Preliminary Results

RNS Number : 2250M

Finsbury Food Group PLC

20 September 2021

 

Date:	20 September 2021
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 the retail and foodservice channels, is pleased to announce its preliminary results for the 52 weeks ended 26 June 2021.

Summary

The full year figures represent twelve month trading in the pandemic environment compared to three months in the previous year.  It also embraces six months trading post Brexit. The year on year growth across all metrics reflects how resilient the Group is and how well it can adapt in an environment of uncertainty.
 

· Group revenue up 2.3% to £313.3m.

· Group EBITDA*¹up 2.5% to £26.9m.

· Profit before tax up 493% to £17.0m.

· Adjusted Basic EPS*² (pence per share) 9.1p (2020: 7.9p).

· Strong cash generation driving down net bank debt down from £26.5m to £13.1m (excluding IFRS 16 debt), reducing leverage to 0.5 times annualised EBITDA of the Group (2020: 1.1 times).

· The Group's Operating Brilliance Programme continues to drive improvements in operational variances, with gross margin increasing 1.7% to 32.9%.

Strategic Highlights

· Extremely positive second half performance with second half revenues up 9.1% against the corresponding period in the prior year.

· Progressive improvement year on year with retail up +5.8% and foodservice down 14.9% as it recovers from Covid impact

o  The foodservice business continues to improve with second half revenues up 4.6% against the comparative period in the prior year. 

· Significant growth in overseas division up 13.4% against the prior year.

· Investment in capital projects of £6.2m, including:

o  A new frozen dough ball facility commissioned in Manchester; and

o  Additional 50% capacity in state of the art artisan bread production equipment.

· Further innovation in line with consumer trends with;

o  Award-winning Free From and vegan cakes; and

o  Launch of vegan doughnuts and a range of artisan gluten-free breads.

· Continued double-digit growth in artisan sourdough breads.

· Product excellence illustrated by the winning of several Quality Food and Drink 'Q' Awards.

· Continued investment in development, engagement and health and well-being of employees.

*¹ Profit is before significant non-recurring and other items.

* ² Adjusted EPS has been calculated using earnings excluding the impact of amortisation of intangibles and significant non-recurring and other items as shown on the face of the Statement of Comprehensive Income.

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

"It was incredibly pleasing to deliver such a robust financial performance with year-on-year revenue growth and a total sales figure almost at pre-pandemic levels, despite having to navigate such challenging circumstances over the period. We have continued to introduce new initiatives, in line with our Operating Brilliance Programme, to enable the Group to operate as a single, efficient organisation capable of scale execution.

I would like to thank all our people across the Group for their continued hard work, determination and commitment through what has been a testing time for many of them and their families. Without the determination of our committed workforce, we wouldn't have been able to play a part in keeping food shelves stocked in the territories we serve and the whole team should be extremely proud of their contributions.

Whilst we are likely to face persistent challenges around inflation and skilled labour and driver shortages, our long-term growth ambitions remain unchanged. We are committed to making Finsbury an even more efficient and joined-up business, focused on driving synergies and scale benefits across the Group."

This announcement contains inside information.

For further information:

Finsbury Food Group   John Duffy (Chief Executive) Steve Boyd (Finance Director)	www.finsburyfoods.co.uk	029 20 357 500
Panmure Gordon (UK) Limited Oliver Cardigan (Corporate Finance) Atholl Tweedie Erik Anderson (Corporate Broking)		020 7886 2500
Alma PR   Sam Modlin David Ison Hilary Buchanan Molly Gretton	[e-mail]	020 3405 0205

Notes to Editors:

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

· The Company is one of the largest speciality bakery groups in the UK and, with its overseas division, has sales in the financial year ending 26 June 2021 exceeding £313 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 goods, all of which are available both fresh and frozen dependent on customer channel requirements.

· Gluten free bread, morning goods and cake ranges.

· The Company is one of the largest ambient cake manufacturers in the UK, a market valued at over £978 million (source: IRI 52 w/e 19th June 2021). The retail bread and morning goods market has a value of £5.1 billion (source: Kantar Worldpanel 52 w/e 18th April 2021). The retail Free From cake market is valued at £52.0 million (source: Kantar Worldpanel 52 w/e 16th May 2021). The retail Free From bread and morning goods market is valued at £144.0 million (source: Kantar Worldpanel 52 w/e 18th April 2021).

· 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 comprise of the Company's 50% owned company, Lightbody Stretz Ltd, which supplies and distributes the Group's UK-manufactured products, primarily to Europe, and the Company's manufacturing facilities in Rybarzowice and Zywiec in Poland.

Adjusted EBITDA and Profit Reconciliation of Statutory to Adjusted

In order to understand the business performance, adjusted measures for the Group are presented which exclude the impact of significant non-recurring items and other items to present adjusted EBITDA, operating profit and profit before tax. In the opinion of the Board the adjusted measures allow shareholders to gain a clearer understanding of the trading performance of the Group. The analysis below shows the movement from adjusted to statutory measures, the figures are for the 52 weeks ended 26 June 2021 and 52 weeks ended 27 June 2020:

Adjusted EBITDA	2021 £000	2020 £000
Adjusted EBITDA (PY: adjusted EBITDA including IFRS 16 impact)	26,904	26,248
Significant non-recurring items - (see Note 4)	958	(10,331)
Difference between Defined Benefit Pension Scheme charges and cash cost	473	200
Movement in the fair value of foreign exchange contracts	696	(73)
Adjustments, significant non-recurring and other items	2,127	(10,204)
EBITDA	29,031	16,044

Adjusted Operating Profit		2021 £000		2020 £000
Adjusted operating profit (PY: adjusted operating profit including IFRS 16 impact)		16,100		14,939
Significant non-recurring items - (see Note 4)	958			(10,331)
Difference between Defined Benefit Pension Scheme charges and cash cost		473		200
Movement in the fair value of foreign exchange contracts		696		(73)
Adjustments, significant non-recurring and other items		2,127		(10,204)
Operating profit		18,227		4,735
Adjusted Profit before Tax			2021 £000		2020 £000
Adjusted profit before tax (PY: adjusted profit before tax including IFRS 16 impact)			15,126		13,728
Significant non-recurring items - (see Note 4)	958			(10,331)
Difference between Defined Benefit Pension scheme charges and cash cost			249		(56)
Movement in the fair value of foreign exchange contracts			696		(73)
Discounting of deferred consideration			(105)		(14)
Movement in the fair value of interest rate swaps			89		(386)
Adjustments, significant non-recurring and other items			1,887		(10,860)
Profit before tax			17,013		2,868

Adjusted EBITDA, operating profit and profit before tax exclude significant and non-recurring and other items as shown in the tables. The adjusted operating profit has been given as, in the opinion of the Board, this will allow shareholders to gain a clearer understanding of the trading performance of the Group.

