REG - Finsbury Food Group - Preliminary Results
26/09/2022 07:00
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RNS Number : 5321A Finsbury Food Group PLC 26 September 2022
Date: 26 September 2022
On behalf of: Finsbury Food Group Plc ('Finsbury', 'the Company' or 'the Group')
Embargoed until: 0700hrs
Finsbury Food Group Plc
Preliminary Results
Summary
The full year figures reflect an evolving trading environment with the ongoing
post pandemic recovery being followed by inflationary pressures impacting our
operations and total supply chain. The improvement in all figures is a
reflection of the robustness of our business model.
· Group revenue up 13.9% to £357 million.
· Gross margins 32.4% (2021: 32.9%).
· Group EBITDA*(1) up 6.9% to £28.7 million.
· Profit before tax*(1) up 12.1% to £17.0 million.
· Adjusted Diluted EPS*(2) (pence per share) up 17% to 10.1p.
· Net bank debt (excluding IFRS 16 debt), £20.6 million (2021:
£13.1 million), representing 0.7 x FY EBITDA.
Strategic Highlights
· Revenue growth, a result of:
o Strong post Covid-19 recovery in UK foodservice, up 38%,
o UK retail up 7.1%; and
o Overseas division growth of 27%.
· Taking our ownership to 85% in Lightbody-Stretz Limited deepening
our presence in France and Benelux.
· Innovation in gluten free recipes and product quality which is
driving organic growth in both the UK and in Europe
· Operating Brilliance Programme continues to drive significant
operational efficiency which is helping to manage inflationary pressure in the
short term.
· Clear sustainability agenda driving continued improvement in
energy and waste management.
· Continued investment in development, engagement and the health
and wellbeing of employees.
(*1)The Group uses Alternative Performance Measures (APMs) which are non-IFRS
measures to monitor performance of its operations and of the Group as a whole.
These APMs along with their definitions are provided in the Adjusted Earnings
Before Interest, Tax, Depreciation and Amortisation (EBITDA), Operating Profit
and Profit Before Tax tables on the following page and the tables in the
Financial Review Section. APMs are disclosed as, in the opinion of the
Board, this will allow shareholders to gain a clearer understanding of the
trading performance of the Group.
(*2) Adjusted EPS has been calculated using profit, excluding amortisation of
intangibles, significant non-recurring and other items as shown in the tables
in the Financial Review Section net of associated taxation. In the opinion of
the Board, the adjustments made will allow shareholders to gain a clearer
understanding of the trading performance of the Group.
Commenting on the results, John Duffy, Chief Executive of Finsbury Food Group
Plc, said:
"To have delivered a record revenue performance that is in line with market
expectations despite the numerous and complex challenges faced in the year -
initially the effects of the Covid-19 crisis and more recently significant
input cost inflation and falling consumer confidence - demonstrates the
resilience and agility of the Group and the enduring appeal of our product
range. Throughout the period, our retail business continued to perform well,
we saw a bounce back in foodservice, and our overseas division experienced
further strong growth. The level of internal response required to deliver
these results cannot be understated, and I am grateful to our teams for their
considerable efforts.
Pleasingly, we were able to mitigate most of the impact of the macro
challenges through revised commercial arrangements, operational improvements
and other supply chain initiatives. We will continue in the same vein in the
new financial year, as these pressures are expected to worsen.
While significant macro headwinds are set to persist, we have a successful
track record of navigating challenging market conditions and are supported by
a strong balance sheet. We will continue to meet challenges head on, and I
remain confident we will emerge a stronger business well set to deliver on our
long-term growth ambitions."
For further information:
Finsbury Food Group www.finsburyfoods.co.uk (http://www.finsburyfoods.co.uk) 029 20 357 500
John Duffy (Chief Executive)
Steve Boyd (Finance Director)
Panmure Gordon (UK) Limited 020 7886 2500
Oliver Cardigan (Corporate Finance)
Atholl Tweedie
Erik Anderson (Corporate Broking)
Edward Walsh
Alma finsbury@almapr.co.uk (mailto:finsbury@almapr.co.uk) 020 3405 0205
PR
Sam Modlin
David Ison
Matthew Young
Notes to Editors:
· Finsbury Food Group Plc (AIM: FIF) is a leading UK and European
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, together with its overseas division, has sales in the financial year
ending 2 July 2022 of £357 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; and
· Gluten Free bread, morning goods and cake ranges.
· The Company is one of the largest ambient cake manufacturers in
the UK, a market valued at £1.031 billion (source: IRI 52 w/e 13th August
2022). The retail bread and morning goods market has a value of £5.3 billion
(source: Kantar Worldpanel 52 w/e 4th September 2022). The retail Free From
cake market is valued at £58 million (source: Kantar Worldpanel 52 w/e 4th
September 2022). The retail Free From bread and morning goods market is valued
at £166 million (source: Kantar Worldpanel 52 w/e 4th September 2022).
· The Company comprises a core UK bakery division and an overseas
division:
· The UK bakery division has manufacturing sites in Cardiff, East
Kilbride, Hamilton, Salisbury, Sheffield, Manchester, and Pontypool.
· The overseas division comprises the Company's 85% owned company,
Lightbody-Stretz Limited, which supplies and distributes the Group's
UK-manufactured products and third-party products, primarily to Europe, and
the Company's manufacturing facilities in Rybarzowice and Żywiec in Poland.
Adjusted EBITDA and Profit Reconciliation of Statutory to Adjusted
In order to set out the business performance, adjusted measures for the Group
are presented which exclude the impact of significant non-recurring items and
other items to present adjusted EBITDA, operating profit and profit before
tax. In the opinion of the Board the adjusted measure allows shareholders to
gain a clearer understanding of the trading performance of the Group. The
analysis below shows the movement from adjusted to statutory measures.
Adjusted EBITDA 2022 2021
£000 £000
Adjusted EBITDA 28,747 26,904
Significant non-recurring items - (see Note 4) (1,898) 958
Difference between Defined Benefit Pension Scheme charges and cash cost 417 473
Movement in the fair value of foreign exchange contracts (821) 696
Adjustments, significant non-recurring and other items (2,302) 2,127
EBITDA 26,445 29,031
Adjusted Operating Profit 2022 2021
£000 £000
Adjusted operating profit 17,807 16,100
Significant non-recurring items - (see Note 4) (1,898) 958
Difference between Defined Benefit Pension Scheme charges and cash cost 417 473
Movement in the fair value of foreign exchange contracts (821) 696
Adjustments, significant non-recurring and other items (2,302) 2,127
Operating profit 15,505 18,227
Adjusted Profit Before Tax 2022 2021
£000 £000
Adjusted profit before tax 16,956 15,126
Significant non-recurring items - (see Note 4) (1,898) 958
Difference between Defined Benefit Pension Scheme charges and cash cost 132 249
Movement in the fair value of foreign exchange contracts (821) 696
Discounting of deferred consideration (54) (105)
Movement in the fair value of interest rate swaps (18) 89
Adjustments, significant non-recurring and other items (2,659) 1,887
Profit before tax 14,297 17,013
Group Performance Measures Statutory Measures
Group Revenue *(2)
£356.8m
up 13.9%
Adjusted EBITDA*1 EBITDA
£28.7m £26.4m
up 6.9%
Adjusted Operating Profit(*1) Operating Profit
£17.8m up 10.6% £15.5m
Adjusted Profit(*1) Before Tax Profit Before Tax
£17.0m up 12.1% £14.3m
Adjusted Diluted EPS Diluted EPS
10.1p up 17.4% 7.9p
Capital Investment *(2)
£12.5m up 103%
Net Debt (excl leases) Net Debt (incl leases)
£20.6m up 57.3% £29.6m
*(1)The Group uses Alternative Performance Measures (APMs) which are non-IFRS
measures to monitor performance of its operations and of the Group as a whole.
These APMs along with their definitions are provided in the Adjusted EBITDA,
Operating Profit and Profit Before Tax tables on the previous page and the
tables in the Financial Review Section. APMs are disclosed as, in the opinion
of the Board, this will allow shareholders to gain a clearer understanding of
the trading performance of the Group.
Adjusted EPS has been calculated using profit, excluding amortisation of
intangibles, significant non-recurring and other items as shown in the tables
above net of associated taxation. In the opinion of the Board, the adjustments
made will allow shareholders to gain a clearer understanding of the trading
performance of the Group.
*(2)Measures that do not vary are shown in the first column only.
Chairman's Statement
The Group delivered a record revenue figure for the full year ended 2 July
2022; this was achieved during a period of exceptional macroeconomic
turbulence. The financial year was set against a backdrop of further Covid-19
restrictions which helpfully eased as the year progressed. There were, though,
increasing and now persistent ongoing pressures from input cost inflation,
staff shortages and other supply chain disruptions.
