REG - Finsbury Food Group - Preliminary Results <Origin Href="QuoteRef">FIF.L</Origin> - Part 1
RNS Number : 5925ZFinsbury Food Group PLC21 September 2015
Date:
21 September 2015
On behalf of:
Finsbury Food Group Plc ('Finsbury', 'the Company' 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 both the retail and foodservice channels, is pleased to announce its preliminary results for the financial year ended 27 June 2015.
Financial Highlights
Group revenue of 256.2m up 45.8% (2014: 175.7m) and up 6.1% on a like-for-like basis.
Adjusted* operating profit of 12.4m up 61% (2014: 7.7m) and up 20% on a like-for-like basis.
Group operating profit margin of 4.8% (2014: 4.4%).
Profit before tax of 11.4m up 76% (2014: 6.5m).
Record capital investment of 7.4m to ensure long term competitiveness.
Strong growth in adjusted diluted EPS, up 22% to 7.7p per share (2014: 6.3p per share).
Final dividend per share of 1.67p taking total dividend for the year to 2.50p (2014: 1.00p per share).
Net debt of 21.3m equates to 1.0 times pro forma annualised EBITDA of the Group. Net debt well within the long term banking facility of 51m available to support current and future growth plans.
Operational Highlights
Increase in operating profit margin showing the benefits of ongoing capex investment, continuous improvement, business improvement initiatives and overhead management.
Organic sales growth of 6.1% versus prior year, driven by market share growth in the UK Cake business.
Foodservice sales growth ahead of market growth with 20 new products launched across five ranges.
Winner of 2015 Insider Wales Dealmakers Deal of the Year Award.
Winner of Bakery Manufacturer of the year for 2015 at the Bakery Industry Awards.
Food Manufacturer's Bakery Manufacturing Company of the year award 2014 and winner of 1st, 2nd and 3rd place in the Q awards.
Successful robotic installation in Hamilton and completion of Cake Innovation Centre.
Baking academies set up in Cake and Bread.
Strategic highlights
Acquired Fletchers, giving a broader spread of customers across food retail and foodservice channels in cake, bread and morning goods businesses.
Acquired trade and assets of Johnstone's, augmenting our foodservice offering.
Now one of the largest speciality bakery groups in the UK with annualised revenues of approximately 300m.
Successful delivery of targeted cost cutting initiatives through continuous improvement programmes.
* See page 1 for details of adjusted profit before tax
John Duffy, Chief Executive of Finsbury Food Group Plc, commented:
"The past year has truly been transformational. Building on our organic growth, the acquisitions in the period have diversified the Group into new channels and widened our customer base. In concurrence, we have invested significantly in the business to ensure long term competitiveness.
"With annualised turnover of close to 300m, Finsbury is a diverse bakery Group with an ambition to increase shareholder value, identify acquisition opportunities and deliver further growth. Even in the value conscious consumer markets we are operating in, our solid strategy and unwavering vision allows us to look forward to the year ahead with confidence."
For further information:
Finsbury Food Group Plc
John Duffy (Chief Executive)
029 20 357 500
Stephen Boyd (Finance Director)
Cenkos Securities plc
Bobbie Hilliam (Corporate Finance)
Oliver Baxendale (Sales)
Redleaf
Rebecca Sanders-Hewett
020 7382 4730
Harriet Lynch
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.
Following the acquisition of the Fletchers Group of bakeries, the Company is one of the largest speciality bakery groups in the UK with annualised sales approaching300 million.
The Company's bakery product range is comprehensive and includes:
- Large premium and celebration cakes;
- Small snacking cake formats such as cake slices and bites;
- 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 now the second largest manufacturer of ambient packaged cake (excluding In Store Bakery) in the UK, a market valued at951m (Source Symphony IRI 52 w/e 15 August 2015). The annual bread and morning goods market has a value in excess of4.8 billion (source Kantar Worldpanel). The UK foodservice bread and morning goods bakery sector is worth approximately900 million per annum, 70 per cent of which is in morning goods. The UK foodservice cake and sweet treat bakery sector is worth approximately 500m per annum.
The Company comprises a UK Bakery division and an Overseas division:
- UK Bakery has manufacturing sites in Cardiff, East Kilbride, Hamilton, Twechar, Salisbury, Sheffield, London and Manchester.
The overseas sector comprise, the Company's 50% owned Company Lightbody Stretz Ltd that supplies and distributes the Group's UK manufactured products and third party products primarily to Europe.
Underlying Profit
*The operating profit has been adjusted to eliminate the impact of the following charges required by IFRS and significant non-recurring items (see note 4) for the 52 weeks ended 27 June 2015 and ended 28 June 2014:
2015
000
2014
000
Underlying/adjusted profit on continuing operations before tax
11,393
6,470
Significant non-recurring items (refer to note 4 for detail)
(3,181)
(759)
Share options charge
10
(9)
Difference between defined benefit pension scheme charges and cash cost
(54)
(61)
Movement in the fair value of interest rate swaps
28
708
Movement in the fair value of foreign exchange contracts
181
81
Unwinding of the discount on deferred consideration payable
-
(4)
Unwinding of the discount on deferred consideration receivable
105
150
Profit on continuing operations before tax
8,482
6,576
*Refer to trading results section within the Strategic Report for further details on the adjusted profits.
Chairman's Statement
It is satisfying to look back on a successful year. Progress is born of an enormous amount of hard work, a characteristic endemic throughout the business. I would like to take this opportunity to express my thanks to my fellow directors and to all our members of staff across the Group.
Our achievements are clearly towards the upper end of the expectations of our stakeholders. I believe our historical investors recognise that the re-rating of the Group has started and that the value of their holdings are beginning to reflect the real value of the business.
An enlarged business
An opportunity arose in the first half of the year and the Board reacted decisively. Fletchers Bakery Group was an ambitious acquisition, a company in a product area that was related but clearly distinct.
The acquisition has provided us with diversification not only in terms of product but also of channels and customers. It has delivered benefits of scale in conjunction with access to fresh markets and opportunities.
Both businesses have similar approaches; we're very much in tune culturally and the sum, in our view, is far greater than the respective parts.
Our strategy has always been to take advantage of bolt on acquisitions if the right opportunity arises. In June 2015 this occurred and we acquired the Johnstone's business out of administration. Johnstone's supplies snacking cake products to the leading coffee chains and its acquisition represents the initial step of the acquired foodservice business into Cake products.
I would like to welcome everyone from Fletchers and Johnstone's to the Finsbury Food Group.
Implementing comprehensive structures to support growth
The pace of growth demands an evolution in the structure of the business to ensure the Group's success is supported.
A key role for me as Chairman through such evolutionary times is ensuring an appropriate composition at Board level and further upgrades to our structures of corporate governance. The Nomination Committee is currently undertaking a review of the structure of the Board to ensure that it has the appropriate balance of skills, including experience and independence, required to lead the Group through this period of growth and development. Implementation in these areas is advanced, but not yet complete.
The Board is currently conducting an extensive review of remuneration across the business to ensure that we have appropriate rewards and recognition in place to retain and attract individuals with the skills that the business demands. The Remuneration Committee has already delivered some excellent proposals which we are currently in the process of adopting.
In line with the review of remuneration, the Government's National Living Wage initiative, presents a challenge that the Board is preparing for through a number of initiatives. As with other businesses in our market, expenditure on employment is a high proportion of our costs by comparison with many other industries and this change is potentially inflationary. Adjusting and mitigating the impact will take time and will require ever-greater focus on efficiency improvements and cost reduction programmes.
