday bakery products such as rolls
proved popular but demand for celebration cakes was more subdued as
a result of lockdown restricting social gatherings. It is hard to
overstate the magnitude of the impact the outbreak of the pandemic
had on our foodservice and food to go division, which in the prior
financial year was 20% of sales turnover. Their end markets
suddenly disappeared, almost completely, as restrictions on travel
were introduced and consumer behaviour was thrust into unchartered
territory. Encouragingly, this improved and sales in foodservice
and food to go recovered to around 39% of prior year levels for
Q4.
As outlined in our Covid-19 trading updates, management
implemented a range of measures to control costs and preserve cash
while scaling back production in response to reduced demand. As a
result of those actions, we find ourselves in a healthy and secure
financial position. The Group has remained cash generative
throughout the period, has not needed to make use of any government
financial assistance schemes aside from furlough, and has extensive
headroom remaining of its GBP55m revolving credit facility.
The coronavirus presented our teams with significant operational
challenges the likes of which had not been encountered before, but
they met them with enthusiasm and tenacity and I am proud of the
way they were able to keep the business running without
compromising on the high standards we set for ourselves.
Considerable strategic progress despite the pandemic
Finsbury Food Group comprises several once independent
businesses and a major strategic focus of the past few years has
been on introducing initiatives to ensure they operate as one
cohesive unit with a greater uniformity of process and procedures
and better communication. Work on that front continued apace during
the year, despite the disruption caused by the pandemic.
The chief executive's review outlines in more detail the
progress we have made, however, I would like to pick out three
examples:
-- IT has been a key investment theme in recent periods and is
now at a level of maturity where we have standardised management
information across the sites and can use it to keep introducing new
initiatives to further drive productivity and efficiency gains
across the Group.
-- More broadly, the company-wide rollout of professional
communications software such as Workplace by Facebook and Microsoft
Teams has made collaboration and sharing of information across the
Group during the pandemic easier than it was before the lockdown
restrictions were introduced.
-- In April we completed the migration of our third-party
training academy to online. This meant that several projects that
otherwise would have had to have been put on hold were able to go
ahead.
Delivery down to the hard work and commitment of our teams
The coronavirus pandemic has tested the mettle of everyone at
Finsbury and I would like to take this opportunity to pay tribute
to them all for the way they have responded, particularly in
adapting to the new ways of working. Their courage, dedication and
professionalism in the face of adversity has been first class, from
the senior leadership team through to those in our bakeries and
countless others whose efforts have meant we could continue to make
a contribution to keeping the UK's food shelves stocked.
Dividend
The Board withdrew the interim dividend of 1.23 pence per share
on 29 March 2020 and have decided not to propose a final dividend
in the context of the continued uncertainty surrounding the
pandemic and Brexit. The Board is minded to reinstate a dividend
for F21 and will provide an update as these unknowns pass and our
outlook is more certain.
Board
The Board composition remains unchanged since last reported and
we continue to comply to the QCA Corporate Governance Code. The
Board met at sites as usual until March and since then has met
using online meeting facilities and will continue to do so until it
is felt safe to go back to meeting on sites.
Positioning the business for growth
After the initial impact, we are starting to see some positive
monthly sales trends that hint at the beginnings of a recovery.
Furloughed staff at its peak totalled 534, at 31 August 2020 the
number had reduced to 94. The outlook now versus where it was when
the pandemic first took hold is much improved, but with market
volatility likely to persist, it remains difficult to predict with
any accuracy the rate at which the recovery will take place.
With the business on a sound financial footing, in the near-term
we will continue to prioritise the health and safety of our
colleagues while carefully managing our resources and operations to
meet the returning demand in a sustainable way.
Longer-term, we remain just as focused on our goal of becoming
the leading speciality bakery group as we ever were. Finsbury is a
fundamentally strong business engineered to be resilient, and for
all the negatives associated with the crisis, there is no doubt it
has accelerated a number of positive operational improvements which
will benefit the Group for many years to come.
Coronavirus risks and Brexit uncertainty remain, but with the
good work we have done before and during the pandemic to improve
and refine our working practices, we are confident we will emerge a
stronger, more streamlined and efficient organisation.
Peter Baker
Non-Executive Chairman
18 September 2020
Chief Executive's Report
Finsbury has a strong track record of successfully navigating
macroeconomic pressures, but the events of the past few months were
entirely unprecedented and presented a new set of challenges. I am
pleased with how the business has coped, really illustrating the
strength of our group and commitment of our teams. A crisis tells
us a lot about ourselves, and I believe we have responded
brilliantly.
Review of performance
As previously reported, the first half was both a period of
growth and of successful delivery against our strategic priorities,
primarily driven by organic performance in UK Bakery as well as new
business wins and the first full financial year contribution from
our acquired Free From business, Ultrapharm.
Performance in the second half was reflective of continued
momentum in January and February in line with market expectations,
followed by significantly weaker trading as a result of the
outbreak of Covid-19 at the end of March and the dramatic changes
in demand the Group experienced thereafter.
The benefit of the Group's geographical, channel, customer and
product diversification has been evident throughout the pandemic.
Our European customers and bakeries experienced lockdown first and
were able to share their learnings quickly across the Group.
Our largest channel, Retail, remained relatively resilient
throughout, although it was impacted by rapid changes to shopping
behaviours, which we are pleased to say we adapted to quickly.
Helped in part by the warm weather, some areas of retail demand
clearly benefited such as round cakes and buns and rolls, while
foodservice and food to go were hardest hit. Celebration cake sales
were dented but to a lesser extent than one might expect, with
households keen to continue marking special occasions despite
restrictions on celebrating with extended family and friends.
Our ability to adapt quickly to changing consumer needs is
evident in the steady monthly sales improvements we have seen since
March as our customers are now gradually moving back towards
normalised ranges in line with the gradual relaxation of the
nationwide lockdowns. Following the staggered re-opening of some
customer sites our foodservice and food to go volumes have started
to recover.
Response to Covid-19
We have detailed our response to the outbreak of the coronavirus
in our previous updates but it is worth reiterating that from the
outset, everything we have done has been within the parameters of,
first and foremost, keeping our colleagues, suppliers and customers
safe.
Early on, after ensuring our facilities were meeting government
standards for social distancing and safe working, we were focused
on meeting volatile and unforecastable swings in demand at a time
where there was widespread concern about the availability of food
stock across the UK. Thanks to our colleagues, who have worked
tirelessly and under difficult circumstances, the Group adapted
quickly and effectively to the situation, and has continued to
deliver.
At the same time, we knew that communities were in need, and I'm
delighted we were able to work with our customers to play a small
part in the national effort against the virus by producing loaves
to be included in food boxes for the shielding housebound, in
conjunction with several of our major customers, as well as provide
charitable food donations to NHS and key workers as well as local
care homes.
Developing Group scale benefits
Covid-19 has demonstrated the importance of the investment and
hard work that has been undertaken to create a cohesive Group that
operates at scale. While the focus has been on strengthening the
business for the long-term, there is no doubt the improvements and
efficiencies we have already achieved have been valuable in
coordinating an effective and agile crisis response.
This time last year, we rolled out six Group Operating
Principles, a set of practical building blocks that establish best
practice and how we want to consistently run our businesses. They
are:
-- Operating Excellence - we continually invest in our bakeries
to improve our efficiency and customer satisfaction
-- Sustainable Approach - we optimise our use of resources and
focus on reducing waste throughout our supply chain and in our
bakeries
-- Quality and Innovations - our innovative, high-quality bakery
products reflect changing customer needs and anticipate key market
trends
-- Cost Effectiveness - we maintain strict cost controls without
compromising quality, streamlining our processes from sourcing to
delivery
-- Growth With Our Partners - through long-term relationships
with our customers and suppliers, and an understanding of their
needs, we can all enjoy profitable growth
-- People Who Care - we invest in our people, who take personal
pride in their contribution to our success, and are strong
advocates of our business and products
I am pleased to report they are now a common framework used
across Finsbury to translate our group strategy into action. This
is thanks in large part to the investment we have made in our IT
infrastructure, making it easier to introduce group-wide
information which facilitates improved collaboration for
improvement initiatives and leveraging scale benefits across the
Group.
One of these initiatives within Operating Excellence is our
Process Blueprint project which is now active in all Finsbury
bakeries. The project is designed to establish, embed, and optimise
knowledge of all our processes while encouraging collaboration and
exchange of ideas to help us achieve our goal of making fantastic
and consistently high-quality products in as efficient a manner as
possible.
With the systems, resources and knowledge base we now have in
the Group, our provision of management information is much
improved, granting us greater optionality over, for example, buying
materials and services on a Group basis rather than by site at a
local level or optimising our group-wide supply chain distribution
efficiency and agility.
Until recently, we have been mainly focused on significant
capital investment - whether that be in IT or physical capacity
increases across our sites. Now, with that phase of our investment
programme largely complete, our efforts have shifted to filling
that capacity and further optimising our operations.
In isolation these are small examples but they are indicative of
the direction of travel of the business and its evolution into a
more progressive, expert organisation. A number of strategic
initiatives have already been introduced and we continue to see
further productivity and efficiency gains as a real long-term
opportunity for us.
Investing in our people
Within the People Who Care principle, we continued to make good
progress against our People Strategy during the period with a focus
on improving employee engagement. One example of this is the
group-wide sentiment survey we ran to gather feedback from staff
regarding our handling of the coronavirus crisis covering areas
such as health and safety, demonstrating care, communication and
leadership. The response was positive across all areas and sites,
while also providing valuable insight to inform initiatives we are
now actively engaging with local teams to action.
