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FIF Finsbury Food Group Plc

110.00
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Finsbury Food Group Plc LSE:FIF London Ordinary Share GB0009186429 ORD 1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 110.00 0.00 00:00:00
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
0 0 N/A 0

Finsbury Food Group PLC Preliminary Results (9284A)

17/09/2018 7:01am

UK Regulatory


TIDMFIF

RNS Number : 9284A

Finsbury Food Group PLC

17 September 2018

 
 Date:       17 September 2018 
 On behalf   Finsbury Food Group Plc ('Finsbury', 'the Company' 
  of:         or 'the Group') 
 Embargoed until: 0700hrs 
 

Finsbury Food Group Plc

Preliminary Results

Finsbury Food Group Plc (AIM: FIF), a leading UK speciality bakery manufacturer of cake, bread and morning goods for the retail and foodservice channels, is pleased to announce its preliminary results for the financial year ended 30 June 2018.

The Company has delivered a resilient performance in an unprecedented inflationary environment with growth in like for like sales and in adjusted profit in a year where the Company closed a loss making bakery.

Adjusted operating profit, profit before tax and EBITDA exclude significant and non-recurring and other items and includes amortisation of intangibles. The adjusted operating profit has been given as in the opinion of the Board this will allow shareholders to gain a clearer understanding of the trading performance of the Group. The adjusted figures are referred to as alternative performance measures, the statutory performance measures have been given for revenue, profit before tax and EPS.

Summary

   --        Like for like(*1) Group Revenue GBP290.2m - up 2.4%, 
   -              Group Revenue GBP303.6m - down 3.4% 
   --        Adjusted EBITDA GBP25.6m - up 2.7% 
   --        Adjusted Operating Profit GBP17.8m - up 2.3% 
   --        Adjusted Operating Profit margin 5.9% - up 40bps 
   --        Adjusted Profit Before Tax GBP17.2m - up 4.0% 
   --        Statutory Profit Before Tax, down 65.7% to GBP4.5m 
   --        Adjusted Basic EPS 10.2p - up 4.1%, 
   --        Statutory Basic EPS down 76.1% to 1.7p 
   --        Net Debt GBP15.6m - down 10.5% 
   --        Capital Investment GBP12.6m in line with last year 
   --        Total Dividend 3.3p - up 10.0% 

Strategic highlights

-- Record capital investment of GBP12.6m, cumulatively GBP37.3m over last 3 years and GBP50.8m over last 5 years

   -      Doubling of sales on Artisan bread following investment in 2016 

- Newly installed 'automated craft' sharing cake line fully commissioned and operational in the Cardiff bakery

- New business wide IT platform successfully introduced to 3 sites, with the remaining 3 sites planned for FY19

   --      Successful full year product launches including: 
   -      Our own Free From bakery brand, Wiso in Europe via Lightbody Europe 
   -      Mary Berry licence in the UK 
   --      Successfully implemented key investment change management projects 

-- Developed Finsbury "Recipe for Growth" Business Model and Operating Principles to leverage future efficiency and growth across the Group

   --      Foodservice growth of 5.7%. 

Post period highlights

-- Acquisition of Ultrapharm Limited, a gluten free bakery manufacturer, for GBP17m cash at completion plus GBP3m of deferred consideration.

Like for like(*1) revenue is the revenue from operations excluding the revenue from closed bakeries during the first half of the current year.

Adjusted operating profit, profit before tax and EBITDA exclude significant and non-recurring and other items as shown in the reconciliation tables below.

Adjusted EPS has been calculated using earnings, amortisation of intangibles, significant and non-recurring and other items as shown in the tables below and in Note 6. The adjusted EPS has been given as in the opinion of the Board this will allow shareholders to gain a clearer understanding of the trading performance of the Group.

Commenting on the results, John Duffy, Chief Executive of Finsbury Food Group Plc, said:

"Our performance over the period has further illustrated the Group's resilience and our ability to deliver against our strategic priorities, ultimately allowing us to grow like for like sales and profit year on year, reduce our debt further after significant investment, and continue to grow the dividend. The ongoing capital investment programme and relentless efficiency focus of recent years has enabled us to not only cope with this challenging market environment but also maintain our margin.

Throughout this period, we have continued to drive product innovation with the launch of both our Mary Berry cake brand with a number of product formats across a broad customer base and also our own Free From brand in Europe, Wiso. Complementing this, and in line with our strategy to diversify the Group by category, channel and geography, we were delighted to complete the acquisition of Ultrapharm, which will provide the Group with a significant opportunity to access the exciting and high growth marketplace, Free From, and broadens the Group's manufacturing capabilities into Europe.

We are confident that we are well positioned to deliver on our strategic objectives and capitalise on growth opportunities both organically and through future M&A."

 
 For further information: 
 
 Finsbury Food Group Plc            www.finsburyfoods.co.uk 
 John Duffy (Chief Executive)       029 20 357 500 
 Stephen Boyd (Finance Director) 
 
 Cenkos Securities plc 
 Max Hartley (Corporate Finance) 
 
 Alma PR                            finsbury@almapr.co.uk 
 Rebecca Sanders-Hewett             020 8004 4217 
 Sam Modlin 
 Susie Hudson 
 

Notes to editors:

-- Finsbury Food Group Plc (AIM: FIF) is a leading UK manufacturer of cake and bread bakery goods, supplying a broad range of blue chip customers within both the grocery retail and 'out of home eating' foodservice sectors including major multiples and leading foodservice providers.

-- The Company is one of the largest speciality bakery groups in the UK and, with its Overseas division, has sales in the financial year ending 30 June 2018 exceeding GBP300m.

   --      The Company's bakery product range is comprehensive and includes: 

o Large premium and celebration cakes.

o Small snacking cake formats such as cake slices and bites.

o Artisan, healthy lifestyle and organic breads through to rolls, muffins (sweet and savoury) and morning pastries, all of which are available both fresh and frozen dependent on customer channel requirements.

-- The Company is one of the largest ambient cake manufacturers in the UK, a market valued at over GBP950 million (source: IRI, 52 w/e 23(rd) June 2018). The annual retail bread and morning goods market has a value of GBP4.3 billion (source: Kantar Worldpanel 52 weeks to 17(th) June 2018). The UK foodservice bread and savoury morning goods bakery sector is worth approximately GBP691 million per annum (source: derived from MCA data for 52 weeks to 31(st) March 2018). The UK foodservice cake and sweet morning goods bakery sector is worth approximately GBP807 million per annum (UK foodservice data derived from MCA data for 52 weeks to 31(st) March 2018).

   --      The Company comprises a UK Bakery division and an Overseas division: 

o The UK Bakery division has manufacturing sites in Cardiff, East Kilbride, Hamilton, Salisbury, Sheffield, and Manchester.

-- The Overseas division comprises the Company's 50% owned company, Lightbody Stretz Ltd, which supplies and distributes the Group's UK-manufactured products and third party products, primarily to Europe.

-- Since the year end date of 30(th) June 2018, the Company completed the acquisition of Free From baker Ultrapharm, giving the Group a significant opportunity to access an exciting and high growth marketplace and manufacturing facilities in Pontypool in the UK and in Zywiec, Poland.

 
 Adjusted Operating Profit reconciliation 
  statutory to adjusted                                2018       2017 
                                                     GBP000     GBP000 
------------------------------------------------  ---------  --------- 
 Results from operating activities                    5,237     13,564 
 
 Significant and non-recurring items - SNR 
  (refer to Note 3 for detail)                       13,067      4,000 
 Difference between defined benefit pension 
  scheme charges and cash cost                        (411)      (200) 
 Movement in the fair value of foreign exchange 
  contracts                                            (49)         71 
 Adjustments SNR and other items                     12,607      3,871 
------------------------------------------------  ---------  --------- 
 Adjusted results from operating activities          17,844     17,435 
================================================  =========  ========= 
 
 
 Adjusted Profit Before Tax reconciliation 
  statutory to adjusted                                2018       2017 
                                                     GBP000     GBP000 
------------------------------------------------  ---------  --------- 
 Profit before tax                                    4,475     13,038 
 
 Significant and non-recurring items - SNR 
  (refer to Note 3 for detail)                       13,067      4,000 
 Difference between defined benefit pension 
  scheme charges and cash cost                        (134)          4 
 Movement in the fair value of interest 
  rate swaps                                          (143)      (555) 
 Movement in the fair value of foreign exchange 
  contracts                                            (49)         71 
 Adjustments SNR and other items                     12,741      3,520 
------------------------------------------------  ---------  --------- 
 Adjusted profit before tax                          17,216     16,558 
================================================  =========  ========= 
 
 

The Financial Review section within the Strategic Report provides further details on the adjusted profits.

Chairman's statement

The overall story from the year is one of a stable trading performance by the Group, delivered in the face of unprecedented cost inflation of commodity inputs, especially butter. We have achieved a like for like top-line and underlying bottom-line growth despite this cost pressure, and in a rapidly changing market. This not only demonstrates our resilience, but also that we have the operational abilities to adjust, keep our strategy on track, and achieve the financial performance expected by our investors.

Revenues were up 2.4%, which excludes revenues from our closed loss-making Grain D'Or factory. Including this, Group revenues are down 3.4%. Profit before tax is GBP4.5m, reflecting significant one-off closure costs, but is 4.0% up on last year on an adjusted basis. Cash generated from operations increased by 19.8% to GBP26.9m, due to the strong underlying performance, and net debt is further reduced to 0.6 times EBITDA. We have also announced a growth in the dividend. The final dividend per share of 2.2p will take the total dividend for the year to 3.3p per share, up 10% from last year's dividend of 3.0p per share.

There were no changes to the Board of Directors during the year. The Board has adopted the Quoted Companies Alliance Code.

The vision remains the same

Our vision is to be a leading speciality bakery group, producing a broad range of high-quality products that deliver growth and differentiation for our customers, while fulfilling the needs of end consumers, both in the UK and into Europe.

We continue to build a group of scale, but one that can deal with the manufacturing complexity and flexibility required for premium and higher-margin products. For ten years we've been doing this while improving margins and efficiency, reducing debt and improving diversification. We believe scale will become increasingly important in the food manufacturing sector as we see our main customers getting larger.

The bakery sector, outside of sliced bread, is reasonably unconsolidated. Over the years we have made major acquisitions and investments, targeting or evolving opportunities based on consumer trends, market niches, growing channels and added-value products that retail and foodservice customers are trying to develop.

Through a combination of organic growth and targeted acquisitions, we will continue to invest to consolidate and grow in existing areas, such as round cake and artisan bread, and expand into new areas. To this end, our successful investment programme will continue. We will invest to expand our capabilities in new product formats, and to diversify into new channels such as foodservice cake, and into healthier style products, particularly 'Free From'. We have further strengthened our capabilities, with acquisition of Free From baker Ultrapharm after the year end.

The Group has increased in scale, and the individual businesses benefit from this. A lot of work has gone into creating a structure that enables Group-wide cost-effectiveness and allows innovation, common process and best practice to flourish.