The opportunity ahead
Finsbury Foods has undergone a transformation. We have gone from being a relatively small group with challenges, effecting a turnaround of the core and emerging to become a Group with an annualised turnover of close to 300m. And yet we still have aspirations and the capabilities to grow further.
The economic and market environment remain challenging. Our customers are having to adjust their offering and formats and we must be responsive to these changes. While the last financial year offers cause for satisfaction, there is a dynamic environment at senior level, a restless desire to pursue our ambitions, to continue to grow organically and to seek out further opportunities.
Our primary focus for this year was on completing and integrating a major acquisition whilst driving organic growth. The consolidation phase is now well advanced and attention is already focussed towards a new set of strategic objectives. I see the next 12 months as another year of opportunity, another year of moving ahead.
Peter Baker
Non-Executive Chairman 18 September 2015
Chief Executive's Report
Food manufacturing is a complex business. Inheriting a troubled group with a legacy debt issue in a difficult market, we articulated a clear strategy from the outset; a strategy grounded in pragmatic foundations, organic growth and long-term investment.
Our attitude has remained consistent. Identifying areas of cost saving, paying down debt, restructuring our product range for growth, deleveraging the balance sheet: each element laying the platform for the step change acquisition that would accelerate progress.
In October 2014, Finsbury acquired the Fletchers Bakery Group, a bread and morning goods business with three sites and a 100m turnover.
It was a big call for the Board but the right call. Part funded by an oversubscribed equity raise, the acquisition necessitated re-listing the Company on the AIM market.
I am pleased to report the larger Group is operating well, maintaining strong growth and sales trajectories.
Trading Performance
Results for the full 52-week period ending 27th June 2015 are described in greater depth in the Strategic Report but there are a number of areas I would like to take this opportunity to highlight:
Group revenue from continuing operations 256.2million (175.7million in 2014)
Adjusted profit before tax up 76% to 11.4million (2014: 6.5million).
Record capital investment spend 7.4million (2014: 6.2million).
Strong growth in adjusted diluted EPS, up 22% to 7.7p per share.
Final dividend 1.67p per share, amounting to a total dividend of 2.50p per share (2014: 1.00p).
Total net debt 21.3million equates to 1.0 times pro forma annualised Group EBITDA.
Foodservice sales growth outpacing market, 20 new products launched across five ranges.
Winner of 2015 Insider Wales Dealmakers Deal of the Year Award.
Winner of Bakery Manufacturer of the year for 2015 at the Bakery Industry Awards.
Bakery Manufacturing's Company of the Year 2014. 1st, 2nd and 3rd place in the Q Awards.
Successful robotic installation in Hamilton and Cake Innovation Centre completed.
Baking Academies set up in Cake and Bread.
Drilling Down
Our core business continues to perform strongly. Underlining a robust performance in the second half of last year, our cake business registered an increase in market share, volume and turnover. Organic growth of 6% was stimulated by increased investment in promotional campaigns, outstanding performance from licensed products and innovative methods of optimising the mix for customers.
One acquisition followed another. Reaching the growth stage has taken longer than anticipated but momentum was sustained by a second acquisition, Johnstone's, in June.
Johnstone's Just Desserts Ltd offers fresh sales outlets and distribution channels, this acquisition will complement our Fletchers growth plans to reconfigure established products - Sharing & Snacking cakes and Artisan Bread - making them available to an entirely new audience of foodservice customers.
The pace of progress is evident in all areas of activity. We invested 7m in capital expenditure this year and will spend 11m over the next 12 months. Now employing 3,200 members of staff across the group, Finsbury is developing people strategies in both divisions, establishing Baking Academies and setting up sustainability initiatives.
Our balance sheet has been transformed. Raising fresh equity enabled the group to take on less debt, enabling us to pay a bigger dividend. To some degree, a dividend is about confidence. What the dividend says is we believe in the earnings.
However, the economic outlook remains uncertain. Consumers still have limited disposable income and they want to spend it wisely. Discounters are continuing to take market share in a grocery sector that is relatively static.
Scale becomes important. If you're up against a well-run, well-invested larger business, it's increasingly hard to compete in the area of food. I think we're seeing a number of small food businesses go into receivership - we've just bought one - and I see more opportunities of this kind in the future.
The coming year, behind the scenes, will be demanding. Fresh layers of infrastructure are required to support 300m of annualized sales. We have already recruited a senior Group HR Director; we need to make sure we have the right people around the table to engage in the debate and make sure we take the right decisions.
Our vision has never wavered; to build a speciality bakery group focused on quality products, delivering what consumers demand and our customers want.
That vision is starting to bear fruit. We've done the hard yards, built a track record of doing the right things and navigated a route to balance sheet resilience.
The group is taking shape as a diversified platform, equipped to increase shareholder value, identify acquisition opportunities and deliver further growth.
John Duffy
Chief Executive Officer 18 September 2015
Strategic Report
Our strategic objective is to create sustainable value for our shareholders, customers and other stakeholders by building a UK wide speciality bakery group. We will produce a broad range of high quality products, targeted at growing channels and market niches, which deliver growth and differentiation for our major customers and fulfil the needs of end consumers.
Our growth strategy will continue to be delivered by a combination of organic growth and targeted acquisitions. Consolidating our market share in existing areas, such as celebration cakes and organic bread, as well as diversifying our existing product capability into new channels such as foodservice cake will deliver the organic growth. Further acquisitions will introduce new product, customer or channels diversification or accelerate market consolidation in our core product areas. The recent acquisition of Fletchers introduced significant customer (M&S), channel (foodservice) and product diversification (i.e. muffins and croissants) into the group. The Johnstone's acquisition similarly took Finsbury into the coffee shop cake market for the first time.
Our Markets
The total UK ambient cake market (including pre-packed cake and in-store bakery) is valued at 1.09bn (source: Kantar Worldpanel 52 w/e 20 June 2015). The past 12 months has seen value and unit sales grow by +1.2% and +0.4% respectively. We continue to be the second largest supplier of pre-packed ambient cake to the UK's multiple grocers and have strengthened our leading position in the niche areas on which we focus.
Annual bread and morning goods sales are in excess of 4.8 billion (source: Kantar Worldpanel), although the market remains flat. We are a niche player in this market, manufacturing a comprehensive range of bread and morning goods such as artisan, healthy lifestyle and organic breads through to rolls, muffins and morning pastries. All are available fresh and frozen depending on the customer channel requirements. The foodservice out of home eating sector continues to grow while the retail environment remains challenging.
Our Business
The Group consists of the UK Bakery and the Overseas sectors businesses.
UK Bakery
UK Bakery has eight factories each with its own range of products and manufacturing capabilities.
Lightbody of Hamilton Ltd, based in Hamilton, employs over 1,100 people and is the UK's largest supplier of Celebration Cakes with Disney, Universal, Weight Watchers and Thorntons product within its Licensed Portfolio as well as Own Label Cake. It also produces a wide range of sweet snacking products, slices and in store bakery bites, a number of which are under our licensed brands.
Memory Lane Cakes Ltd is based in Cardiff and employs around 850 permanent staff as well as agency staff during promotional and seasonal peak times. It is the leading manufacturer of the UK retailers own label sharing cake ranges. Memory Lane Cakes also produces under a number of our licensed brands as well as our own Memory Lane brand.
The Fletchers Group of Bakeries acquired in October 2014 has three factories located in Sheffield, Manchester and London employing over 650 people. It produces a wide range of fresh and frozen bread and morning goods products, which are distributed to leading UK retailers and foodservice customers. The Fletchers foodservice business represents an important new channel to the Group through its Kara brand and own label offering and should provide revenue growth opportunities from the development of a foodservice range of Cake products and the range of Nicholas and Harris Ltd. (N&H) products.