Communication is a key driver of engagement and this has been
transformed by the rollout of Workplace by Facebook as our primary
group-wide communication tool. Workplace has been invaluable during
the pandemic, enabling us to communicate and operate effectively
remotely, whilst also enabling us to remain connected and drive
business performance.
During the period, we continued to embed the Talent Management
process, enabling us to identify, retain and develop existing
talent, create a pipeline for future talent, and identify
capability gaps aligned to the business strategy. We also ran our
third graduate recruitment campaign specifically targeted at
bringing entry level finance talent into the business, and are
continuing with the business-wide Engineering Apprenticeship
Programme to address what we know to be a future national and
industry shortfall in engineering talent.
Committed to ensuring our bakeries are sustainable
We are committed to a sustainable approach throughout our supply
chain and in our bakeries and have implemented sustainability
metrics and goals embedded within all our business strategies.
One example of the tangible impact that this approach is having
is our focus on waste reduction which, at one of our sites, has
resulted in a 25% year-on-year reduction in waste but it is
delivering significant benefits across the whole Group. We have
engaged with specialist group wide providers in waste management to
drive our zero waste to landfill target across all sites by the end
of 2020 and are working to identify further opportunities to reduce
waste at source.
As part of our work to reduce our energy consumption, we have
successfully trialled localised energy monitoring which resulted in
a 10% reduction of energy. This initiative is now being rolled out
across the business with all key assets in all bakeries
implementing localised energy monitoring to enable measurement of
key energy reduction projects. Alongside this, we continue to drive
conversion to LED lighting across all of the individual group
bakeries, with around 60% of the total already completed.
Whilst almost all our plastic packaging is recyclable with
almost 80% of it being readily recyclable in the UK, we are working
to ensure all plastics are recyclable.
Continued product innovation to meet consumer needs
Notwithstanding the demand shifts in recent months, key trends
of health and wellbeing, and ethical and environmental choices
remain a driving force with consumers.
Responding to consumer demand has always put us at the forefront
in our categories and our teams have launched a number of
innovative and appealing lines in the period. These include plant
based, vegan friendly whole cakes and celebration cakes, launched
with the BOSH! brand. Having identified nut free as an important
concern for shoppers hosting family and party occasions in
particular, we have invested significantly in our Celebration Cake
bakery in Hamilton over the last year to turn it into a fully nut
free site, a first in the cake industry. We have since launched a
range of character licensed based products, all clearly marked with
our unique Nut Free logo on pack. The range includes some of our
most popular licenses including Disney's Frozen, Spiderman, Harry
Potter, Batman and Peppa Pig.
We are committed to growing our licensed brand portfolio and had
several successes on that front in the period. We were able to tap
into the fast-growing gaming market through signing partnerships
with Xbox, Mario and Nerf, and our long-standing relationship with
Mars went from strength to strength, with the Galaxy Ripple
becoming our bestselling celebration cake in the period further to
its launch in April 2019.
Innovation remains at the core of what we do across all our
licenses. Our desire to provide consumers with on-trend, exciting
and delicious new products drives us and enables us to maintain our
market leading position.
In Artisan bread, we continued on our strategic growth journey,
with increasing expertise reinforcing our market leadership
position. During the period, we carefully invested in additional
capacity and state of the art production equipment, driving
efficiencies and quality improvements and adding a further 50%
capacity. With world class production facilities now in place and a
strong innovation pipeline, we anticipate further success in this
on-trend growth sector moving forwards.
Current trading and outlook
Against a macro-economic backdrop that continues to be defined
by high levels of uncertainty, encouragingly, sales continued to
improve month-on-month in the first two months of the new financial
year. As the recent tightening of restrictions designed to curtail
the spread of the virus have demonstrated, though, it remains
difficult to forecast potential bumps in the road and the impact
they may have. The trajectory of sales in our foodservice business
in particular is sensitive to this type of policy change. While it
is hard to say when levels of demand will return to normal in this
division - or what normal looks like longer-term - we continue to
carefully manage our resources and operations to meet demand levels
in an appropriate and sustainable way. Given the ongoing market
uncertainty we are unable to provide guidance at this time.
Looking ahead, we will continue to monitor and respond to the
pandemic as it evolves, working more closely with our customers and
global brand partners than ever before to ensure we anticipate
changing demand patterns and manufacture products and ranges that
meet changing consumer needs. We have delivered a robust
performance in the circumstances to date, and are confident that
with the comprehensive optimisation of the business that has taken
place in the past few years and the extensive operational
improvements that have been introduced and accelerated as a result
of the pandemic, we are well-positioned to continue to successfully
navigate the challenges we face.
We remain focused on becoming the leading speciality bakery
group and, notwithstanding coronavirus-related disruption, we have
continued to make good progress towards that goal. There will
inevitably be further obstacles to overcome as the pandemic plays
out and with Brexit approaching, but there is a sense of cautious
optimism in the business, and we are confident that by continuing
to manage the business in a disciplined and pragmatic way, we will
emerge a stronger, more streamlined and efficient organisation
capable of delivering sustainable growth and healthy returns for
shareholders.
John Duffy
Chief Executive Officer
18 September 2020
Financial Review
Group revenue for the 52-week period to 27 June 2020 is GBP306.3
million, 2.8% lower than last year. Following a strong first half
performance which saw Group revenues grow 4.7% to GBP159.4m ,
performance in the second half was impacted by the outbreak of the
Covid-19 pandemic, with sales down 9.8% to GBP146.9m .
20% of Group revenue is within food service / out of home eating
which was largely shut down in response to the pandemic. The
reduction in sales to the foodservice / out of home eating starting
23 March is the primary driver behind the reduction in second half
Group revenue. Monthly sales since 23 March have improved from
being 24% down in April to 15% down in June against the prior year.
This reflects the beginning of a recovery in foodservice / Out of
Home eating but also reflect growing volumes in our Retail business
as consumers adjust to a changed environment. Adjusted operating
profit at GBP14.9 million is down 11.3% on last year. Adjusted
operating profit margins are 4.9% (2019: 5.3%), a consequence of
Covid-19.
Impairment and other significant and non-recurring items
At the year end we identified a non-cash impairment of Goodwill
in Ultrapharm of GBP7.5 million a consequence of forecasted future
earnings that do not support the carrying value . In addition,
strategic reorganisation costs on the back of the pandemic of
GBP1.3 million, a value write down in unused bakery assets in
Cardiff of GBP1.2 million and pre-pandemic commissioning costs of
our new bakery in Poland of GBP0.3 million have all been classified
as significant and non-recurring. Items identified as significant
and non-recurring have been excluded from operating profit in the
table below to better reflect the ongoing trading position.
Adjusted operating profit is deemed to provide a clearer
presentation of the trading performance and sustainable cash
generation of the Group.
Dividend
The Company announced the cancellation of the interim dividend
on 29 March 2020. The Company has decided not to pay a dividend for
the 52 weeks to 27 Jun 2020 given the uncertainty of Covid-19 as
well as the additional risks that will be faced in the case of a
no-deal Brexit.
The tables below show what the Directors consider to be the
trading performance of the Group. The adjusted measures eliminate
the impact of significant and non-recurring items and other
accounting items that are not deemed to reflect the continuing
performance of the Group.
52 week period ended 27 June 2020
Fair
value
of
Significant interest Discounting As per
non-recurring*- rate of deferred Consolidated
Impairment Significant Defined swaps/ consideration Statement
non-recurring*- benefit foreign of
Operating other pension exchange Comprehensive
performance items scheme contracts Income
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
-------------- ------------ ----------------- ---------------- -------- ---------- --------------- --------------
Revenue 306,348 - - - - - 306,348
Cost of sales (210,881) - - - - - (210,881)
-------------- ------------ ----------------- ---------------- -------- ---------- --------------- --------------
Gross profit 95,467 - - - - - 95,467
Other costs
excluding
depreciation
&
amortisation (69,219) (8,737) (1,594) 200 (73) - (79,423)
EBITDA 26,248 (8,737) (1,594) 200 (73) - 16,044
Depreciation
&
amortisation (11,309) - - - - - (11,309)
-------------- ------------ ----------------- ---------------- -------- ---------- --------------- --------------
Operating
Profit 14,939 (8,737) (1,594) 200 (73) - 4,735
-------------- ------------ ----------------- ---------------- -------- ---------- --------------- --------------
Finance
income 61 - - - - - 61
Finance costs (1,272) - - (256) (386) (14) (1,928)
-------------- ------------ ----------------- ---------------- -------- ---------- --------------- --------------
Profit before
tax 13,728 (8,737) (1,594) (56) (459) (14) 2,868
-------------- ------------ ----------------- ---------------- -------- ---------- --------------- --------------
Taxation (3,398) 235 303 11 87 1 (2,761)
-------------- ------------ ----------------- ---------------- -------- ---------- --------------- --------------
Profit for
the
year 10,330 (8,502) (1,291) (45) (372) (13) 107
-------------- ------------ ----------------- ---------------- -------- ---------- --------------- --------------
*Refer to Note 4 for further details on significant
non-recurring items.