 

Group Performance Measures	Statutory Measures
Group Revenue £313.3m up 2.3%	*2
Adjusted EBITDA*1 £26.9m up 2.5%	EBITDA £29.0m
Adjusted Operating Profit*1 £16.1m up 7.8%	Operating Profit £18.2m
Adjusted Profit*1 before Tax £15.1m up 10.2%	Profit before Tax £17.0m
Adjusted Basic EPS 9.1p up 15.2%	Basic EPS 9.8p
Capital Investment £6.2m up 31.6%	*2
Net Debt (excl leases) £13.1m down 50.4%	Net Debt (incl leases) £25.4m

*¹The 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.

*²Measures that do not vary are shown in the first column only.

 

Chairman's Statement

The robust performance delivered by the Group for the full year ended 26 June 2021 is testament to the resilience of our business, the strength of the management team, the efforts of the whole Finsbury team and our well-defined strategy.

The whole of this financial year has been affected by the external management of the pandemic. This has created challenges both within our business and our end markets. Our ongoing priority over the period has been to ensure the safety of our employees whilst maintaining excellent continuity of supply to our customers and consumers. Without the hard work and dedication of our teams, in incredibly challenging circumstances, we would not have been able to deliver the performance we have achieved. 

Pleasingly, the Group has been able to adapt, develop and strengthen over the course of the year, resulting in year-on-year revenue growth and a total sales figure almost at pre-pandemic levels.

Our focus on strategic execution has not wavered and we have continued to make progress against our objectives to ensure that our businesses operate as one cohesive unit with a greater uniformity of processes and procedures and better communication.

A Resilient Performance

The resilience and determination of the business has ensured we have delivered a very encouraging performance, despite the continued impact of the pandemic. The full year figures reflect a period completely impacted by Covid-19 and compares with a prior year period which included a six-month period of strong growth, which pre-dated the onset of the pandemic.

Group revenue was £313.3 million (2020: £306.3 million), adjusted EBITDA increased by 2.5% to £26.9 million (2020: £26.2 million), adjusted profit before tax increased by 10.2% to £15.1 million (2020: £13.7 million) and the Group delivered EPS of 9.8p. There have been good improvements in cost and cash performance with a significant strengthening of the Group's net bank debt position by year end to £13.1 million, a decrease of 50.4%.

Retail sales have performed well and grown year on year which largely compensated for the shortfall in foodservice sales which represented 20.0% of the Group's total revenue, pre-Covid. Although foodservice was slower to recover than originally anticipated as a result of the timing of restrictions, the majority of the shortfall was recovered in the course of year. This resulted in revenue growing versus last year but still slightly below pre-Covid turnover.

The overall business performance has been enhanced by the Group's successful Operating Brilliance Programme (see below) which continued despite Covid restrictions and has delivered improved line efficiencies and lower waste throughout the Group's bakeries.

Dividend

Given the uncertainty at the outset of the pandemic the Board took the decision to withdraw the interim dividend and also decided not to propose a final dividend in the context of the continued uncertainty surrounding the pandemic and Brexit. The Board is recommending a full year dividend of 2.4 pence per share for the financial year ending 26 June 2021.

Continued Focus on Strategic Execution

Over the past few years Finsbury has been focused on driving operational excellence and achieving 'Baking Brilliance', guided by our Operating Principles. The Finsbury Operating Principles are a set of practical commitments and  guidelines for how we run our business. They bring our strategy to life in our day-to-day work.

Indeed, our Process Blueprint is now fully integrated in all aspects of the business and we are seeing excellent results throughout, improving our efficiency and effectiveness and importantly also our sustainability.

We have also throughout the year continued to strengthen and develop our Group IT systems in areas such as supply chain optimisation, product lifecycle management and sales operations and planning.

As a Board, we remain committed to reviewing and evolving the areas of strategic focus to ensure that the Group is always looking to improve and is well positioned to capitalise on the opportunities that present themselves. The process we adopt has developed well over the years, involving more key personnel and has delivered this year the most rigorous and complete outcome, by far.

Our People

It has been an extraordinary year for the people of Finsbury with daily challenges for everyone, both professionally and personally. The strength of our people and culture has continued to shine through and I am proud to be part of such a hardworking and resolute group.

Due to the nature of our business, the majority of our workers are unable to work from home and so have had to balance their roles within our Group with their roles at home. I would like to thank them for the individual sacrifices that they have made and the dedication that they have shown. 

I would also like to take this opportunity to say a huge thank you to our executive team, customers, partners, suppliers and shareholders for their continued enthusiasm and dedication and also to the Board for their support and counsel. I look forward to achieving further success together in the future.

A Responsible Business

Acting as a responsible business is at the core of the Group's strategy. Finsbury aims to always operate in an ethical and sustainable way and to help our people play a positive role in the communities where we operate.

We are committed to ensuring our people enjoy a safe working environment and we invest in their development. We all take personal pride in the business's success and remain strong advocates of the business and products.

Being a responsible business also means optimising our use of resources, so we do all we can to reduce waste in our bakeries and throughout our supply chain, minimising our impact on the environment.

Outlook

Whilst we navigate through the consequences of the pandemic's impact on the economy, such as inflation and skilled labour and driver shortages, we remain confident about the Group's continued growth prospects. We have demonstrated the strength of our team and our ability to adapt and evolve in response to changing circumstances. As a result, we are emerging from the shadow of the pandemic a stronger and more united business, focused on our goal of becoming the leading speciality bakery group.

Peter Baker    Non-Executive Chairman

17 September 2021
 

Chief Executive's Report

The period under review has been incredibly challenging with market conditions and channel dynamics being entirely shaped by the ongoing Covid-19 pandemic. The overall demand for food and drink (both in home and out of home) has fluctuated significantly shaped by national, regional and local lockdowns and restrictions. However, it is testament to the hard work and commitment of our teams that we have been able to successfully manage and adapt the business, resulting in year-on-year revenue growth and a total sales figure almost at pre-pandemic levels.

Robust Performance Despite a Difficult Trading Environment 

The Group delivered a strong second half performance, with H2 revenues up 9.1% against the corresponding period in the prior year despite further Covid unlocking delays. This strong performance has resulted in revenues for the year increasing 2.3% to £313.3 million (2020: £306.3 million), which is almost at pre-pandemic levels (2019: £315.3 million).

Revenue in the Group's core division, UK bakery, increased 0.8% for the full year, driven by a strong second half with H2 revenues up 6.8% versus the prior year. The recovery of the Group's foodservice business has continued, although slower than expected due to ongoing Covid restrictions.

Overseas revenues for the full year were up 13.4% against the prior year. This was driven by an extremely positive performance in the second half versus the corresponding period in the prior year, which was negatively impacted by earlier implementations of Covid lockdowns across Europe.

The Group's Operating Brilliance Programme continued to drive improvements in cost and cash performance with a significant strengthening of the Group's net bank debt position by year end to £13.1 million, a reduction of £8.4 million from 26 December 2020.