N&H, based in Salisbury, employs around 280 people and produces a range of speciality bread and morning goods which are distributed to UK retailers and, following the Fletchers acquisition, to foodservice customers. N&H is now under the Fletchers' management due to the similar nature of its business. Its offering however is still differentiated from the Fletcher's business with its focus on 'clean label' breads, rolls and buns. Within its brand portfolio, N&H has Vogel's seeded bread, Cranks Organic and Village Bakery Rye bread, all of which have a unique niche position in the UK market.
Johnstone's business and assets were acquired in June 2015. Johnstone's produces bite style cake products, including its renowned caramel shortcake. It is based in East Kilbride employing over 120 people supplying foodservice customers, particularly national coffee shop chains.
Campbells Cake Company Ltd is based in Twechar near Glasgow and employs 33 people. Campbells produces cold set products such as caramel shortbread and tiffin for retailers.
Brands and Licences
The Group has a large retailer branded own label business as well as a substantial licensed celebration portfolio which we continue to develop and seek opportunities to enhance. Fletchers has a sizeable food service business to which we sell both branded product, through the Kara brand, and own label product.
Kara
Kara is the foodservice brand of the Finsbury Food Group, distributing to more than 300 wholesalers, independents and end-users such as pubs, hotels and restaurant chains. The Kara brand has been operating in the foodservice sector for more than three decades and is synonymous with the famous floured bap. Today the Kara brand has a fantastic variety of frozen bakery products, providing foodservice customers with a one stop shop for their bakery requirements.
Thorntons
The Group continues to develop and innovate its branded offering via its licensing arrangement with the Thorntons confectionery business. Thorntons is the 4th largest brand in the ambient cake market and continues to grow its unit sales, outperforming the market over the last 52 weeks (Source: Symphony IRI 52 w/e 20 June 2015). Ferrero International bought Thorntons in August 2015 to expand its UK business. Ferrero have expressed their intention to maintain the Thorntons' brand. Thorntons remains the dominant player within the Cake Bites market holding a market share in excess of 40%, and 2015 has seen the introduction of a raft of new product innovations which broaden and enhance the brand's offering in the marketplace.
Weight Watchers
Weight Watchers remains one of the largest food brands in the UK and we hold the licence to manufacture and distribute low fat cake to the UK and Ireland's grocers under this brand. The Low Fat cake category continues to struggle in the face of evolving consumer health and dietary requirements. Latterly however, there has been a focus on product packaging innovation to deliver better portion control to the consumer and on a stronger more impactful pack design. On-going we seek to evolve and innovate the brand and offering ensuring its continued consumer relevance.
Character Licensed Portfolio
Character Licensed celebration cake has been a key growth area for the business, driving an overall value increase of 31% in the last 52 weeks (Source: Symphony IRI 52 w/e 20th June 2015). The evolving portfolio of licenses, strong product innovation and continued partnerships with licensors have all played a vital role in this success.
Disney
The Disney partnership has allowed us to develop a range of celebration cakes to meet multiple age segments and occasions. Franchises such as the phenomena of Frozen has been a resounding success story and Marvel superhero's of Avengers and Spiderman are ever evolving. Ongoing are the evergreen classics of Mickey Club House, Disney Princess Fairies and Cars. Late 2015 will see the much anticipated next addition to the Star Wars franchise which is sure to bring continued excitement into the category.
Other Licensed Celebration Cake
The mix of evergreen and trend driven licenses have also been a key driver of performance for the business offering a comprehensive range of product that meets all key target markets. Brands such as the ever present Peppa Pig, Turtles, Spongebob and Me to You, to the new sensation that is the Minions, have all been key drivers of the success.
Vogel's
The consumers' need for healthy nutritious food is the driver behind the Vogel's brand. Founded on the principles of Alfred Vogel, the pioneering Swiss nutritionist, Vogel's is a range of 'clean label' seeded breads crammed to bursting with seeds and grains. The loaves are baked without added sugar, emulsifiers, enzymes, or artificial preservatives or flavourings. And the best thing about Vogel's - the way we bake it means that it makes the most fantastic toast!
Village Bakery
The country's leading Rye bread brand, targeted at consumers aiming to avoid wheat, comprising a range of wholemeal and seeded loaves. The bread is made with the simplest of all recipes: Organic Rye flour, water and a little sea salt, with no added yeast, emulsifiers or enzymes.
Cranks
A range of what our customers call 'Proper Bread' made with organic stoneground flour from a specially selected group of English farmers. Cranks bread is fermented for longer - up to six hours - to give it great flavour and texture without using any additives such as emulsifiers and enzymes. Cranks is the UK's leading organic bread brand.
Overseas
The Group has a meaningful presence in Continental European markets, particularly in France and Benelux, through its 50% owned Company Lightbody Stretz Ltd, that supplies and distributes the Group's UK manufactured and third party products.
Principal Risks and Uncertainties
The Group operates in an environment which is continually changing and as a result the risks it faces will also change over time. 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.
The Directors have identified the following as the principal risks and uncertainties that face the Group:
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. Strong customer service, quality products, low costs and innovative new product development are areas of focus to satisfy customer needs and remain strong in a competitive environment. 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.
Product Quality
Product quality is a key strength of the Group and failure to maintain a high standard of food quality and safety would have a severe impact on service levels and customer relationships. The Group's quality assurance procedures, managed at site level, are reviewed continuously with improvements made as appropriate. The Group's Technical Director helps provide focus to ensure there is continuous improvement across all sites to meet the increasingly high expectations of our customers. The operating subsidiaries are subject to regular internal and independent food safety and quality control audits including those carried out by, or on behalf of, our customers. The Group maintains product recall insurance cover to mitigate the potential impact of such an occurrence.
Labour costs, prices and supply
Increases in labour costs, for example as a result of the national living wage, the impact of the price and volatility of price of raw materials, along with increasing costs of utilities can impact the core profitability of the business. Furthermore, the prices of certain key commodities (e.g. sugar) are tied to the Euro - the relative strength of sterling and future volatility within the Eurozone will, have an impact on the cost of these commodities. Any related shortage in supply of raw materials will impact the business' ability to maintain its service levels to customers - another of its key performance indicators.
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 Group invests in site capabilities such as leading edge robotics to increase efficiency and effectively manage costs.
Economic Environment
The economic environment remains challenging, with consumer behaviour changing and a shift toward value-oriented discounters. Affordability for consumers is essential, the Group will continue to focus on quality and value for money. Innovation and development of products that stand out from the crowd help maintain strong relationships with customers and licensors. We are driven by a passion to meet consumer expectations at affordable quality.
Trading Results
Continuing Group revenue for the 52 week period to 27 June 2015 was 256.2 million (2014: 175.7 million).
Operating Profit margins were 4.8% (2014: 4.4%). Capital investment, improvement in operational efficiency and product mix are the main drivers for the improvement in margin. Inflationary increases and employee pay rises have been offset by operational improvements and returns from capital investment. Administrative expenses have increased driven by acquired businesses and through increased retailer marketing support, new product development, range support, remuneration for outperformance of targets and improvements in the fabric of the workplace.
Dividend
Subject to shareholder approval at the Company's AGM on 25th November 2015, the final dividend of 1.67 pence per share will be paid on 10 December 2015 to all shareholders on the register at 13 November 2015 and will be recognised in the financial year ending 2 July 2016.