The period under review saw a number of testing obstacles for the wider
consumer sector and the manner in which Finsbury successfully navigated these
headwinds is testament to the diligence and experience of our management team.
Whilst these various pressures are likely to persist in the near future, I am
confident that we have the best possible team in place to continue executing
on our strategy and to further strengthen our position in the market as our
business is aligned with long-term consumer trends.
The challenges have been significant. Our commercial teams have needed to be
in constant dialogue with our customers and suppliers to deliver the necessary
revised commercial arrangements to address this volatile situation. However,
our focus on strategic execution has not wavered and we have continued to make
good progress against our objectives, based around our three pillars of
Excellence, Growth and Responsibility and underpinned by our Operating
Principles.
One such objective has been to bring the Group businesses closer together to
operate as a single cohesive unit. This is giving us both uniformity and
improved efficiency in our processes, procurement, procedures and
communication. In turn, this will make us stronger, creating a platform that
will enhance our future performance.
The hard work and dedication of the whole Finsbury team has enabled us to
navigate these challenges and changes while still achieving strategic progress
and delivering a commercial performance in line with market expectations. The
clarity of our strategy and the resilience of our business model means the
Company is well positioned for continued growth.
A Robust Performance
Our agile management of the evolving macroeconomic situation has allowed us to
deliver a robust performance for the period with the Group posting record
revenue figures, alongside notable operational successes and continued
investment. The full year figures do reflect the beneficial impact of the
relaxation of Covid-19 restrictions, compared with the previous 12 months
trading.
Group revenue increased by 13.9% to £356.8 million, bolstered by a
particularly strong second half performance with revenue up 18.7%, against the
corresponding period in the prior year. Adjusted EBITDA increased by 6.9% to
£28.7million (2021: £26.9 million), adjusted profit before tax increased by
12.1% to £17.0 million (2021: £15.1 million) and the Group delivered
adjusted diluted EPS of 10.1p. The Group's net bank debt position by year end
was £20.6 million (2021: £13.1 million) as the business increased its stake
in Lightbody-Stretz Limited, its European distribution subsidiary, from 50% to
85% in February 2022.
It is pleasing and reassuring that the 13.9% increase in Group revenues was
driven by 8.7% of volume growth which indicates the quality, relevance and
innovation of the Group's products. The Group's sales growth has been achieved
through a good performance in the Group's UK bakery, up 12.1%, which includes
a continuation of the recovery in foodservice (up 38.1%). There was also an
impressive 26.6% increase in the Group's overseas division. The overseas
performance is particularly pleasing and reflects the management team's
excellent execution and growth ambitions, along with our continued desire to
invest in the European opportunity.
The Group also successfully negotiated a new four plus one year £120 million
credit facility (£60 million core plus £60 million accordion) effective as
of 27 June 2022. Whilst the current stock market conditions persist and lower
ratings of food manufacturers are weighing heavily on share prices, these new
credit facilities will provide financial flexibility for the Group to pursue
its significant growth ambitions. As communicated in the February 2022 Interim
Results announcement, the Board continues to explore opportunities to
accelerate the growth of the Group through targeted acquisitions. The
continued successful execution of the Group's strategy positions us well to
succeed in both the retail grocery and out-of-home channels in the UK and
Europe particularly through the development of a strong licensed brand
portfolio to complement our core retailer brand relationships.
Dividend
Given the robust performance and sound financial position of the Group, the
Board will be recommending a final dividend of 1.67 pence per share at the
forthcoming AGM, which will take the total dividend for the year to 2.50 pence
per share (2021: 2.4 pence).
Considerable Operational Progress Despite Macroeconomic Headwinds
We have continued to invest and focus on the deployment of our Operating
Brilliance Programme ("OBP") which, facilitated by a cloud-based, Group-wide
IT system, has enabled us to recover this inflation, whether it be through
operating efficiency or price increases.
We are progressively delivering a suite of best-in-class business systems and
increased efficiencies, to optimise our business operations. This will help
protect us in the short term and be ready for when the market returns to more
normal conditions.
There is still a lot of work to be done, however, the progress made this year
has been significant. We have continued to strengthen our category-leading new
product development (NPD) expertise and have further implemented best practice
through our Process Blueprint, a product design framework delivering quality
and efficiency. Steps like these should ultimately help us to create
long‐term shareholder value, through share price appreciation and attractive
dividends.
A Responsible Business
At Finsbury we hold social responsibility at the very core of our ethos and,
as we challenge ourselves to be a more conscientious and socially impactful
business, accountability around our progress is important.
As part of our ongoing social responsibility programme, we will continue the
journey to our target of reducing emissions in line with the Science Based
Targets initiative ("SBTi") methodology. Alongside this, we will work with
our supply and customer partners to source raw materials in a sustainable and
ethical way.
Investment and development of people is key to our success, and we are
committed to investing in our staff to help attract and retain talent through
exploring new recruitment channels, and mechanisms to engage and retain our
existing workforce. Alongside this, we have invested in graduate talent,
apprenticeships and leadership development for the future, as well as
launching our Diversity and Inclusion strategy through a series of
policies, campaigns and training programmes to build awareness and
understanding.
Our People
Our people are the bedrock of our business and the culture that pervades
across Finsbury has helped us to endure difficult conditions with great
professionalism and calm. It is their focus which has resulted in our
year-on-year progression in quality performance, with complaint numbers and
rates continuing to reduce on a yearly comparative basis.
Our teams have worked extremely hard to create the right working conditions
for Finsbury to succeed and, on behalf of the Board, I would like to take this
opportunity to thank all members of staff for their dedication and commitment.
I would also like to extend my appreciation to the Board and wider Executive
team who have done an excellent job in navigating the Group through what has
been an exceptionally challenging period. Through their leadership and
expertise, Finsbury has not deviated from its strategic ambitions and the
robust set of results reflects their success.
Outlook
The past year has been set against a backdrop of exceptional macroeconomic
headwinds. Finsbury has faced unprecedented challenges as a result and, simply
taken at face value, the in line performance does not convey the monumental
levels of hard work that took place behind the scenes to deliver it. These
results are a great achievement. Management deserves a great deal of credit
for its stewardship and I am incredibly grateful to our colleagues who have
all played an important role in getting us to this point. FY22 was another
year in which the agility and resilience of the Finsbury model was put to the
test, and again it was proven to be more than fit for purpose even in the most
volatile of trading conditions.
Whilst we recognise that the future is difficult to predict with any certainty
as the true impact of the inflationary environment is not yet known, we remain
confident in our strategy. The past few years have not been easy, but we
continue to stand up well. Across our Group, NPD continues at pace, we have
diversification of products, channels and markets which stand us in good stead
and, ultimately, we have a strong track record of moving forwards as a
business in difficult times. This gives the Board confidence that the Group
will continue to make progress and deliver profitable growth.
Peter Baker
Non-Executive Chairman
23 September 2022
Chief Executive's Report
The period under review was a year in which Finsbury had to navigate
significant post-pandemic challenges impacting the availability and cost of
all inputs whether it be materials, utilities, labour and, indeed, overheads
in general. The impact and scale of these additional inflationary pressures
throughout the year exceeded £27 million and the level of response required
across the business to address them and go on to deliver a record sales
performance cannot be overstated. For many years we have been investing to
reinforce and optimise the Group, making it as nimble, adaptable and able to
withstand adversity, as possible. FY22 was a real test of how far we have
come, and I am proud of how we performed.
Within our markets, overall demand for food and drink has remained resilient.
Our retail business performed well, we continued to see a bounce back in
foodservice, and our overseas division continued to see strong growth.
Record Revenue Performance Despite Challenging Environment
The Group delivered a very strong full year performance, particularly given
the environment in which we were operating in. Total sales of £356.8 million
represent a 13.9% increase of which volume is 8.7% versus the corresponding
period in the prior year. The Group delivered a strong second half
performance, with H2 revenues up 18.7% (of which volume is 10.0%) against the
corresponding period in the prior year.
This growth in sales has been driven by a stable performance in the Group's
core division, UK bakery, up 12.1%, which includes a continuation of the
robust recovery in foodservice, up 38.1%, and a 26.6% increase in the Group's
overseas division.
Unprecedented pressure from input cost inflation, staff shortages and other
supply chain disruptions persisted throughout the period. Pleasingly, the
Group was able to mitigate much of the impact through revised pricing and
commercial arrangements, operational improvements and supply chain
initiatives. It will continue in the same vein as further inflationary cost
pressures are expected in the new financial year.
Strategic Review
Our strategy is central to the ongoing success of our business and is spread
over three key pillars: Excellence, Growth and Responsibility.