Developing an Offering for the Times

As we reflect on lockdown sales patterns and study demand profiles as restrictions have eased, the data shows the pandemic has mainly accelerated existing consumer trends rather than triggered new ones. Pre-pandemic, online grocery shopping, for example, had been growing in prevalence for some time, but no one could have anticipated the widespread, almost overnight adoption by large swathes of the country in response to stay at home guidance. While the nation is returning to bricks and mortar stores, online has undoubtedly taken a sizeable share of the market that is unlikely to revert in the near future. In response to this, we have been working with key retail partners to share our cake and celebration cake strategy initiatives in order to ensure we are aligned with their post pandemic online strategies.

Similarly, while demand across categories has ebbed and flowed with restrictions in the period, momentum behind the consumer trends we have seen develop in recent years - vegan, artisan and wellness, for example - has continued to build, and we continue to work with our partners and customers to create new and innovative products in response to them.

In vegan, we now have several touchpoints in both cake and bread, including a range of cakes and a brioche bun developed in collaboration with plant-based food specialist brand BOSH! In artisan, we continued to cement our position as a leader in the segment, investing in state-of-the-art bread production equipment and upping capacity by 50%.

We have also made investments to extend our Free From capability within cake, especially the sharing cake market, and speciality bread ranges with plans to grow further in Free From.

Wellness remains a major trend and we continue to take steps to reduce salt and sugar to ensure all our products can be enjoyed as part of a balanced diet. More than 98% of our products meet the salt content targets of the FSA, and we continue to make good progress against Public Health England's sugar reduction ambitions with content down 12.4% on the previous year versus an 8.2% reduction this time last year.

From a brand portfolio perspective, we continued to go from strength to strength. In the period we were able to deepen our relationships with existing partners such as Mars and Diageo, while adding new ones such as TGI Fridays. The extension of our branded portfolio further in to sharing cake has supported the implementation of a robust strategy which is delivering significant category share growth with key customer partners.

As part of our response to Covid, as well as mitigating the various risks, we continue to explore ways to address some of the emerging opportunities presented by the changing consumer landscape such as more at home lunchtime eating occasions. This will see the Group gradually step-up investment in specific areas of capacity and product capability in the new financial year.

In Pursuit of Operational Excellence

In 2019 we rolled out six Group Operating Principles, a set of practical building blocks that establish best practice and how we want to consistently run our businesses. They are:

· Operating Excellence - we continually invest in our bakeries to improve our efficiency and customer satisfaction.

· Sustainable Approach - we optimise our use of resources and focus on reducing waste throughout our supply chain and in our bakeries.

· Quality and Innovations - our innovative, high-quality bakery products reflect changing customer needs and anticipate key market trends.

· Cost Effectiveness - we maintain strict cost controls without compromising quality, streamlining our processes from sourcing to delivery.

· Growth With Our Partners - through long-term relationships with our customers and suppliers, and an understanding of their needs, we can all enjoy profitable growth.

· People Who Care - we invest in our people, who take personal pride in their contribution to our success, and are strong advocates of our business and products.

We are now at a more mature stage in the delivery of our Operating Brilliance Programme and continue to accelerate the development of initiatives to enable Finsbury to operate as a single, efficient Group capable of scale execution, despite the impacts of Covid. Combined, these initiatives are designed to benefit the Group over the long term but we are already seeing tangible benefits in areas such as factory efficiency and waste reduction, which is having a positive impact on our gross margin.

Building on the infrastructure investment made previously, we have continued to strengthen our Group IT systems in areas such as supply chain optimisation, product lifecycle management and sales and operations planning. We are also on the verge of completing the implementation phase of a new Group-wide computerised maintenance management system, which will ensure that the equipment and processes in all bakeries consistently operate to an industry-recognised high standard.

Linked to this is our Process Blueprint project, designed to establish, embed and optimise knowledge of all our processes while encouraging collaboration and exchange of ideas. This is now fully integrated and we are seeing excellent results from both a quality and sustainability perspective.

While the Operating Brilliance Programme pre-dates the pandemic, there is no doubt our experience of managing and adapting to the challenges of the past 18 months has had a significant, positive impact on our efforts to find better ways of working.

One example of this is the programme we have launched with a third-party consultancy to maximise the efficiency of our workforce and give our people the tools and training they need to realise their potential. The vast majority of this has been carried out remotely at a faster pace than we had originally anticipated and is an approach we will continue to take as conditions normalise.

While we are pleased with the operational headway made in the year against a challenging backdrop, there are several key workstreams underway to identify and address additional areas for improvement. With each period, Finsbury is becoming an ever-more optimised organisation, and I look forward to reporting on further progress on this front.

Bringing Our People Closer and Helping Them Succeed

I would like to take this opportunity to personally thank our people across the Group for their continued hard work, determination and commitment through what has been a challenging time for many of them and their families. It is thanks to them we have been able to play a part in keeping food shelves stocked in the territories we serve and they should all be extremely proud of their contributions.

Bringing our teams and people closer together has been a major focus in recent periods and the past year has seen this process accelerate considerably, thanks in large part to the sudden and comprehensive shift to digital. One example of this is the Group-wide health and safety exercise we have been conducting with an external adviser. The exercise was centred around a series of online focus groups, and subsequently we received responses to a request for feedback from over two and a half thousand colleagues, or more than 75% of the workforce. It is difficult to imagine this level of engagement being possible - particularly not at this speed and scale - without the convenience of the whole exercise taking place remotely. In addition, further roll out of Facebook Workplace, an online communication tool, to connect every member of staff that works for the Group meant that as a management team we were able to update on the process in real time via written and video messages. Workplace has been an invaluable tool throughout the pandemic, not just from a communication perspective but in connecting colleagues and giving people a sense of shared purpose and collaboration.

As we execute against our strategy and the business grows and evolves, so should the roles and responsibilities of the Group Executive Committee. To this end, we have grown the senior team in the period, promoting from within where possible. Our leadership development programmes have been strengthened, our graduate recruitment programme continues to be successful, and our apprenticeship programme, which is key to building a pipeline of engineers, is growing in popularity. We have an abundance of talent in the Group and are committed to continuing to develop colleagues and giving those who excel the opportunity to move up through the organisation.

From a wellness perspective, we launched our Health and Wellbeing Strategy in the period, comprising three pillars: mental, physical and financial health. Run by a combination of internal champions and external partners, the programme offers a broad range of support both to colleagues and their families. This is supplemented by various Group-wide campaigns designed to encourage our team members to stay active and healthy which have proven very popular.

A Growing Focus on Sustainability

Finsbury has always prided itself on being a responsible business that acts with integrity and care. Sustainability is in our DNA, with metrics and goals embedded within all our business strategies. Despite the operational challenges in the period related to the pandemic, we continued to make great strides in the period in becoming more energy efficient and reducing waste.