The following analysis is included to show what the Directors consider to be the underlying performance of the Group and eliminates the impact of significant non-recurring items and certain charges required by IFRS
52 week period ended 27 June 2015
Operating performance
Non-recurring significant items
Share options charge
Defined benefit pension scheme
Fair value of interest rate swaps/ foreign exchange contracts
Unwinding of discount on deferred consideration
As per Consolidated Statement of Comp-rehensive Income
000
000
000
000
000
000
000
Revenue
256,166
-
-
-
-
-
256,166
Cost of sales
(177,276)
-
-
-
-
-
(177,276)
Gross profit
78,890
-
-
-
-
-
78,890
Other costs excluding depreciation & amortisation
(60,638)
(3,181)
10
100
181
-
(63,528)
EBITDA
18,252
(3,181)
10
100
181
15,362
Depreciation & amortisation
(5,836)
-
-
-
-
-
(5,836)
Results from operating activities
12,416
(3,181)
10
100
181
-
9,526
Finance income
1
-
-
-
28
105
134
Finance costs
(1,024)
-
-
(154)
-
-
(1,178)
Profit before tax
11,393
(3,181)
10
(54)
209
105
8,482
Taxation
(2,452)
644
(2)
11
(42)
(21)
(1,862)
Profit after tax
8,941
(2,537)
8
(43)
167
84
6,620
Details of non-recurring significant items are detailed in note 4.
52 week period ended 28 June 2014
Operating performance
Non-recurring significant items
Share options charge
Defined benefit pension scheme
Fair value of interest rate swaps/ foreign exchange contracts
Unwinding of discount on deferred consideration
As per Consolidated Statement of Comp-rehensive Income
000
000
000
000
000
000
000
Revenue
175,708
-
-
-
-
-
175,708
Cost of sales
(127,530)
-
-
-
-
-
(127,530)
Gross profit
48,178
-
-
-
-
-
48,178
Other costs excluding depreciation & amortisation
(37,471)
(759)
(9)
71
81
-
(38,087)
EBITDA
10,707
(759)
(9)
71
81
-
10,091
Depreciation & amortisation
(2,999)
-
-
-
-
-
(2,999)
Results from operating activities
7,708
(759)
(9)
71
81
-
7,092
Finance income
-
-
-
-
708
150
858
Finance costs
(1,238)
-
-
(132)
-
(4)
(1,374)
Profit before tax
6,470
(759)
(9)
(61)
789
146
6,576
Taxation
(1,519)
171
2
(73)
(195)
(37)
(1,651)
Profit after tax
4,951
(588)
(7)
(134)
594
109
4,925
Details of non-recurring significant items are detailed in note 4.
Earnings per Share (EPS)
EPS comparatives to the prior year can be distorted by significant non-recurring items and IFRS adjustments. The Board is focused on growing adjusted diluted EPS, which is calculated by eliminating the impact of the items highlighted above and incorporates the dilutive effect of share options. Adjusted diluted EPS is 7.7p for the 52 week period (2014: 6.3p).
2015
2014
2013*
2012*
Basic EPS
5.8p
6.7p
7.9p
5.1p
Adjusted** basic EPS
8.0p
6.7p
6.5p
5.2p
Diluted*** basic EPS
5.6p
6.3p
7.3p
4.9p
Adjusted* diluted** EPS
7.7p
6.3p
5.9p
5.0p
* EPS for continuing operations only
** Adjusted EPS measures are calculated by eliminating the impact of significant non-recurring items and IFRS adjustments. Further details can be found in note 7
*** Diluted EPS takes basic EPS and incorporates the dilution effect of share options.
Non-Financial Key Performance Indicators
A range of non-financial key performance indicators are monitored at site level covering, amongst others, customer service, quality and health and safety. The Group board receives an overview of these on a regular basis.
Acquisitions
On 30 October 2014 the Group acquired the Fletchers Group of Bakeries (Fletchers) for 56 million, funded in part by an oversubscribed equity raise of 35 million. The remainder was funded through debt. The acquisition brings opportunities in new foodservice channels, retail customer diversification and complimentary product ranges. Fletchers fits well within our UK bakery business and the Group is expecting significant operational and commercial synergies
On 26 May 2015 the Group acquired 25% of the ordinary share capital of Dr Zak's Limited. Dr Zak's develops and supplies high protein food including bread, pasta and bagels.
On 16 June 2015 the Group acquired the business, production assets, stock and customer list of Johnstone's Just Desserts Ltd ('Johnstone's') from administrators FRP advisory. Unaudited turnover for 2014 was 9m. This acquisition signals the escalation of Finsbury's entry into the foodservice cake channel and in particular the high growth national coffee shop segment. This is in line with the Group's channel diversification strategy, indicated at the acquisition of Fletchers.
Cash Flow
There was a decrease in our working capital requirement of 2.2 million compared to the last financial year. Corporation tax payments made in the financial year totalled 1.2 million (2014: 1.7 million), the payments in the current year took account of the research and development tax relief due to the Group. Capital expenditure in the year amounted to 7.4 million (2014: 6.2 million).
Debt and Bank Facilities
The Group's total net debt including deferred consideration payable is 21.3million (2014: 8.8 million) up 12.5million from the prior year. Within this total, 9.3 million is due within one year, including cash at bank and invoice finance (2014: 5.1 million).
The Group's debt facility was renegotiated during the year driven by the acquisition of Fletchers. The facility is now a bilateral facility with HSBC Bank Plc and Lloyds Bank Plc totalling 50.9m, the key features of the facility are as follows:
overdraft (2.0m)
term loan (13,4m)
confidential invoice discounting facility (22.0m)
mortgage facility (3.5m)
rolling asset finance facility (2.0m)
revolving credit facility (8.0m)
Note 9 gives details of the drawn amounts and maturity dates.
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 and Campbells in Scotland. In addition, the Group has a strong trade debtor book to support the invoice discounting facility, made up primarily of UK's major multiple retailers. This debtor book stood at 42.8 million (2014: 22.4 million) at the period end date.
The Group recognises the inherent risk from interest rate rises. To mitigate these risks, the Group has three interest rate swaps in place with a total coverage of 14.0 million (2014: 14.0 million) equivalent to 66% (2014: 159%) of year end net bank debt at a weighted average rate of 2.5% (2014: 2.5%).
The effective interest rate for the Group at the year end, taking account of the interest rate swaps in place and deferred consideration with base rate at 0.5% and LIBOR at 0.58%, was 4.04% (2014: 4.27%).
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 EBITDA) for the 52 weeks to 27 June 2015 was 17.8 (2014: 8.6). Net bank debt to EBITDA (based on adjusted EBITDA) for the year to 27 June 2015 was 1.0 (2014: 0.8).
Taxation
The Group taxation charge on for the year was 1.9 million (2014: 1.7 million). This represents an effective rate of 22.0% (2014: 25.1%).
Further details on the tax charge can be found in note 6 to the Group's financial statements.
Environmental Matters
The Group continues to reduce packaging through innovation and has delivered further reductions across the business. The Group takes the key learning and successes from the Cake Category and applies them across other areas of the business to deliver category leading innovative solutions. Installation of LED lighting, more efficient gas boilers and improved effluent systems are reducing our impact on the environment. New production capability, which has recently been commissioned in Hamilton, further reduces the consumption of cardboard and reduce food waste. Work continues with local universities on shelf life of product, the outcome of which will lead to waste reduction over the coming years. We are also presently formulating our Environmental Sustainability Strategy across the Group. Nicholas and Harris remains a 'landfill-free' site and all waste materials are recycled.