Excellence
We invest in our people and our operating sites to form a strong foundation to
underpin our strategy. We create innovative high-quality bakery products that
anticipate key market trends and ensure that customer and consumer needs are
at the heart of our decision making.
Growth
Our Group seeks to drive growth both organically and through acquisition,
targeting both the retail grocery and out-of-home channels in the UK and
Europe. We have developed a strong licensed brand portfolio to complement our
core retailer brand relationships.
Responsibility
Our commitment to building a sustainable operating model is built on a
holistic framework that puts our people's development, engagement and health
and wellbeing at the heart of our business. We strive to continually reduce
our impact on the planet by investing in technology, expertise and driving
shared ownership across our growth partners.
1. Excellence
The implementation of our Operating Brilliance Programme (OBP), centred around
building people and process capability, continues to deliver meaningful
benefits to performance.
In light of the challenging landscape we have been operating in for several
years, we have focused on building resilience across the Group and creating a
platform for continually improving performance. In FY22, our initiatives were
responsible for a combined £4.5 million of gross annual savings and we expect
these benefits to continue.
A major focus in FY22 has been the development of a suite of best-in-class
systems, all linked to our business intelligence software, with a view to
delivering Group-wide, high-quality data which we can use to make more
effective decisions.
FY22 systems investment included:
· An integrated Group Supply Chain Planning System, which will
enable us to move to an integrated business planning model;
· A Product Lifecycle Management System, which will transform our
development process, ensuring we have an effective product design framework to
deliver profitable growth; and
· A Group-wide Computerised Maintenance Management System (CMMS)
roll out has commenced in all bakeries.
The final piece in the best-in-class systems jigsaw is a new HR system, which
will be implemented in FY23. Once in place, this system will materially reduce
administration workload and improve areas like skills training and development
effectiveness within the business.
Moving forwards, we remain focused on extending, embedding and sustaining our
Operational Brilliance Programme at an increasingly Group-wide level,
including at interfaces with key customers and suppliers to promote best
practice both internally and externally.
2. Growth
The Board is committed to driving growth through a combination of organic
growth and targeted acquisitions.
We are delighted to report continued growth across our portfolio in the UK and
Europe as we continue to work collaboratively with our partners to drive
growth in our key markets. We are particularly focused on capitalising on the
continued rapid growth within our Lightbody Europe subsidiary aligned to our
celebration, small cake and Free From category strategies, accelerating
progress through our licensed brand portfolio and a strong innovation
pipeline.
As sales patterns have become more normalised throughout the period following
the impact of lockdowns, we have continued to succeed in both the retail
grocery and out-of-home channels in the UK and Europe, working closely with
our foodservice partners to enable a strong recovery. We continued to embed
our whole cake strategy and accelerate our small cake performance, led by food
to go with our indulgent and plant based snacking offer outperforming the
market across both the grocery and convenience channels.
From a brand portfolio perspective, we continued to go from strength to
strength. We have invested in our gluten free business in the UK and Poland,
expanding capacity and capability and driving double-digit growth. In Europe,
we have extended our Free From 'Wiso' brand, which we will look to drive
further scale in FY23, leveraging our Lightbody Europe business model to
deliver this. Three of the top five celebration cake lines in the UK are
Finsbury's and our Xbox product is the fastest growing cake in the market. We
continue to hold the broadest license portfolio, which we continually evolve
to ensure that we are catering to the diverse range of consumer needs.
To remain a leader in our key channels, we will implement consumer-led growth
strategies across cake product categories and focus on targeted bread
consumer-led growth in both retail and out of home markets. Product
development is also a key future focus as we increase capacity and capability
in two strategically important category areas of buns and rolls and
celebration cake. Further development and implementation of our Group Free
From strategy will continue as we seek to drive further growth within this
sector by extending our reach wider into speciality bread, morning goods,
sweet treat and cake categories.
The Board continues to explore opportunities to accelerate the growth of the
Group through targeted acquisitions and strategic investments. In February
2022 we acquired a further 35% shareholding in Lightbody-Stretz Limited,
taking our ownership from 50% to 85%, reflecting our continued belief in the
opportunity in Europe.
The Group's new credit facility provides financial flexibility for the Group
to pursue its significant growth ambitions, as and when appropriate,
potentially through further M&A.
3. Responsibility
Finsbury has always prided itself on being a responsible business that acts
with integrity and care, both for our people and towards the planet.
A primary focus has been to further develop key skills, subject matter
expertise and capability in addition to investing in graduate talent,
apprenticeships and leadership development for the future.
This year saw the launch of our Diversity and Inclusion strategy through a
series of policies, campaigns and training programmes to develop awareness
and understanding. We also progressed our Health and Wellbeing and Community
Engagement programmes, including further developing our partnerships with UK
charities Grocery Aid and Fareshare at a Group level, whilst continuing to
support team member nominated charities at a local level. We will soon be
redeploying our Employee Engagement survey to assess the impact of
our Employee Engagement Programme with a view to driving continued
improvement in our workplace culture.
Sustainability is in our DNA, with metrics and goals embedded within all our
business strategies. As a result of our focus on driving recycling rates, 85%
of our waste is now recycled (up from 80% last year) with the balance being
used to generate power. We remain a certified zero land fill business and as
part of our commitment to the WRAP objectives on plastic usage, 91% of our
packaging is now recyclable. We will continue to increase the recycling rate
through the training and the application of technology.
''Scope 1 and 2'' emissions have been reduced by 20% against our 2016 base
line, and we are creating a Supplier Partner Sustainability Forum to work
collaboratively on reducing the Group's environmental impact. This will
include the measurement of our ''Scope 3'' emissions with our key suppliers.
We now have live data monitoring systems for electricity use for all our key
assets, helping teams to calculate the impact of action in real-time and
saving up to 10% of energy usage. The implementation of these systems has
allowed us to convert 90% of our lighting to LED and we will achieve the
complete 100% transition later in the calendar year 2022, saving over 260
tonnes of CO(2) per annum. Automated live usage monitoring will be extended to
gas and water to help teams to identify reduction opportunities.
Raw materials continue to be sourced in line with a variety of sustainable and
ethical standards, including Fair Trade and the Rainforest Alliance. Our palm
oil adheres to the RSPO segregated sustainability standard. Moving forward, we
will persist in working with our supply and customer partners to source raw
materials in a sustainable and ethical way.
I would like to take this opportunity to personally thank our teams across the
Group for their continued hard work, determination and commitment. Without
their efforts we would not have been able to navigate the challenges we have
faced and, in turn, deliver a record performance.
Outlook
Finsbury has faced unprecedented challenges in recent years, first triggered
by the Covid-19 crisis and now by arguably the most challenging input cost
inflation in decades and falling consumer confidence. Despite these, the
resilience and swift response across our business enabled us to deliver a
record revenue performance in the period under review.
Looking ahead, macro-economic and inflationary headwinds are set to persist at
levels in excess of that experienced in FY22. However, Finsbury is no stranger
to responding to difficult trading conditions and uncertainty. Since long
before the onset of Covid-19, we have been focused on diversifying products,
channels and markets; unifying our businesses; identifying efficiencies; and
making the Group more resilient and able to respond quickly and effectively to
changing dynamics. The work our teams have put in over the past several years
continues to leave us in a strong position relative to many.
The continuation of our Operating Brilliance Programme has resulted in
significant progress to date and there is encouraging momentum as we move
through the new financial year. FY22 saw further expansion of our
international footprint, continued reinforcement of our best-in-class systems,
and further advances in refining and strengthening our product range, such as
in gluten free. In FY23, we aim to continue in a similar vein, making
incremental improvements to our operations, such as through the launch of a
new Group-wide HR system, that will stand us in good stead as we navigate the
challenges ahead.
While we now have two months of trading under our belt in the new financial
year, the complexity of the pressures we are facing and the uncertain outlook
around the phasing and extent of the impact of rising inflation and energy
prices on consumer demand means it is difficult to predict how the rest of the
year will unfold. The effectiveness of government policy to tackle the cost of
living crisis, with energy price inflation sitting at the centre and affecting
both consumers and companies, is another important variable that muddies the
picture. However, we are experienced in dealing with adversity; our business
is aligned with long-term consumer trends; we have a proven, agile model; and
we continue to execute a strategy that we believe will continue to improve the
business irrespective of external turbulence.
These factors combined give us confidence that, whilst we can't control the
headwinds we are facing, we will be well positioned once the macro-economic
situation stabilises.
John Duffy
Chief Executive Officer
23 September 2022
Financial Review
Group revenue to 2 July 2022 is £356.8 million, 13.9% higher than last year.