This time last year, we reported on how we were intending to roll out asset energy monitoring across the Group following a successful localised trial. I'm pleased to report this is now complete, and plans are afoot to extend it to water use. We also updated on our Group-wide transition to LED lighting. This has risen from 60% to 70% coverage in the period, and is expected to reach 100% by the end of the current financial year. We also relocated our foodservice frozen storage operations to a new, more energy-efficient facility in the period, achieving an estimated 65% reduction in carbon emissions.

We continue to reduce plastic use and are making good progress towards making all plastics 100% recyclable. Currently, 90% is readily recyclable. At the same time, we remain a certified zero landfill business. Over 80% of all our waste is recycled and we have engaged several third parties to help us improve our output further. I am also pleased to report that from May 2021, all of our electricity is supplied from renewable sources.

We take a Group-wide approach based on our position as a major and responsible employer in the food industry, and supplement it with local initiatives chosen by our employees. In both ways, we ensure we can have a positive impact on the communities where we operate, which has always been an important part of how we do business. At Group level, we support two charities, Grocery Aid and FareShare, both of which are closely aligned to our industry. A high proportion of our workforce live close to our bakeries, putting them at the heart of our local communities. We therefore ask each of our sites to choose a local charity partner for each year, to help improve the lives and welfare of the communities we work and live in.

 

Outlook

The environment in which we operate continues to face headwinds in relation to raw material prices, inflation, and skilled labour and driver shortages. Nevertheless, over the last 18 months the Group has shown its resilience and its ability to adapt, develop and strengthen no matter the circumstances.

Looking ahead, as we move into the new financial year, we will maintain our focus on delivering organic growth, capitalising on the momentum behind the consumer trends we have seen develop in recent years such as vegan, artisan and wellness. We continue to explore ways to address some of the emerging opportunities presented by the changing consumer landscape such as more at home lunchtime eating occasions. This will see the Group focus its investment programme in specific areas of capacity and product capability, as well as further productivity enhancing automation, in the new financial year.

John Duffy

Chief Executive Officer

17 September 2021
 

Financial Review

Group revenue for the 52-week period to 26 June 2021 is £313.3 million, 2.3% higher than last year. The growth in revenue is the result of a strong second half performance which saw Group revenues grow 9.1%. The recovery of foodservice is driving the second half year uplift although retail revenues remain positive. Sales from our overseas division increased by 13.4% year-on-year driven by a strong cake performance in the big French retailers. Group adjusted operating profit at £16.1 million is up 7.8% on last year. Despite the pandemic the Group has grown both revenue and operating profit. Adjusted operating profit margins are 5.1% (2020: 4.9%), a consequence of the success of our Operating Brilliance Programme.

Other Significant and Non-Recurring Items

Significant non-recurring income of £1.0 million relates to the release of provisions for onerous leases and factory closure costs of £1.4 million less litigation and legal costs of (£0.4 million). Both items have been excluded from operating profit in the table below to better reflect the ongoing trading position.
 

Dividend

Given the uncertainty at the outset of the pandemic, the Board took the decision to withdraw the interim dividend and also decided not to propose a final dividend in the context of the continued uncertainty surrounding the pandemic and Brexit. The Board is recommending a full year dividend of 2.4 pence per share for the financial year ending 26 June 2021.  

The tables below show what the Directors consider to be the trading performance of the Group. The adjusted measures eliminate the impact of significant and non-recurring items and other accounting items, that are not deemed to reflect the continuing performance of the Group.

52 week period ended 26 June 2021

	Operating performance	Significant non-recurring items Note 4	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
	£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

 

52 week period ended 27 June 2020

	Operating performance	Significant non-recurring- impairment Note Note 4	Significant non-recurring other items Note 4	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
	£000	£000	£000	£000	£000	£000	£000
Revenue	306,348	-	-	-	-	-	306,348
Cost of sales	(210,881)	-	-	-	-	-	(210,881)
Gross profit	95,467	-	-	-	-	-	95,467
Other costs excluding depreciation and amortisation	(69,219)	(8,737)	(1,594)	200	(73)	-	(79,423)
EBITDA	26,248	(8,737)	(1,594)	200	(73)	-	16,044
Depreciation and amortisation	(11,309)	-	-	-	-	-	(11,309)
Operating profit	14,939	(8,737)	(1,594)	200	(73)	-	4,735
Finance income	61	-	-	-	-	-	61
Finance costs	(1,272)	-	-	(256)	(386)	(14)	(1,928)
Profit before tax	13,728	(8,737)	(1,594)	(56)	(459)	(14)	2,868
Taxation	(3,398)	235	303	11	87	1	(2,761)
Profit for the year	10,330	(8,502)	(1,291)	(45)	(372)	(13)	107

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 8.6p (2020: 7.7p). 

	2021	2020
Basic EPS	9.8p	(0.6)p
Adjusted basic EPS	9.1p	7.9p
Diluted** basic EPS	9.3p	(0.6)p
Adjusted* diluted** EPS	8.6p	7.7p

*Further details on adjustments can be found in Note 7.

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

Cash Flow

There was a net cash inflow before financing activities of £15.3 million compared to £13.4 million in 2020 which includes, lower working capital resulting in an inflow of £2.9 million (2020: £1.0 million decrease) driven by higher levels of trading accruals and lower stock levels as restrictions were eased and activity increased. Corporation Tax payments made in the financial year totalled £3.9 million (2020: £1.8 million) representing a more normal level. Capital expenditure in the year amounted to £6.2 million (2020: £4.7 million).

Debt and Bank Facilities

The Group's total net debt is £13.1 million (2020: £26.5 million), down £13.4 million from the prior year.Higher levels of EBITDA and the temporary halt on dividend payments as cash was preserved during the recovery period drove the reduction in net debt.

The Group recognises the inherent risk from interest rate rises, and uses interest rate swaps to mitigate these risks. The Group has two swaps; one for £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 total balance of swaps at 26 June 2021 is £25.0 million (2020: £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 base rate at 0.10% and LIBOR at 0.052%, was 2.0% (2020: base rate 0.10% and LIBOR at 0.691%, was 2.2%).

Financial Covenants

The Board reviews the Group's cash flow forecasts and key covenants regularly, to ensure it has adequate facilities to cover its trading and banking requirements with an appropriate level of headroom. The forecasts are based on management's best estimates of future trading. As noted earlier, there has been no breach of covenants during the year and the Board do not expect any in the forecast periods.

Interest cover (based on adjusted earnings before interest, tax, depreciation and amortisation - EBITDA) for the 52 weeks to 26 June 2021 was 27.2 (2020: 25.3). Net bank debt to EBITDA (based on adjusted EBITDA) for the 52 weeks to 26 June 2021 was 0.5 (2020: 1.1).

Taxation

The Group taxation charge for the year was £3.4 million (2020: £2.8 million). The effective rate of tax on profits before significant and non-recurring and other items is 19.8% (2020: 24.8%). You can find further details on the tax charge in Note 6 to the Group's Financial Statements.