Employee Social and Community Issues
All manufacturing sites are active within their local community, supporting local community initiatives. We donate regularly to local and national charities in terms of both product and fund raising activities at all sites.
We work closely with local universities through business projects and placements and plan to continue this partnership work further in several areas of training, development and project work. We continue to invest in training and development of the workforce supporting a programme of vocational qualifications.
8 Bakers have qualified from the Nicholas and Harris bakers' apprenticeship scheme this year, with City and Guilds' qualifications, adding to the 21 that have qualified in the last 2 years.
Technical Matters
The integration of the Fletchers' businesses technically has been smooth and it has enabled Finsbury to start having a more senior dialogue with customers. Customer relationships remain robust and after a period of re-structure across several retailers they are coming back with renewed focus on compliance. Restructuring and strengthening of our teams during the past year has put us in a good position to be able to respond to these new challenges.
One of the biggest changes in the British Retail Consortium (BRC) Food Standard to date will go live later in 2015. This requires a focus on vulnerability assessments throughout the supply chain. This is being documented in a consistent manner across the Group and assessments being done by multidisciplinary teams. All sites have maintained BRC A or A* grades in the year. BRC are anticipating fewer suppliers achieving the higher A and new AA scores.
As part of our ongoing commitment to health we are continually working with suppliers to investigate novel ingredients, processes and recipes to reduce sugar, saturated fat and salt in our products where possible.
The Food Standards Agency have published new salt targets for 2017, requiring work to be carried out on recipes to meet these targets. Further reductions will become significantly more technically challenging on certain types of product. The Group currently sits at around 70% compliance against the new targets.
A robust sustainability strategy is being developed for the Group covering People, Supply Chain and Factories. Such focus will deliver real benefits for the business in these core areas.
The Strategic Report was approved by the Board of Directors on 18 September 2015 and was signed on its behalf by:
Stephen Boyd (Director)
Financial Statements
Consolidated Statement of Profit and Loss and Other Comprehensive Income
for the 52 weeks ended 27 June 2015 and 28 June 2014
2015
2014
Note
000
000
Revenue
2
256,166
175,708
Cost of sales
(177,276)
(127,530)
Gross profit
78,890
48,178
Administrative expenses
3
(69,364)
(41,086)
Results from operating activities
9,526
7,092
Finance income
5
134
858
Finance cost
5
(1,178)
(1,374)
Net finance cost
(1,044)
(516)
Share of profits of associates after tax
1
-
-
Profit before tax
8,482
6,576
Taxation
6
(1,862)
(1,651)
Profit for the year
6,620
4,925
Other comprehensive (expense)/income
Items that will not be reclassified to profit and loss
Remeasurement on defined benefit pension scheme
(153)
(726)
Movement in deferred taxation on pension scheme liability
31
145
Total items that will not be reclassified to profit and loss
(122)
(581)
Other comprehensive expense for the financial year, net of tax
(122)
(581)
Total comprehensive income for the financial year
6,498
4,344
Profit attributable to:
Equity holders of the parent
6,179
4,400
Non-controlling interest
441
525
Profit for the financial year
6,620
4,925
Total comprehensive income attributable to:
Equity holders of the parent
6,057
3,819
Non-controlling interest
441
525
Total comprehensive income for the financial year
6,498
4,344
Earnings per ordinary shares
Basic
7
5.8
6.7
Diluted
7
5.6
6.3
Adjusted earnings per ordinary shares
Basic
7
8.0
6.7
Diluted
7
7.7
6.3
The notes on pages 20 to 32 form an integral part of these Financial Statements
Consolidated Statement of Financial Position
at 27 June 2015 and 28 June 2014
Note
2015
2014
000
000
Non-current assets
Intangibles
8
80,071
52,968
Property, plant and equipment
46,038
21,541
Investments in equity accounted investees
1
225
-
Other financial assets
28
28
Deferred tax assets
4,446
1,350
130,808
75,887
Current assets
Deferred consideration receivable
-
2,895
Inventories
11,268
4,530
Trade and other receivables
48,381
24,832
Cash and cash equivalents
61
592
Current tax asset
40
-
Other financial assets - fair value of foreign exchange contracts
117
-
59,867
32,849
Total assets
190,675
108,736
Current liabilities
Other interest-bearing loans and borrowings
9
(9,288)
(5,718)
Trade and other payables
(62,283)
(30,736)
Provisions
(252)
(237)
Deferred purchase consideration
(50)
-
Other financial liabilities-fair value of interest rate swaps/foreign exchange
(359)
(451)
Current tax liabilities
-
(28)
(72,232)
(37,170)
Non-current liabilities
Other interest-bearing loans and borrowings
9
(11,746)
(3,612)
Provisions and other liabilities
(161)
(199)
Deferred tax liabilities
(103)
(422)
Pension fund liability
(3,837)
(3,630)
(15,847)
(7,863)
Total liabilities
(88,079)
(45,033)
Net assets
102,596
63,703
Equity attributable to equity holders of the parent
Share capital
1,280
669
Share premium account
64,952
31,480
Capital redemption reserve
578
578
Retained earnings
34,580
29,849
101,390
62,576
Non-controlling interest
1,206
1,127
Total equity
102,596
63,703
These financial statements were approved by the Board of Directors on 18 September 2015 and were signed on its behalf by:
Stephen Boyd (Director)
Registered Number 00204368
The notes on pages 20 to 32 form an integral part of these Financial Statements
Consolidated Statement of Changes in Equity
for the 52 weeks ended 27 June 2015 and 28 June 2014
Share
Capital
Share
premium
Capital redemption reserve
Retained
Earnings
Non-controlling
interest
Total
equity
000
000
000
000
000
000
Balance at 30 June 2013
642
30,779
578
26,865
1,019
59,883
Profit for the financial year
-
-
-
4,400
525
4,925
Other comprehensive income/(expense):
Remeasurement of defined benefit pension
-
-
-
(726)
-
(726)
Deferred tax movement on pension scheme remeasurement
-
-
-
145
-
145
Total other comprehensive expense
-
-
-
(581)
-
(581)
Total comprehensive income for the period
-
-
-
3,819
525
4,344
Transactions with owners, recorded directly in equity:
Shares issued during the year
27
701
-
-
-
728
Impact of share based payments
-
-
-
9
-
9
Deferred tax on share options
-
-
-
(350)
-
(350)
Dividend paid
-
-
-
(494)
(417)
(911)
Balance at 28 June 2014
669
31,480
578
29,849
1,127
63,703
Balance at 29 June 2014
669
31,480
578
29,849
1,127
63,703
Profit for the financial year
6,179
441
6,620
Other comprehensive (expense)/ income:
Remeasurement on defined benefit pension
-
-
-
(153)
-
(153)
Deferred tax movement on pension scheme remeasurement
-
-
-
31
-
31
Foreign exchange translation differences
-
-
-
-
-
-
Total other comprehensive expense
-
-
-
(122)
-
(122)
Total comprehensive income for the period
-
-
-
6,057
441
6,498
Transactions with owners, recorded directly in equity:
Shares issued during the year
611
33,472
-
-
-
34,083
Impact of share based payments
-
-
-
(10)
-
(10)
Deferred tax on share options
-
-
-
243
-
243
Dividend paid
-
-
-
(1,559)
(362)
(1,921)
Balance at 27 June 2015
1,280
64,952
578
34,580
1,206
102,596
The notes on pages 20 to 32 form an integral part of these Financial Statements.
