Preliminary Results

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   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) Edward Walsh		020 7886 2500
Alma PR   Sam Modlin David Ison Matthew Young	[e-mail]	020 3405 0205

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 Ż ywiec 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 £000	2021 £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 £000		2021 £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 £000		2021 £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 £356.8m up 13.9%	*2
Adjusted EBITDA*1 £28.7m up 6.9%	EBITDA £26.4m
Adjusted Operating Profit*1 £17.8m up 10.6%	Operating Profit £15.5m
Adjusted Profit*1 Before Tax £17.0m up 12.1%	Profit Before Tax £14.3m
Adjusted Diluted EPS 10.1p up 17.4%	Diluted EPS 7.9p
Capital Investment £12.5m up 103%	*2
Net Debt (excl leases) £20.6m up 57.3%	Net Debt (incl leases) £29.6m

*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 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 CO₂ 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- 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	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- 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

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, takingaccount of the interestrate 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 adjustedearningsbefore 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 sitelevel 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 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 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).

No ne 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 £000	2021 £000	2022 £000	2021 £000	2022 £000		2021 £000
Total	306,650	273 ,633	50,158	39,625	356,808		313,258

Reportable Segments	53 weeks to 2 July 2022 £000	52 weeks to 26 June 2021 £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 2 July 2022 £000	52 weeks to 26 June 2021 £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 £000	2021 £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 rates	91	298
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 2 July 2022 £000		52 weeks to 26 June 2021 £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 systems	Brands and licences	Customer relationships	Total
	£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 £000	2021 £000	2022 %	2021 %	2022 %	2021 %
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. 

2022 Statutory	Margin		Frequency of repayments	Year of maturity	Facility £000	Drawn £000	Current £000	Non-current £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.
2022	Margin		Frequency of repayments	Year of maturity	Facility £000	Drawn £000	Current £000	Non-current £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
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	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	Cash flow		At year ended 2 July 2022
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).

 

END

 

 

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