The growth in revenue is the result of volume uplift of 8.7% and price uplift
of 5.2%. The recovery of foodservice is driving much of this growth with a 38%
increase year-on-year uplift, while retail revenues remain positive. Sales
from our overseas division increased by 27% year on year driven by a strong
cake performance in the large French retailers. Group adjusted operating
profit at £17.8 million is up 10.6% on last year. Despite the unprecedented
inflationary pressures and challenging macro environment, the Group has
increased both revenue and operating profit. Adjusted operating profit margins
are 5.0% (2021: 5.1%), a consequence of the continuing success of our
Operating Brilliance Programme partially mitigating the extraordinary
challenges.
Dividend
The dividend was reinstated during the year. For the full year to 26 June
2021, a dividend of 2.40p per share was paid on 21 December 2021 to
shareholders on the register at the close of business on 26 November 2021.
An interim dividend for the year ending 2 July 2022 of 0.83p per share (2021:
nil) was paid on 21 April 2022 to shareholders on the register at the close of
business on 25 March 2022.
The Board of Directors is recommending a final dividend for the year ending 2
July 2022 of 1.67p per share, taking the full year dividend to 2.50p per share
(2021: 2.40p). The final dividend will be paid on 21 December 2022 to
shareholders on the register at the close of business on 25 November 2022. The
election deadline for participants in the Company's Dividend Re-investment
Plan will be 30 November 2022.
The tables below show what the Directors consider to be the trading
performance of the Group. The adjusted measures eliminate the impact of
significant and non-recurring items and other accounting items, that are not
deemed to reflect the continuing performance of the Group.
53 week period ended 2 July 2022
Operating performance Significant non-recurring- Defined Benefit Pension Scheme Movement in the Fair value of interest rate swaps/foreign exchange contracts Discounting of deferred consideration As per Consolidated Statement of Comprehensive Income
items
Note 4
£000 £000 £000 £000 £000 £000
Revenue 356,808 - - - - 356,808
Cost of sales (241,183) - - - - (241,183)
Gross profit 115,625 - - - - 115,625
Other costs excluding depreciation and amortisation (86,878) (1,898) 417 (821) - (89,180)
EBITDA 28,747 (1,898) 417 (821) - 26,445
Depreciation and amortisation (10,940) - - - - (10,940)
Operating profit 17,807 (1,898) 417 (821) - 15,505
Finance income - - - - - -
Finance costs (851) - (285) (18) (54) (1,208)
Profit before tax 16,956 (1,898) 132 (839) (54) 14,297
Taxation (3,050) 198 (33) 166 10 (2,709)
Profit for the year 13,906 (1,700) 99 (673) (44) 11,588
52 week period ended 26 June 2021
Operating performance Significant non-recurring- Defined Benefit Pension Scheme Movement in the Fair value of interest rate swaps/ foreign exchange contracts Discounting of deferred consideration As per Consolidated Statement of Comprehensive Income
items
Note 4
£000 £000 £000 £000 £000 £000
Revenue 313,258 - - - - 313,258
Cost of sales (210,273) - - - - (210,273)
Gross profit 102,985 - - - - 102,985
Other costs excluding depreciation and amortisation (76,081) 958 473 696 - (73,954)
EBITDA 26,904 958 473 696 - 29,031
Depreciation and amortisation (10,804) - - - - (10,804)
Operating profit 16,100 958 473 696 - 18,227
Finance income - - - 89 - 89
Finance costs (974) - (224) - (105) (1,303)
Profit before tax 15,126 958 249 785 (105) 17,013
Taxation (2,995) (182) (62) (149) 20 (3,368)
Profit for the year 12,131 776 187 636 (85) 13,645
Other Significant and Non-Recurring Items
Significant non-recurring cost (SNR) of £1.9 million relates to acquisition
costs for aborted transactions of £1.6 million, litigation and legal fees of
£0.9 million, asset disposals of £0.2 million offset by the release of
provisions for onerous leases and factory closure costs of £0.8 million. All
items have been excluded from operating profit in the table below to better
reflect the ongoing trading position.
Earnings per Share (EPS)
EPS comparatives to the prior year can be distorted by significant
non-recurring items and other items highlighted above. The Board is focused on
growing adjusted diluted EPS which is calculated by eliminating the impact of
the items highlighted above as well as amortisation of intangibles and
incorporates the dilutive effect of share options. Adjusted diluted EPS is
10.1p (2021: 8.6p).
2022 2021
Basic EPS 8.4p 9.8p
Adjusted basic EPS 10.8p 9.1p
Diluted** basic EPS 7.9p 9.3p
Adjusted* diluted** EPS 10.1p 8.6p
*Further details on adjustments can be found in Note 7.
**Diluted EPS takes basic EPS and incorporates the dilutive effect of share
options.
Cash Flow
Cash generated from operating activities increased to £28.7m. Increased
working capital of £2.5m driven by the growth in the business reduced this to
£26.2m. Interest paid totals £0.7m. Taxation at £2.0m (2021 £3.9m) is
lower than 2021 attributable to the benefit of capital super allowances. Cash
out flows relating to SNRs (note 4) cost £2.3m and should be considered as
one off in nature.
The resulting net cash from operating activities is £21.3m which finances a
doubling of spend on capital investment (£12.5 million) and an acquisition
outflow of £6.1m as the Company increased its stake in Lightbody-Stretz
Limited by 35% to 85%. The cash flows associated with dividend are £4m
relating to the 2.4pps 2021 full and final dividend paid in December 2021,
£3.0m and £1.0m for the interim dividend for 2022 paid April 2022 (0.83pps).
Debt and Bank Facilities
The Group's total net debt is £20.6 million (2021: £13.1 million), up £7.5
million from the prior year, for the reasons given above.
The Group recognises the inherent risk from interest rate rises and uses
interest rate swaps to mitigate these risks. During the year the Group had two
swaps: one for £20.0 million for five years from 3 July 2017 (fixed) at
0.455% and one for £5.0 million for three years from 28 March 2019 (fixed) at
1.002%. The Group entered into a forward dating swap commencing 3 July 2022 to
10 June 2027 with a coverage of £10.0 million fixed at a rate of 2.589%. At
the year end date the total balance of swaps was £20.0 million (2021: £25.0
million). The counterparty to these transactions is HSBC Bank Plc.
The effective interest rate for the Group during the year, taking account of
the interest rate swap in place with average base rate at 0.60% and LIBOR at
0.263%, was 1.7% (2021: base rate 0.10% and LIBOR at 0.052%, was 2.0%).
Financial Covenants
The Board reviews the Group's cash flow forecasts and key covenants regularly,
to ensure it has adequate facilities to cover its trading and banking
requirements with an appropriate level of headroom. The forecasts are based on
management's best estimates of future trading. As noted earlier, there has
been no breach of covenants during the year and the Board do not expect any in
the forecast periods.
Interest cover (based on adjusted earnings before interest, tax, depreciation
and amortisation - EBITDA) for the 53 weeks to 2 July 2022 was 48.6 (2021:
27.2) minimum cover required is 4.0 times. Net bank debt to EBITDA (based on
adjusted EBITDA) for the 53 weeks to 2 July 2022 was 0.7 (2021: 0.5); maximum
level required under our new banking facility is 3.0 times.
Taxation
The Group taxation charge for the year was £2.7 million (2021: £3.4
million). The effective rate of tax on profits before significant and
non-recurring and other items is 18.9% (2021: 19.8%). You can find further
details on the tax charge in Note 6.
Financial and Non-Financial Key Performance Indicators
We monitor a range of financial and non-financial KPIs at site level covering,
amongst others, productivity, quality and health and safety.
The Group Board receives a regular overview of all KPIs.
The Strategic Report was approved by the Board of Directors on 23 September
2022 and was signed on its behalf by:
Stephen Boyd
Director
Financial Statements
Consolidated Statement of Comprehensive Income
for the 53 weeks ended 2 July 2022
2022 2021
Note £000 £000
Revenue 2 356,808 313,258
Cost of sales (241,183) (210,273)
Gross profit 115,625 102,985
Administrative expenses 3 (98,222) (85,716)
Administrative items - significant and non-recurring 4 (1,898) 958
Operating profit 15,505 18,227
Finance income 5 - 89
Finance cost 5 (1,208) (1,303)
Net finance cost (1,208) (1,214)
Profit before tax 14,297 17,013
Taxation 6 (2,709) (3,368)
Profit for the financial year 11,588 13,645
Other comprehensive income
Items that will not be reclassified to profit and loss
Remeasurement on Defined Benefit Pension Scheme 7,815 396
Movement in deferred taxation on Pension Scheme liability (1,954) 811
Other comprehensive income for the financial year, net of tax 5,861 1,207
Total comprehensive income for the financial year 17,449 14,852
Profit attributable to:
Equity holders of the Parent 10,472 12,347
Non-controlling interest 1,116 1,298
Profit for the financial year 11,588 13,645
Total comprehensive income attributable to:
Equity holders of the Parent 16,333 13,554
Non-controlling interest 1,116 1,298
Total comprehensive income for the financial year 17,449 14,852
Earnings pence per ordinary share
Basic 7 8.4 9.8
Diluted 7 7.9 9.3
The Notes on pages 19 to 27 form an integral part of these Financial
Statements.