Stability in a changing market

Markets, channels and customers are consolidating rapidly in response to changing consumer shopping and 'on-the-move' consumption behaviour - Tesco and Booker, Amazon and Whole Foods, Coop and Nisa, the plans of Sainsbury's and Asda - each pairing demonstrates a changing market environment, to which we can add discounter and online shopping growth. In addition to adapting to these changes, bakers and other food producers have faced commodity price increases, with the weaker pound and the cost of butter rocketing.

We believe Finsbury is increasingly well positioned to respond to this fast-changing environment, due to our continuing focus on operating excellence, quality and innovation, and cost effectiveness, combined with our sustainable approach and our commitment to our partners, all underpinned by people who care. We have and continue to invest to manage the risks and grasp the opportunities available for scale manufacturers.

Operational highlights

Some years ago, we may have struggled to cope with the degree of volatility and unexpected cost increases we have seen of late. However, our diversification over prior years has ensured we are in a healthy position, and able to capitalise on opportunities available to us.

We continued to invest heavily in capital this year, at 1.7 times depreciation, which has enabled us to implement key projects such as our 'automated craft' cake line, now fully commissioned and operational in Cardiff, and introduce our new business-wide IT platform. These sorts of change management projects, often Group-wide, do add a lot of pressure to the workload of our employees. As does new operational equipment, or worries over, for example, the decision to close our loss-making Grain D'Or factory. Much of this added pressure is often on top of the commitment people already put in to simply doing their jobs well. For this I would like to thank all employees once again for their sterling efforts and commitment during the year.

P Baker

Chairman 14 September 2018

Chief Executive's Report

Performance review

Finsbury Food Group has grown like for like sales and adjusted profit year on year, reduced our debt further after significant investment, and grown the dividend payable. This has been achieved despite the volatile retail environment and unprecedented input cost inflation we have seen over the period. The relentless investment and efficiency focus of recent years has enabled us to not only cope with this market environment but also maintain our margin. At the same time, we have also ensured we are not over-dependent on any one customer or product area. The true measure of success is that we have achieved underlying growth ahead of our market and have demonstrated the growth available from premium, healthy and authentic on-trend innovation.

Illustrating this, we've introduced our own Free From brand in Europe, Wiso which capitalises on the fact that making the choice to avoid gluten is also now a lifestyle and health choice across North America, Europe and UK.

In concurrence, our Mary Berry cake brand launched in the final quarter of last year with a number of product formats across a broad customer base. It's been hugely successful, with a significant level of sales for the Group, illustrating the potential of a licence with good consumer recognition and emotional engagement, plus of course, some very good products - all traditional, with an artisanal finish, and very much in keeping with Mary's credentials.

In addition, there are artisan breads, which may be hand-crafted, require long fermentation, and baking in stone ovens. It was a slight trend we noticed a few years ago and we decided it could have a big impact, so we invested in capacity in 2016. We have now filled that capacity and are looking to invest further to meet growing demand.

These all show that on top of productivity and efficiency, we're very good at craft and innovation, and consumers are prepared to pay for great products that have a lot of craft. These examples are meaningful opportunities for Finsbury to achieve growth and sales, and are what we're good at.

These successes, alongside hard work and ongoing investment have delivered a resilient result for the year, one which we are proud of.

Maintaining margins

Inflationary costs, larger customers and competitive markets all present a margin challenge to manufacturers across the market. Improving margins, or even maintaining them, is difficult in the short term. But strong, innovative, well-invested manufacturers of scale are an essential ingredient in helping our consolidating customers achieve their own strategies. Finsbury is striving to be exactly that - the leading speciality baker, providing our customers with brilliant bakery products at affordable prices.

Whilst continuing to deliver on this ambition, the shock butter price increase at the end of last year came on top of broader input price inflation in everything from labour and commodities to energy. We had to offset these increased costs with efficiency improvements, reformulation and cost recovery, to protect margins. We also had to take some big decisions at the same time, such as the decision to close Grain D'Or.

Grain D'Or closure

The escalating butter price - triple what it was just a few years ago - ultimately led to uncompetitive pricing, lost contracts and widening financial losses at our London bakery, Grain D'Or. With the losses caused by the butter increase, we had to change our commercial plans. This precipitated the difficult decision to close the business in the first half, following extensive employee consultation. Thanks to the hard work of the Grain D'Or and wider Finsbury team, we were able to maintain good customer relationships, and we went out of our way with unions and employees to help them find alternative local employment. All in all, it was a necessary step back to take stronger steps forward.

Capital investment for efficiency

We've had another year of record capital investment at GBP12.6 million. The aim is to continue our strategy of establishing efficient, cost-effective scale bakeries in our chosen product areas. This brings the total capital spend over the last five years to GBP50.8 million.

Our new IT platform is a sizeable investment for us. We have successfully rolled it out to three of our six manufacturing sites, with the remaining three sites due in the first half of the new financial year. IT and management information goes to the heart of all businesses, so this project is to define our business processes, and get them up and running in each of the sites, to provide managers with really good quality information. At the businesses where we've done that, we are seeing much better understanding of labour and waste costs by product, which allows us to gain further insight into the true efficiency of our manufacturing operations and make informed commercial decisions.

We also commissioned the new GBP8 million cake line at our Cardiff bakery and began continuous seven-day operations. Our new line is completely up to date in oven and process technology, and much faster. So, we're future-proofing an area where we are number one in the marketplace, with around 50% share - making sure we gain the process and quality benefits, as well as improve our cost effectiveness.

Strength in a Group structure

In recent years, we have acquired a collection of very good, but varied and historically independent businesses, making many different products for many different markets. It pays to diversify. But the truth is, they all have baking in common, and this is where being a Group is important.

We've moved in recent years to a Group divisional structure and brought in strong expertise in Group functional directors with the aim to derive scale benefits from a common approach across the Group. There's a lot of opportunity to define a way of working across the Group, which won't take away from the individual independence of our companies, but it means they can do their day job, and do it well, without having to worry about say, IT change, or Group purchasing of insurance, and the like. It also means we benefit from common insights into consumer trends, or common approaches to maintenance and safety, for example. It's really a way of looking to improve the sum of the parts and gain some leverage from being a larger Group.

We believe brilliant baking makes every day special, so are applying brilliance to the entire process. To be brilliant we have to constantly raise standards, inspire innovation and work effectively as a Group. We've developed the Finsbury 'Recipe for Growth' and Operating Principles, which allow all our businesses to understand and use the strengths of the Group, and benefit from common approaches such as the Group-wide IT platform mentioned above, and our new Group-wide people strategy.

Our people

Our people strategy is now entering into its third year. It includes talent management and leadership development programmes, with increased investment in training. We've also conducted our second employee engagement survey. It all underpins our belief that maximising the potential and contribution of our people is essential to unlocking the longer-term potential of the business.

I must also say the scale of change management we've undertaken this year is unprecedented. I travel around meeting people, who are often also travelling around the Group. Our work is putting additional demands on teams across the Group, over and above their normal day jobs. And the jobs themselves, using craft skills to develop and make craft products, for demanding customers, day in, day out. Our people still take time to put the effort in. They have responded brilliantly, and I'm very grateful for that.

Acquisition opportunities

With further acquisitions we can introduce new product, customer or channel diversification, or accelerate market consolidation in our main product areas. This year, we continued to explore several acquisition opportunities without finding the right balance of risk and reward but were delighted to have completed the acquisition of Free From baker Ultrapharm shortly after the year end, giving the Group a significant opportunity to access an exciting and high growth marketplace. We remain committed to future acquisition-led growth as part of our strategy.

Outlook

We are looking ahead at steady organic growth, which is no bad thing in the market we're in, but the desire remains to be a strong competitor within our bakery markets. The Free From growth opportunity unlocked in the UK and Europe by the post year end acquisition of Ultrapharm is a good example of the opportunity ahead to increase scale via acquisition. This follows three years where we've benefited from optimising the growth platform we've built and are now capable of taking the next steps competently. Three years which I think we've put to good use.

John Duffy

Chief Executive Officer 14 September 2018

Our Business

Manufacturing

Finsbury Food Group includes six manufacturing facilities and bakery companies, and one distribution company, plus the newly acquired Ultrapharm Group:

1. Salisbury

Nicholas and Harris

2. Cardiff

Memory Lane Cakes

3. Manchester

Kara Foodservice

4. Sheffield

Fletchers Bakeries

5. East Kilbride

Johnstone's Food Service

6. Hamilton

Lightbody of Hamilton

7. Rennes, France

Lightbody Europe (distribution company)

Acquired after year end:

8. Pontypool

Ultrapharm UK

9. Zywiec, Poland

Ultrapharm Poland

Our products

Our bakery division serves a UK bread and cake retail market of over GBP6 billion and produces for our UK foodservice channel serving a UK market of a further GBP1.5 billion.

Bread, morning goods and cakes

-- Artisan loaves

-- Buns and rolls

-- Celebration cakes

-- Sharing cakes

-- Snacking cakes

-- Retailer own-label bakery products

-- Memory Lane, our own cake brand

Foodservice

Kara

Kara is our own foodservice brand. The range covers an ever-growing portfolio of sweet and savoury baked goods, including floured baps, artisan breads, brioche buns, traybakes and large premium cakes, focusing on the latest consumer trends.

Licensed brands

We have a long-standing relationship with many licensed brands, manufacturing quality bread and cakes for some of the biggest names in the market.

Thorntons

A partnership spanning two decades, with continuing innovation in celebration.

Mary Berry

Loaf, sharing and celebration cakes, all true to Mary Berry's original recipes, appealing to a broad customer base.

Disney

A long-term partner, we continue to help consumers enjoy the Disney brand in cake.

Mars

Collaborating on an innovative cake range for classic confectionery brands such as Galaxy, M&M and Malteser.

Baileys

New brand launches include a milkshake-shaped cake with an Irish cream filling and topping.

Character licensed portfolio

Developing products to meet consumer trends and occasions, and to bring popular characters to life across different cake formats. Successful licences this year include Batman, Pokemon, Paw Patrol, Peppa, Jurassic World 2 and JoJo Siwa.

Vogel's

Alfred Vogel was a pioneering Swiss nutritionist who used natural ingredients. Vogel's loaves are baked without added sugar, emulsifiers, enzymes, or artificial preservatives or flavourings, and are bursting with seeds and grains.

Village Bakery

The range of organic fresh rye bread brands for those looking to avoid wheat. All made with no added yeast, emulsifiers or enzymes.

Cranks

Wholesome, simple, nutritious bread baked with organic stoneground wholemeal flour and fermented for longer, made without any additives such as emulsifiers and enzymes.

Our Customers

Our bakery segment covers the following.

UK retail

-- UK retailers, supermarkets, discounters and convenience.