Financial and Non-Financial Key Performance Indicators

We monitor a range of financial and non-financial KPIs at site level covering, amongst others, productivity, quality and health and safety.

The Group Board receives a regular overview of all KPIs.

The Strategic Report was approved by the Board of Directors on 17 September 2021 and was signed on its behalf by:

Stephen Boyd

Director

 

Financial Statements

Consolidated Statement of Comprehensive Income

for the 52 weeks ended 26 June 2021 and 52 weeks ended 27 June 2020

			2021		2020
		Note	£000		£000
Revenue		2	313,258		306,348
Cost of sales			(210,273)		(210,881)
Gross profit			102,985		95,467
Administrative expenses		3	(85,716)		(80,401)
Administrative items - significant and non-recurring		4	958		(10,331)
Operating profit			18,227		4,735
Finance income		5	89		61
Finance cost		5	(1,303)		(1,928)
Net finance cost			(1,214)		(1,867)
Profit before tax			17,013		2,868
Taxation		6	(3,368)		(2,761)
Profit for the financial year			13,645		107
Other comprehensive income/(expense)
Items that will not be reclassified to profit and loss
Remeasurement on Defined Benefit Pension Scheme			396		(3,806)
Movement in deferred taxation on Pension Scheme liability			811		723
Other comprehensive income/(expense) for the financial year, net of tax			1,207		(3,083)
Total comprehensive income/(expense) for the financial year			14,852		(2,976)
Profit/(loss) attributable to:
Equity holders of the Parent			12,347		(759)
Non-controlling interest			1,298		866
Profit for the financial year			13,645		107
Total comprehensive income/(expense) attributable to:
Equity holders of the Parent			13,554		(3,842)
Non-controlling interest			1,298		866
Total comprehensive income/(expense) for the financial year			14,852		(2,976)
Earnings/(loss) per ordinary share
Basic		7	9.8		(0.6)
Diluted		7	9.3		(0.6)
The Notes on pages 18 to 28 form an integral part of these Financial Statements.

 

 

Financial Statements

Consolidated Statement of Financial Position

 at 26 June 2021 and 27 June 2020 

	Note		2021	2020
			£000	£000
Non-current assets
Intangibles	8		88,019	88,626
Property, plant and equipment			59,015	61,736
Deferred tax assets			5,961	4,623
			152,995	154,985
Current assets
Inventories			15,027	14,618
Trade and other receivables			50,986	40,003
Cash and cash equivalents			9,523	10,173
Other financial assets - fair value of derivatives			405	-
			75,941	64,794
Total assets			228,936	219,779
Current liabilities
Other interest-bearing loans and borrowings	9		(2,039)	(3,191)
Trade and other payables			(62,490)	(48,861)
Provisions			(222)	(471)
Other financial liabilities - fair value of derivatives			(121)	(501)
Deferred consideration			(976)	(481)
Current tax liabilities			(689)	(1,375)
			(66,537)	(54,880)
Non-current liabilities
Other interest-bearing loans and borrowings	9		(31,029)	(45,113)
Provisions			(160)	(550)
Deferred consideration			(466)	(1,357)
Deferred tax liabilities			(2,944)	(2,117)
Pension fund liability			(14,529)	(15,174)
			(49,128)	(64,311)
Total liabilities			(115,665)	(119,191)
Net assets			113,271	100,588
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			(5,374)	(3,378)
Retained earnings			49,021	34,918
			110,485	98,378
Non-controllinginterest			2,786	2,210
Total equity			113,271	100,588

The Financial Statements on pages 14 to 17 were approved by the Board of Directors on 17 September 2021 and were signed on its behalf by:

Stephen Boyd (Director)

Registered Number 00204368

The Notes on pages 18 to 28 form an integral part of these Financial Statements.

Financial Statements

Consolidated Statement of Changes in Equity

for the 52 weeks ended 26 June 2021

				Share capital		Share premium		Capital redemption reserve		Employee share reserve		Retained earnings		Non-controlling interest		Total equity
				£000		£000		£000		£000		£000		£000		£000
Balance at 30 June 2019				1,304		64,956		578		(3,616)		44,207		2,188		109,617
Profit for the financial year				-		-		-		-		(759)		866		107
Other comprehensive:
Remeasurement on Defined Benefit Pension				-		-		-		-		(3,806)		-		(3,806)
Deferred tax movement on pension Scheme remeasurement				-		-		-		-		723		-		723
Total other comprehensive expense				-		-		-		-		(3,083)		-		(3,083)
Total comprehensive (expense)/income for the period				-		-		-		-		(3,842)		866		(2,976)
Transactions with owners, recorded directly in equity:
Shares issued from EBT				-		-		-		1,207		(1,207)		-		-
Shares acquired during the year				-		-		-		(969)		-		-		(969)
Impact of share-based payments				-		-		-		-		(1,066)		-		(1,066)
Deferred tax on share options				-		-		-		-		(182)		-		(182)
Foreign exchange translation differences				-		-		-		-		(17)		-		(17)
Dividend paid				-		-		-		-		(2,975)		(844)		(3,819)
Balance at 27 June 2020				1,304		64,956		578		(3,378)		34,918		2,210		100,588
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 (expense)/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
The Notes on pages 18 to 28 form an integral part of these Financial Statements.

Financial Statements

Consolidated Cash Flow Statement

for the 52 weeks ended 26 June 2021

	Note	2021	2020
		£000	£000
Cash flows from operating activities
Profit for the financial year		13,645	107
Adjustments for:
Depreciation	3	7,235	7,656
Depreciation right-of-use assets	3	1,752	1,919
Significant non-recurring items	4	(1,125)	1,594
Impairment of fixed assets	4	167	1,237
Impairment of goodwill	4,8	-	7,500
Net finance costs	5	1,214	1,867
Taxation	6	3,368	2,761
Amortisation of intangibles	8	1,817	1,734
Change in fair value of foreign exchange contracts		(696)	73
Contributions by employer to pension scheme		(473)	(200)
Operating profit before changes in working capital		26,904	26,248
Changes in working capital:
(Increase)/decrease in inventories		(568)	210
(Increase)/decrease in trade and other receivables		(11,274)	9,949
Increase/(decrease) in trade and other payables		14,749	(9,192)
Cash generated from operations before costs of disposals and acquisitions		29,811	27,215
Costs relating to closure of bakeries and commissioning		(364)	(1,887)
Lease payments		(2,789)	(3,362)
Interest paid		(715)	(1,088)
Tax paid		(3,926)	(1,822)
Net cash generated from operating activities		22,017	19,056
Cash flows from investing activities
Purchase of property, plant and equipment and intangibles		(6,190)	(4,703)
Purchase of companies		(500)	(1,000)
Net cash used in investing activities		(6,690)	(5,703)
Cash flows from financing activities
Repayment of revolving credit		(13,753)	(10,960)
Purchase of shares by Employee Benefit Trust		(1,996)	(969)
Dividend paid to non-controlling interest		(722)	(844)
Dividend paid to shareholders		-	(2,975)
Net cash generated used in financing activities		(16,471)	(15,748)
Net decrease in cash and cash equivalents		(1,144)	(2,395)
Opening cash and cash equivalents		10,173	12,358
Effect of exchange rate fluctuations on cash held		494	210
Cash and cash equivalents at end of period		9,523	10,173
The Notes on pages 18 to 28 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 14 to 17 is extracted from the Group's consolidated financial statements for the 52 week period ended 26 June 2021, which were approved by the Board of Directors on 17 September 2021.