Consolidated Cash Flow Statement
for the 52 weeks ended 27 June 2015 and 28 June 2014
2015
2014
000
000
Cash flows from operating activities
Profit for the financial year
6,620
4,925
Adjustments for:
Taxation
1,862
1,651
Net finance costs
1,044
516
Depreciation
5,433
2,834
Amortisation of intangibles
403
165
Share options (credit)/charge
(10)
9
Contributions by employer to pension scheme
(100)
(71)
Fair value charge/(credit) for foreign exchange contracts
(181)
(81)
Operating profit before changes in working capital
15,071
9,948
Changes in working capital:
Increase in inventories
(1,004)
(197)
Increase in trade and other receivables
(7,259)
(6)
Increase/(decrease) in trade and other payables
10,510
(2,032)
Cash generated from operations
17,318
7,713
Interest paid
(923)
(1,084)
Tax paid
(1,164)
(1,700)
Net cash from operating activities
15,231
4,929
Cash flows from investing activities
Purchase of property, plant and equipment
(7,354)
(6,167)
Purchase of subsidiary companies
(40,809)
(217)
Deferred consideration received
3,000
-
Settlement of acquired debt
(19,740)
-
Cash received with acquisition
4,990
-
Net cash used in investing activities
(59,913)
(6,384)
Cash flows from financing activities
Drawdown of new facility
24,028
-
Repayment of invoice discounting
(8,159)
(300)
Drawdown of revolving credit
-
2,000
Repayment of bank loans
(3,622)
(338)
Repayment of asset finance liabilities
(380)
(478)
Issue of ordinary share capital
34,083
728
Dividend paid to non-controlling interest
(362)
(417)
Dividend paid to shareholders
(1,559)
(494)
Net cash from financing activities
44,029
701
Net decrease in cash and cash equivalents
(653)
(754)
Opening cash and cash equivalents
592
1,310
Effect of exchange rate fluctuations on cash held
122
36
Cash and cash equivalents at end of period
61
592
The notes on pages 20 to 32 form an integral part of these Financial Statements.
Notes to the Consolidated Financial Statements
(Forming part of the Financial Statements)
The financial information set out above does not constitute the company's statutory accounts for the 52 week periods ended 27 June 2015 or 28 June 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the registrar of companies, and those for 2015 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. Acquisitions
On 30 October 2014 the Group acquired the entire share capital of the Fletchers Group (Fletchers) for 56.4 million less 2.6 million working capital adjustment. Fletchers produces morning goods and specialist bread products for leading UK grocery retailers and foodservice customers. Strategic and financial benefits of the acquisition include, complementary product ranges and new foodservice channels, retail customer diversification, the benefits of significant capital investment within Fletchers manufacturing and a multi-channel platform for further acquisitions in due course. In the period between acquisition date and 27 June 2015, the acquired Group contributed a profit before tax of 3,144,000.
The cash outflow under 'investing activities' on the face of the Consolidated Cash Flow Statement relates to the following:
000
Initial consideration
39,084
Debt settled
19,740
Cash acquired
(4,990)
Cash consideration (excluding acquisition costs)
53,834
Working capital adjustment
2,598
Total consideration
56,432
The acquisition had the following effect on the Group's assets and liabilities:
Fair value carrying amount
000
Acquiree's net assets at acquisition date:
Property, plant and equipment
21,094
Stock
5,387
Trade and other receivables
16,852
Deferred tax asset
3,903
Trade and other payables
(20,536)
Working capital adjustment
2,598
Net identifiable assets
29,298
Intangibles
8,770
Goodwill
18,364
56,432
Further information on intangible assets is provided in note 8 to the financial statements.
1 Acquisitions (continued)
On 16 June 2015 the Group acquired the business, production assets, stock and customer list of Johnstone's Just Desserts from administrators FRP Advisory for 1.6 million. A new legal entity Johnstone's Food Service Limited was formed and trading commenced under this legal entity from the acquisition date. In the period between acquisition date and 27 June 2015, the new subsidiary contributed a profit before tax of 23,000.
Fair value carrying amount
000
Acquiree's net assets at acquisition date:
Property, plant and equipment
1,489
Stock
496
Trade and other receivables
22
Trade and other payables
(829)
Working capital adjustment
40
Net identifiable assets
1,218
Goodwill
372
1,590
Consideration paid net of working capital adjustment
1,550
Investment in Associate
On 26 May 2015 the Group acquired 25% of the ordinary share capital of Dr Zak's Ltd for a consideration of 225,000 of which 50,000 has been deferred and is payable within one year of the acquisition date.
2015
000
2014
000
Carrying amount of immaterial associates
225
-
The Group has not recognised the results relating to the Investment in Dr Zak's as post acquisition results are less than 1,000 and deemed not material to the Group.
The total costs associated with the acquisitions amounted to 3,181,000 and are shown as a non-recurring significant item under administration costs. Share placing costs of 1,484,000 relating to an equity raise to part fund the acquisition of Fletchers have been written off against the share premium account.
2 Revenue and segment 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 they are 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
share option charges
significant non-recurring items
fair value adjustments relating to acquisitions
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, Campbells Cake Company Ltd, Johnstone's Food Service Ltd, Fletchers Bakeries Ltd and Nicholas & Harris Ltd. These subsidiaries are aggregated into a single segment after considering the following criteria:
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 core operation of the Overseas segment is the distribution of the Group's UK manufactured product along with the sale of third party products primarily to Europe.
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. Operating profit levels have been chosen as the basis, as this reflects the underlying performance of the segment and is also the return the Group expects from those segments.
A purchasing premium of 2% is charged from Group operations, and is calculated on materials and packaging spends 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 profit from continuing operations of 0.3m (2014: 0.5m) being presented within the Group Operations segment.
The Group's finance income and expenses cannot be meaningfully allocated to the individual operating segments.
2 Revenue and segment information (continued)
52 week period ended 27 June 2015
UK Bakery
000
Overseas
000
Group Operations
000
Total Group
000
Continuing
Revenue
External pre acquisition
164,255
22,186
-
186,441
External acquired
69,725
-
-
69,725
Total Revenue
233,980
22,186
-
256,166
Profit pre acquisition
7,748
1,154
347
9,249
Profit from acquired businesses
3,167
-
-
3,167
Total underlying profit
10,915
1,154
347
12,416
Fair value foreign exchange contracts
181
Share options charge
10
Defined benefit pension scheme
100
Significant non-recurring items
(3,181)
Results from operating activities
9,526
Finance income
969
Finance cost
(2,013)
Profit before taxation
8,482
Taxation
(1,862)
Profit after taxation
6,620
At 27 June 2015
Segment assets
183,623
5,042
1,508
190,173
Unallocated assets
502
Consolidated total assets
190,675
Segment liabilities
(53,660)
(4,056)
(8,786)
(66,502)
Unallocated liabilities
(21,577)
Consolidated total liabilities
(88,079)
Other segment information
Capital expenditure
7,320
34
-
7,354
Depreciation included in segment profit
5,414
19
-
5,433
Amortisation
403
-
-
403
Inter-segmental sale / (purchases)
6,072
(6,072)
-
-
Analysis of unallocated assets and liabilities:
Assets
Liabilities
'000
'000
Investments
253
Loans and borrowings
(21,034)
Financial instruments
117
Financial instruments
(359)
Cash and cash equivalents
61
Cash and cash equivalents
-
Taxation balances
79
Taxation balances
(192)
Unallocated assets
510
Unallocated liabilities
(21,585)
With regard to revenue, five customers with sales of 53m, 36m, 27m, 24m and 20m account for 62% of revenue, which is attributable to the UK Bakery and Overseas segments above.