52 week period ended 29 June 2019
Fair value As per
of interest Consolidated
Defined rate swaps/ Statement
Significant benefit foreign Discounting of
Operating non-recurring pension exchange of deferred Comprehensive
performance items scheme contracts consideration Income
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ------------- --------------- --------- ------------- ---------------- ----------------
Revenue 315,281 - - - - 315,281
Cost of sales (219,849) - - - - (219,849)
---------------- ------------- --------------- --------- ------------- ---------------- ----------------
Gross profit 95,432 - - - - 95,432
Other costs
excluding
depreciation &
amortisation (69,905) (1,200) (162) (178) - (71,445)
EBITDA 25,527 (1,200) (162) (178) - 23,987
Depreciation &
amortisation (8,694) - - - - (8,694)
---------------- ------------- --------------- --------- ------------- ---------------- ----------------
Operating
Profit 16,833 (1,200) (162) (178) - 15,293
---------------- ------------- --------------- --------- ------------- ---------------- ----------------
Finance income 77 - - - - 77
Finance costs (991) - (282) (382) (139) (1,794)
---------------- ------------- --------------- --------- ------------- ---------------- ----------------
Profit before
tax 15,919 (1,200) (444) (560) (139) 13,576
---------------- ------------- --------------- --------- ------------- ---------------- ----------------
Taxation (3,605) 128 75 95 24 (3,283)
---------------- ------------- --------------- --------- ------------- ---------------- ----------------
Profit for the
year 12,314 (1,072) (369) (465) (115) 10,293
---------------- ------------- --------------- --------- ------------- ---------------- ----------------
Earnings per Share (EPS)
EPS comparatives to the prior year can be distorted by
significant non-recurring items and other items highlighted 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 7.7p
(2019: 9.0p).
52 week 52 week
2020 2019
------------------------- -------- --------
Basic EPS (0.6)p 7.3p
Adjusted basic EPS 7.9p 9.3p
Diluted** basic EPS (0.6)p 7.0p
Adjusted* diluted** EPS 7.7p 9.0p
* Further details on adjustments can be found in Note 7.
** Diluted EPS takes basic EPS and incorporates the dilutive
effect of share options.
Cash Flow
There was a decrease in our working capital of GBP1.0 million
(2019: GBP5.6 million increase) in the financial year driven by the
downturn in trading as a result of the pandemic. Corporation Tax
payments made in the financial year totalled GBP1.8 million (2019:
GBP2.0 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
GBP4.7 million (2019: GBP11.0 million).
Debt and Bank Facilities
The Group's total net debt is GBP26.5 million (2019: GBP35.6
million), down GBP9.1 million from the prior year. Responding to
the Covid-19 pandemic, the Board immediately took a number of cash
and cost-conserving actions to ensure the business remained on a
sound footing to deliver on its longer-term growth ambitions. These
included:
-- the freezing of all discretionary expenditure and capital investment;
-- careful management of cash resources; and
-- the suspension of the interim dividend.
In addition to these measures, the Board and Executive team took
a 30% salary reduction between April and June whilst other senior
executives took a 20% reduction.
Throughout the year which includes the Covid-19 affected final 3
months the Group has remained profitable and has generated cash
which has resulted in a reduction in net debt of GBP9.1m. It has
remained comfortably within its credit facility of GBP55.0 million.
Furthermore, the Group has not looked to utilise any of the
Government Loan schemes.
The Group recognises the inherent risk from interest rate rises,
and uses interest rate swaps to mitigate these risks. The Group has
two swaps, one for GBP20.0 million for five years from 3 July 2017
(fixed) at 0.455% and one for GBP5.0 million for three years from
28 March 2019 (fixed) at 1.002%. The total balance of swaps at 27
June 2020 is GBP25.0 million (2019: GBP25.0 million). 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
0.10% and LIBOR at 0.691%, was 2.2% (2019: base rate 0.500%and
LIBOR 0.501% effective interest rate 2.0%).
Financial Covenants
The Board reviews the Group's cash flow forecasts and key
covenants regularly, to ensure 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. As noted earlier, there has been no breach of
covenants during the year and the Board do not expect any in the
forecast periods.
Interest cover (based on adjusted earnings before interest, tax,
depreciation and amortisation - EBITDA) for the 52 weeks to 27 June
2020 was 25.3 (2019: 28.0). Net bank debt to EBITDA (based on
adjusted EBITDA) for the year to 27 June 2020 was 1.1 (2019:
1.4).
Taxation
The Group taxation charge for the year was GBP2.8 million (2019:
GBP3.3 million). The effective rate of tax on profits before
significant and non-recurring and other items is 24.8% (2019:
22.6%). You can find further details on the tax charge in Note 6 to
the Group's Financial Statements.
Financial and Non-Financial Key Performance Indicators
We monitor a range of financial and non-financial KPIs at site
level covering, amongst others, productivity, quality and health
and safety.
The Group Board receives a regular overview of all KPIs.
The Strategic Report was approved by the Board of Directors on
18 September 2020 and was signed on its behalf by:
Stephen Boyd
Director
Financial Statements
Consolidated Statement of Comprehensive Income
for the 52 weeks ended 27 June 2020 and 52 weeks ended 29 June
2019
2020 2019
Note GBP000 GBP000
------------------------------------------------- ---- --------- ---------
Revenue 2 306,348 315,281
Cost of sales (210,881) (219,849)
-------------------------------------------------- ---- --------- ---------
Gross profit 95,467 95,432
-------------------------------------------------- ---- --------- ---------
Administrative expenses 3 (80,401) (78,939)
Administrative expenses - significant
and non-recurring 4 (10,331) (1,200)
-------------------------------------------------- ---- --------- ---------
Operating profit 4,735 15,293
-------------------------------------------------- ---- --------- ---------
Finance income 5 61 77
Finance cost 5 (1,928) (1,794)
-------------------------------------------------- ---- --------- ---------
Net finance cost (1,867) (1,717)
-------------------------------------------------- ---- --------- ---------
Profit before tax 2,868 13,576
-------------------------------------------------- ---- --------- ---------
Taxation 6 (2,761) (3,283)
-------------------------------------------------- ---- --------- ---------
Profit for the financial year 107 10,293
-------------------------------------------------- ---- --------- ---------
Other comprehensive (expense)/income
Items that will not be reclassified to
profit and loss
Remeasurement on defined benefit pension
scheme (3,806) (332)
Movement in deferred taxation on pension
scheme liability 723 56
-------------------------------------------------- ---- --------- ---------
Other comprehensive expense for the financial
year, net of tax (3,083) (276)
-------------------------------------------------- ---- --------- ---------
Total comprehensive (expense)/income for
the financial year (2,976) 10,017
-------------------------------------------------- ---- --------- ---------
Profit attributable to:
Equity holders of the parent (759) 9,287
Non-controlling interest 866 1,006
-------------------------------------------------- ---- --------- ---------
Profit for the financial year 107 10,293
-------------------------------------------------- ---- --------- ---------
Total comprehensive income attributable
to:
Equity holders of the parent (3,842) 9,011
Non-controlling interest 866 1,006
-------------------------------------------------- ---- --------- ---------
Total comprehensive (expense)/income for
the financial year (2,976) 10,017
-------------------------------------------------- ---- --------- ---------
Earnings per ordinary share
Basic 7 (0.6) 7.3
Diluted 7 (0.6) 7.0
The Notes on pages 17 to 32 form an integral part of these Financial
Statements
Financial Statements
Consolidated Statement of Financial Position
at 27 June 2020 and 29 June 2019
Note 2020 2019
GBP000 GBP000
----------------------------------------------- ---- --------- ---------
Non-current assets
Intangibles 8 88,626 97,664
Property, plant and equipment 61,736 57,009
Other financial assets - 28
Deferred tax assets 4,623 3,655
----------------------------------------------- ---- --------- ---------
154,985 158,356
Current assets
Inventories 14,618 14,805
Trade and other receivables 40,003 49,724
Cash and cash equivalents 10,173 12,358
Other financial assets - fair value of
derivatives - 176
----------------------------------------------- ---- --------- ---------
64,794 77,063
----------------------------------------------- ---- --------- ---------
Total assets 219,779 235,419
----------------------------------------------- ---- --------- ---------
Current liabilities
Other interest-bearing loans and borrowings 10 (3,191) (335)
Trade and other payables (48,861) (55,543)
Provisions (471) (2,640)
Other financial liabilities - fair value
of derivatives (501) (218)
Deferred consideration (481) (1,000)
Current tax liabilities (1,375) (306)
----------------------------------------------- ---- --------- ---------
(54,880) (60,042)
----------------------------------------------- ---- --------- ---------
Non-current liabilities
Other interest-bearing loans and borrowings 10 (45,113) (47,390)
Provisions (550) (3,434)
Deferred consideration (1,357) (1,824)
Deferred tax liabilities (2,117) (1,800)
Pension fund liability (15,174) (11,312)
----------------------------------------------- ---- --------- ---------
(64,311) (65,760)
----------------------------------------------- ---- --------- ---------
Total liabilities (119,191) (125,802)
----------------------------------------------- ---- --------- ---------
Net assets 100,588 109,617
----------------------------------------------- ---- --------- ---------
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 (3,378) (3,616)
Retained earnings 34,918 44,207
----------------------------------------------- ---- --------- ---------
98,378 107,429
Non-controlling interest 2,210 2,188
----------------------------------------------- ---- --------- ---------
Total equity 100,588 109,617
----------------------------------------------- ---- --------- ---------
These Financial Statements were approved by the Board of
Directors on 18 September 2020 and were signed on its behalf
by:
Stephen Boyd (Director)
Registered Number 00204368
The notes on pages 17 to 32 form an integral part of these
Financial Statements
Financial Statements
Consolidated Statement of Changes in Equity
for the 52 weeks ended 27 June 2020 and 29 June 2019
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 30 June
2018 1,304 64,956 578 (3,282) 38,954 2,072 104,582
Profit for the
financial
year - - - - 9,287 1,006 10,293
Other
comprehensive
(expense)/ income:
Remeasurement on
defined
benefit pension - - - - (332) - (332)
Deferred tax
movement
on pension scheme
remeasurement - - - - 56 - 56
------------------ --- --------------- ------------- ------------- -------- --------- --------------- -------------
Total other
comprehensive
expense - - - - (276) - (276)
------------------ --------------- ------------- ------------- -------- --------- --------------- -------------
Total
comprehensive
income for the
period - - - - 9,011 `1,006 10,017
------------------ --- --------------- ------------- ------------- -------- --------- --------------- -------------
Transactions with
owners, recorded
directly
in equity:
Shares issued from
EBT - - - (499) - - (499)
Shares issued
during
the year - - - 165 (165) - -
Impact of
share-based
payments - - - - 696 - 696
Deferred tax on
share
options - - - - (256) - (256)
Foreign exchange
translation
differences - - - - 250 - 250
Dividend paid - - - - (4,283) (890) (5,173)
------------------ --- --------------- ------------- ------------- -------- --------- --------------- -------------
Balance at 29 June
2019 1,304 64,956 578 (3,616) 44,207 2,188 109,617
------------------ --- --------------- ------------- ------------- -------- --------- --------------- -------------
Balance at 29 June
2019 1,304 64,956 578 (3,616) 44,207 2,188 109,617
Profit for the
financial
year
Other
comprehensive
(expense)/
income: - - - - (759) 866 107
Remeasurement on
defined
benefit pension - - - - (3,806) - (3,806)
Deferred tax
movement
on pension scheme
remeasurement - - - - 723 - 723
------------------ --- --------------- ------------- ------------- -------- --------- --------------- -------------
Total other
comprehensive
expense (3,083) - (3,083)
------------------ --- --------------- ------------- ------------- -------- --------- --------------- -------------
Total
comprehensive
(expense)/income
for
the period (3,842) 866 (2,976)
------------------ --- --------------- ------------- ------------- -------- --------- --------------- -------------
Transactions with
owners, recorded
directly
in equity:
Shares issued from
EBT - - - 1,207 (1,207) - -
Shares issued
during
the year - - - (969) - - (969)
Impact of
share-based
payments - - - - (1,066) - (1,066)
Deferred tax on
share
options - - - - (182) - (182)
Foreign exchange
translation
differences - - - - (17) - (17)
Dividend paid - - - - (2,975) (844) (3,819)
------------------ --- --------------- ------------- ------------- -------- --------- --------------- -------------
Balance at 27 June
2020 1,304 64,956 578 (3,378) 34,918 2,210 100,588
------------------ --- --------------- ------------- ------------- -------- --------- --------------- -------------
The notes on pages 17 to 32 form an integral part of these Financial Statements.