Financial Statements
Consolidated Statement of Financial Position
at 2 July
2022
2022 2021
Note £000 £000
Non-current assets
Intangibles 8 87,355 88,019
Property, plant and equipment 62,672 59,015
Deferred tax assets 4,072 5,961
154,099 152,995
Current assets
Inventories 23,281 15,027
Trade and other receivables 58,148 50,986
Cash and cash equivalents 7,381 9,523
Other financial assets - fair value of derivatives 20 405
88,830 75,941
Total assets 242,929 228,936
Current liabilities
Other interest-bearing loans and borrowings 9 (1,605) (2,039)
Trade and other payables (74,284) (62,490)
Provisions (697) (222)
Other financial liabilities - fair value of derivatives (575) (121)
Deferred consideration (496) (976)
Current tax liabilities (731) (689)
(78,388) (66,537)
Non-current liabilities
Other interest-bearing loans and borrowings 9 (35,388) (31,029)
Provisions (18) (160)
Deferred consideration - (466)
Deferred tax liabilities (3,699) (2,944)
Pension fund liability (6,582) (14,529)
(45,687) (49,128)
Total liabilities (124,075) (115,665)
Net assets 118,854 113,271
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 (5,696) (5,374)
Retained earnings 57,456 49,021
118,598 110,485
Non-controlling interest 256 2,786
Total equity 118,854 113,271
The Financial Statements on pages 13 to 16 were approved by the Board of
Directors on 23 September 2022 and were signed on its behalf by:
Stephen Boyd (Director)
Registered Number 00204368
The Notes on pages 17 to 27 form an integral part of these Financial
Statements.
Financial Statements
Consolidated Statement of Changes in Equity
for the 53 weeks ended 2 July 2022
Share Share Capital redemption reserve Employee share reserve Retained Non-controlling Total
capital premium earnings interest equity
£000 £000 £000 £000 £000 £000 £000
Balance at 28 June 2020 1,304 64,956 578 (3,378) 34,918 2,210 100,588
Profit for the financial year - - - - 12,347 1,298 13,645
Other comprehensive:
Remeasurement on Defined Benefit Pension
- - - - 396 - 396
Deferred tax movement on Pension Scheme remeasurement
- - - - 811 - 811
Total other comprehensive income - - - - 1,207 - 1,207
Total comprehensive income for the period
- - - - 13,554 1,298 14,852
Transactions with owners, recorded directly in equity:
Shares acquired during the year - - - (1,996) - - (1,996)
Impact of share-based payments - - - - 1,001 - 1,001
Deferred tax on share options - - - - 89 - 89
Foreign exchange translation differences
- - - - (541) - (541)
Dividend paid - - - - - (722) (722)
Balance at 26 June 2021 1,304 64,956 578 (5,374) 49,021 2,786 113,271
Balance at 27 June 2021 1,304 64,956 578 (5,374) 49,021 2,786 113,271
Profit for the financial year - - - - 10,472 1,116 11,588
Other comprehensive:
Remeasurement on Defined Benefit Pension
- - - - 7,815 - 7,815
Deferred tax movement on Pension Scheme remeasurement -
- - - - (1,954) - (1,954)
Total other comprehensive income - - - - 5,861 - 5,861
Total comprehensive income for the period
- - - - 16,333 1,116 17,449
Transactions with owners, recorded directly in equity:
Shares acquired during the year - - - (500) - - (500)
Shares issued during the year - - - 178 - - 178
Impact of share-based payments - - - - 1,524 - 1,524
Transactions with non-controlling interests -
- - - - (4,962) (1,121) (6,083)
Costs associated with transactions with non-controlling interests
- - - - (375) - (375)
Foreign exchange translation differences
- - - - (67) - (67)
Dividend paid - - - - (4,018) (2,525) (6,543)
Balance at 2 July 2022 1,304 64,956 578 (5,696) 57,456 256 118,854
Financial Statements
Consolidated Cash Flow Statement
for the 53 weeks ended 2 July 2022
2022 2021
Note £000 £000
Cash flows from operating activities
Profit for the financial year 11,588 13,645
Adjustments for:
Depreciation 3 7,407 7,235
Depreciation right-of-use assets 3 1,986 1,752
Significant non-recurring items 4 1,898 (1,125)
Significant non-recurring items - impairment of fixed assets 4 - 167
Net finance costs 5 1,208 1,214
Taxation 6 2,709 3,368
Amortisation of intangibles 8 1,547 1,817
Change in fair value of foreign exchange contracts 821 (696)
Contributions by employer to Pension Scheme (417) (473)
Operating profit before changes in working capital 28,747 26,904
Changes in working capital:
Increase in inventories (8,254) (568)
Increase in trade and other receivables (7,847) (11,274)
Increase in trade and other payables 13,589 14,749
Cash generated from operations before costs of disposals and acquisitions 26,235 29,811
Significant non-recurring costs (2,254) (364)
Interest paid (678) (715)
Tax paid (2,018) (3,926)
Net cash generated from operating activities 21,285 24,806
Cash flows from investing activities
Purchase of property, plant and equipment and intangibles (12,545) (6,190)
Purchase of companies 11 (1,000) (500)
Net cash used in investing activities (13,545) (6,690)
Cash flows from financing activities
Lease payments (2,275) (2,789)
Drawdown/(repayment) of revolving credit 5,444 (13,753)
Purchase of shares by Employee Benefit Trust (500) (1,996)
Transactions with non-controlling interest 11 (6,083) -
Dividend paid to non-controlling interest (2,525) (722)
Dividend paid to shareholders (4,018) -
Net cash generated used in financing activities (9,957) (19,260)
Net decrease in cash and cash equivalents (2,217) (1,144)
Opening cash and cash equivalents 9,523 10,173
Effect of exchange rate fluctuations on cash held 75 494
Cash and cash equivalents at end of period 7,381 9,523
The Notes on pages 17 to 27 form an integral part of these Financial
Statements.
Notes to the Consolidated Financial Statements
Presentation of Financial Statements
Basis of Preparation
The financial information on pages 15 to 18 is extracted from the Group's
consolidated Financial Statements for the 53 week period ended 2 July 2022,
which were approved by the Board of Directors on 23 September 2022.
The financial information does not constitute statutory accounts within the
meaning of sections 434(3) and 435(3) of the Companies Act 2006 or contain
sufficient information to comply with the disclosure requirements in
accordance with UK-adopted International Accounting Standards in conformity
with the requirements of the Companies Act 2006. The "requirements of the
Companies Act 2006" here means accounts in accordance with "International
Accounting Standards" as defined in section 474(1) of that Act, as it applied
immediately before Implementation Period ("IP") completion day (end of
transition period), including where the Group also makes use of standards
which have been adopted for use within the United Kingdom in accordance with
regulation 1(5) of the International Accounting Standards and the European
Public Limited Liability Company (Amendment etc.) (EU Exit) Regulations 2019
The Company's auditors, PricewaterhouseCoopers LLP, have given an unqualified
report on the consolidated Financial Statements for the 53 week period ended 2
July 2022. The Auditors' Report did not include reference to any matters to
which the auditors drew attention without qualifying their report and did not
contain any statement under section 498 of the Companies Act 2006. The
consolidated Financial Statements will be filed with the Registrar of
Companies, subject to their approval by the Company's shareholders on 17
November 2022 at the Company's Annual General Meeting.
Basis of Accounting
The Group's consolidated Financial Statements for the year ended 2 July 2022
have been prepared and approved by the Directors in accordance with UK-adopted
International Accounting Standards in conformity with the requirements of the
Companies Act 2006. The Directors are satisfied that the Group has adequate
resources to continue to operate for a period of not less than 12 months from
the date of approval of the Financial Statements and that there are no
material uncertainties around their assessment. Accordingly, the Directors
continue to adopt the going concern basis of accounting.
The Group's principal accounting policies have been consistently applied
throughout the year and will be set out in the notes to the Group's 2022
Annual Report.
Going Concern
In the current climate in which we navigate well-publicised macro challenges,
relevant judgements and assumptions must be made. The Group continues to
operate in a complex trading environment with pressure from inflation, supply
chain disruptions, labour availability impacted by the pandemic, political,
economic and legislative changes and economic factors linked to the ongoing
conflict in Ukraine. The conflict between Russia and Ukraine continues to
develop and is likely to have a broad impact on the global economy. Whilst
navigating these challenges the health and safety of our employees is a top
priority.