2. Revenue and segment information (continued)
52 week period ended 28 June 2014
UK Bakery
000
Overseas
000
Group Operations
000
Total Group
000
Continuing
Revenue
External
153,740
21,968
-
175,708
Underlying operating profit
6,094
1,139
475
7,708
Fair value foreign exchange contracts
81
Share options charge
(9)
Defined benefit pension scheme
71
Significant non-recurring items
(759)
Results from operating activities
7,092
Finance income
1,720
Finance cost
(2,236)
Profit before taxation
6,576
Taxation
(1,651)
Profit after taxation
4,925
At 28 June 2014
Segment assets
99,891
4,522
3,613
108,026
Unallocated assets
710
Consolidated total assets
108,736
Segment liabilities
(30,588)
(3,312)
(1,352)
(35,252)
Unallocated liabilities
(9,781)
Consolidated total liabilities
(45,033)
Other segment information
Capital expenditure
6,121
46
-
6,167
Depreciation included in segment profit
2,813
21
-
2,834
Amortisation
165
-
-
165
Inter-segmental sales / (purchases)
6,039
(6,039)
-
-
Analysis of unallocated assets and liabilities:
Assets
Liabilities
'000
'000
Investments
28
Loans and borrowings
(9,330)
Financial instruments
-
Financial instruments
(451)
Cash and cash equivalents
592
Cash and cash equivalents
-
Taxation balances
90
Taxation balances
-
Unallocated assets
710
Unallocated liabilities
(9,781)
With regard to continuing revenue, five customers with sales of 35m, 35m, 26m, 17m and 16m account for 73% of revenue, which is attributable to the UK Bakery and Overseas segments above.
2. Revenue and segment information (continued)
An analysis by geographical segment is shown below:
Geographical split of turnover by destination
2015
2014
000
000
Continuing:
United Kingdom
230,299
151,587
Europe
25,856
23,832
Rest of World
11
289
Total continuing
256,166
175,708
Net asset and margin geographical split would not provide meaningful information owing to the necessity to allocate costs, assets and liabilities. Capital expenditure on segment assets is detailed in note 2.
Geographical split by country of origin
United Kingdom
Europe
Total
000
000
000
2015
Turnover
233,980
22,186
256,166
Operating profit
11,262
1,154
12,416
Total assets
185,633
5,042
190,675
Total liabilities
(84,023)
(4,056)
(88,079)
Net assets
101,610
986
102,596
United Kingdom
Europe
Total
000
000
000
2014
Turnover
153,740
21,968
175,708
Operating profit
6,569
1,139
7,708
Total assets
104,214
4,522
108,736
Total liabilities
(41,721)
(3,312)
(45,033)
Net assets
62,493
1,210
63,703
3. Expenses and auditor's remuneration
Included in profit are the following:
2015
2014
000
000
Depreciation of owned tangible assets
5,096
2,498
Depreciation on assets under finance leases and hire purchase contracts
337
336
Difference on foreign exchange
(140)
(132)
Hire of plant and machinery - operating leases
679
480
Hire of other assets - operating leases
1,452
803
Share option charges
(10)
9
Movement on fair value of interest rate swaps
(29)
(708)
Movement on fair value of foreign exchange contracts
(180)
(81)
Research and development
1,737
1,759
Amortisation of intangibles
403
165
Amortisation of intangibles for the year was 403,000 (2014: 165,000) relating to the Fletchers acquisition October 2014, (2014: Goswell Enterprises Ltd acquisition during June 2009).
Auditor's remuneration:
2015
2014
000
000
Audit of these financial statements
26
25
Amounts receivable by auditors and their associates in respect of:
Audit of the financial statements of subsidiaries of the Company
116
57
Taxation compliance services
16
13
Services related to corporate finance transactions
278
-
Other services in relation to taxation
-
11
Other services
176
137
The auditor's remuneration is in respect of KPMG LLP. Fee for other services relates to pension advisory services, services relating to information technology and services relating to remuneration.
4. Non-recurring significant items
The Group presents certain items as non-recurring and significant. These relate 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.
Costs of 3,181,000 relate to acquisition transaction costs during the year, (2014: 643,000 relate to redundancy and restructuring and 116,000 relate to due diligence and consultancy expenses associated with an aborted acquisition).
5. Finance income and cost
Recognised in the Consolidated Statement of Profit and Loss
2014
2014
000
000
Finance income
Change in fair value of interest rate swaps
28
708
Bank interest receivable
1
-
Unwinding of discount of deferred consideration receivable
105
150
Total finance income
134
858
Finance cost
Net interest on net pension position
(154)
(132)
Bank interest payable
(748)
(643)
Interest on interest rate swap agreements
(276)
(595)
Unwinding of discount on deferred consideration payable
-
(4)
Total finance cost
(1,178)
(1,374)
6. Taxation
Recognised in the Consolidated Statement of Profit and Loss
2015
2014
000
000
Current tax
Current year
1,221
1,254
Adjustments for prior years
(121)
22
Total current tax
1,100
1,276
Deferred tax
Origination and reversal of temporary differences
753
309
Retirement benefit deferred tax charge
(11)
73
Adjustments for prior years
20
(7)
Total deferred tax
762
375
Total tax expense
1,862
1,651
Reconciliation of effective tax rate
The weighted average hybrid rate of UK and French tax is 22.8% (2014: 25.6%). The tax assessed for the period is lower (2014: lower) that the hybrid rate of UK and French tax. The hybrid UK corporation tax rate for the period is 20.75% (2014: 22.50%). The differences are explained below:
2015
2014
000
000
Profit before taxation from continuing operations
8,482
6,576
Tax using the UK corporation tax rate of 20.75%, (2014: 22.50%)
1,760
1,480
Overseas profits charged at different taxation rate
173
206
Non-deductible expenses
239
85
Amortisation of intangible asset
60
34
Temporary differences*
(143)
(179)
Adjustment to restate opening deferred tax and differences in rates
(28)
107
R&D uplift current year
(98)
(97)
Adjustments to tax charge in respect of prior periods
(101)
15
Total tax expense
1,862
1,651
*Temporary differences relate to share based payments.
Reductions in the corporation tax rate from 23% to 21% (effective from 1 April 2014) and to 20% (effective 1 April 2015) were substantially enacted on 2 July 2013. In the Budget on 8 July 2015, the Chancellor announced additional planned reductions to 18% by 2020. This will reduce the company's future current tax charge accordingly. The deferred tax asset at 27 June 2015 has been calculated based on the rate of 20% substantively enacted at the balance sheet date.
The impact of the reduction in the UK corporation tax rate from 21% to 20% from April 2015 amounts to 74,000 lower charge in the financial year to 27 June 2015. The adjustment for prior year in 2014 relates to additional tax relief on qualifying R&D expenditure for prior periods.
The parent company has an unrecognised deferred tax asset of 191,300 (2014: 191,300). This asset has not been recognised in these Financial Statements as suitable profits to utilise the underlying capital losses are not expected to arise in the future.
7. Earnings per ordinary share
Basic earnings per share for the period is calculated on the basis of profit for the year after tax, divided by the weighted average number of shares in issue 106,759,000 (2014: 65,635,000).
Basic diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares; which for 27 June 2015 the diluted weighted average number is 110,507,000 shares, (2014: 70,169,000).
An adjusted earnings per share and an adjusted diluted earnings per share have also been calculated as in the opinion of the Board this will allow shareholders to gain a clearer understanding of the trading performance of the Group. These adjusted earnings per share exclude:
Reorganisation and other significant non-recurring costs,
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 the net income
IFRS 3 'Business Combinations' discount charge relating to the deferred consideration payable and receivable.