Financial Statements
Consolidated Cash Flow Statement
for the 52 weeks ended 27 June 2020 and 29 June 2019
Note 2020 2019
GBP000 GBP000
-------------------------------------------------- ----- -------- --------
Cash flows from operating activities
Profit for the financial year 107 10,293
Adjustments for:
Depreciation 3 7,656 7,366
Depreciation right of use assets 3 1,919 -
Significant non-recurring items 4 1,594 1,200
Net finance costs 5 1,867 1,717
Taxation 6 2,761 3,283
Amortisation of intangibles 8 1,734 1,328
Impairment of goodwill 8 7,500 -
Impairment of fixed assets 1,237 -
Change in fair value of foreign exchange
contracts 73 178
Contributions by employer to pension scheme (200) 162
Operating profit before changes in working
capital 26,248 25,527
Changes in working capital:
Decrease/(Increase) in inventories 210 (62)
Decrease/(Increase) in trade and other
receivables 9,949 (3,321)
Decrease in trade and other payables (9,192) (2,199)
-------------------------------------------------- ----- -------- --------
Cash generated from operations before
costs of disposals and acquisitions 27,215 19,945
Costs relating to closure of bakeries
and commissioning (1,887) (3,534)
Lease payments (3,362) -
Interest paid (1,088) (856)
Tax paid (1,822) (2,040)
-------------------------------------------------- ----- -------- --------
Net cash generated from operating activities 19,056 13,515
-------------------------------------------------- ----- -------- --------
Cash flows from investing/divesting activities
Purchase of property, plant and equipment
and intangibles (4,703) (11,016)
Purchase of companies (1,000) (16,915)
-------------------------------------------------- ----- -------- --------
Net cash used in investing activities (5,703) (27,931)
-------------------------------------------------- ----- -------- --------
Cash flows from financing activities
(Repayment)/Drawdown of revolving credit (10,960) 22,144
(Repayment)/Drawdown of asset finance
liabilities - 828
Purchase of shares by employee benefit
trust (969) (499)
Dividend paid to non-controlling interest (844) (890)
Dividend paid to shareholders (2,975) (4,283)
-------------------------------------------------- ----- -------- --------
Net cash generated from / (used in) financing
activities (15,748) 17,300
-------------------------------------------------- ----- -------- --------
Net (decrease)/increase in cash and cash
equivalents (2,395) 2,884
Opening cash and cash equivalents 12,358 9,363
Effect of exchange rate fluctuations on
cash held 210 111
-------------------------------------------------- ----- -------- --------
Cash and cash equivalents at end of period 10,173 12,358
-------------------------------------------------- ----- -------- --------
The notes on pages 17 to 32 form an integral part of these Financial
Statements.
Notes to the Consolidated Financial Statements
Presentation of Financial Statements
Basis of Preparation
Background
The financial information on pages 13 to 16 is extracted from
the Group's consolidated financial statements for the 52 week
period ended 27 June 2020, which were approved by the Board of
Directors on 18 September 2020.
The financial information does not constitute statutory accounts
within the meaning of sections 434(3) and 435(3) of the Companies
Act 2006 or contain sufficient information to comply with the
disclosure requirements of International Financial Reporting
Standards (IFRS) and related interpretations as adopted for use in
the European Union.
The Company's auditors, PricewaterhouseCoopers LLP, have given
an unqualified report on the consolidated financial statements for
the 52 week period ended 27 June 2020. The auditors' report did not
include reference to any matters to which the auditors drew
attention without qualifying their report and did not contain any
statement under section 498 of the Companies Act 2006. The
consolidated financial statements will be filed with the Registrar
of Companies, subject to their approval by the Company's
shareholders on 21 November 2020 at the Company's Annual General
Meeting.
Basis of Accounting
The Group's consolidated financial statements for the year ended
27 June 2020 have been prepared in accordance with International
Financial Reporting Standards (IFRS) and related interpretations as
adopted for use in the European Union and those parts of the
Companies Act 2006 that are applicable to companies reporting under
IFRS.
The Directors are satisfied that the Group has adequate
resources to continue to operate for a period of not less than 12
months from the date of approval of the financial statements and
that there are no material uncertainties around their assessment.
Accordingly, the Directors continue to adopt the going concern
basis of accounting.
The Group's principal accounting policies have been consistently
applied throughout the year and will be set out in the notes to the
Group's 2020 Annual Report.
Going Concern and impact of Covid-19
In the current climate where there is uncertainty around the
impact of Covid-19, relevant judgements and assumptions have to be
made. This will include the impact of Covid-19 on the economy, the
extent and duration of social distancing measures on demand and the
workforce. The health and safety of our employees is a top priority
and UK Government guidelines are being adhered to with regards to
social distancing and working remotely. The Group has a resilient
supply chain and production network and is working closely with all
its major customers to navigate through the challenging trading
environment. As a manufacturer of a wide range of baked goods the
Covid-19 impact has varied considerably between businesses, there
have been significant growth in demand in some areas of retail,
reduction of demand in foodservice and we have experienced varying
degrees of impact on demand across a range of product areas (in
retail and foodservice). Demand recovery is anticipated across
businesses at different rates. When considering going concern
judgement has to be made as to the extent of disruption and the
ongoing challenges. Forecasts have been built on a bottom up basis
and stress tested to prepare an approved budget used as a basis for
reviewing going concern. Having reviewed the Group's short- and
medium-term plans and available financial facilities, the Board has
reasonable expectations that the Group has adequate resources to
continue in operational existence for the next 12 months and the
foreseeable future.
The Group meets its funding requirements through internal cash
generation and bank credit facilities, which are committed until
February 2023. Committed banking facilities are GBP55m of which
GBP36.2m was drawn at the year end with a further accordion
available of GBP35m. The Group's forecasts and projections, taking
account of reasonably possible changes in trading performance,
including the possible effect of the UK's decision to withdraw from
the EU, show that the Group will be able to operate comfortably
within its current bank facilities. The Group has a relatively
conservative level of debt to earnings.
The Board reviews the Group's 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 and
none expected during the next 12 months. All covenant tests were
passed at the year end.
After making enquiries, the Directors have a reasonable
expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, the Board continues to adopt the going concern basis
in preparing the Financial Statements for both the Group and the
parent company. The financial statements have been prepared under
the historical cost convention, as modified by the revaluation of
derivative financial instruments and pension scheme assets.
Critical Accounting Estimates and Judgements
-- Investments (including goodwill and intangibles)
The Group holds goodwill and intangibles and the parent company
holds investments in the respective balance sheets. The carrying
values are tested for impairment on an annual basis (more
frequently if there are indications of impairment due to changes in
market environment or changes that may affect the carrying value).
There is a risk that an impairment may not be correctly
identified.
-- Impairment
Detailed impairment models are prepared for each cash generating
unit, detailed budgets and strategic forecasts are used as a basis
for the modelling. Budgets and forecasts are sense checked during
various rounds of internal management reviews. Sensitivities are
applied to the discount rates used and the assumptions and results
are reviewed by the Audit Committee and audited annually by
external auditors. Impairment testing involves significant
judgement as to whether the carrying value of each asset can be
supported by the net present value of estimated future cash flows
derived from such asset using cash flow projections which have been
discounted at an appropriate rate. The key areas are:
o Discount rates
o Future revenue and costs
o Long term growth rates
The impact of Covid-19 pandemic has added a further level of
complication and challenge due to the uncertainty of economic
recovery and social distancing timeframes. Detailed bottom up
budgets have been prepared at business level and sensitivities
applied, more complex assumptions had to be made on recovery rates
of demand adding more uncertainty into modelling than previous
years.