UK foodservice

-- Hotels

-- Pubs

-- Restaurants

-- High-street chains

-- Fast-food outlets

-- Contract caterers

International markets

-- France

-- Belgium

-- Netherlands

-- Ireland

Market Overview

Our markets

UK Bakery is a large market valued at over GBP6.2 billion. In its broadest sense, UK Bakery comprises the cake market and the bread and morning goods market. Both these markets straddle the grocery retail market and foodservice market, often also known as out-of-home (OOH) eating.

We can break the whole market down further into smaller sub categories:

-- Cake: sharing, bites, celebration and seasonal

-- Bread and morning goods: 'plant' (packaged or factory) bread, artisan bread, buns and rolls, seasonal hot cross buns, pastry, muffins, doughnuts, Italian and many more.

Both markets also have a wide range of ingredients that can be allergens - including wheat, dairy, eggs and nuts - in which there are growing sub markets such as Free From.

Cake

The total UK ambient cake market (including prepacked cake and in-store bakery is valued at over GBP950 million (source: IRI, 52 weeks to 23rd June 2018). We trade across all categories, with large presences in celebration, sharing and seasonal.

Bread

The annual retail bread and morning goods market has a value of over GBP4 billion (source: Cantor World panel 52 weeks to 17th June 2018). This market is further divided as plant bread (GBP1.8 billion) and the rest, Bread and morning goods (B&MG) (GBP2.2 billion). We trade only in B&MG, with sizeable presences in buns and rolls, hot cross buns and artisan bread.

Foodservice

UK foodservice spans many sub-sectors including coffee chains, restaurants, pubs, hotels and the non-profit sector such as the prison service or education. Each has different routes to market.

The UK foodservice cake and sweet treat bakery sector is worth approximately GBP807 million per annum (source: derived from MCA data 52 weeks to 31 March 2018). Our presence is primarily within the coffee chains and, through the larger wholesalers, restaurants and pubs. The UK foodservice B&MG sector is worth GBP691 million per annum (source: derived from MCA data 52 weeks to 31 March 2018). We have a significant presence primarily with our buns and rolls business.

Overseas

Our overseas markets are primarily Europe, principally France and Ireland, with a smaller presence in the Benelux countries and some of eastern Europe. The size of these markets is significant, and their structure is similar to the UK.

Broad consumer trends

Innovation and product development are essential to the Group's strategy, helping our customers differentiate themselves and meet the needs of their end customers. Our challenge is to maintain a dynamic product portfolio that matches and satisfies macro consumer trends and niches. We show some of these current trends below.

Economic

Consumer confidence has been weak for some time, and price and value will remain important. Although consumers will remain cautious and price-conscious, they will continue to want affordable treats, so pricing policies need to reflect household economics.

Grocery

Consolidation has started to reshape the grocery market in recent times and this will continue. Online and discount will be the two fastest growing grocery channels, and will account for 22% share of grocery expenditure by 2023 (IGD). The convenience channel is also forecast to see strong growth.

Out-of-home

In the out-of-home (OOH) market, volume growth is forecast to be negative as weakening consumer confidence and general consumer caution mean people will eat out less. The casual dining restaurant sector is likely to struggle, but fast-food outlets, coffee shops, supermarket cafés and food-to-go offers will see better growth.

Healthy eating

Consumers continue to pursue more healthy eating options generally, though indulgence is also a key trend in 'sweet-treating'. Media focus and regulatory pressure will continue to drive recipe reformulation and portion size. The 'Better for you' market is proliferating rapidly, with protein, gut health, low sugar, vegetarian, plant health, grains and seeds, and slow energy release all growing in popularity over recent years.

Free From

The overall 'Free From' market continues to grow, doubling in size in the past five years. Mintel forecasts it to grow by an additional 25% to GBP899m by 2022. It's boosted by consumers who don't cite a specific allergy or intolerance, but choose to avoid certain ingredients as part of a general healthy lifestyle. Dairy free and gluten free are the biggest sub-sectors. The 'Free From' bakery market is valued at GBP129m and has grown 14.5% year on year.

Artisan bread

The market has grown due to the perceived health benefits, the wider trend of provenance and the 'craft' movement. Consumers respond well to products they perceive to be less mass-manufactured.

Fragmentation

Social and demographic trends have a major bearing on the food sector. These include smaller households, single-person mealtimes, an ageing UK population, urbanisation, and an increasingly mobile population with less time to eat. These are fuelling the growth of convenience, online and out-of-home channels. But the growing fragmentation of consumers, channels, eating moments and needs will also translate into increasing demand for personalised products to meet individual needs. Thus single-serve and individually wrapped products are becoming more prevalent and important.

Technology

Technology is fundamentally changing the relationship between businesses and customers, who are increasingly using mobile devices to make purchases. Demand for anytime, anywhere purchasing and access to information will accelerate. Online ordering is not just for the weekly shop, it is also for top-up and 'dinner tonight' shopping.

Our Purpose and Strategy

Our purpose

People love the high-quality products we make. They are essential parts of their daily lives and enjoyable treats and choices for every occasion. So, we are committed to building the leading speciality bakery group - because baking brilliance makes every day special.

Our Vision and Strategy

Our strategic objective is to create sustainable value for our shareholders, customers and other stakeholders by building the leading speciality bakery group. We produce a broad range of high-quality bread, cake and bakery snacking products targeted at growing channels and market niches. These offer growth potential and differentiation for our major customers, while fulfilling the changing needs and desires of end consumers.

To achieve this our strategy is to:

-- Invest in our people and our manufacturing sites to form a strong foundation for our strategy

-- Create innovative, high-quality bakery products that anticipate key market trends

-- Ensure customer and consumer needs are at the heart of our decision making

-- Develop a strong licensed brand portfolio to complement our core retailer brand relationships

-- Aim to succeed in both the retail grocery and out-of-home channels

-- Grow through a combination of organic growth and targeted acquisitions.

Operating Principles in action

Operating excellence

   --      Sustained strategy to invest in the capability and capacity of our manufacturing assets: 

o GBP8 million new cake line with scale and automation.

o New IT platform across all sites - 50% complete.

-- Group manufacturing process blueprint leading to specific product design framework and improved efficiency and quality.

Sustainable approach

-- Most Finsbury sites are sending zero waste to landfill already. All will have achieved this by 2020.

-- All sites have a nominated energy champion responsible for identifying and reducing consumption. Heat recovery projects are underway at several sites, and all lighting will be converted to LED by 2020. The asset investment strategy includes a focus on energy consumption.

-- All sites are involved in the reducing and eliminating single-use plastics. With good progress already, we are targeting a 50% reduction by 2020.

Quality and innovation

   --      Extensive insight capabilities mean new product development is in line with market trends. 
   --      Over 60 employees are engaged in developing new products. 
   --      Leading organic bakery in the UK. 
   --      Manufacturing process blueprint embraces the production of high-quality premium product. 
   --      All sites hold BRC A-grade or above. 

-- Health agenda embedded into development process, with over 90% of products achieving FSA salt targets. Good progress made across all categories in reducing sugar in line with PHE targets, and further research underway to achieve their 2020 objectives.

   --      Acquisition of Ultrapharm after year end gives us scale in Free From. 

Cost effectiveness

   --      Centralised Group Buying focused on high-quality and cost effective ingredients. 

-- Operational excellence initiatives focused on achieving lowest-cost-producer status in areas where we have niche strength e.g. artisan breads or round sharing cake.

   --      Group logistics leverages our scale to achieve lowest cost route to customers. 

Growth with partners

-- Our scale and diversity of products across UK bakery means the relationship with grocery retail customers is a partnership.

   --      Our business with discounters is growing in line with their growth within UK grocery. 

-- Our channel diversification into foodservice, our Kara foodservice brand, and our broad frozen foodservice range of products, sees us as the leading foodservice partner to the industry, growing at 6% in the year

People who care

-- A health and safety risk management team with a mantra of 'Home Safe Everyday', supported by resources and a common Group-wide strategy and programme.

   --      Values of teamwork, honesty, ownership, respect and communication: 
   -      New workplace Facebook communication tool to facilitate communication between all employees. 

-- A people strategy for all employees, embracing courses in basic English, an engineering apprenticeship programme, a graduate recruitment programme and leadership development programmes.

   --      Annual employee survey to obtain our employees' views. 

Risk Report

Principal Risks and Uncertainties

The Board recognises the need for a robust system of internal controls and risk management. The assessment of risks and the development of strategies for dealing with these risks are achieved on an ongoing basis through the way in which the Group is controlled and managed internally. A formal review of these risks is carried out by the Group on an annual basis. The review process involves the identification of risks, assessment to determine the relative likelihood of them impacting the business and the potential severity of the impact and determination of what needs to be done to manage them effectively. Risk management is integral to the ability of the Group to deliver on its strategic objectives.

The Directors have identified the following as the principal risks and uncertainties that face the Group currently:

Strategic Risks:

Retailer Consolidation

There have been a number of high profile mergers and prospective mergers reported in the press in the past year including the merger of Tesco and Booker and the current proposed merger of Asda and JS Sainsbury's. There is always a risk in these situations that as the newly merged entities seek to offer the best prices to the consumer through economies of scale, the supplier base is rationalised.

Furthermore, the buying power of such a this newly created entity would be exceptional which poses a risk to suppliers who could

be pressured to lower prices to ensure that current and future trade is preserved.

As a supplier to all parties of the aforementioned mergers, the Group is not immune to this risk. However, we continue to strive to be the highest quality, most innovative and lowest cost supplier and believe this, along with our robust relationships with our customers, will ensure that we are strongly placed to continue to supply our current and future customer base.

Competitive environment and Customer requirements

The environment remains competitive within the Bakery sector. The monitoring of key performance indicators at customer

level such as service levels and customer complaints is part of the risk management process associated with this specific risk. Providing quality products, investing in innovation and competing on value helps to strengthen customer relations and support growth initiatives. The Group invests heavily in category management, new product development and marketing skills. This investment has helped create an insight into customers and consumer demands.

Consumer Trends

Post EU referendum, consumer optimism and spending has remained resilient. However, trends now suggest that as we move closer to the exit deadline, uncertainty over what Brexit deal will be implemented is having an impact on sentiment. British consumers have stopped taking on more debt and started saving their money again in a reversal to the trends that have upheld economic growth over the last year. The risk to the Group in that spending on non-essential goods and treats will fall, impacting on the demand for our key products The Group will continue to focus on quality and value and will explore new channels, new products and new formats to gain competitive advantage.

Health continues to be a major focus for the business. Dedicated resource continues to work on sugar and salt reduction targets as part of the Government Obesity Strategy and Public Health England recommendations. Our development teams work closely with our customers to ensure we meet or exceed all guidelines for health and nutrition, and work continuously with suppliers to reduce salt, fat and sugar in our products. We are committed to meet the FSA 2017 salt targets and are already over 90% compliant. Good progress has been made across all categories in reducing sugar in line with PHE targets.