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 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 52 week period ended 26 June 2021. 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 20 November 2021 at the Company's Annual General Meeting.

Basis of Accounting

The Group's consolidated Financial Statements for the year ended 26 June 2021 have been prepared and approved by the Directors in accordance with 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 2021 Annual Report.

Going Concern and Impact of Covid-19

In the current climate where there is uncertainty around the impact of Covid-19, relevant judgements and assumptions have to be made. This will include the impact of Covid-19 on the economic recovery. The extent and duration of social distancing measures will impact demand and the workforce. The grocery sector has been heavily impacted by the pandemic as consumers respond to the ever-evolving situation particularly with the new variants of the virus and the speed of the vaccination roll-out programme. The health and safety of our employees is a top priority and UK Government guidelines are being adhered to with regards to social distancing and working remotely.

The Group has demonstrated a robust performance driven by a resilient supply chain and production network in order to navigate through the challenging trading environment. As a manufacturer of a wide range of baked goods, the Covid-19 impact has varied considerably between businesses. The hospitality sector outdoors and take home grocery sales remain strong, driven by measures of lockdown easing and continued drinking and eating at home with consumer behaviour adjusting to the unwinding of lockdown measures. Demand recovery is anticipated across businesses at different rates with category demand evolving. We should expect different paces of correction for different markets, dictated by factors such as weather, holidays and working patterns. When considering going concern judgement has to be made as to the extent of disruption, the ongoing challenges and the speed of recovery. Forecasts have been built on a bottom up basis and stress tested to prepare an approved budget used as a basis for reviewing going concern. Having reviewed the Group's short and medium-term plans and available financial facilities, the Board has reasonable expectations that the Group has adequate resources to continue in operational existence for the next 12 months and the foreseeable future.

The Group meets its funding requirements through internal cash generation and bank credit facilities, which are committed until February 2023. Committed banking facilities are £55.0 million with a further accordion available of £35.0 million, net bank debt at the year end was £13.1 million. The Group's forecasts and projections, taking account of reasonably 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.

The performance of the Group has been robust and resilient with strong trading driven by improving volume performance and the benefits of the Group's Operating Brilliance Programme. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Board continues to adopt the going concern basis in preparing the Financial Statements for both the Group and the Parent Company. The Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of derivative financial instruments and pension Scheme assets.

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 26 June 2021.

· Amendment to IFRS 16 "Leases" - Covid-19 related rent concessions (effective 1 June 2020);

· Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform - Phase 2 (effective on or after 1 January 2021 with early application permitted);

· Amendments to IFRS 17 and IFRS 4 "insurance contracts", deferral of IFRS 9, as amended June 2020 (effective on or after 1 January 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 IFRS 3 - Business Combinations (effective 1 January 2022);

· Amendments to IAS 16 - Property, Plant and Equipment (effective 1 January 2022);

· Amendments to IAS 37 - Provisions, Contingent Liabilities and Contingent Assets (effective 1 January 2022);

· Amendments to IAS 1, Practice statement 2 and IAS 8 - Accounting policies, Changes in Accounting Estimates and Errors (effective 1 January 2022);

· Annual improvements to IFRS standards 2018-2020 - IFRS 1, IFRS 9, IAS 41 (effective 1 January 2022);

· 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 Annual Report and Accounts.

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
52 weeks to 26 June 2021 and 52 weeks to 27 June 2020.	2021 £000	2020 £000	2021 £000	2020 £000	2021 £000		2020 £000
Total	273,633	271,414	39,625	34,934	313,258		306,348

Reportable Segments	52 weeks to 26 June 2021 £000 Total	52 weeks to 27 June 2020 £000 Total
Revenue UK bakery	273,633	271,414
Revenue overseas	39,625	34,934
Total revenue	313,258	306,348
Adjusted operating profit UK bakery	13,609	13,162
Adjusted operating profit overseas	2,491	1,777
Total adjusted operating profit	16,100	14,939
Significant non-recurring impairment	-	(8,737)
Significant non-recurring other	958	(1,594)
Defined Benefit Pension Scheme	473	200
Fair value foreign exchange contracts	696	(73)
Operating profit	18,227	4,735
Finance income	89	61
Finance expense	(1,303)	(1,928)
Net finance cost	(1,214)	(1,867)
Profit before taxation	17,013	2,868
Taxation	(3,368)	(2,761)
Profit for the financial year	13,645	107

The Group has three customers (2020: three) which individually account for 10 per cent or more of the Group's total revenue. These customers individually account for 23%, 12% and 10%. In the prior year these same three customers accounted for 21%, 12% and 10% of the revenue in the 52 weeks to 27 June 2020. In addition to the Europe sales disclosed in Reportable Segments, the Group also made sales to European markets through UK-based organisations.

 

3.  Administrative Expenses and Auditors' Remuneration

Included in profit are the following:

	2021	2020
	£000	£000
Amortisation of intangibles	1,817	1,734
Depreciation of owned tangible assets	7,235	7,656
Depreciation on right-of-use assets	1,752	1,919
Impairment of fixed assets	167	1,237
Impairment of goodwill	-	7,500
Loss on foreign exchange	235	213
Variable lease payments	203	193
Expenses relating to short-term and low-value leases	51	164
Movement on fair value of foreign exchange contracts	(696)	73
Research and development	2,124	2,244
Share option charges	1,001	145

Auditors' remuneration:

	2021	2020
	£000	£000
Audit of these Financial Statements	50	50
Audit of the Financial Statements of subsidiaries of the Company	133	118
Other services	41	20
Other services relate to assistance with non-UK VAT registrations.

4.  Significant Non-Recurring Items

The Group presents certain items as significant and non-recurring. These 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 11 of the Financial Review section are the following costs:

	2021	2020
	£000	£000
Release of onerous lease and closure costs provision	1,340	-
Litigation and legal costs	(388)	-
Commissioning costs	-	(257)
Impairment of goodwill (refer to Note 8)	-	(7,500)
Impairment of fixed assets	(167)	(1,237)
Other reorganisation people costs	173	(1,337)
	958	(10,331)

The release of provisions includes £0.8 million of lease costs avoided due to successful re-letting of closed sites plus £0.4 million of related closure costs and £0.2 million of unused reorganisation provisions. Legal costs have been accrued in relation to a dispute and costs of £0.2 million relating to fixed assets are the final impairment at Cardiff.