Further detail can be found under the significant accounting
policy for intangible assets and goodwill and in Note 8.
1. Significant Accounting Policies
New and upcoming standards
Th e following new standards, new interpretations and amendments
to standards and interpretations are applicable for the first time
for the financial year ended 27 June 2020.
-- IFRS 16 "Leases" (effective 1 January 2019);
-- Amendments to IFRS 9 - Financial Instruments on Prepayment
Features with Negative Compensation (effective 1 January 2019);
-- Amendment IAS 28 "Investments in associates" (effective 1 January 2019);
-- Amendments to IAS 19, "Employee benefits' (effective 1 January 2019);
-- Annual improvements to IFRS Standards 2015-2017 Cycle (effective 1 January 2019);
With the exception of IFRS 16 "Leases", no ne of the amendments
to the above standards had a material impact on the financial
statements.
This is the first full year set of the Group's financial
statements in which IFRS 16 has been applied. The Group has adopted
IFRS 16 from 30 June 2019 using the modified retrospective
approach, comparatives have not been restated. The
reclassifications and adjustments from the new leasing rules are
therefore recognised in the opening Consolidated Statement of
Financial position on 30 June 2019.
On transition the Group recognised a right of use lease asset of
GBP16.3m, being GBP15.0m created from assets previously treated as
operating leases Under IAS 17 and GBP1.3m relating to amounts
transferred into right of use asset category which were previously
treated as a finance lease under IAS 17. A lease liability of
GBP15.8m has been recognised on transition, being GBP15.0m created
from leases previously treated as operating leases Under IAS17 and
GBP0.8m relating to amounts transferred into right of use asset
category which were previously treated as a finance lease under IAS
17.
The impact on the Group's full year results are detailed in Note
9. The impact of first time adoption of IFRS 16 are summarised as
follows;
Performance measures impacted by IFRS 16 GBPm
EBITDA +GBP1.8
----------
Group operating profit +GBP0.1
----------
Group profit before taxation (GBP0.1)
----------
Basic EPS (0.1)
----------
Net debt as at 27 June 2020 +GBP11.8m
----------
Assets +GBP9.4m
----------
There are a number of new standards, interpretations and
amendments to existing standards that are not yet effective and
have not been adopted early by the Group. The future introduction
of these standards is not expected to have a material impact on the
financial statements of the Group.
-- Amendments to IFRS 3 - Business Combinations (effective 1 January 2020);
-- Amendments to IAS 1 - Presentation of financial statements on
classification of liabilities (effective 1 January 2022);
-- Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate
benchmark reform (effective 1 January 2020);
-- IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (effective 1 January 2019);
Work will continue in the new financial year to assess the
impact of the new standards and interpretations on the Group's
Financial Statements.
Leases
The company leases various land and buildings, fork lift trucks
and equipment. Rental contracts are typically made for fixed
periods of between two months and eighteen years but may have
extension options.
Contracts may contain both lease and non-lease components. The
company allocates the consideration in the contract to the lease
and non-lease components based on their relative stand-alone
prices. However, for leases of real estate for which the company is
a lessee and for which it has major leases, it has elected not to
separate lease and non-lease components and instead accounts for
these as a single lease component.
Lease terms are negotiated on an individual basis and contain a
wide range of different terms and conditions. The lease agreements
do not impose any covenants other than the security interests in
the leased assets that are held by the lessor.
Leased assets may not be used as security for borrowing
purposes. Until the 2019 financial year, leases of property, plant
and equipment were classified as either finance leases or operating
leases. From 30 January 2019, leases are recognised as a right of
use asset and a corresponding liability at the date at which the
leased asset is available for use by the company.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- Fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- Variable lease payments that are based on an index or a rate,
initially measured using the index or rate as at the commencement
date;
-- Amounts expected to be payable by the company under residual
value guarantees;
-- The exercise price of a purchase option if the company is
reasonably certain to exercise that option; and
-- Payments of penalties for terminating the lease, if the lease
term reflects the company exercising that option.
Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate
implicit in the lease.
If that rate cannot be readily determined, which is generally
the case for leases in the company, the lessee's incremental
borrowing rate is used, being the rate that the individual lessee
would have to pay to borrow the funds necessary to obtain an asset
of similar value to the right of use asset in a similar economic
environment with similar terms, security and conditions.
The company is exposed to potential future increases in variable
lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to
lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the right of use
asset.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Right of use assets are measured at cost comprising the
following:
-- The amount of the initial measurement of lease liability;
-- Any lease payments made at or before the commencement date
less any lease incentives received;
-- Any initial direct costs; and
-- Restoration costs.
Right of use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis. If the company is reasonably certain to exercise a purchase
option, the right of use asset is depreciated over the
underlying asset's useful life.
Payments associated with short-term leases of equipment and
vehicles and all leases of low-value assets are recognised on a
straight-line basis as an expense in profit or loss. Short-term
leases are leases with a lease term of 12 months or less.
Low-value assets comprise small items of warehouse equipment and
office equipment.
As explained in Notes 1 and 9, the company has changed its
accounting policy for leases where the company is the lessee to
comply with IFRS 16. The impact of the change is explained in Note
9.
IFRS 16 Leases sets out the principle for the recognition,
measurement, presentation and disclosure of leases for both lessee
and lessor. It eliminates the classification of leases as either
operating leases or finance leases and introduces a single lessee
accounting model where the lessee is required to recognise assets
and liabilities for all material leases that have a term greater
than a year.
The Group has adopted IFRS 16 Leases using the modified
retrospective approach. Therefore, the cumulative effect of
adopting IFRS 16 Leases was recognised as an adjustment to the
opening balance of retained earnings at 29 June 2019 with no
restatement of comparative information.
On adoption of IFRS 16 Leases, the Group recognised liabilities
in relation to leases which had previously been classified as
operating leases under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the Groups' incremental borrowing
rate as of 29 June 2019. The weighted average incremental borrowing
rate applied is 2.21%.
In applying IFRS 16 Leases for the first time, the Group has
used the following practical expedients permitted by the
standard:
-- The use of a single discount rate for portfolios of leases
with reasonably similar characteristics.
-- Accounting for low value (less than $5,000) and certain
leases with a remaining lease term of less than 12 months as at 29
June 2019 on straight line basis as an expense without recognising
a right-of-use asset or a lease liability.
-- The use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
Under IFRS 16 leases excluding low value and those with a
remaining term of less than 12 months as at 29 June 2019 are
recognised in the opening Consolidated Statement of Financial
Position on 30 June 2019. Under IFRS 16 the previous leases charge
has been replaced by the depreciation on the right of use asset and
interest on the lease liability.
Prior to this change, leases of property, plant and equipment
where the company, as lessee, had substantially all the risks and
rewards of ownership were classified as finance leases. Finance
leases were capitalised at the lease's inception at the fair value
of the leased property or, if lower, the present value of the
minimum lease payments. The corresponding rental obligations, net
of finance charges, were included in creditors: amounts falling due
within 12 months and the long-term component was included in
creditors: amounts falling due after more than one year.
Each lease payment was allocated between the liability and
finance cost. The finance cost was charged to profit or loss over
the lease period so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period.
The property, plant and equipment acquired under finance leases was
depreciated over the asset's useful life, or over the shorter of
the asset's useful life and the lease term if there was no
reasonable certainty that the company would obtain ownership at the
end of the lease term.
Leases in which a significant portion of the risks and rewards
of ownership were not transferred to the company as lessee were
classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) were
charged to profit or loss on a straight-line basis over the period
of the lease.
Intangible Assets and Goodwill
Goodwill is stated at cost less any accumulated impairment
losses. Goodwill is allocated to cash-generating units and is not
amortised but is tested annually for impairment. Intangible assets
are capitalised separately from goodwill as part of a business
combination, only if the fair value can be measured reliably on
initial recognition and if the future economic benefits are
expected to flow to the Group. All intangible assets recognised are
considered to have finite lives and are amortised on a
straight-line basis over their estimated useful economic lives that
range from 15 to 20 years. Goodwill arises when the fair value of
the consideration for the business exceeds the fair value of the
net assets acquired. Where the excess is negative (negative
goodwill), the amount is taken to retained earnings. Goodwill is
capitalised and subject to impairment reviews both annually and
where there are indications that the carrying value may not be
recoverable.
Impairment
The carrying amounts of the Group's intangible assets and
goodwill are reviewed at each period end date to determine whether
there is an indication of impairment. Intangible assets and
goodwill are considered to be impaired if objective evidence
indicates that one or more events have had a negative effect on the
estimated future cash flows of that asset. If any such indication
exists, the asset's recoverable amount is estimated.
For goodwill and intangible assets that have an indefinite
useful life, the recoverable amount is estimated at each period end
date.
An impairment loss would be recognised whenever the carrying
amount of an intangible asset, goodwill or its cash generating unit
exceeds its recoverable amount. Impairment losses are recognised in
the Consolidated Statement of Comprehensive Income.
Calculation of Recoverable Amount
The recoverable amount is the greater of the asset's fair value
less costs to sell and its value in use. In assessing an assets'
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset.
2. Revenue and Segment Information
Operating segments are identified on the basis of the internal
reporting and decision making. The Group's Chief Operating Decision
Maker is deemed 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 assesses profit performance
principally through adjusted profit measures consistent with those
disclosed in the Annual Report and Accounts.
The UK Bakery segment manufactures and sells bakery products to
UK grocery and food service sectors. It comprises six subsidiaries
all of which manufacture and supply food products through the
channels described above. These subsidiaries have been aggregated
into one reportable segment as they share similar economic
characteristics. The economic indicators considered are the nature
of the products and production process, the type and class of
customer, the method of distribution and the regulatory
environment.