When considering going concern, judgement must be made as to the impact of the
ongoing macro challenges. Forecasts have been built on a bottom-up basis and
stress tested to prepare an approved budget used as a basis for reviewing
going concern. Risks and opportunities have been considered, and plausible
downside risks have been assessed. Having reviewed the Group's short and
medium-term plans and available financial facilities, the Board has reasonable
expectations that the Group has adequate resources to continue in operational
existence for the next 12 months and the foreseeable future.
The Group meets its funding requirements through internal cash generation and
bank credit facilities, which are committed until June 2027. Committed banking
facilities are £60.0 million with a further accordion available of £60.0
million, net bank debt at the year end was £20.6 million. The Group's
forecasts and projections, taking account of possible changes in trading
performance, show that the Group will be able to operate comfortably within
its current bank facilities. The Group has a relatively conservative level of
debt to earnings.
The Board reviews the Group's covenants on a regular basis to ensure that it
has adequate facilities to cover its trading and banking requirements with an
appropriate level of headroom. The forecasts are based on management's best
estimates of future trading. There has been no breach of covenants during the
year and none expected during the next 12 months. All covenant tests were
passed at the year end.
We have delivered record revenue performance, a demonstration of the Group's
resilience and strategic focus. We continue to reap the benefits of our
Operating Brilliance Programme which has been one of the key drivers behind
our positive performance.
We have not been immune to the challenges arising from sudden and unexpected
input cost inflation over the period. However, we have been able to mitigate
the impact of these pressures through commercial negotiation and operational
improvements have seen the benefit of these actions in our second half profit
performance. We have also been affected by staff shortages and supply chain
disruption. We will continue to monitor closely and work through ongoing
pressures using the same strategies employed to date. While headwinds are set
to persist, we have a successful track record of navigating challenging market
conditions, and the steps we have taken to optimise the business to date stand
us in good stead.
We have seen recovery in foodservice, steady sales in retail and strong
overseas performance and have the benefits of the decisive mitigation actions
throughout the year. We continue to see opportunities for significant sales
growth through gaining market share in existing areas, and targeted
acquisitions, with our increased holding of our French subsidiary to 85% in
February reflecting our continued desire to invest behind our European growth.
After making enquiries, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, the Board continues to
adopt the going concern basis in preparing the Financial Statements for both
the Group and the Parent Company.
1. Significant Accounting Policies
New and Upcoming Standards
The following new standards, new interpretations and amendments to standards
and interpretations are applicable for the first time for the financial year
ended 2 July 2022.
· Amendments to IFRS 7, IFRS 4, and IFRS 16 - Interest rate
benchmark reform - Phase 2 (effective 1 January 2021);
· Amendments to IFRS 4 Insurance Contracts - Deferral of IFRS 9
(effective 1 January 2021); and
· Amendment to IFRS 16, 'Leases' - Covid-19 related rent
concessions extension of the practical expedient (effective 1 April 2021).
None of the amendments to the above standards had a material impact on the
Financial Statements.
There are a number of new standards, interpretations and amendments to
existing standards that are not yet effective and have not been adopted early
by the Group. The future introduction of these standards is not expected to
have a material impact on the Financial Statements of the Group.
· Amendments to IAS 1 - Presentation of Financial Statements on Classification of Liabilities (effective 1 January 2023).
Work will continue in the new financial year to assess the impact of the new
standards and interpretations on the Group's Financial Statements.
2. Revenue and Segment Information
Operating segments are identified on the basis of the internal reporting and
decision making. The Group's Chief Operating Decision Maker is deemed to be
the Board, as it is primarily responsible for the allocation of resources to
segments and the assessment of performance by segment. The Board assesses
profit performance principally through adjusted profit measures consistent
with those disclosed in the Financial Statements.
The UK bakery segment manufactures and sells bakery products to UK grocery and
foodservice sectors. It comprises six subsidiaries all of which manufacture
and supply food products through the channels described above. These
subsidiaries have been aggregated into one reportable segment as they share
similar economic characteristics. The economic indicators considered are the
nature of the products and production process, the type and class of customer,
the method of distribution and the regulatory environment.
The overseas segment procures and sells bakery products to European grocery
and foodservice sectors. It comprises Lightbody Europe and Ultraeuropa.
Ultraeuropa has manufacturing facilities in Poland where it manufactures and
sells Free From bakery products into the European markets.
The UK bakery segment also made sales directly to overseas markets.
Revenue UK bakery Overseas Total Group
53 weeks to 2 July 2022 and 52 weeks to 26 June 2021. 2022 2021 2022 2021 2022 2021
£000 £000 £000 £000 £000 £000
Total 306,650 273,633 50,158 39,625 356,808 313,258
Reportable Segments 53 weeks to 52 weeks to
2 July 2022 26 June 2021
£000 £000
Revenue UK bakery 306,650 273,633
Revenue overseas 50,158 39,625
Total revenue 356,808 313,258
Adjusted operating profit UK bakery 14,897 13,609
Adjusted operating profit overseas 2,910 2,491
Total adjusted operating profit 17,807 16,100
Significant non-recurring impairment - -
Significant non-recurring other (1,898) 958
Defined Benefit Pension Scheme 417 473
Fair value foreign exchange contracts (821) 696
Operating profit 15,505 18,227
Finance income - 89
Finance expense (1,208) (1,303)
Net finance cost (1,208) (1,214)
Profit before taxation 14,297 17,013
Taxation (2,709) (3,368)
Profit for the financial year 11,588 13,645
The Group has two customers (2021: three) which individually account for 10%
or more of the Group's total revenue. These customers individually account for
24% and 12%. In the prior year three customers accounted for 23%, 12% and 10%
of the revenue in the 52 weeks to 26 June 2021.
Other Segment Information 53 weeks to 52 weeks to
2 July 2022 26 June 2021
£000 £000
Assets UK bakery 225,816 213,791
Assets overseas 17,113 15,145
Liabilities UK bakery (109,289) (103,541)
Liabilities overseas (14,786) (12,124)
Depreciation UK bakery 8,486 8,060
Depreciation overseas 907 927
Amortisation UK bakery 1,547 1,817
Amortisation overseas - -
3. Administrative Expenses and Auditors' Remuneration
Included in profit are the following:
2022 2021
£000 £000
Amortisation of intangibles 1,547 1,817
Depreciation of owned tangible assets 7,407 7,235
Depreciation on right-of-use assets 1,986 1,752
Impairment of fixed assets - 167
Loss on disposal of property, plant and equipment 347 145
Loss on foreign exchange 213 235
Variable lease payments 267 203
Expenses relating to short-term and low-value leases 23 51
Movement on fair value of foreign exchange contracts 821 (696)
Research and development 1,566 2,124
Share option charges 1,524 1,001
Auditors' remuneration:
2022 2021
£000 £000
Audit of these Financial Statements 55 50
Audit of the Financial Statements of subsidiaries of the Company 144 133
Other services 181 41
Other services relate to aborted acquisition advice and assistance with non-UK
VAT registrations.
4. Significant Non-Recurring Items
The Group presents certain items as significant and non-recurring. 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. They reflect costs that will not
be repeated and therefore do not reflect ongoing trading of business which is
most meaningful to users.
Included within significant non-recurring items shown in the table on page 12
of the Financial Review section are the following costs:
2022 2021
£000 £000
Acquisition costs (1,601) -
Litigation and legal costs (858) (388)
Disposal and impairment of fixed assets (284) (167)
Release of site closure costs provision 795 1,340
Other reorganisation people costs 50 173
(1,898) 958
Acquisition costs are those associated with an aborted acquisition during the
year. Litigation and legal costs of £0.9 million (2021: £0.4 million) are in
relation to a dispute over the consideration paid for an earlier year
acquisition and costs of £0.3 million (2021: £0.2 million) relating to fixed
assets disposals in the current year and final impairment of assets at Cardiff
in the prior year. The release of site closure provisions of £0.7 million
(2021: £0.8 million) relating to lease costs that have been avoided due to
successful re-letting of closed site units plus a release of £0.1 million
(2021: £0.4 million) of related site closure costs and £0.1 million (2021
£0.2 million) of unused reorganisation provisions.