In the prior year we had the impairment of unused assets in Cardiff and an impairment of goodwill on the Ultrapharm acquisition based on trading at the time, as well as re-organisation costs relating to changes made in response to the pandemic.

 

5.  Finance Income and Cost

Recognised in the Consolidated Statement of Comprehensive Income

	2021	2020
	£000	£000
Finance income
Interest on interest rate swap agreements	-	44
Change in fair value of interest rate swaps	89	-
Bank interest receivable	-	17
Total finance income	89	61
Finance cost
Interest on net pension position	(224)	(256)
Interest on interest rate swap agreements	(119)	(386)
Bank interest payable	(545)	(999)
Unwinding of discount on deferred consideration	(105)	(14)
Interest on deferred consideration	(36)	-
Lease liabilities	(274)	(273)
Total finance cost	(1,303)	(1,928)

6.  Taxation

Recognised in the Consolidated Statement of Comprehensive Income

		2021 £000	2020 £000
Current tax
Current year		3,277	2,762
Adjustments for prior years		(263)	6
Total current tax		3,014	2,768
Deferred tax
Origination and reversal of temporary differences		95	130
Rate change		252	(222)
Adjustments for prior years		7	85
Total deferred tax		354	(7)
Total tax expense		3,368	2,761

Reconciliation of Effective Tax Rate

The weighted average hybrid rate of UK, Polish and French tax is 20.5% (2020: 22.6%). The tax assessed for the period is lower (2020: higher) than the hybrid rate of UK and French tax. The UK corporation tax rate for the period is 19.0% (2020: 19.0 %). The differences are explained below:

	2021	2020
	£000	£000
Profit before taxation	17,013	2,868
Non-deductible intangible impairment	-	7,500
	17,013	10,368
Tax using the UK corporation tax rate of 19.0%, (2020: 19.0%)	3,232	1,970
Overseas profits charged at different taxation rate	151	439
Non-deductible expenses and timing differences	480	479
Restatement of opening net deferred tax due to rate change and differences in rates	298	(218)
R&D reclaim	(537)	-
Adjustments to tax charge in respect of prior periods	(256)	91
Total tax expense	3,368	2,761

The UK corporation tax rate increase from 19.0% to 25.0% from 1 April 2023 was substantively enacted in March 2021. The deferred tax assets and liabilities at 26 June 2021 have been calculated based on a rate at which they are expected to crystallise which is likely to be 19.0% or 25.0%.

The adjustment of £256,000 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 (2020: £182,000) 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/(Loss) 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 125,805,000 (2020: 127,128,000). 

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 26 June 2021, the diluted weighted average number of shares in issue was 132,753,000, (2020: 130,820,000).

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

· Reorganisation and other significant non-recurring items

· IFRS 9 'Financial Instruments: Recognition and Measurement' fair value adjustment relating to the Group's interest rate swaps and foreign exchange contracts

· IAS 19 (revised) 'Accounting for retirement benefits' relating to net income

· The taxation effect at the appropriate rate on adjustments

· Amortisation of intangible assets

	52 weeks to 26 June 2021		52 weeks to 27 June 2020
Profit	£000		£000
(Loss)/profit attributable to equity holders of Company (basic)	12,347		(759)
Significant non-recurring and other items	(1,514)		10,223
Intangible amortisation net of deferred tax	574		574
Numerator for adjusted earnings per share calculation (adjusted basic)	11,407		10,038
Shares	Basic	Diluted	Basic	Diluted
	'000	'000	'000	'000
Weighted average number of ordinary shares in issue during the period	125,805	125,805	127,128	127,128
Dilutive effect of share options	-	6,948	-	3,692
	125,805	132,753	127,128	130,820
	Basic	Diluted	Basic	Diluted
Earnings/(loss) per share	pence	pence	pence	pence
Basic and diluted	9.8	9.3	(0.6)	(0.6)
Adjusted basic and adjusted diluted	9.1	8.6	7.9	7.7

Significant non-recurring and other items net of taxation are tabled in the Financial Review on page 11 and comprise: significant non-recurring income £776,000 (2020: £1,291,000 charge), Defined Benefit Pension Scheme income £187,000 (2020: charge £45,000), fair value of interest rate swaps, foreign exchange contracts income £636,000 (2020: £372,000 charge), the unwinding of deferred consideration discounting charge £85,000 (2020: charge £13,000) and impairment of goodwill and fixed assets in the prior year of £8,502,000.

 

8.  Intangibles

Intangible assets comprise customer relationships, brands and goodwill.

 

	Goodwill	Business systems	Brands and licences	Customer relationships	Total
	£000	£000	£000	£000	£000
Cost at 30 June 2019	85,004	9,981	3,683	7,630	106,298
Additions	-	196	-	-	196
Cost at 27 June 2020	85,004	10,177	3,683	7,630	106,494
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
Accumulated amortisation at 30 June 2019	(4,290)	(826)	(1,502)	(2,016)	(8,634)
Charge for the year	-	(1,025)	(143)	(566)	(1,734)
Impairment	(7,500)	-	-	-	(7,500)
Accumulated amortisation at 27 June 2020	(11,790)	(1,851)	(1,645)	(2,582)	(17,868)
Charge for the year	-	(1,108)	(143)	(566)	(1,817)
Impairment	-	-	-	-	-
Accumulated amortisation at 26 June 2021	(11,790)	(2,959)	(1,788)	(3,148)	(19,685)
Net book value at 30 June 2019	80,714	9,155	2,181	5,614	97,664
Net book value at 27 June 2020	73,214	8,326	2,038	5,048	88,626
Net book value at 26 June 2021	73,214	8,428	1,895	4,482	88,019

The customer relationships recognised in the opening costs were purchased as part of the Ultrapharm acquisition in September 2018 and the acquisition of Fletchers Group of Bakeries in October 2014. They are considered to have finite useful lives and are amortised on a straight-line basis over their estimated useful lives of twenty years for brands and between ten and fifteen years for customer relationships. The intangibles were valued using an income approach, using multi-period excess earnings method for customer relationships and Relief from Royalty Method for brand valuation.  The amortisation of intangibles has been charged to administrative expenses in the Consolidated Statement of Comprehensive Income. The business systems are considered to have finite useful lives and are amortised on a straight-line basis over their estimated useful lives of ten years.

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

 

8.  Intangibles (continued)

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

There have been major disruptions to markets since March 2020 as a result of the impact of the Covid-19 pandemic. Post Covid-19 consumer spending behaviour and lifestyle choices are an unknown. With knowledge and experience throughout varying degrees of lock-down and recoveries, a bottom up full year 2022 budget and strategic forecast to June 2024 has been compiled.