The Overseas segment procures and sells bakery products to
European grocery and food service sectors. It comprises Lightbody
Europe and Ultraeuropa. Ultraeuropa has manufacturing facilities in
Poland where it manufactures and sells Free From bakery products
into the European markets.
The Company acquired Ultrapharm on 3 September 2018, the prior
year financial results include those relating to the acquired
business in UK Bakery and Overseas.
Revenue UK Bakery Overseas Total Group
52 weeks to 27 June 2020 2019 2020 2019 2020 2019
2020 and 52 weeks GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
to 29 June 2019.
--------- -------- --------- -------- --------- --------
Total 271,414 278,533 34,934 36,748 306,348 315,281
--------- -------- --------- -------- --------- --------
Reportable Segments 52 weeks to 52 weeks to
27 June 2020 29 June 2019
GBP000 GBP000
Total Total
-------------------------------------- -------------- --------------
Revenue UK Bakery 271,414 278,533
Revenue Overseas 34,934 36,748
-------------------------------------- -------------- --------------
Total revenue 306,348 315,281
-------------------------------------- -------------- --------------
Adjusted operating profit UK
Bakery 13,162 14,180
Adjusted operating profit Overseas 1,777 2,653
Total adjusted operating profit 14,939 16,833
-------------------------------------- -------------- --------------
Significant non-recurring impairment (8,737) -
Significant non-recurring other (1,594) (1,200)
Defined benefit pension scheme 200 (162)
Fair value foreign exchange
contracts (73) (178)
-------------------------------------- -------------- --------------
Operating profit 4,735 15,293
Finance income 61 77
Finance expense (1,928) (1,794)
-------------------------------------- -------------- --------------
Net finance cost (1,867) (1,717)
-------------------------------------- -------------- --------------
Profit before taxation 2,868 13,576
-------------------------------------- -------------- --------------
Taxation (2,761) (3,283)
-------------------------------------- -------------- --------------
Profit for the financial year 107 10,293
-------------------------------------- -------------- --------------
The Group has three customers (2019: three) which individually
account for 10 per cent or more of the Group's total revenue. These
customers individually account for 21 per cent, 12 per cent and 10
per cent. In the prior year these same three customers accounted
for 20 per cent, 13 per cent and 10 per cent of the revenue in the
52 weeks to 29 June 2019. In addition to the Europe sales disclosed
in Reportable Segments, the Group also made sales to European
markets through UK-based organisations.
3. Administrative Expenses and Auditors' Remuneration
Included in profit are the following :
2020 2019
GBP000 GBP000
---------------------------------------------------------- ------- -------
Amortisation of intangibles 1,734 1,328
Depreciation of owned tangible assets 7,656 7,072
Depreciation on right of use assets 1,919 -
Depreciation on assets under finance leases
and hire purchase contracts - 294
Impairment of fixed assets 1,237
Impairment of goodwill 7,500 -
Loss on foreign exchange 213 166
Variable lease payments 193 -
Expenses relating to short term and low value
leases 164 -
Hire of plant and machinery - operating leases - 765
Hire of other assets - operating leases - 806
Movement on fair value of foreign exchange
contracts 73 178
Research and development 2,244 1,987
Share option charges 145 697
---------------------------------------------------------- ------- -------
Depreciation recognised on right of use assets in the year in
relation to leases previously recognised as operating leases under
IAS 17 upon adoption of IFRS 16 is GBP1,734,000. The remainder
of the deprecation on right of use assets relates to assets previously
treated as finance leases under IAS 17.
Auditors' remuneration:
2020 2019
GBP000 GBP000
------------------------------------------------------- ------ ------
Audit of these Financial Statements 50 60
Audit of the Financial Statements of subsidiaries
of the Company 118 133
Other services 20 -
Other services relate to assistance with non-UK VAT registrations.
4. Significant Non-Recurring Items
The Group presents certain items as significant and
non-recurring. 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 non-recurring items shown in the
table on page 10 of the Financial Review section are the following
costs:
2020 2019
GBP000 GBP000
---------------------------------------------- ------ ------
Commissioning costs 257 -
Impairment of goodwill (Refer to Note 8) 7,500 -
Impairment of fixed assets 1,237 -
Other reorganisation people costs 1,337 823
Site closures - property, leases and contract
costs - (152)
Acquisition related costs - 529
---------------------------------------------- ------ ------
10,331 1,200
---------------------------------------------- ------ ------
Commissioning costs relate to the associated commissioning costs
of a new bakery in Poland have been classed as significant
non-recurring due to their nature. Reorganisation costs relate to
the strategic reorganisation of the Group following the varying
degrees of impact of the pandemic on the businesses within the
Group.
There has been an impairment of the goodwill relating to the
Ultrapharm acquisition, which based on current performance was
deemed to be overvalued, Note 8 provides further detail.
There has been a fixed asset impairment of assets held at the
Cardiff site, this reflects the specific writing down of an asset
where there were no firm plans to utilise the asset given the
outlook of no sales and a market recovering from a global
pandemic.
5. Finance Income and Cost
Recognised in the Consolidated Statement of Comprehensive
Income
2020 2019
GBP000 GBP000
Finance income
Interest on interest rate swap agreements 44 60
Bank interest receivable 17 17
Total finance income 61 77
------------------------------------------------ ------- -------
Finance cost
Interest on net pension position (256) (282)
Change in fair value of interest rate swaps (386) (382)
Bank interest payable (999) (991)
Unwinding of discount on deferred consideration (14) (139)
Lease liabilities (273) -
Total finance cost (1,928) (1,794)
------------------------------------------------ ------- -------
6. Taxation
Recognised in the Consolidated Statement of Comprehensive
Income
2020 2019
GBP000 GBP000
Current tax
Current year 2,762 2,969
Adjustments for prior years 6 194
------------------------------ -------- --------
Total current tax 2,768 3,163
------------------------------ -------- --------
Deferred tax
Origination and reversal of
temporary differences 130 136
Rate change (222) -
Adjustments for prior years 85 (16)
------------------------------ -------- --------
Total deferred tax (7) 120
------------------------------ -------- --------
Total tax expense 2,761 3,283
------------------------------ -------- --------
Reconciliation of effective tax rate
The weighted average hybrid rate of UK, Polish and French tax is
22.6% (2019: 21.4%). The tax assessed for the period is higher
(2019: higher) than the hybrid rate of UK and French tax. The UK
corporation tax rate for the period is 19.0% (2019: 19.0 %). The
differences are explained below:
2020 2019
GBP000 GBP000
Profit before taxation 2,868 13,576
Non deductible intangible impairment 7,500 -
------------------------------------------------- ------ ------
10,368 13,576
------------------------------------------------- ------ ------
Tax using the UK corporation tax rate of 19.00%,
(2019: 19.00%) 1,970 2,579
Overseas profits charged at different taxation
rate 439 481
Non-deductible expenses and timing differences 479 195
Restatement of opening net deferred tax due
to rate change and differences in rates (218) (60)
R&D uplift current year - (90)
Adjustments to tax charge in respect of prior
periods 91 178
Total tax expense 2,761 3,283
================================================= ====== ======
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. This was reversed in
March 2020 with the UK corporation tax remaining at 19%. The
deferred tax assets and liabilities at 27 June 2020 have been
calculated based on a rate of 19%.
The adjustment of GBP91,000 for prior year includes ineligible
capital spends offset 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 GBP182,000
(2019: GBP163,000) 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.
7. 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 127,128,000 (2019:
127,511,000).
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 27 June
2020, the diluted weighted average number of shares in issue was
130,820,000, (2019: 131,889,000).
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 non-recurring items
-- IFRS 9 '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
27 June 2020 29 June 2019
------------------------------------- -------------------- --------------------
Profit GBP000 GBP000
(Loss)/profit attributable to
equity holders of Company (basic) (759) 9,287
Significant non-recurring and
other items 10,223 2,021
Intangible amortisation net of
deferred tax 574 564
------------------------------------- -------------------- --------------------
Numerator for adjusted earnings
per share calculation (adjusted
basic) 10,038 11,872
------------------------------------- -------------------- --------------------
Shares Basic Diluted Basic Diluted
------------------------------------- --------- --------- --------- ---------
Weighted average number of ordinary '000 '000 '000 '000
shares in issue during the period
127,128 127,128 127,511 127,511
Dilutive effect of share options - 3,692 - 4,378
------------------------------------- --------- --------- --------- ---------
127,128 130,820 127,511 131,889
------------------------------------- --------- --------- --------- ---------
Earnings per share (pence per
share)
------------------------------------- --------- --------- --------- ---------
Basic and diluted (0.6) (0.6) 7.3 7.0
Adjusted basic and adjusted diluted 7.9 7.7 9.3 9.0
------------------------------------- --------- --------- --------- ---------
Significant non-recurring and other items net of taxation are
tabled in the Strategic Report on page 10 and comprise: impairment
of goodwill and fixed assets GBP8,502,000, (2019: nil), significant
non-recurring charges GBP1,291,000 (2019: GBP1,072,000), defined
benefit pension scheme charge GBP45,000 (2019: charge GBP369,000),
fair value of interest rate swaps, foreign exchange contracts
charge GBP372,000 (2019: GBP465,000 charge) and the unwinding of
deferred consideration discounting charge GBP13,000 (2019: charge
GBP115,000).
8. Intangibles
Intangible assets comprise customer relationships, brands and
goodwill.