Operational Risks:

Health & Safety

The importance of Health and Safety is widely recognised amongst the Group. Failure to adhere to health and safety regulations within the workplace not only puts our employees at risk, it could also carry serious financial, reputational and legal risk. A Group Head of Health and Safety has been appointed to create a largely uniform H&S system across all business units and to drive forward the "Home Safe Every Day" strategy. The Group's technical function is responsible for the implementation and maintenance of high standards for food safety, striving for best practice. Quality assurance procedures are managed at site level, are reviewed continuously with improvements made as appropriate and are audited by internal teams. All manufacturing sites are registered under the British Retail Consortium ('BRC') Unannounced Scheme. The sites are subject to regular internal and independent food safety and quality control audits, both announced and unannounced including those carried out by, or on behalf of, our customers. The Group maintains appropriate insurance cover, including product recall insurance, to mitigate the potential financial impact of a breach in food safety compliance.

External Risks:

Brexit

There is significant uncertainty over the type of Brexit deal the UK will agree with its European neighbours. Whatever the structure of the final deal, anything different from the current status quo is likely to have an impact on both the Food Manufacturing industry and on the Group.

The majority of the Group's trading is in the UK but there are sales into Europe which includes to Lightbody Europe, our 50% subsidiary. A material proportion of bakery commodities such as dairy and egg are sourced in Europe. Any tariffs on trade therefore will have a bearing on the UK Bakery market, the UK manufacturing industry and the Group. Contingency planning is already in place looking at alternative UK sources of products.

The Group is also likely to face higher logistic costs and administration costs due to increased custom border checks and will require higher stock levels due to lengthening delivery times for ingredients.

Equally, the Food Manufacturing industry, including Finsbury is typically reliant on low skilled labour. Labour strategies are being developed to retain and develop existing workers, attracting and hiring new workers and reducing labour whilst boosting productivity with its capital investment program.

Finsbury is not being complacent in its response to likely Brexit scenarios and has a cross functional team preparing a number of strategies in order to minimise the impact of Brexit.

Cyber Security

The Group is exposed to potential random and malicious attacks from Cyber criminals. The maintenance of protections software is one tool in the fight to protect our data. In addition, the Group is investing to implement common information systems across all companies with standardised protection operating requirements and security protection. Real time back-up, training and regular communication pulls the Group's defences together.

During 2017-18, the Audit Committee formally reviewed cyber security in four areas: Network security, hardware and software maintenance / updates, disaster recovery and related controls and governance. Where recommendations for improvements were made these are being implemented. An annual security review will be implemented including penetration testing, auditing of all software and hardware, and testing of disaster recovery plans.

Financial Risks:

Commodity & labour pressures

Bakery entails the use of commodities whose price is determined by worldwide demand and macro-economic factors. Commodity pressures have increased as a consequence of a number of factors; 1) A step change in the value of Sterling against both the Euro and Dollar following the EU Referendum. 2) The commodity cycle which, in the recent past has been relatively low. The cycle has seen significant increases in the price of a number of commodities which are over and above any exchange rate deterioration. Finally, 3) European policies particularly in the areas of butter and sugar.

The Group maintains a high level of expertise in its buying team and will consider long term contracts where appropriate to reduce uncertainty in input prices. The team also cultivates strong relationships with major suppliers to ensure continuity of supply at competitive prices. Regular renovation and innovation in our product range can help to manage margin pressures in an effective manner as far as the competitive environment allows. The Group also purchases forward foreign currency in order to minimise the fluctuation of input costs linked to future currency conversion rates.

The National Living Wage is driving forward the cost of labour ahead of inflation and demand related adjustments. More recently the future availability of labour has become a concern. Ongoing capital investment and improvements in operational efficiency help reduce the impacts of both labour availability and cost as well as material inflation.

Pension Fund Deficit

The Group has one defined benefit pension scheme within its Memory Lane Cakes Limited business in Cardiff. The Scheme was closed to new members in 2010 to reduce the funding risk to Memory Lane Cakes. The valuation of the Scheme on a technical provision basis as well as the underlying performance of the invested assets can cause large fluctuations in valuations. There is an agreed deficit recovery plan fixed until September 2023 or until a new schedule is agreed based on the next valuation which will be at 31 December 2018.

Foreign Exchange

The Group supplies UK manufactured products to Lightbody Stretz Ltd, its 50% owned selling and distribution business trading in Mainland Europe. The Group also purchases a small amount of commodities and capital equipment in foreign currency. As a consequence, the Group is exposed to fluctuations in foreign currency rates. This risk is managed by the continual monitoring of the exposure to foreign currency transactions. Forward currency contracts are used when required and the Group procurement team work hard to ensure the best prices for commodities and equipment, giving special consideration to the benefits of those contracts denominated in foreign currency.

Financial Review

Group revenue for the 52 week period to 30 June 2018, including the revenues for the bakeries closed during the year, is GBP303.6m, 3.4% lower than last year. Continuing Group revenue (i.e. excluding the revenues of the bakeries closed) is, at GBP290.2m up 2.4% or GBP6.8m. Growth in continuing revenues is within markets which are seeing value growth with slight volumes decline.

Significant and non-recurring costs of GBP13,067,000 which primarily relate to the closure of the bakeries have been stripped out of operating profit to give adjusted operating profit, which provides a clearer presentation of the underlying trading performance of the Group. Adjusted operating profit at GBP17.8m is up 2.3% on last year. Adjusted operating profit margins are 5.9% (2017: 5.5%), a consequence of removing the losses of the bakeries closed. The Group's performance is seen as resilient in the face of severe commodity and labour inflation. This resilience is underpinned by capital investment, a focus on operational efficiency and removing low profit business to optimise product mix.

Dividend

Subject to Shareholder approval at the Company's AGM on 21 November 2018, the final dividend of 2.2 pence per share will be paid on 21 December 2018 to all shareholders on the register at 23 November 2018 and will be recognised in the year ending 29 June 2019.

The tables below show what the Directors consider to be the underlying performance of the Group, the adjustments eliminate the impact of significant and non-recurring items and other accounting items.

 
                                                                             52 week period ended 30 June 2018 
                                                                                Fair value              As per 
                                                               Defined         of interest        Consolidated 
                               Adjusted         Significant    benefit         rate swaps/        Statement of 
                              Operating   and non-recurring    pension    foreign exchange      Comp-rehensive 
                            performance               items     scheme           contracts              Income 
                                 GBP000              GBP000     GBP000              GBP000              GBP000 
-------------------  ------------------  ------------------  ---------  ------------------  ------------------ 
 Revenue                        303,600                   -          -                   -             303,600 
 Cost of sales                (211,511)                   -          -                   -           (211,511) 
-------------------  ------------------  ------------------  ---------  ------------------  ------------------ 
 Gross profit                    92,089                   -          -                   -              92,089 
 Other costs 
  excluding 
  depreciation 
  & amortisation               (66,489)            (13,067)        411                  49            (79,096) 
 EBITDA                          25,600            (13,067)        411                  49              12,993 
 Depreciation 
  & amortisation                (7,756)                   -          -                   -             (7,756) 
-------------------  ------------------  ------------------  ---------  ------------------  ------------------ 
 Results from 
  operating 
  activities                     17,844            (13,067)        411                  49               5,237 
-------------------  ------------------  ------------------  ---------  ------------------  ------------------ 
 Finance income                      24                   -          -                 143                 167 
 Finance costs                    (652)                   -      (277)                   -               (929) 
-------------------  ------------------  ------------------  ---------  ------------------  ------------------ 
 Profit before 
  tax                            17,216            (13,067)        134                 192               4,475 
-------------------  ------------------  ------------------  ---------  ------------------  ------------------ 
 Taxation                       (3,708)               2,452       (23)                (32)             (1,311) 
-------------------  ------------------  ------------------  ---------  ------------------  ------------------ 
 Profit for 
  the year                       13,508            (10,615)        111                 160               3,164 
-------------------  ------------------  ------------------  ---------  ------------------  ------------------ 
 

52 week period ended 1 July 2017

 
                                                                              Fair value 
                                                             Defined         of interest   As per Consolidated 
                            Adjusted          Significant    benefit         rate swaps/             Statement 
                           Operating    and non-recurring    pension    foreign exchange     of Comp-rehensive 
                         performance                items     scheme           contracts                Income 
                              GBP000               GBP000     GBP000              GBP000                GBP000 
---------------------  -------------  -------------------  ---------  ------------------  -------------------- 
 Revenue                     314,296                    -          -                   -               314,296 
 Cost of sales             (216,493)                    -          -                   -             (216,493) 
---------------------  -------------  -------------------  ---------  ------------------  -------------------- 
 Gross profit                 97,803                    -          -                   -                97,803 
 Other costs 
  excluding 
  depreciation & 
  amortisation              (72,883)              (4,000)        200                (71)              (76,754) 
 EBITDA                       24,920              (4,000)        200                (71)                21,049 
 Depreciation & 
  amortisation               (7,485)                    -          -                   -               (7,485) 
---------------------  -------------  -------------------  ---------  ------------------  -------------------- 
 Results from 
  operating 
  activities                  17,435              (4,000)        200                (71)                13,564 
---------------------  -------------  -------------------  ---------  ------------------  -------------------- 
 Finance income                    -                    -          -                 555                   555 
 Finance costs                 (877)                    -      (204)                   -               (1,081) 
---------------------  -------------  -------------------  ---------  ------------------  -------------------- 
 Profit before tax            16,558              (4,000)        (4)                 484                13,038 
---------------------  -------------  -------------------  ---------  ------------------  -------------------- 
 Share of losses of 
  equity accounted 
  investees 
  after tax                     (22)                    -          -                   -                  (22) 
---------------------  -------------  -------------------  ---------  ------------------  -------------------- 
 Taxation                    (3,578)                  680          1                (62)               (2,959) 
---------------------  -------------  -------------------  ---------  ------------------  -------------------- 
 Profit for the year          12,958              (3,320)        (3)                 422                10,057 
---------------------  -------------  -------------------  ---------  ------------------  -------------------- 
 

Earnings Per Share (EPS)

EPS comparatives to the prior year can be distorted by significant and non-recurring items and other items highlighted in the tables above. The Board is focused on growing adjusted diluted EPS, which is calculated by eliminating the impact of the items highlighted above as well as amortisation of intangibles and incorporates the dilutive effect of share options. Adjusted diluted EPS is 9.8p (2017: 9.5p).

 
                             2018   2017 
 Basic EPS                   1.7p   7.1p 
                           ------  ----- 
 Adjusted basic EPS         10.2p   9.8p 
                           ------  ----- 
 Diluted basic EPS           1.6p   6.9p 
                           ------  ----- 
 Adjusted* diluted** EPS     9.8p   9.5p 
                           ------  ----- 
 

Further details can be found in Note 6.

Diluted EPS takes basic EPS and incorporates the dilutive effect of share options.