The forecasts have taken in consideration the following key factors:
 

1.  Post Covid-19 recovery of sales in full for FY 2022 with bounce-back of foodservice demand.

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 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 cashflows beyond this forecast are extrapolated to perpetuity using a 1.5% (2020: 1.1%) growth rate for all of the CGUs with the exception of Ultrapharm where growth of 2.9% (2020: 2.9%) has been assumed. The starting position has been impacted by Covid-19 and growth we believe is relatively prudent when compared to long-term UK GDP basis, to reflect the uncertainties of forecasting further than three years. Changes in revenue and direct costs in the detailed three-year plan are based on past experience and expectations of future changes in the market to the extent that can be anticipated.  
 

The strategic forecast process commenced in November 2020 to review consumer and competitor insight to prepare the foundations for the financial forecasts. The strategic forecasts have included assumptions on the post lockdown environment and the journey to recovery. We have been encouraged by the performance in retail and the recovery in the foodservice sector, with revenue trends improving since the initial lockdown in March 2020.
 

The revenue growth rate in the strategic forecast combines volume, mix and price of products. An inflation factor has been applied to costs of sales, variable costs and indirect costs and takes into consideration the general rate of inflation, movements in commodities, improvement in efficiencies from capital investment and operations and purchasing initiatives. External market data and trends are considered when predicting growth rates. Compound annual growth rates for revenues for the three-year forecast period range from 5.8% to 9.1%, reflecting the recovery from the lower base year and budget year that have been impacted by the Covid-19 pandemic and the business wins during the pandemic.

A post-tax discount rate of 8.2% (2020: 7.6%) has been used in these calculations, the equivalent pre tax rates are 11.0% (2020:9.2%). 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 increased over the prior year rate as a result of a lower debt position and an increase 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 cashflows were compared against the carrying amount of goodwill, plant property 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
	2021 £000	2020 £000	2021 %	2020 %	2021 %	2020 %
Lightbody of Hamilton	45,698	45,698	17.2	17.2	22.9	20.7
Fletchers Bakery	20,118	20,118	12.9	10.3	17.2	12.4
Ultrapharm*	4,046	4,046	9.6	7.9	12.8	9.5
Nicholas & Harris	2,980	2,980	44.3	42.6	59.1	51.3
Johnstone's Food Service	372	372	122.8	76.6	163.7	92.3
	73,214	73,214

Impairment

The post-tax discount rate at which the headroom is nil for Fletchers Bakery is 12.9%. There are key strategies and plans in place in order to improve the performance of Fletchers. Increased volumes have been budgeted as schools, hospitality and leisure industries re-open after Covid lockdown closures, and decrease in retail demand has been considered as the hospitality industry begins to re-open. A strong bounce-back is anticipated in out-of-home and growth in buns and rolls with strategic partnering, new product development opportunities, by growing our own bakery foodservice brand and working with strategic end user customers. There are also further opportunities to drive margin mix upwards through value added and value engineering, price and new development. Sensitivities have been carried out to exclude any growth, which, after returning to pre- Covid-19 level of sales, demonstrates that headroom still exists. It has been concluded that no impairment was necessary on the carrying value of goodwill relating to Fletchers Bakery at 26 June 2021.

The post-tax discount rate at which the headroom is nil for Ultrapharm Limited is 9.6%. There are key strategies in place in order to improve the performance of Ultrapharm. Targeted new product development recruitment and a better understanding of intellectual property has been a key breakthrough in developing new and existing product development, with new products being launched in the year to 26 June 2021. Growth with our retail partners is driven by the developments of new products and improved customer confidence. There are also further opportunities in accelerating growth in our own gluten-free brand. Sensitivities have been carried out to exclude any growth, which, after returning to pre- Covid-19 level of sales, demonstrates that headroom still exists. It has been concluded that no impairment was necessary on the carrying value of goodwill relating to Ultrapharm Limited at 26 June 2021.

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 of any cash generating units. 

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 1.0% was replaced with zero growth rate.

· If future growth rate assumption of 1.0% was replaced with a decline of 1.0%.

Traction has been gained over the period impacted by the pandemic in Group-wide initiatives to instil the Finsbury ways of working throughout.  A more engaged workforce, standardised processes, asset care and management and supply chain initiatives are driving improvements in efficiencies across the Group to strengthen our growth position.

Prior Year Impairment

An impairment charge was taken against the Ultrapharm cash generating units in the prior year.  The business proved more immature than expected and additional resource was invested into both the UK and Polish businesses.  We faced commercial issues (in part relating to a small warranty claim) exacerbated by Covid-19 which had adversely affected cashflows and hence valuation.  We believe the gluten-free sector remains attractive and that performance will meet our expectations over time. The conclusion was that, considering all those factors, the business was overvalued.  The strategic forecast revenues and profits had been sensitised and a downside forecast had been considered giving reduced cashflow assumptions, which when compared to the carrying value of assets had indicated an impairment was necessary. A non-cash impairment of £7.5 million was recognised in the prior year's financial results. The downside forecast had been used as a basis for calculating the impairment charge. Revenue in this forecast was expected to grow over the next three years at an annual growth rate of 10.0%.

 

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.  

2021 Statutory	Margin		Frequency of repayments	Year of maturity	Facility £000	Drawn £000	Current £000	Non-current £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.
2021	Margin		Frequency of repayments	Year of maturity	Facility £000	Drawn £000	Current £000	Non-current £000
Revolving credit	1.50%/LIBOR		Varies	2023	55,000	22,431	-	22,431
Finance lease (under IAS 17)	Various		Monthly	2023		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
2020 Statutory	Margin		Frequency of repayments	Year of maturity	Facility £000	Drawn £000	Current £000	Non-current £000
Revolving credit	1.50%/LIBOR		Varies	2023	55,000	36,184	-	36,184
Leases*	Various		Monthly	Various		12,295	3,191	9,104
Unamortised transaction costs						(175)	-	(175)
						48,304	3,191	45,113
*Leases include all leases recognised as lease liabilities under IFRS 16. 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.
2020	Margin		Frequency of repayments	Year of maturity	Facility £000	Drawn £000	Current £000	Non-current £000
Revolving credit	1.50%/LIBOR		Varies	2023	55,000	36,184	-	36,184
Finance lease (under IAS 17)	Various		Monthly	2023		472	247	225
Unamortised transaction costs						(175)	-	(175)
Total bank debt						36,481	247	36,234
Operating leases (under IAS 17)		2.2%	Varies			11,823	2,944	8,879
Total debt						48,304	3,191	45,113

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

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

The revolving credit bank facility available for drawdown is £55.0 million plus a further £35.0 million accordion facility (2020: £55.0 million plus a further £35.0 million accordion). At the period end date, the facility utilised was £22.4 million (2020: £36.2 million), giving £32.6 million (2020: £18.8 million) headroom plus a further £35.0 million (2020: £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 2020 £000	Cashflow £000		At year ended 26 June 2021 £000
Cash and cash equivalents			10,173	(650)		9,523
Debt due after one year			(36,184)	13,753		(22,431)
Hire purchase obligations due within one year			(247)	119		(128)
Hire purchase obligations due after one year			(225)	133		(92)
Total net bank debt			(26,483)	13,355		(13,128)

 

END

 

 

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