The taxation effect at the appropriate rate on the adjustments.
Significant and non-recurring items are tabled in the Strategic Report on page 11.
52 weeks to
27 Jun 2015
52 weeks to
28 Jun 2014
Profit
Profit attributable to equity holders of the Company (basic)
000
6,179
4,400
Significant non-recurring and other items
000
2,321
26
Numerator for adjusted earnings per share calculation (adjusted basic)
000
8,500
4,426
Shares
Basic
Diluted
Basic
Diluted
Weighted average number of ordinary shares in issue during the period
'000
106,759
106,759
65,635
65,635
Dilutive effect of share options
'000
-
3,748
-
4,534
106,759
110,507
65,635
70,169
Earnings per share
Basic and diluted earnings per share
Pence
5.8
5.6
6.7
6.3
Adjusted basic and adjusted diluted earnings per share
Pence
8.0
7.7
6.7
6.3
8. Intangibles
Intangible assets comprise customer relationships, brands and goodwill.
Goodwill
Brands and licences
Customer relationships
Total
000
000
000
000
Cost at 29 June 2013 and 28 June 2014
52,968
822
-
53,790
On acquisition of subsidiary (note 1)
18,736
2,861
5,909
27,506
Cost at 27 June 2015
71,704
3,683
5,909
81,296
Amortisation at 29 June 2013
-
(657)
-
(657)
Charge for the year 28 June 2014
-
(165)
-
(165)
Amortisation at 28 June 2014
-
(822)
-
(822)
Charge for the year 27 June 2015
-
(107)
(296)
(403)
Amortisation at 27 June 2015
-
(929)
(296)
(1,225)
NBV at 29 June 2013
52,968
165
-
53,133
NBV at 28 June 2014
52,968
-
-
52,968
NBV at 27 June 2015
71,704
2,754
5,613
80,071
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 a finite useful lives and are amortised on a straight line basis over their estimated useful lives of twenty years for brands and fifteen years for customers. The intangibles were valued using an income approach, using Multi-Period excess earnings Method approach for customer relationships and Relief from Royalty Method for brand valuation.
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 amount of goodwill has been allocated to cash generating units or groups of cash generating units as follows:
2015
000
2014
000
Nicholas & Harris
2,980
2,980
Lightbody of Hamilton
48,474
48,474
Memory Lane Cakes
1,514
1,514
Fletchers
18,364
-
Johnstone's Food Service
372
-
71,704
52,968
8. Intangibles (continued)
The Group tests goodwill for impairment on an annual basis, or more frequently if there are indications that the goodwill may be impaired. The recoverable amounts of the cash generating units are determined from value in use calculations. The key assumptions for the value in use calculations are the discount 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 based on the most recent financial budgets approved by management and extrapolates these forward for the next five years with a residual value at the end of the 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 used for impairment tests at 27 June 2015 was 3% (2014: 3%) for all cash generating units. This inflation rate of 3% (2014: 3%) has been applied to the 2016 budget and for the following 5 years on costs of sales, variable costs and indirect costs. The five year cashflow is taken along with a residual value at the end of the five year period.
A pre-tax discount rate of 10% (2014: 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.
Sensitivities have been carried out by the Directors and they are comfortable that at reasonable discount levels there are no indications of impairment.
9. 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.
2015
Margin
Frequency of
Repayments
Year of maturity
Facility
000
Drawn
000
Current
000
Non-Current
000
Invoice Discounting
1.50%/base
On demand
Revolving*
22,000
3,397
3,397
-
Term loan
2.00%/LIBOR
Quarterly
2019
13,400
12,116
3,211
8,905
Revolving credit
2.00%/LIBOR
varies
2019
8,000
2,000
2,000
-
Mortgage
1.75%/LIBOR
quarterly
2022
3,470
3,287
461
2,826
Finance lease liabilities
1.76%/base
Monthly
various
2,000
474
284
190
Overdraft
2.00%/base
On demand
-
2,000
-
-
-
50,870
21,274
9,353
11,921
Unamortised transaction costs
(240)
(65)
(175)
21,034
9,288
11,746
Secured bank loans and mortgages over one year
11,921
Unamortised transaction costs
(175)
11,746
Repayments are as follows:
Between one and two years
3,006
Betweentwoandfiveyears
7,389
Betweenfiveandtenyears
1,351
11,746
2014
Margin
Frequency of
Repayments
Year of maturity
Facility
000
Drawn
000
Current
000
Non-Current
000
Invoice Discounting
1.50%/base
On demand
Revolving*
15,000
2,959
2,959
-
Revolving credit
2.00%/LIBOR
Monthly
2017
8,000
2,000
2,000
-
Mortgage
1.75%/base
Monthly
2023
4,000
3,593
399
3,194
Finance lease liabilities
1.76%/base
Monthly
various
2,000
854
382
472
Overdraft
2.00%/base
On demand
-
3,000
-
-
-
32,000
9,406
5,740
3,666
Unamortised transaction costs
(76)
(22)
(54)
9,330
5,718
3,612
Secured bank loans and mortgages over one year (included above)
3,666
Unamortised transaction costs
(54)
3,612
Repayments are as follows:
Betweenoneandtwoyears
630
Betweentwoandfiveyears
1,262
Betweenfiveandtenyears
1,720
3,612
* Revolving maturity above relates to the payment terms on the invoice discounting which is up to 90 days from the date of invoice. The invoice discounting facility renewal date is October 2019.
9. Other interest-bearing loans and borrowings (continued)
Finance lease liabilities are payable as follows:
2015
2014
Minimum lease payments
Interest
Principal
Minimum lease payments
Interest
Principal
000
000
000
000
000
000
Less than one year
294
10
284
403
21
382
Between one and five years
194
4
190
486
14
472
488
14
474
889
35
854
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.
HSBC Bank Plc, HSBC Asset Finance (UK) Ltd, HSBC Equipment Finance (UK) Ltd and HSBC Corporate Trustee Company (UK) Limited have debentures incorporating fixed and floating charges over the undertaking and all property and assets including goodwill, book debts, uncalled capital, buildings, fixtures, fixed plant and machinery.
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 as follows:
Net bank debt : EBITDA
Interest cover
Debt service cover
The bank facilities (excluding overdraft) available for drawdown are 50.9m (2014: 29.0m). At the period end date the facility utilised was 21.3m (2014: 9.4m), giving 29.6m (2014: 19.6m) headroom.
10. Analysis of net debt
At year ended
28 June
2014
000
Cash flow
000
At year ended
27 June
2015
000
Cash at bank
592
(531)
61
Debt due within one year
(2,399)
(3,273)
(5,672)
Debt due after one year
(3,194)
(8,537)
(11,731)
Invoice discounting due within one year
(2,959)
(438)
(3,397)
Hire purchase obligations due within one year
(382)
98
(284)
Hire purchase obligations due after one year
(472)
282
(190)
Total net bank debt
(8,814)
(12,399)
(21,213)
Debt
(9,330)
(21,034)
Cash at bank
592
61
Unamortised transaction costs
(76)
(240)
Total net bank debt
(8,814)
(21,213)
Deferred consideration payable
-
(50)
Total net debt including deferred consideration payable
(8,814)
(21,263)
Cash at banks
592
61
Total debt including deferred consideration payable excluding cash
(9,406)
(21,324)
Deferred consideration receivable
2,895
-
Total debt including deferred consideration payable and receivable excluding cash
(6,511)
(21,324)
This information is provided by RNSThe company news service from the London Stock ExchangeENDFR PGUWABUPAGRU
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