Cash Flow

There was a decrease in our working capital requirement of GBP1.3 million (2017: GBP2.5 million increase) in the financial year, corporation tax payments made in the financial year totalled GBP3.3 million (2017: GBP2.7 million), the payments in the current and prior year took account of the research and development tax relief due to the Group, tax losses being utilised and a higher tax rate charged on overseas profits. Capital expenditure in the year amounted to GBP12.6 million (2017: GBP12.5 million).

Debt and Bank Facilities

The Group's total net debt is GBP15.6 million (2017: GBP17.5 million) down GBP1.9 million from the prior year. During the year the Group refinanced its debt facilities. The new facility is a GBP45m revolving credit facility provided by a club of three banks - HSBC, Rabobank and RBS. The facility is on improved terms, is available for five years and also includes scope for the facility to be increased by up to a further GBP45m.

The Group is able to offer strong asset backing to secure its borrowings. The Group owns freehold sites at Memory Lane in Cardiff, Fletchers' site at Sheffield and Lightbody in Scotland. In addition, the Group has a strong trade debtor book, made up primarily of the UK's major multiple retailers. This debtor book stood at GBP40.0 million (2017: GBP45.2 million) at the period end date.

The Group recognises the inherent risk from interest rate rises, and uses interest rate swaps to mitigate these risks. The Group entered into a swap for GBP20.0m for five years from 3 July 2017 (fixed) at 0.455%. The total balance of swaps at 30 June 2018 is GBP20 million (2017: GBPnil). The counterparty to these transactions is HSBC Bank Plc.

The effective interest rate for the Group at the year end, taking account of the interest rate swap in place with base rate at 0.5% and LIBOR at 0.501%, was 1.66% (2017: 2.15%).

Financial Covenants

The Board reviews the Group's cash flow forecasts and key covenants on a regular basis to ensure that it has adequate facilities to cover its trading and banking requirements with an appropriate level of headroom. The forecasts are based on management's best estimates of future trading. There has been no breach of covenants during the year.

Interest cover (based on adjusted earnings before interest, tax, depreciation and amortisation - EBITDA) for the 52 weeks to 30 June 2018 was 40.7 (2017: 28.4). Net bank debt to EBITDA (based on adjusted EBITDA) for the year to 30 June 2018 was 0.6 (2017: 0.7).

Taxation

The Group taxation charge for the year was GBP1.3 million (2017: GBP3.0 million). This represents an effective rate of 21.5% on profits before significant and non-recurring and other items (2017: 21.6%) as shown in the tables above. Further details on the tax charge can be found in Note 5.

Financial and Non-Financial Key Performance Indicators

A range of financial and non-financial key performance indicators are monitored at site level covering, amongst others, customer service, quality and health and safety. The Group board receives a regular overview of these.

Stephen Boyd

Director 14 September 2018

Consolidated Statement of Profit and Loss and Other Comprehensive Income

for the 52 weeks ended 30 June 2018 and 52 weeks ended 1 July 2017

 
                                                      2018       2017 
                                           Note     GBP000     GBP000 
 
 
  Revenue                                   1      303,600    314,296 
  Cost of sales                                  (211,511)  (216,493) 
-----------------------------------------        ---------  --------- 
  Gross profit                                      92,089     97,803 
-----------------------------------------  ----  ---------  --------- 
  Administrative expenses -- underlying           (73,785)   (80,239) 
Administrative expenses -- significant 
 and non-recurring                                (13,067)    (4,000) 
-----------------------------------------  ----  ---------  --------- 
  Administrative expenses                   2     (86,852)   (84,239) 
-----------------------------------------        ---------  --------- 
Results from operating activities                    5,237     13,564 
-----------------------------------------        ---------  --------- 
  Finance income                            4          167        555 
  Finance cost                              4        (929)    (1,081) 
                                                 ---------  --------- 
  Net finance cost                                   (762)      (526) 
-----------------------------------------        ---------  --------- 
Profit before tax and share of 
 losses of equity-accounted investees                4,475     13,038 
  Share of losses of equity accounted 
   investees                                             -       (22) 
  Profit before tax                                  4,475     13,016 
  Taxation                                  5      (1,311)    (2,959) 
-----------------------------------------        ---------  --------- 
  Profit for the financial year                      3,164     10,057 
-----------------------------------------        ---------  --------- 
 
Other comprehensive (expense)/income 
Items that will not be reclassified 
 to profit and loss 
Remeasurement on defined benefit 
 pension scheme                                      (172)    (4,031) 
Movement in deferred taxation 
 on pension scheme liability                            29        621 
Other comprehensive expense for 
 the financial year, net of tax                      (143)    (3,410) 
-----------------------------------------        ---------  --------- 
Total comprehensive income for 
 the financial year                                  3,021      6,647 
=========================================        =========  ========= 
 
Profit attributable to: 
Equity holders of the parent                         2,180      9,048 
Non-controlling interest                               984      1,009 
-----------------------------------------        ---------  --------- 
Profit for the financial year                        3,164     10,057 
=========================================        =========  ========= 
 
Total comprehensive income attributable 
 to: 
Equity holders of the parent                         2,037      5,638 
Non-controlling interest                               984      1,009 
-----------------------------------------        ---------  --------- 
Total comprehensive income for 
 the financial year                                  3,021      6,647 
=========================================        =========  ========= 
 
Earnings per ordinary shares 
Basic                                       6          1.7        7.1 
Diluted                                     6          1.6        6.9 
 The Notes on pages 20 to 28 form an integral part of these 
  Financial Statements 
 

Consolidated Statement of Financial Position

at 30 June 2018 and 1 July 2017

 
                                              Note       2018      2017 
                                                       GBP000    GBP000 
Non-current assets 
Intangibles                                      7     83,313    80,302 
Property, plant and equipment                          49,922    48,857 
Investments in equity accounted investees                   -       269 
Other financial assets                                     28        28 
Deferred tax assets                                     3,890     4,063 
                                                      137,153   133,519 
--------------------------------------------        ---------  -------- 
 
Current assets 
Inventories                                            13,456    12,684 
Trade and other receivables                            44,575    50,018 
Cash and cash equivalents                               9,363     3,024 
Other financial assets -- fair value of 
 derivatives                                              558       560 
                                                       67,952    66,286 
--------------------------------------------        ---------  -------- 
Total assets                                          205,105   199,805 
--------------------------------------------        ---------  -------- 
 
Current liabilities 
Other interest-bearing loans and borrowings      8   (24,685)  (14,586) 
Trade and other payables                             (55,598)  (60,461) 
Provisions                                            (3,798)      (18) 
Other financial liabilities - fair value 
 of derivatives                                          (40)     (234) 
Current tax liabilities                                     -   (1,650) 
--------------------------------------------        ---------  -------- 
                                                     (84,121)  (76,949) 
--------------------------------------------        ---------  -------- 
 
Non-current liabilities 
Other interest-bearing loans and borrowings      8          -   (5,800) 
Provisions and other liabilities                      (4,623)     (221) 
Deferred tax liabilities                              (1,243)   (1,335) 
Pension fund liability                               (10,536)  (10,498) 
--------------------------------------------        ---------  -------- 
                                                     (16,402)  (17,854) 
--------------------------------------------        ---------  -------- 
Total liabilities                                   (100,523)  (94,803) 
--------------------------------------------        ---------  -------- 
 
Net assets                                            104,582   105,002 
============================================        =========  ======== 
 
Equity attributable to equity holders of 
 the parent 
Share capital                                           1,304     1,304 
Share premium account                                  64,956    64,956 
Capital redemption reserve                                578       578 
Employee share reserve                                (3,282)   (3,585) 
Retained earnings                                      38,954    39,862 
--------------------------------------------        ---------  -------- 
                                                      102,510   103,115 
Non-controlling interest                                2,072     1,887 
--------------------------------------------        ---------  -------- 
Total equity                                          104,582   105,002 
--------------------------------------------        ---------  -------- 
 
 

These Financial Statements were approved by the Board of Directors on 14 September 20018 and were signed on its behalf by:

Stephen Boyd (Director)

Registered Number 00204368

The Notes on pages 20 to 28 form an integral part of these Financial Statements

Consolidated Statement of Changes in Equity

for the 52 weeks ended 30 June 2018 and 1 July 2017

 
 
                                                        Capital     Employee 
                            Share          Share     redemption        share   Retained  Non-controlling          Total 
                          Capital        premium        reserve      reserve   Earnings         interest         equity 
                           GBP000         GBP000         GBP000       GBP000     GBP000           GBP000         GBP000 
---------------   ---------------  -------------  -------------  -----------  ---------  ---------------  ------------- 
 
 Balance at 2 
  July 
  2016                      1,304         64,956            578      (3,920)     36,569            1,583        101,070 
 
 Profit for the 
  financial 
  year                          -              -              -            -      9,048            1,009         10,057 
 
 Other 
 comprehensive 
 (expense)/ 
 income: 
Remeasurement on 
 defined benefit 
 pension                        -              -              -            -    (4,031)                -        (4,031) 
Deferred tax 
 movement 
 on pension 
 scheme 
 remeasurement                  -              -              -            -        621                -       621 
Total other 
 comprehensive 
 expense                        -              -              -            -    (3,410)                -        (3,410) 
----------------  ---------------  -------------  -------------  -----------  ---------  ---------------  ------------- 
Total 
 comprehensive 
 income for the 
 period                         -              -              -            -      5,638            1,009          6,647 
----------------  ---------------  -------------  -------------  -----------  ---------  ---------------  ------------- 
 
Transactions 
with 
owners, 
recorded 
directly in 
equity: 
 Shares issued 
  from 
  EBT                           -              -              -          335      (158)                -            177 
 Impact of share 
  based payments                -              -              -            -      1,240                -          1,240 
 Deferred tax on 
  share options                 -              -              -            -         47                -             47 
 Foreign 
 exchange 
 translation 
 differences                    -              -              -            -        171                -            171 
 Dividend paid                  -              -              -            -    (3,645)            (705)        (4,350) 
----------------  ---------------  -------------  -------------  -----------  ---------  ---------------  ------------- 
 Balance at 1 
  July 
  2017                      1,304         64,956            578      (3,585)     39,862            1,887        105,002 
----------------  ---------------  -------------  -------------  -----------  ---------  ---------------  ------------- 
 
 Balance at 1 
  July 
  2017                      1,304         64,956            578      (3,585)     39,862            1,887        105,002 
 
 Profit for the 
  financial 
  year                          -              -              -            -      2,180              984          3,164 
 
 Other 
 comprehensive 
 (expense)/ 
 income: 
Remeasurement on 
 defined benefit 
 pension                        -              -              -            -      (172)                -          (172) 
Deferred tax 
 movement 
 on pension 
 scheme 
 remeasurement                  -              -              -            -         29                -        29 
Total other 
 comprehensive 
 expense                        -              -              -            -      (143)                -          (143) 
----------------  ---------------  -------------  -------------  -----------  ---------  ---------------  ------------- 
Total 
 comprehensive 
 income for the 
 period                         -              -              -            -      2,037              984          3,021 
----------------  ---------------  -------------  -------------  -----------  ---------  ---------------  ------------- 
 
Transactions 
with 
owners, 
recorded 
directly in 
equity: 
 Shares issued 
  from 
  EBT                           -              -              -          303      (217)                -             86 
 Impact of share 
  based payments                -              -              -            -      1,138                -          1,138 
 Deferred tax on 
  share options                 -              -              -            -         58                -             58 
Foreign exchange 
 translation 
 differences                    -              -              -            -         34                -             34 
 Dividend paid                  -              -              -            -    (3,958)            (799)        (4,757) 
----------------  ---------------  -------------  -------------  -----------  ---------  ---------------  ------------- 
 Balance at 30 
  June 
  2018                      1,304         64,956            578      (3,282)     38,954            2,072        104,582 
================  ===============  =============  =============  ===========  =========  ===============  ============= 
 
  The notes on pages 20 to 28 form an integral part of these Financial 
   Statements. 
 