Goodwill Business Brands Customer Total
systems and licences relationships
GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- --------- --------- -------------- --------------- ---------
Cost at 30 June 2018 73,458 7,569 3,683 5,909 90,619
Acquired 11,546 - - 1,721 13,267
Additions - 2,412 - - 2,412
--------------------------- --------- --------- -------------- --------------- ---------
Cost at 29 June 2019 85,004 9,981 3,683 7,630 106,298
--------------------------- --------- --------- -------------- --------------- ---------
Additions - 196 - - 196
--------------------------- --------- --------- -------------- --------------- ---------
Cost at 27 June 2020 85,004 10,177 3,683 7,630 106,494
--------------------------- --------- --------- -------------- --------------- ---------
Accumulated amortisation
at 30 June 2018 (4,290) (178) (1,359) (1,479) (7,306)
--------------------------- --------- --------- -------------- --------------- ---------
Charge for the year - (648) (143) (537) (1,328)
--------------------------- --------- --------- -------------- --------------- ---------
Accumulated amortisation
at 29 June 2019 (4,290) (826) (1,502) (2,016) (8,634)
--------------------------- --------- --------- -------------- --------------- ---------
Charge for the year - (1,025) (143) (566) (1,734)
Impairment (7,500) - - - (7,500)
--------------------------- --------- --------- -------------- --------------- ---------
Accumulated amortisation
at 27 June 2020 (11,790) (1,851) (1,645) (2,582) (17,868)
--------------------------- --------- --------- -------------- --------------- ---------
Net book value at 30 June
2018 69,168 7,391 2,324 4,430 83,313
--------------------------- --------- --------- -------------- --------------- ---------
Net book value at 29 June
2019 80,714 9,155 2,181 5,614 97,664
--------------------------- --------- --------- -------------- --------------- ---------
Net book value at 27 June
2020 73,214 8,326 2,038 5,048 88,626
--------------------------- --------- --------- -------------- --------------- ---------
The customer relationships recognised in the opening costs were
purchased as part of the Ultrapharm acquisition in September 2018
and 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 brands and between ten 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 Consolidated Statement of Comprehensive Income. The
business systems are considered to have finite useful lives and are
amortised on a straight-line basis over their estimated useful
lives of ten years.
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.
8. Intangibles (continued)
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 and growth rates
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.
There have been major disruptions to markets since March 2020 as
a result of the impact of the Covid-19 pandemic. Post Covid-19
consumer spending behaviour and lifestyle choices are an unknown.
With knowledge and experience since lock-down a bottom up full year
2021 budget and strategic forecast to June 2023 has been
compiled.
The forecasts have taken in consideration the following key
factors:
1. Covid-19 has had an impact on markets, focus is on a rebuild
of the business to a 'new normal' with difficulty in predicting
timescale for recovery and the impact of recessionary
pressures.
2. Latest market forecast and market research data has been
considered when making commercial judgements.
3. Detailed SWOT analysis of all businesses with strategic plan to respond to challenges.
4. Plans to combat inflationary pressures particularly labour costs in UK and Europe.
5. There are ingredient challenges during the lock-down
environment, these have been factored into the forecasts.
6. Operating Brilliance Programme will support improved
efficiencies and help drive recipe value engineering, plausible
improvements have been built in.
7. Leadership teams strengthened to help realise a step change
in growth particularly in the free from area.
The forecasts covering a three-year period are based on the
detailed financial forecasts challenged and approved by management
for the next three years. The cashflows beyond this forecast are
extrapolated to perpetuity using a 1.1% (2019: 0.5%) growth rate
for all of the CGUs. The starting position has been impacted by
Covid-19 and growth we believe is relatively prudent when compared
to long term UK GDP, basis, to reflect the uncertainties of
forecasting further than three years. Changes in revenue and direct
costs in the detailed three year plan are based on past experience
and expectations of future changes in the market to the extent that
can be anticipated.
The strategic forecast process commenced in November 2019 to
review consumer and competitor insight to prepare the foundations
for the financial forecasts, this groundwork was completely
overtaken by events surrounding the worldwide pandemic. The recent
strategic forecasts were prepared as late as possible in the
financial year to allow further insights into the post lockdown
environment and the journey to recovery. We have been encouraged by
the recovery in the final quarter of the year to 27 June 2020 with
Revenue trends improving, with April 24% down year on year, May,
19% down and June 14% down.
The revenue growth rate in the strategic forecast 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. External market data and
trends are considered when predicting growth rates. Compound annual
growth rates for revenues for the three year forecast period range
from 3.7% to 14.0%, reflecting the recovery from the lower base
year and budget year that have been impacted by the Covid-19
pandemic.
A pre-tax discount rate of 9% (2019: 11%) has been used in these
calculations. The discount rate uses weighted average cost of
capital which reflects the returns on government bonds and an
equity risk premium adjusted specifically for Finsbury plus further
risk premiums that consider cash generating unit risk. 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 has
decreased by 2% to take account of the removal of a small company
risk premium that had been included in the prior year, the spread
of investors and liquidity supports the exclusion of this risk
premium. 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. When considering the Ultrapharm discount
rate a further 0.5% has been added for the overseas risk
element.
8. Intangibles (continued)
The table below shows the carrying values of goodwill allocated
to cash generating units or groups of cash generating units. When
calculating the discount rate that would need to be applied for
there to be zero headroom, the discounted cashflows were compared
against the against carrying amount of goodwill, plant property and
equipment and the first time recognition under IFRS 16 of right of
use assets for leases which were previously treated as operating
leases under IAS 17. The discount rates are shown in the table
below:
Carrying value Discount rate
of goodwill at which headroom
is nil
2020 2019 2020 2019
GBP000 GBP000
GBP000 GBP000 % %
-------------------------- -------- -------- ---------- ---------
Lightbody of Hamilton 45,698 45,698 20.8 18.8
Fletchers Bakery 20,118 20,118 12.4 15.0
Ultrapharm* 4,046 11,546 *9.5 -
Nicholas & Harris 2,980 2,980 51.3 45.9
Johnstone's Food Service 372 372 92.3 83.5
-------------------------- -------- -------- ---------- ---------
73,214 80,714
-------------------------- -------- -------- ---------- ---------
*9.5% with GBP7.5m impairment taken.
Impairment
An impairment charge has been booked against the Ultrapharm cash
generating units . The business has proven more immature than
expected and additional resource has been invested into both the UK
and Polish businesses. We face commercial issues (in part relating
to a small warranty claim) now exacerbated by Covid-19 which have
adversely affected cashflows and hence valuation. We believe that
the Gluten Free sector remains attractive and that performance will
meet our expectations over time. The conclusion is that, based on
current performance, the business is overvalued. The strategic
forecast revenues and profits have been sensitised and a downside
forecast has been considered giving reduced cashflow assumptions,
which when compared to the carrying value of assets has indicated
an impairment is necessary. A non-cash impairment of GBP7.5 million
has been recognised in the current year's financial results. The
downside forecast has been used as a basis for calculating the
impairment charge. Revenue in this forecast is expected to grow
over the next three years at an annual growth rate of 10%. Each 1%
reduction in the annual growth rate over the three year period,
compared to forecast, would have an impact of GBP260,000 on the
impairment charge.
The discount rate at which the headroom is nil for Fletchers
Bakery is 12.4%. There are key strategies in place in order to
improve the performance of Fletchers. New opportunities are in the
later stages of customer negotiations for new products into
existing customers. An uplift is expected at Easter which was
severely disrupted in 2020 by the pandemic. There are also further
opportunities in the new product development pipeline that are
expected to be realised in the short term. Sensitivities have been
carried out to exclude any growth, which, after returning to pre-
Covid-19 level of sales, demonstrates that headroom still exists.
It has been concluded that that there no impairment was necessary
on the carrying value of goodwill relating to the Fletchers Bakery
at 27 June 2020.
Sensitivity analyses have been carried out by the Directors on
the carrying value of all remaining goodwill using pre-tax discount
rates up to 12.5% which would not result in an impairment of any
cash generating units.
Further sensitivity analysis has been carried out using a range
of factors such as growth rate and cost increases. These
include:
-- If future growth rate assumption of 1.0% was replaced with zero growth rate
-- If future growth rate assumption of 1.0% was replaced with a decline of 1.0%
There are many uncertainties surrounding the recovery, consumer
response, retailer dynamics and inflationary impact. Immediate
response has been a series of cost saving initiatives and the
acceleration of operational improvement plans, the strategic
responses have been around restructuring capacity, development of
supply chain systems to accelerate leveraging group scale and
driving growth agenda with customers. Where we have identified
market and product challenges that will lead to unacceptable
recovery timescales, we have taken the decision to recognise a
non-cash impairment.
In addition to the Covid-19 priorities, the Group has a
cross-functional team which has prepared a number of strategies to
minimise the impact of Brexit. We buy some commodities from Europe.
Any tariffs on trade will therefore have a bearing on the Group. We
have contingency planning in place, looking at alternative UK
sources of products. Higher logistics and administration costs may
result from border delays and could necessitate higher stock
levels. We are developing labour strategies to retain and develop
existing workers, attract and hire new workers and reduce labour,
while boosting productivity with our capital investment programme.
We believe we have strategies that would minimise the impact and
the directors are satisfied with the carrying value of the
remaining cash generating units.
9. Leases
This is the first full year set of the Group's financial
statements in which IFRS 16 has been applied. The Group has adopted
IFRS 16 from 30 June 2019 using the modified retrospective
approach, comparatives have not been restated. The
reclassifications and adjustments from the new leasing rules are
therefore recognised in the opening Consolidated Statement of
Financial Position on 30 June 2019. Under IFRS 16 the previous
operating leases charge has been replaced by the depreciation on
the right of use asset and interest on the lease liability. The
Group leases many assets including land and buildings, vehicles,
machinery and equipment.