5. Finance Income and Cost
Recognised in the Consolidated Statement of Comprehensive Income
2022 2021
£000 £000
Finance income
Change in fair value of interest rate swaps - 89
Total finance income - 89
Finance cost
Interest on net pension position (285) (224)
Interest on interest rate swap agreements (43) (119)
Bank interest payable (531) (545)
Unwinding of discount on deferred consideration (54) (105)
Interest on deferred consideration (18) (36)
Change in fair value of interest rate swaps (18) -
Lease liabilities (259) (274)
Total finance cost (1,208) (1,303)
6. Taxation
Recognised in the Consolidated Statement of Comprehensive Income
2022 2021
£000 £000
Current tax
Current year 2,137 3,277
Adjustments for prior years (148) (263)
Total current tax 1,989 3,014
Deferred tax
Origination and reversal of temporary differences 646 95
Rate change (209) 252
Adjustments for prior years 283 7
Total deferred tax 720 354
Total tax expense 2,709 3,368
Reconciliation of Effective Tax Rate
The weighted average hybrid rate of UK, Polish and French tax is 19.5% (2021:
20.5%). The tax assessed for the period is lower (2021: lower) than the hybrid
rate of UK and French tax. The UK Corporation Tax rate for the period is 19.0%
(2021: 19.0 %). The differences are explained below:
2022 2021
£000 £000
Profit before taxation 14,297 17,013
Tax using the UK Corporation Tax rate of 19%, (2021: 19%) 2,716 3,232
Overseas profits charged at different taxation rate 265 151
Non-deductible expenses and timing differences 88 480
Restatement of opening net deferred tax due to rate change and differences in 91 298
rates
R&D reclaim (586) (537)
Adjustments to tax charge in respect of prior periods 135 (256)
Total tax expense 2,709 3,368
The UK Corporation Tax rate increase from 19% to 25% from 1 April 2023 was
substantively enacted in March 2021, this decision has been reversed at the
mini-budget on 23 September 2022. The deferred tax assets and liabilities at 2
July 2022 have been calculated based on a rate at which they are expected to
crystallise which is likely to be 19% or 25% (the rate at the time of
preparation of these financial statements).
The adjustment of £135,000 for the 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 £239,000 (2021:
£239,000) relating to capital losses carried forward. This asset has not been
recognised in the Financial Statements as it is not expected that suitable
gains will arise in the future in order to utilise the underlying capital
losses.
7. Earnings Per Ordinary Share
Basic earnings per share for the period is calculated on the basis of profit
for the year after tax, divided by the weighted average number of shares in
issue being 124,265,000 (2021: 125,805,000).
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 2 July 2022, the diluted weighted
average number of shares in issue was 132,352,000, (2021: 132,753,000).
An adjusted earnings per share has been calculated to show the trading
performance of the Group. These adjusted earnings per share exclude:
· Reorganisation and other significant non-recurring items;
· IFRS 9 'Financial Instruments: Recognition and Measurement' fair
value adjustment relating to the Group's interest rate swaps and foreign
exchange contracts;
· IAS 19 (revised) 'Accounting for Retirement Benefits' relating to
net income;
· The taxation effect at the appropriate rate on adjustments; and
· Amortisation of intangible assets.
53 weeks to 52 weeks to
2 July 2022 26 June 2021
£000 £000
Profit
Profit attributable to equity holders of the Company (basic) 10,472 12,347
Significant non-recurring and other items 2,318 (1,514)
Intangible amortisation net of deferred tax 574 574
Numerator for adjusted earnings per share calculation (adjusted basic)
13,364 11,407
Shares Basic Diluted Basic Diluted
'000 '000 '000 '000
Weighted average number of ordinary shares in issue during the period
124,265 124,265 125,805 125,805
Dilutive effect of share options - 8,087 - 6,948
124.265 132,352 125,805 132,753
Basic Diluted Basic Diluted
Earnings per share pence pence pence pence
Basic and diluted 8.4 7.9 9.8 9.3
Adjusted basic and adjusted diluted 10.8 10.1 9.1 8.6
Significant non-recurring and other items net of taxation are tabled on page
12 and comprise: significant non-recurring charge £1,700,000 (2021: income
£776,000), Defined Benefit Pension Scheme income £99,000 (2021:
£187,000), fair value of interest rate swaps, foreign exchange contracts
charge £673,000 (2021: income £636,000), and the unwinding of deferred
consideration discounting charge £44,000 (2021: £85,000).
8. Intangibles
Intangible assets comprise customer relationships, brands and goodwill.
Goodwill Business Brands and licences Customer relationships Total
systems
£000 £000 £000 £000 £000
Cost at 27 June 2020 85,004 10,177 3,683 7,630 106,494
Additions - 1,045 - - 1,045
Transfers from tangible fixed assets - 165 - - 165
Cost at 26 June 2021 85,004 11,387 3,683 7,630 107,704
Additions - 802 - - 802
Transfers from tangible fixed assets - 81 - - 81
Cost at 2 July 2022 85,004 12,270 3,683 7,630 108,587
Accumulated amortisation at 27 June 2020 (11,790) (1,851) (1,645) (2,582) (17,868)
Charge for the year - (1,108) (143) (566) (1,817)
Accumulated amortisation at 26 June 2021 (11,790) (2,959) (1,788) (3,148) (19,685)
Charge for the year - (838) (143) (566) (1,547)
Accumulated amortisation at 2 July 2022 (11,790) (3,797) (1,931) (3,714) (21,232)
Net book value at 27 June 2020 73,214 8,326 2,038 5,048 88,626
Net book value at 26 June 2021 73,214 8,428 1,895 4,482 88,019
Net book value at 2 July 2022 73,214 8,473 1,752 3,916 87,355
The customer relationships, brands and licences recognised in the opening
costs were purchased as part of the Ultrapharm acquisition in September 2018
and the acquisition of Fletchers Group of Bakeries in October 2014. They are
considered to have finite useful lives and are amortised on a straight-line
basis over their estimated useful lives of twenty years for brands and between
ten and fifteen years for customer relationships. The intangibles were valued
using an income approach, using multi-period excess earnings method for
customer relationships and Relief from Royalty Method for brand valuation. The
amortisation of intangibles has been charged to administrative expenses in the
Consolidated Statement of Comprehensive Income. The business systems are
considered to have finite useful lives and are amortised on a straight-line
basis over their estimated useful lives of ten years.
Goodwill has arisen on acquisitions and reflects the future economic benefits
arising from assets that are not capable of being identified individually and
recognised as separate assets. The goodwill reflects the anticipated
profitability and synergistic benefits arising from the enlarged Group
structure. The goodwill is the balance of the total consideration less fair
value of assets acquired and identified. The carrying value of the goodwill is
reviewed annually for impairment. The carrying value of all goodwill has been
assessed during the year.
8. Intangibles (continued)
The Group tests goodwill for impairment on an annual basis, or more frequently
if there are indications that the goodwill may be impaired. The recoverable
amounts of the cash generating units are determined from value in use
calculations. The key assumptions for the value in use calculations are the
discount, inflation and growth rates used for future cash flows and the
anticipated future changes in revenue, direct costs and indirect costs. The
assumptions used reflect the past experience of management and future
expectations.
In the current climate in which we navigate well-publicised macro challenges,
relevant judgements and assumptions must be made. The Group continues to
operate in a complex trading environment with pressure from inflation, supply
chain disruptions, labour availability impacted by the pandemic, political,
economic and legislative changes and economic factors linked to the ongoing
conflict in Ukraine. The conflict between Russia and Ukraine continues to
develop and is likely to have a broad impact on the global economy.
Forecasts have been built on a bottom-up basis and stress tested to prepare an
approved budget used as a basis for considering testing for impairment. Risks
and opportunities have been considered and, plausible downside scenarios have
been assessed.
The forecasts have taken in consideration the following key factors:
1. Ongoing challenging macro environment.
2. Latest market forecast and market research data has been considered
when making commercial judgements.
3. Detailed SWOT analysis of all businesses with a strategic plan to
respond to challenges.
4. Plans to combat inflationary pressures particularly labour costs in
the UK and Europe.
5. Detailed plans supporting strategic initiatives and strategy into
action with continued focus in the Operating Brilliance Programme, Process
Blueprint, value engineering, asset management and care.
6. Organisational design and engagement activity to provide bakery
teams to support our strategy.
The forecasts covering a three-year period are based on the detailed financial
forecasts challenged and approved by management for the next three years. The
cash flows beyond this forecast are extrapolated to perpetuity using a 1.63%
(2021: 1.5%) growth rate for all of the cash generating units. Changes in
revenue and direct costs in the detailed three-year plan are based on past
experience and expectations of future changes in the market to the extent that
can be anticipated.
The strategic forecast process commenced in November 2021 to review consumer
and competitor insight to prepare the foundations for the financial forecasts.