 

Consolidated Cash Flow Statement

for the 52 weeks ended 30 June 2018 and 1 July 2017

 
 
                                                    Note      2018      2017 
                                                            GBP000    GBP000 
Cash flows from operating activities 
Profit for the financial year                                3,164    10,057 
Adjustments for: 
Taxation                                               5     1,311     2,959 
Net finance costs                                      4       762       526 
Depreciation                                                 7,041     6,948 
Amortisation of intangibles                            7       715       537 
Significant and non-recurring items                         13,067     4,000 
Share of losses of equity accounted investees 
 after tax                                                       -        22 
Contributions by employer to pension scheme                  (411)     (200) 
Change in fair value of foreign exchange 
 contracts                                                    (49)        71 
Operating profit before changes in working 
 capital                                                    25,600    24,920 
 
Changes in working capital: 
Increase in inventories                                      (757)      (39) 
Decrease in trade and other receivables                      6,235       153 
Decrease in trade and other payables                       (4,160)   (2,566) 
--------------------------------------------------        --------  -------- 
Cash generated from operations before costs 
 of disposals and acquisitions                              26,918    22,468 
 
Costs relating to closure of bakeries and 
 acquisitions                                              (4,594)         - 
Interest paid                                                (634)     (892) 
Tax paid                                                   (3,338)   (2,650) 
                                                          --------  -------- 
Net cash from operating activities                          18,352    18,926 
--------------------------------------------------        --------  -------- 
 
Cash flows from investing/divesting activities 
Purchase of property, plant and equipment                 (12,606)  (12,542) 
Disposal of property, plant and equipment                      768         - 
Purchase of companies/investments                                -      (80) 
Net cash used in investing activities                     (11,838)  (12,622) 
--------------------------------------------------        --------  -------- 
 
Cash flows from financing activities 
(Repayment)/drawdown of invoice discounting            9  (11,646)       822 
Drawdown of revolving credit                           9    25,000         - 
Repayment of mortgage and bank loans                   9   (8,794)   (2,937) 
Repayment of asset finance liabilities                 9      (57)     (133) 
Options exercised                                               86       177 
Dividend paid to non-controlling interest                    (799)     (705) 
Dividend paid to shareholders                              (3,958)   (3,645) 
--------------------------------------------------        --------  -------- 
Net cash from financing activities                           (168)   (6,421) 
--------------------------------------------------        --------  -------- 
 
Net increase/(decrease) in cash and cash 
 equivalents                                                 6,346     (117) 
Opening cash and cash equivalents                            3,024     3,024 
Effect of exchange rate fluctuations on 
 cash held                                                     (7)       117 
--------------------------------------------------        --------  -------- 
Cash and cash equivalents at end of period                   9,363     3,024 
--------------------------------------------------        --------  -------- 
 The Notes on pages 20 to 28 form an integral part of these Financial 
  Statements. 
 
 

Presentation of Financial Statements

Basis of Preparation

The financial information set out above does not constitute the company's statutory accounts for the 52 week period ended 30 June 2018 or the 52 week period ended 1 July 2017, but is derived from those accounts. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

   1.     Revenue and Segmental Information 

Operating segments are identified on the basis of internal reporting and decision making. The Group's Chief Operating Decision Maker is considered to be the Board as it is primarily responsible for the allocation of resources to segments and the assessment of performance by segment.

The Board uses adjusted operating profit, reviewed on a regular basis, as the key measure of the segments' performance. Operating profit in this instance is defined as profit before the following:

   -      Net financing expense 
   -      Significant and non-recurring items 
   -      Pension charges or credits in relation to the net pension position 
   -      Revaluation of interest rate swaps and forward foreign currency contracts. 

The UK Bakery segment manufactures and sells bakery products to the UK's multiple grocers and foodservice sectors. This segment primarily comprises the operations of Memory Lane Cakes Ltd, Lightbody Group Ltd, Johnstone's Food Service Ltd, Fletchers Bakeries Ltd and Nicholas & Harris Ltd. These subsidiaries are aggregated into a single UK Bakery segment as they share similar characteristics. The characteristics considered are:

- The nature of the products - products are similar in nature and are classed as manufactured bakery products

   -      The production process - the production processes have the same or similar characteristics 
   -      The economic characteristics - the average gross margins are expected to be similar 

- The type and class of customer - customers are the same grocery retailers and foodservice customers

   -      The method of distribution - method is the same or similar throughout the segment 
   -      The regulatory environment - the environment is the same. 

Costs of Group operations plus a 10% premium have been allocated across the segments on the basis of their operating profit. The premium has been charged to reflect the synergies achieved from obtaining resources centrally giving benefits across the operating segments

A purchasing premium of 2% is charged from Group operations, and is calculated on materials and packaging spend at segmental level. This charge is based on the rationale that Group operations, through its Group buyers, optimises the Group's procurement spend through leveraging its purchasing power. This has resulted in a loss from continuing operations of GBP0.1m (2017: GBP0.2m loss) being presented within the Group Operations segment. The Group's finance income and expenses cannot be meaningfully allocated to the individual operating segments.

 
  52 week period ended 30              UK Bakery   Overseas   Group Operations   Total Group 
   June 2018                              GBP000     GBP000             GBP000        GBP000 
------------------------------------  ----------  ---------  -----------------  ------------ 
 External revenue continuing             271,127     32,473                  -       303,600 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Adjusted operating profit                15,607      2,348              (111)        17,844 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Fair value foreign exchange 
  contracts                                (145)        194                  -            49 
 Defined benefit pension 
  scheme                                     411          -                  -           411 
 Significant and non-recurring 
  items                                 (13,067)          -                  -      (13,067) 
 Results from operating activities         2,806      2,542              (111)         5,237 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Finance income                                                                          167 
 Finance cost                                                                          (929) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Net finance cost                                                                      (762) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Share of losses of equity                                                                 - 
  accounted investees after 
  tax 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Profit before taxation                                                                4,475 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Taxation                                                                            (1,311) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Profit for the financial 
  year                                                                                 3,164 
------------------------------------  ----------  ---------  -----------------  ------------ 
 
 At 30 June 2018 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Segment assets                          187,260      7,138                752       195,150 
 Unallocated assets                                                                    9,955 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Consolidated total assets                                                           205,105 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Segment liabilities                    (64,358)    (4,684)            (6,661)      (75,703) 
 Unallocated liabilities                                                            (24,820) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Consolidated total liabilities                                                    (100,523) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 
 Other segment information 
 Capital expenditure                      12,354        173                  -        12,527 
 Depreciation included in 
  segment profit                           6,979         62                  -         7,041 
 Amortisation                                715          -                  -           715 
 Impairment of assets                        987          -                  -           987 
 Inter-segmental sale / (purchases)        9,538    (9,538)                  -             - 
------------------------------------  ----------  ---------  -----------------  ------------ 
 

Analysis of unallocated assets and liabilities:

 
                              Assets                               Liabilities 
                              GBP000                                    GBP000 
 Investments                      28   Loans and borrowings           (24,685) 
 Financial instruments           558   Financial instruments              (40) 
 Cash and cash equivalents     9,363   Cash and cash equivalents             - 
 Taxation balances                 6   Taxation balances                  (95) 
 Unallocated assets            9,955   Unallocated liabilities        (24,820) 
---------------------------  -------  --------------------------  ------------ 
 

With regard to revenue, five customers with sales of GBP60m, GBP40m, GBP31m, GBP24m and GBP18m account for 57% of revenue, which is attributable to the UK Bakery and Overseas segments above.

 
  52 week period ended 1 July          UK Bakery   Overseas   Group Operations   Total Group 
   2017                                   GBP000     GBP000             GBP000        GBP000 
------------------------------------  ----------  ---------  -----------------  ------------ 
 External revenue continuing             281,580     32,716                  -       314,296 
 Adjusted operating profit                15,369      2,219              (153)        17,435 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Fair value foreign exchange 
  contracts                                (350)        279                  -          (71) 
 Defined benefit pension 
  scheme                                     200          -                  -           200 
 Significant and non-recurring 
  items                                  (4,000)          -                  -       (4,000) 
 Results from operating activities        11,219      2,498              (153)        13,564 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Finance income                                                                          555 
 Finance cost                                                                        (1,081) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Net finance cost                                                                      (526) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Share of losses of equity 
  accounted investees after 
  tax                                                                                   (22) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Profit before taxation                                                               13,016 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Taxation                                                                            (2,959) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Profit for the financial 
  year                                                                                10,057 
------------------------------------  ----------  ---------  -----------------  ------------ 
 
 At 1 July 2017 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Segment assets                          188,628      6,543                712       195,883 
 Unallocated assets                                                                    3,922 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Consolidated total assets                                                           199,805 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Segment liabilities                    (62,483)    (5,041)            (6,564)      (74,088) 
 Unallocated liabilities                                                            (20,715) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 Consolidated total liabilities                                                     (94,803) 
------------------------------------  ----------  ---------  -----------------  ------------ 
 
 Other segment information 
 Capital expenditure                      12,430        112                  -        12,542 
 Depreciation included in 
  segment profit                           6,906         42                  -         6,948 
 Amortisation                                537          -                  -           537 
 Impairment of assets                      4,000          -                  -         4,000 
 Inter-segmental sale / (purchases)        8,710    (8,710)                  -             - 
------------------------------------  ----------  ---------  -----------------  ------------ 
 

Analysis of unallocated assets and liabilities:

 
                              Assets                               Liabilities 
                              GBP000                                    GBP000 
 Investments                     297   Loans and borrowings           (20,386) 
 Financial instruments           560   Financial instruments             (234) 
 Cash and cash equivalents     3,024   Cash and cash equivalents             - 
 Taxation balances                41   Taxation balances                  (95) 
 Unallocated assets            3,922   Unallocated liabilities        (20,715) 
---------------------------  -------  --------------------------  ------------ 
 

With regard to revenue, five customers with sales of GBP64m, GBP39m, GBP31m, GBP22m and GBP22m account for 57% of revenue, which is attributable to the UK Bakery and Overseas segments above.