The impact on the Consolidated Statement of Financial Position
as at 27 June 2020 and the Consolidated Statement of Comprehensive
Income for the 52 weeks to 27 June 2020 are shown in the tables
below:
(i) Amounts recognised in the Consolidated Statement of Financial Position:
Property plant and equipment comprises owned and leased assets
that do not meet the definition of investment property.
27 June
2020
GBP000
------------------------------------ --------
Property plant and equipment owned 52,302
Right of use assets 9,434
------------------------------------- --------
61,736
------------------------------------ --------
Included within right of use assets in the table above are
assets with a net book value of GBP1,373,000 previously recognised
as a Finance lease under IAS 17.
Right of use assets Plant,
equipment
Property and vehicles Total
Adjustment on transition to IFRS 16 GBP000 GBP000 GBP000
---------------------------------------------- ----------- -------------- ---------
Assets previously recognised as a finance
lease under IAS 17 - 1,373 1,373
---------------------------------------------- ----------- -------------- ---------
Assets previously recognised as an operating
lease under IAS 17 14,031 941 14,972
Onerous lease transferred as a proxy
for impairment on transition (3,804) - (3,804)
Total adjustments on transition to IFRS
16 10,227 2,314 12,541
---------------------------------------------- ----------- -------------- ---------
Lease modifications (454) - (454)
Reversal of impairment 454 - 454
Depreciation charge for the year (1,368) (551) (1,919)
---------------------------------------------- ----------- -------------- ---------
Balance at 27 June 2020 8,859 1,763 10,622
---------------------------------------------- ----------- -------------- ---------
Right of use assets recognised upon adoption of IFRS 16
previously recognised as operating leases under IAS 17 on 30 June
2019 were GBP11,168,000 (cost GBP14,972,000 net of impairment of
GBP3,804,000) and GBP1,373,000 previously recognised as a finance
Lease under IAS 17. There were no additions to right of use assets
during the year.
Depreciation for the period to 27 June 2020 on right of use
assets for leases previously treated as operating leases under IAS
17 is GBP1,734,000 and a net book value at 27 June 2020 of
GBP9,434,000.
Lease liabilities At 27 June At 30 June
2020 2019
GBP000 GBP000
----------------------------------------------------- ----------- -----------
Contracted undiscounted minimum lease payments
Not later than one year 3,369 3,587
Later than one year and not later than five
years 6,658 7,606
Later than five years 3,859 5,321
----------------------------------------------------- ----------- -----------
Total gross payments 13,886 16,514
----------------------------------------------------- ----------- -----------
Discounted using the Group's weighted average
incremental borrowing rate 12,495 15,709
Less Low value leases not recognised as a liability (22) (31)
Less short term and low value leases recognised
as an expense on a straight-line basis (164) (234)
Add/Less adjustments as a result of a different
treatment of termination options (14) 356
----------------------------------------------------- ----------- -----------
Lease liability recognised 12,295 15,800
----------------------------------------------------- ----------- -----------
Current lease liability 3,191 3,105
Non-current lease liability 9,104 12,695
----------------------------------------------------- ----------- -----------
Lease liabilities recognised on adoption of IFRS 16 on 30 June
2019 for assets previously treated as operating leases under IAS 17
were GBP14,972,000 these had a closing value of GBP11,823,000 at 27
June 2020.
(ii) Amounts recognised in the Consolidated Statement of Comprehensive Income
52 weeks ended
27 June 2020
GBP000
------------------------------------------------------------ ---------------
Interest on lease liabilities (273)
Variable lease payments not included in the measurement
of lease liabilities (193)
Expenses relating to short-term leases (164)
Expenses relating to leases of low-value assets, excluding
short term leases of low value assets (16)
------------------------------------------------------------ ---------------
Consolidated Statement of Comprehensive Income Impact 52 weeks ended
of IFRS 16 in comparison to when IAS 17 applied* 27 June 2020
GBP000
------------------------------------------------------- ---------------
Reduction in lease rentals 1,840
Depreciation on right of use assets (1,734)
------------------------------------------------------- ---------------
Impact on the operating profit 106
Lease related interest costs (247)
------------------------------------------------------- ---------------
Overall impact on Group profit before tax of IFRS 16 (141)
------------------------------------------------------- ---------------
*The table above does not include impact of leases previously
recognised as finance leases under IAS 17 a s there is no change in
accounting treatment of these leases under IFRS 16 .
(iii) Amounts recognised in the Consolidated Cash Flow Statement
Cash flow impact 52 weeks ended
27 June 2020
GBP000
-------------------------------------- ---------------
Total cash outflow for lease rentals 3,362
Impact on earnings per share
The impact on earnings per share for the 52 weeks to 27 June
2020 as a result of first time adoption of IFRS 16 is a reduction
of (0.1) pence per share.
10. 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.
Frequency Non-Current
of Year of Facility Drawn Current GBP000
2020 Statutory Margin Repayments maturity GBP000 GBP000 GBP000
-------------------------- ------------ ----------- ---------- ---------- -------- --------- -----------
Revolving credit 1.50%/LIBOR Varies 2023 55,000 36,184 - 36,184
Leases* Various Varies Various 12,295 3,191 9,104
Unamortised transaction
costs (175) - (175)
---------------------------------------- ----------- ---------- ---------- -------- --------- -----------
48,304 3,191 45,113
--------------------------------------- ----------- ---------- ---------- -------- --------- -----------
Leases* include all leases recognised as lease liabilities under
IFRS 16 (see Note 9). Lease liabilities are shown separately
in the table below to show total bank debt as defined by our
banking facility agreement, which only recognises leases as defined
as finance leases under IAS 17 as part of bank debt.
Frequency Non-Current
of Year of Facility Drawn Current GBP000
2020 Margin Repayments maturity GBP000 GBP000 GBP000
-------------------------- ------------ ----------- ---------- ---------- -------- --------- -----------
Revolving credit 1.50%/LIBOR Varies 2023 55,000 36,184 - 36,184
Finance Lease
(under IAS 17) Various Monthly 2023 472 247 225
Unamortised transaction
costs (175) - (175)
---------------------------------------- ----------- ---------- ---------- -------- --------- -----------
Total bank debt 36,481 247 36,234
---------------------------------------- ----------- ---------- ---------- -------- --------- -----------
Operating leases
(under IAS 17) 2.2% Varies 11,823 2,944 8,879
--------------------------- ----------- ----------- ---------- ---------- -------- --------- -----------
Total debt 48,304 3,191 45,113
Frequency Non-Current
of Year of Facility Drawn Current GBP000
2019 Margin Repayments maturity GBP000 GBP000 GBP000
-------------------------- ------------ ----------- ---------- ---------- -------- --------- -----------
Revolving credit 1.50%/LIBOR Varies 2023 55,000 47,144 - 47,144
Finance Lease Various Monthly 2023 828 828 335 493
Unamortised transaction
costs (247) - (247)
---------------------------------------- ----------- ---------- ---------- -------- --------- -----------
Total bank debt at
29 June 2019 47,725 335 47,390
--------------------------- ----------- ----------- ---------- ---------- -------- --------- -----------
Operating leases (under
IAS 17) at 30 June
2019 on transition
to IFRS 16 2.2% Varies 14,972 2,770 12,202
--------------------------- ----------- ----------- ---------- ---------- -------- --------- -----------
Total debt at 30 June
2019 on transition
to IFRS 16 62,697 3,105 59,592
--------------------------- ----------- ----------- ---------- ---------- -------- --------- -----------
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 revolving credit bank facility available for drawdown is
GBP55.0 million plus a further GBP35.0 million accordion facility
(2019: GBP35.0 million plus a further GBP55.0 million accordion).
At the period end date, the facility utilised was GBP36.2 million
(2019: GBP47.1 million), giving GBP18.8 million (2019: GBP7.9
million) headroom plus a further GBP35.0 million (2019: GBP35.0
million) accordion.
11. Analysis of Net Bank Debt
Adjustment
At year on transition At year
ended to ended
29 June IFRS 16 Cash 27 June
2019 as at 30 flow 2020
GBP000 June 2019 GBP000 GBP000
GBP000
----------------------------- ---------- --------------- --------- ----------
Cash and cash equivalents 12,358 - (2,185) 10,173
Debt due after one year (47,144) - 10,960 (36,184)
Hire purchase obligations*
due within one year (335) 335 - -
Hire purchase obligations*
due after one year (493) 493 - -
------------------------------ ---------- --------------- --------- ----------
(35,614) 828 8,775 (26,011)
----------------------------- ---------- --------------- --------- ----------
Unamortised transaction
costs 247 - (72) 175
------------------------------ ---------- --------------- --------- ----------
Debt net of unamortised
costs (35,367) 828 8,703 (25,836)
------------------------------ ---------- --------------- --------- ----------
In the previous year, the company only recognised lease assets
and lease liabilities in relation to leases that were classified
as 'finance leases' under IAS 17 Leases. The assets were presented
in property, plant and equipment and the liabilities as part
of the company's borrowings. Hire purchase obligations* previously
recognised as finances Leases under IAS 17 are recognised as
lease liabilities under IFRS 16 (see Note 9).
The table below is presented to demonstrate total debt as defined
by our banking facility agreement. This excludes the lease liabilities
created on transition to IFRS 16 for leases treated as operating
leases under IAS 17.
----------------------------------------------------------------------------------
Cash and cash equivalents 12,358 - (2,185) 10,173
Debt due after one year (47,144) - 10,960 (36,184)
Hire purchase obligations
due within one year (335) - 88 (247)
Hire purchase obligations
due after one year (493) - 268 (225)
------------------------------ ---------- --------------- --------- ----------
Total net bank debt (35,614) - 9,131 (26,483)
------------------------------ ---------- --------------- --------- ----------
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