The revenue growth rate in the strategic forecast combines volume, mix and
price of products. An inflation factor has been applied to costs of sales,
variable costs and indirect costs and takes into consideration the general
rate of inflation, movements in commodities, improvement in efficiencies from
capital investment and operations and purchasing initiatives. External market
data and trends are considered when predicting growth rates. Compound annual
growth rates for revenues for the three-year forecast period averages at 7.4%
reflecting the recovery from the lower-base year impacted by the pandemic,
inflationary pressures impacting consumer demand, a challenging environment
with staff shortages and supply chain disruption. The forecast periods include
the annualisation of commercial negotiations, benefits of our ongoing
Operating Brilliance Programme and organic growth.
A post-tax discount rate of 7.9% (2021: 8.2%) has been used in these
calculations. The discount rate uses weighted average cost of capital which
reflects the returns on government bonds and an equity risk premium adjusted
specifically for Finsbury, plus further risk premiums that consider cash
generating unit risk. The Group has considered the economic environment and
higher level of return expected by equity holders due to the perceived risk in
equity markets when selecting the discount rate. The discount rate has
decreased over the prior year rate as a result of a higher debt to equity
ratio position and a decrease in the risk-free 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. When considering the Ultrapharm discount rate a
further 0.5% has been added for the overseas risk element.
8. Intangibles (continued)
The table below shows the carrying values of goodwill allocated to cash
generating units or groups of cash generating units. When calculating the
discount rate that would need to be applied for there to be zero headroom, the
discounted cash flows were compared against the carrying amount of goodwill,
property, plant and equipment and right-of-use assets. The discount rates are
shown in the table below:
Carrying value of goodwill Post-tax discount rate at which headroom is nil Pre-tax discount rate at which headroom is nil
2022 2021 2022 2021 2022 2021
£000 £000 % % % %
Lightbody of Hamilton 45,698 45,698 22.5 17.2 29.9 22.9
Fletchers Bakery 20,118 20,118 16.0 12.9 21.4 17.2
Ultrapharm* 4,046 4,046 12.5 9.6 16.7 12.8
Nicholas and Harris 2,980 2,980 37.2 44.3 49.6 59.1
Johnstone's Food Service 372 372 135.1 122.8 180.1 163.7
73,214 73,214
Impairment
The post-tax discount rate at which the headroom is nil for Fletchers Bakery
is 16.0% (2021: 12.9%) an improvement over the previous year. There are key
strategies and plans in place in order to improve the performance of
Fletchers. With our development, technical and process knowledge we can enable
them to become a leading player in the buns and rolls category and our scale,
new product development and continued good relationships with our food service
customers enables us to target growth. Unprecedented inflation and workforce
availability have been key challenges to address, our improved efficiencies,
our focus on realising Fletchers as a centre of excellence for buns and rolls,
our continued success on our Operating Brilliance Program and our focus on our
Strategic Pillar for Growth have enabled us to overcome the challenges.
Development of our own Kara foodservice brand, new product development and
investment in core product areas stands us in good stead to deliver our
financial forecasts. Sensitivities have been carried out to exclude any
growth, which, demonstrates that headroom still exists. It has been concluded
that no impairment was necessary on the carrying value of goodwill relating to
the Fletchers Bakery at 2 July 2022.
The post-tax discount rate at which the headroom is nil for Ultrapharm Limited
is 12.5% (2021: 9.6%). There are key strategies in place in order to improve
the performance of Ultrapharm. There has been successful new product
development during the year, the proven innovation delivery in the current
year provides a solid springboard for growth throughout the strategic periods
as we benefit from the annualisation of those launches. Targeted new product
development and a better understanding of intellectual property will continue
with new products being launched in the year to 1 July 2023. Avian flu and the
Ukraine conflict have had an adverse impact on input prices, however
commercial negotiations, value engineering projects, continued drive in our
Operating Brilliance Programme and cost saving activities have been successful
in minimising the impact of these pressures. For our overseas subsidiary, home
market growth is targeted along with newly formed branded relationships which
will help leverage our available capacity. Sensitivities have been carried
out. It has been concluded that no impairment was necessary on the carrying
value of goodwill relating to Ultrapharm Limited at 2 July 2022.
Sensitivity analyses have been carried out by the Directors on the carrying
value of all remaining goodwill using post-tax discount rates up to 12.5%,
which would not result in an impairment.
Further sensitivity analysis has been carried out using a range of factors
such as growth rate and cost increases, which would not result in an
impairment. These include:
· If future growth rate assumption of 1% was replaced with zero
growth rate; and
· If future growth rate assumption of 1% was replaced with a
decline of 1%.
Whilst the period under review has been set against the backdrop of
exceptional macroeconomic and inflationary headwinds, the Group has been faced
with unprecedented challenges first triggered by the Covid-19 crisis and now
by significant input cost inflation and falling consumer confidence. Despite
this, the overall demand for food and drink has remained resilient. Our retail
business has performed well, we continue to see a bounce back in foodservice,
our overseas division continued to see strong growth and our proven resilience
and performance enables us to remain confident in our strategic plans.
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.
Frequency of Non-current
repayments Year of maturity Facility Drawn Current £000
2022 Statutory Margin £000 £000 £000
Revolving credit 1.95%/SONIA Varies 2027 60,000 27,875 - 27,875
Leases* Various Monthly Various 9,917 1,805 8,112
Unamortised transaction costs (799) (200) (599)
36,993 1,605 35,388
*Leases include all leases recognised as lease liabilities under IFRS 16.
Lease liabilities are shown separately in the table below to show total bank
debt as defined by our banking facility agreement, which only recognises
leases as defined as finance leases under IAS 17 as part of bank debt.
Frequency of Non-current
repayments Year of maturity Facility Drawn Current £000
2022 Margin £000 £000 £000
Revolving credit 1.95%/SONIA Varies 2027 60,000 27,875 - 27,875
Finance lease (under IAS 17) Various Monthly Various 151 76 75
Unamortised transaction costs (799) (200) (599)
Total bank debt 27,227 (124) 27,351
Operating leases (under IAS 17) 2.2% Varies 9,766 1,729 8,037
Total debt 36,993 1,605 35,388
Frequency of Non-current
repayments Year of maturity Facility Drawn Current £000
2021 Statutory Margin £000 £000 £000
Revolving credit 1.50%/LIBOR Varies 2023 55,000 22,431 - 22,431
Leases* Various Monthly Various 10,745 2,039 8,706
Unamortised transaction costs (108) - (108)
33,068 2,039 31,029
*Leases include all leases recognised as lease liabilities under IFRS 16.
Lease liabilities are shown separately in the table below to show total bank
debt as defined by our banking facility agreement, which only recognises
leases as defined as finance leases under IAS 17 as part of bank debt.
Frequency of Non-current
repayments Year of maturity Facility Drawn Current £000
2021 Margin £000 £000 £000
Revolving credit 1.50%/LIBOR Varies 2023 55,000 22,431 - 22,431
Finance lease (under IAS 17) Various Monthly Various 220 128 92
Unamortised transaction costs (108) - (108)
Total bank debt 22,543 128 22,415
Operating leases (under IAS 17) 2.2% Varies 10,525 1,911 8,614
Total debt 33,068 2,039 31,029
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 and interest
cover.
The revolving credit bank facility available for drawdown is £60.0 million
plus a further £60.0 million accordion facility (2021: £55.0 million plus a
further £35.0 million accordion). At the period end date, the facility
utilised was £27.9 million (2021: £22.4 million), giving £32.1 million
(2021: £32.6 million) headroom plus a further £60.0 million (2021: £35.0
million) accordion.
10. Analysis of Net Bank Debt
The table below is presented to demonstrate total debt as defined by our
banking facility agreement. This excludes the lease liabilities created on
transition to IFRS 16 for leases treated as operating leases under IAS 17.
At year ended 27 June 2021 At year ended 2 July 2022
Cash flow
Cash and cash equivalents 9,523 (2,142) 7,381
Debt due after one year (22,431) (5,444) (27,875)
Hire purchase obligations due within one year (128) 52 (76)
Hire purchase obligations due after one year (92) 17 (75)
Total net bank debt (13,128) (7,517) (20,645)
11. Acquisitions
The Company acquired a further 35% of the issued share capital of
Lightbody-Stretz Limited from Phaste S.a.r.l. in February 2022 for a
consideration of £6.1 million, bringing its holding up from 50% to 85%.
Deferred consideration of £1.0 million paid relates to the acquisition of
Ultrapharm Limited (Ultrapharm) for £16.9 million plus up to £3.0 million,
£0.5 million of which is outstanding at 2 July 2022 with the final quarterly
instalment payable in October 2022.
Discounted amounts payable within one year of the Consolidated Statement of
Financial Position date is £496,000 (2021: £976,000) and amounts due beyond
one year is £nil (2021: £466,000). Amounts charged to finance expenses
during the year for the unwinding of the discounting is £54,000 (2021:
£105,000).
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