Impairment relates to the assets held in Grain D'Or, which fall under the UK Bakery segment.

An analysis by geographical segment is shown below:

 
 
Geographical split of revenue by                                2018       2017 
 destination 
                                                              GBP000     GBP000 
Continuing: 
United Kingdom                                               257,701    276,177 
Europe                                                        45,899     38,119 
Total continuing                                             303,600    314,296 
==========================================  ===============  =======  ========= 
 
Capital expenditure on segment assets is detailed in Note 1. 
 
 
Geographical split by                        United Kingdom   Europe      Total 
 country of origin 
                                                     GBP000   GBP000     GBP000 
2018 
Continuing Revenue                                  271,127   32,473    303,600 
Adjusted operating 
 profit                                              15,496    2,348     17,844 
Unadjusted operating 
 profit                                               2,695    2,542      5,237 
Total assets                                        197,874    7,231    205,105 
Total liabilities                                  (95,748)  (4,775)  (100,523) 
-------------------------------------       ---------------  -------  --------- 
Net assets                                          102,126    2,456    104,852 
==========================================  ===============  =======  ========= 
 
                                             United Kingdom   Europe      Total 
                                                     GBP000   GBP000     GBP000 
2017 
Continuing Revenue                                  281,580   32,716    314,296 
Adjusted operating 
 profit                                              15,216    2,219     17,435 
Unadjusted operating 
 profit                                              11,066    2,498     13,564 
Total assets                                        193,262    6,543    199,805 
Total liabilities                                  (89,762)  (5,041)   (94,803) 
------------------------------------  ---   ---------------  -------  --------- 
Net assets                                          103,500    1,502    105,002 
==========================================  ===============  =======  ========= 
 
The net assets shown under Europe comprises Lightbody Stretz Ltd, 
 being the 50% owned parent company of Lightbody Europe SAS, the 
 French based selling and distribution business. 
 
   2.     Expenses and Auditor's Remuneration 

Included in profit are the following:

 
                                                                       2018                2017 
                                                                     GBP000              GBP000 
-------------------------------------------------------  ------------------  ------------------ 
       Amortisation of intangibles                                      715                 537 
       Depreciation of owned tangible assets                          6,859               6,715 
       Depreciation on assets under finance leases 
        and hire purchase contracts                                     182                 233 
       Impairment of assets & goodwill                                  987               4,000 
       Loss on foreign exchange                                         260               1,360 
       Hire of plant and machinery -- operating leases                  797               1,006 
       Hire of other assets -- operating leases                       1,302               1,833 
       Movement on fair value of foreign exchange 
        contracts                                                      (49)                  71 
       Research and development                                       1,567               2,328 
       Share option charges                                           1,138               1,240 
       Government grants                                                 25                   - 
 
 

Amortisation of intangibles for the year was GBP715,000 (2017: GBP537,000) relating to the Fletchers acquisition in October 2014.

Auditor's remuneration:

 
                                                                        2018                2017 
                                                                      GBP000              GBP000 
--------------------------------------------------------  ------------------  ------------------ 
      Audit of these Financial Statements                                 60                  50 
      Amounts receivable by the auditor and its 
       associates in respect of: 
      Audit of the Financial Statements of subsidiaries 
       of the Company                                                    120                 123 
      Taxation compliance services                                        24                  35 
      Other tax advisory                                                  10                   7 
      Other services                                                     173                 100 
--------------------------------------------------------  ------------------  ------------------ 
 
The auditor's remuneration is in respect of KPMG LLP. Fees for 
 other services relates to corporate finance transactions, pension 
 advisory services and services relating to information technology. 
 
   3.     Significant and Non-Recurring Items 

The Group presents certain items as non-recurring and significant. These relates to items which, in management's judgement, need to be disclosed by virtue of their size or incidence in order to obtain a more meaningful understanding of the financial information. They reflect costs that will not be repeated and therefore do not reflect ongoing trading of business which is most meaningful to users.

Included within significant and non-recurring items shown in the table in the Financial Review section are the following costs:

 
                                            2018    2017 
                                          GBP000  GBP000 
 
Site closures - reorganisation 
 people costs                              2,266       - 
Site closures -- property, leases 
 and contract costs                        9,604       - 
Site closures -- Legal and professional 
 costs                                       121       - 
Impairment of assets and investments         373   4,000 
Acquisition related costs                    703       - 
                                          13,067   4,000 
----------------------------------------  ------  ------ 
 
 

The site closure provision relates primarily to the closure of the Grain D'Or site during the year, the provision is based on best estimates of the outcome of negotiations. Whilst site exit negotiations are still ongoing, the expectation is that these will conclude within the new financial year.

   4.     Finance Income and Expenses 

Recognised in the Consolidated Statement of Profit and Loss

 
                                                2018     2017 
                                              GBP000   GBP000 
Finance income 
Change in fair value of interest rate swaps      143      555 
Interest on interest rate swap agreements         18        - 
Bank interest receivable                           6        - 
Total finance income                             167      555 
--------------------------------------------  ------  ------- 
 
Finance cost 
Interest on net pension position               (277)    (204) 
Bank interest payable                          (638)    (752) 
Interest on interest rate swap agreements       (14)    (125) 
--------------------------------------------  ------  ------- 
Total finance cost                             (929)  (1,081) 
--------------------------------------------  ------  ------- 
 
 
   5.     Taxation 

Recognised in the Consolidated Statement of Profit and Loss

 
                                              2018      2017 
                                            GBP000    GBP000 
 Current tax 
 Current year                                1,236     3,270 
 Adjustments for prior years                  (93)     (196) 
----------------------------------------  --------  -------- 
 Total current tax                           1,143     3,074 
----------------------------------------  --------  -------- 
 
 Deferred tax 
 Origination and reversal of temporary 
  differences                                  328     (222) 
 Retirement benefit deferred tax 
  charge                                         -         1 
 Adjustments for prior years                 (160)       106 
----------------------------------------  --------  -------- 
 Total deferred tax                            168     (115) 
----------------------------------------  --------  -------- 
 Total tax expense                           1,311     2,959 
----------------------------------------  --------  -------- 
 

Reconciliation of effective tax rate

The weighted average hybrid rate of UK and French tax is 22.5% (2017: 22.2%). The tax assessed for the period is lower (2017: lower) than the hybrid rate of UK and French tax. The UK corporation tax rate for the period is 19% (2017: 20.00 %). The differences are explained below:

 
                                                     2018    2017 
                                                   GBP000  GBP000 
 
Profit before taxation before losses from equity 
 accounted investees                                4,475  13,038 
-------------------------------------------------  ------  ------ 
 
Tax using the UK corporation tax rate of 19.00%, 
 (2017: 19.76%)                                       850   2,577 
Overseas profits charged at different taxation 
 rate                                                 277     344 
Non-deductible expenses                               586     160 
Restatement of opening net deferred tax due 
 to rate change and differences in rates             (49)      68 
R&D uplift current year                             (100)   (100) 
Adjustments to tax charge in respect of prior 
 periods                                            (253)    (90) 
Tax expense (excluding prior year disallowable 
 impairment)                                        1,311   2,959 
=================================================  ======  ====== 
 

The UK corporation tax rate reductions from 20% to 19% from 1 April 2017 and 18% from 1 April 2020 were substantively enacted on 26 October 2015. An additional reduction to 17% from 1 April 2020 was substantively enacted on 6 September 2016. The deferred tax assets and liabilities at 30 June 2018 have been calculated based on these rates.

The adjustment of GBP253,000 for prior year includes, ineligible capital spends and disallowable expenses being different to the assumed levels at the time of preparation of the Annual Report.

The Company has an unrecognised deferred tax asset of GBP162,605 (2017: GBP162,605) relating to capital losses carried forward. This asset has not been recognised in the financial statements as it is not expected that suitable gains will arise in the future in order to utilise the underlying capital losses.

   6.     Earnings Per Ordinary Share 

Basic earnings per share for the period is calculated on the basis of profit for the year after tax, divided by the weighted average number of shares in issue being 127,611,000 (2017: 126,979,000).

Basic diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares. At 30 June 2018, the diluted weighted average number of shares in issue was 132,162,000 (2017: 130,992,000).

An adjusted earnings per share has been calculated to show the trading performance of the Group. These adjusted earnings per share exclude:

   --      Reorganisation and other significant and non-recurring items 

-- IAS 39 'Financial Instruments: Recognition and Measurement' fair value adjustment relating to the Group's interest rate swaps and foreign exchange contracts

   --      IAS 19 (revised) 'Accounting for retirement benefits' relating to net income 
   --      The taxation effect at the appropriate rate on adjustments 
   --      Amortisation of intangible assets 
 
                                            52 weeks to           52 weeks to 
                                           30 June 2018            1 Jul 2017 
---------------------------------  --------------------  -------------------- 
 Profit                                          GBP000                GBP000 
 Profit attributable 
  to equity holders of 
  Company (basic)                                 2,180                 9,048 
 Significant and non-recurring 
  and other items as per 
  strategic Report                               10,344                 2,901 
 Intangible amortisation 
  net of deferred tax                               446                   446 
 Numerator for adjusted 
  earnings per share calculation 
  (adjusted basic)                               12,970                12,395 
 
                                       Basic    Diluted      Basic    Diluted 
                                        '000       '000       '000       '000 
---------------------------------  ---------  ---------  ---------  --------- 
 Shares 
  Weighted average number 
  of ordinary shares in 
  issue during the period            127,611    127,611    126,979    126,979 
 Dilutive effect of share 
  options                                  -      4,551          -      4,013 
---------------------------------  ---------  ---------  ---------  --------- 
                                     127,611    132,162    126,979    130,992 
---------------------------------  ---------  ---------  ---------  --------- 
 
  Earnings per share (pence            Basic    Diluted      Basic    Diluted 
   per share)                          pence      pence      pence      pence 
---------------------------------  ---------  ---------  ---------  --------- 
 Basic and diluted                       1.7        1.6        7.1        6.9 
 Adjusted basic and adjusted 
  diluted                               10.2        9.8        9.8        9.5 
---------------------------------  ---------  ---------  ---------  --------- 
 

Significant and non-recurring and other items are tabled in the Strategic Report and comprise: significant and non-recurring charges (GBP10,615,000), defined benefit pension scheme GBP111,000 and fair value of interest rate swaps and foreign exchange contracts GBP160,000.

   7.     Intangibles 

Intangible assets comprise business system, customer relationships, brands and goodwill.

 
                            Goodwill   Business   Brands and         Customer      Total 
                                        systems     licences    relationships 
                              GBP000     GBP000       GBP000           GBP000     GBP000 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 Cost at 2 July 2016          73,458        600        3,683            5,909     83,650 
 Transfer from tangible 
  assets                           -        548            -                -        548 
 Additions                         -      2,695            -                -      2,695 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 Cost at 1 July 2017          73,458      3,843        3,683            5,909     86,893 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 Transfer from tangible            -          -            -                -          - 
  assets 
 Additions                         -      3,726            -                -      3,726 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 Cost at 30 June 2018         73,458      7,569        3,683            5,909     90,619 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 
 Amortisation/impairment 
  at 2 July 2016             (4,290)          -      (1,073)            (691)    (6,054) 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 Charge for the year 
  1 July 2017                      -          -        (143)            (394)      (537) 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 Amortisation/impairment 
  at 1 July 2017             (4,290)          -      (1,216)          (1,085)    (6,591) 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 Charge for the year 
  30 June 2018                     -      (178)        (143)            (394)      (715) 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 Amortisation/impairment 
  at 30 June 2018            (4,290)      (178)      (1,359)          (1,479)    (7,306) 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 
 Net book value at 
  2 July 2016                 69,168        600        2,610            5,218     77,596 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 Net book value at 
  1 July 2017                 69,168      3,843        2,467            4,824     80,302 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 Net book value at 
  30 June 2018                69,168      7,391        2,324            4,430     83,313 
-------------------------  ---------  ---------  -----------  ---------------  --------- 
 
 

The brand and customer relationships recognised were purchased as part of the acquisition of Fletchers Group of Bakeries in October 2014. They are considered to have finite useful lives and are amortised on a straight line basis over their estimated useful lives of twenty years for the brand and fifteen years for customer relationships. The intangibles were valued using an income approach, using Multi-Period excess earnings Method for customer relationships and Relief from Royalty Method for brand valuation. The amortisation of intangibles has been charged to administrative expenses in the Income Statement. Amortisation on business systems commenced during the year as the systems are brought into use.

Goodwill has arisen on acquisitions and reflects the future economic benefits arising from assets that are not capable of being identified individually and recognised as separate assets. The goodwill reflects the anticipated profitability and synergistic benefits arising from the enlarged Group structure. The goodwill is the balance of the total consideration less fair value of assets acquired and identified. The carrying value of the goodwill is reviewed annually for impairment. The carrying value of all goodwill has been assessed during the year.

The Group tests goodwill for impairment on an annual basis, or more frequently if there are indications that the goodwill may be impaired. The recoverable amounts of the cash generating units are determined from value in use calculations. The key assumptions for the value in use calculations are the discount rate used for future cash flows and the anticipated future changes in revenue, direct costs and indirect costs. The assumptions used reflect the past experience of management and future expectations.

The Group prepares cash flow forecasts covering a five year period based on the detailed financial forecasts approved by management for the next three years with estimated growth and inflation of 3% (2017: 3%) and 3% (2017: 3%) respectively thereafter. The cashflows beyond this forecast are extrapolated to perpetuity using a nil growth rate on a prudent basis, to reflect the uncertainties of forecasting further than five years. Changes in revenue and direct costs are based on past experience and expectations of future changes in the market.

The revenue growth rate combines volume, mix and price of products. An inflation factor has been applied to costs of sales, variable costs and indirect costs and takes into consideration the general rate of inflation, movements in commodities, improvement in efficiencies from capital investment and operations and purchasing initiatives.

A pre-tax discount rate of 10% (2017: 10%) has been used in these calculations. The Group has considered the economic environment and higher level of return expected by equity holders due to the perceived risk in equity markets when selecting the discount rate. The discount rate used for each cash generating unit has been kept constant as the market risk is deemed not to be materially different between the different segments of the bakery sector, nor over time.

Sensitivity analyses have been carried out by the Directors on the carrying value of all remaining goodwill using discount rates ranging between 6.4% and 15.0% which would not result in an impairment of any cash generating units. Management believe any increase in discount rates above 15% to be remote.

The carrying amount of goodwill has been allocated to cash generating units or groups of cash generating units as follows:

 
                                2018      2017 
                              GBP000    GBP000 
--------------------------  --------  -------- 
 Nicholas & Harris             2,980     2,980 
 Lightbody of Hamilton        45,698    45,698 
 Fletchers Bakeries           20,118    20,118 
 Johnstone's Food Service        372       372 
--------------------------  --------  -------- 
                              69,168    69,168 
--------------------------  --------  -------- 
 
   8.     Other Interest-Bearing Loans and Borrowings 

This note provides information about the contractual terms and repayment terms of the Group's interest-bearing loans and borrowings, which are measured at amortised cost, using the effective interest rate method.

 
 2018                        Margin          Frequency     Year of   Facility     Drawn   Current  Non-Current 
                                                    of    maturity     GBP000    GBP000    GBP000       GBP000 
                                            Repayments 
--------------------------  ------------  ------------  ----------  ---------  --------  --------  ----------- 
 
Revolving credit            1.30%/LIBOR         Varies        2023     45,000    25,000    25,000            - 
Unamortised transaction 
 costs                                                                            (315)     (315)            - 
----------------------------------------  ------------  ----------  ---------  --------  --------  ----------- 
                                                                                 24,685    24,685            - 
  ----------------------------------------------------  ----------  ---------  --------  --------  ----------- 
 
 
 2017                        Margin       Frequency      Year of     Facility   Drawn     Current  Non-Current 
                                           of             maturity    GBP000     GBP000    GBP000   GBP000 
                                           Repayments 
--------------------------  ------------  ------------  ----------  ---------  --------  --------  ----------- 
 
Invoice Discounting         1.50%/base    On demand     Revolving*     22,000    11,646    11,646            - 
Term loan                   2.00%/LIBOR   Quarterly     2019           13,400     6,337     2,568        3,769 
Revolving credit            2.00%/LIBOR   Varies        2019            8,000         -         -            - 
Mortgage                    1.75%/LIBOR   Quarterly     2022            3,470     2,457       369        2,088 
Finance lease liabilities   1.76%/base    Monthly       various         2,000        57        57            - 
Overdraft                   2.00%/base    On demand     -               2,000         -         -            - 
--------------------------  ------------  ------------  ----------  ---------  --------  --------  ----------- 
                                                                       50,870    20,497    14,640        5,857 
  ----------------------------------------------------  ----------  ---------  --------  --------  ----------- 
Unamortised transaction 
 costs                                                                            (111)      (54)         (57) 
----------------------------------------  ------------  ----------  ---------  --------  --------  ----------- 
                                                                                 20,386    14,586        5,800 
  ----------------------------------------------------  ----------  ---------  --------  --------  ----------- 
 
 
Secured bank loans and mortgages over one 
 year                                                                                                    5,857 
Unamortised transaction 
 costs                                                                                                    (57) 
                                                                                                   ----------- 
                                                                                                         5,800 
                                                                                                   ----------- 
 
Repayments are as follows: 
Between one and two years                                                                                2,894 
Between two and 
 five years                                                                                              2,292 
Between five and 
 ten years                                                                                                 614 
                                                                                                   ----------- 
                                                                                                         5,800 
                                                                                                   ----------- 
 
 

* Revolving maturity above relates to the payment terms on the invoice discounting which is up to 90 days from the date of invoice.

Finance lease liabilities are payable as follows:

 
                                          2018                                  2017 
                             Minimum                               Minimum 
                      lease payments  Interest  Principal   lease payments  Interest  Principal 
                              GBP000    GBP000     GBP000           GBP000    GBP000     GBP000 
-------------------  ---------------  --------  ---------  ---------------  --------  --------- 
 
Less than one year                 -         -          -               58         1         57 
                                   -         -          -               58         1         57 
-------------------  ---------------  --------  ---------  ---------------  --------  --------- 
 

All of the above loans are denoted in pounds Sterling, with various interest rates and maturity dates. The main purpose of the above facilities is to finance the Group's operations.

As part of the bank borrowing facility the Group needs to meet certain covenants every six months. There were no breaches of covenants during the year. The covenant tests required are Net bank debt : EBITDA, Interest cover, debt service cover and capital expenditure.

The bank facilities available for drawdown are GBP45 million plus a further GBP45 million accordion facility (2017: GBP48.9 million). At the period end date, the facility utilised was GBP25 million (2017: GBP20.5 million), giving GBP20 million (2017: GBP28.4 million) headroom, a further GBP45 million of unutilised accordion facility is available for drawdown.

   9.     Analysis of net debt 
 
                                At year ended   Cash flow  At year ended 
                                       1 July      GBP000        30 June 
                                         2017                       2018 
                                       GBP000                     GBP000 
-----------------------------   -------------  ----------  ------------- 
Cash at bank                            3,024       6,339          9,363 
Debt due within one year              (2,937)    (22,063)       (25,000) 
Debt due after one year               (5,857)       5,857              - 
Invoice discounting due 
 within one year                     (11,646)      11,646              - 
Hire purchase obligations 
 due within one year                     (57)          57              - 
Total net bank debt                  (17,473)       1,836         15,637 
------------------------------  -------------  ----------  ------------- 
 
Debt                                 (20,386)     (4,229)       (24,685) 
Cash at bank                            3,024       6,339          9,363 
Unamortised transaction 
 costs                                  (111)       (204)          (315) 
------------------------------  -------------  ----------  ------------- 
Total net bank debt                  (17,473)       1,836       (15,637) 
------------------------------  -------------  ----------  ------------- 
Cash at bank                            3,024       6,339          9,363 
------------------------------  -------------  ----------  ------------- 
Total debt payable excluding 
 cash                                (20,497)     (4,503)       (25,000) 
 
 
   10.   Post Balance Sheet Events 

On 3(rd) September 2018, the Company acquired 100% of the share capital of Ultrapharm Limited, a Free From bakery manufacturer, supplying an extensive product range including bread, buns and rolls and other morning goods to a diverse blue chip customer base.

The acquisition of Ultrapharm supports the Group's ongoing strategy to further diversify its product capability into high growth areas and to expand the Group's existing facilities to manufacture Free From products, a category of which the Group has previous expertise.

Ultrapharm employs more than 240 people across manufacturing sites in the UK and in Poland, for the year ended 31 December 2017, Ultrapharm generated EBITDA of GBP1.6 million and a profit before tax of GBP0.8 million on revenues of GBP19.5 million. As at the 31 December 2017, gross assets were GBP10.8 million.

The total consideration is split between GBP17.0 million payable in cash on completion, up to GBP3.0 million in annual instalments to the period to 30 June 2021 subject to the continued employment of key management and a final incentive payment subject to performance criteria over the period to 30 June 2021 estimated at approximately GBP1.0 million. The consideration will be funded from the Group's existing cash and debt facilities. The professional costs associated with the acquisition included with significant and non-recurring items under administrative expenses in the Group's Profit and Loss for the 52 weeks ended 30 June 2018 is GBP432,500.

Given the timing of the acquisition, the initial accounting for the business combination including the associated fair value exercise has not been completed at the time the Annual Report is authorised.

Therefore, it is impracticable to provide certain related information required by IFRS 3.B64 at this time.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

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(END) Dow Jones Newswires

September 17, 2018 02:01 ET (06:01 GMT)

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