FIF.L Regulatory News (FIF)

Finsbury Food Group plc

Preliminary Results 2011Finsbury Food Group plc (AIM: FIF), a leading manufacturer of cake, bread and morning goods, today announces its preliminary results for the year ended 2 July 2011.

Highlights

§ Group revenue up 12.6% to £189.6 million (2010: £168.3m)

§ Adjusted* profit before tax up 8.3% to £5.8 million (2010: £5.4m)

§ Cake division returns to growth with sales increasing by 12.1% to £139.6 million (2010: £124.6m)

§ Bread & Free From sales growth of 14.2% to £50.0 million (2010: £43.7m) from investment behind Vogels and ongoing growth in the fresh Free From product range with Genius and own label

§ Adjusted* diluted earnings per share 7.1p (2010: 7.0p)

§ Total net bank debt reduced by 10.4% to £32.7 million at the year end (2010: £36.5m)

§ Banking facilities with HSBC extended to 2017

§ Discounted deferred consideration reduced by 28.3% to £4.3 million at year end (2010: £6.0m)

§ Strong organic growth across all divisions, despite the exceptional impact of commodity and cost inflation

Operational Highlights:

§ Licensed brand growth across all divisions

§ Working with Genius Foods Limited to expand the Free From product portfolio

§ Re-launch of Vogel's speciality bread brand

§ Adding Disney small cakes to our licensed portfolio

Commenting on the results, John Duffy, Chief Executive of Finsbury Food Group plc, said:""We are pleased to have returned to organic growth, an important milestone for the group. We are emerging from a complex and exhaustive programme of reorganisation and despite the macro economic factors continuing to buffet the business and our customers, our structured approach has clearly started to bear fruit. The difficulties we face should not be underestimated, the global commodities bubble has exerted unprecedented pressure on margins. Prices for butter, sugar and wheat have soared over the last 18 months. Keeping things affordable for customers is essential.

"I am delighted that we have succeeded in steering the Group through another demanding year. The reality is that testing times still lie in wait. However, our distinctive range of products, commitment to value and robust performance in a testing climate bode well for the challenge ahead."

Publication quality photographs are available via Redleaf Polhill on the numbers shown above

Notes to Editors:

§ Finsbury Food Group plc (AIM: FIF), a leading manufacturer of premium and celebration cakes, low fat cake slices and artisan, organic and gluten free bread and morning goods

§ Finsbury Food Group is the second largest manufacturer of Ambient Packaged Cake (excluding ISB) in the UK, a market valued at £886m (Source: Kantar Worldpanel Total UK Coverage, 52 we 10th July 2011).

§ The Group is also the market leader in the supply of gluten free baked goods to the UK's multiple grocers

§ The Group's strategy is to generate returns for shareholders by building a crafted bakery group focused on premium, celebration and well being that delivers for customers and consumers. Finsbury continues to develop its licensed brand portfolio to complement its core retailer brand relationships and improve its understanding of and response to changing consumer needs

§ Whilst the Company sees exciting organic growth opportunities in all its businesses and its short-term focus is on integrating and growing its existing businesses, the aim is to take advantage of the appropriate bolt on acquisitions to drive longer term value as opportunities and circumstance allow

Chairman's Statement

Tough times demand a resilient mindset. Toughness combined with appetite for the challenge, commitment to hard work and uncompromising dedication to the task.

All these qualities, and a good deal more, have been widely in evidence at Finsbury Food Group over the past year. Together, the combination has generated a trading performance that provides quiet cause for satisfaction and real grounds for encouragement going forward.

I am delighted to report a 12.6% rise in group revenues over the current year and an 8% increase in underlying profit before tax. In a value-focused recessionary environment, growth has returned to our cake business. Double-digit growth in our speciality bread and free from businesses confirm that even in a recessionary period, consumers are prepared to pay for quality.

Investment in people has provided the lynchpin. Over the last few years, Finsbury Food Group has invested heavily in category management, new product development personnel and marketing skills. That investment has helped to create a far-reaching insight into our customers and an increasingly compelling series of offers in the marketplace.

It is our stated intention to help consumers through the recession. Doing so demands continual focus on options and choice, whether in the form of optional treats, celebration birthday cakes or lower cost items for lunch boxes. Innovation and adaptability are paramount.

Input price inflation is clearly a matter of concern, particularly in such a low margin industry. Commodity prices for sugar, flour and butter have reached record levels and have inevitably impacted on our operating margins. Rising sales together with savings from efficiency projects have largely offset the impact of commodity price inflation but recouping costs has become an imperative.

After a period of far-reaching change in the boardroom, a stable year has enabled individuals to get on with the jobs they were brought in to do. I firmly believe the results we are seeing reflect not only that degree of stability but also the completion of the integration programme that has occupied so much time and resource over the last three years.

Progress extends beyond statistical growth. I am also pleased to report that we are continuing to pay down debt, cash flow remains healthy and EBITDA figures bear out our operational durability.

The group recently renegotiated our banking facilities with HSBC. This enables us to adjust for growth and provides cash to cover deferred consideration due throughout the year. HSBC have effectively broadened their debt profile with Finsbury Food Group, underlining their continued confidence in the business. HSBC's support is greatly appreciated.

Further obstacles must be overcome. Consumer confidence remains fragile, disposable incomes are under threat, public sector cuts have yet to be fully implemented - all factors potentially suppressing demand still further. The reality is that the next 12 months are likely to prove testing but our track record in resisting recessionary influences has been exemplary thus far.

I would like to take this opportunity to express my thanks to my fellow Directors as well as members of staff across the Group. Our trading results bear witness to the collective pride of performance and sense of ownership that drives our business. Scale benefits from the Group we've constructed are founded upon a philosophy of continuous improvement. Getting better in what we do every single day is the focus of conversation.

Another challenging year lies ahead. However, Finsbury Food Group has already demonstrated a level of resilience greater than many would have anticipated. Our course is set. We shall continue to strive to improve profitability, pay down debt, reinstate the dividend and nurture the growth of our businesses.

When the time is right and economic circumstances permit, your board will seek out the acquisitions aimed at furthering the pace of growth. Until such times, we will continue to pursue the growth and efficiency model of recent years, building upon the foundations already secured.

Martin Lightbody

Non-Executive Chairman

Chief Executive's Report

Light at the end of the tunnel is always welcome. Even when the road ahead is still clearly a long one, signifiers of success provide not only fresh impetus but redouble the efforts of all those involved.

Finsbury Foods is emerging from a complex and exhaustive programme of reorganisation. Despite the macro economic factors continuing to buffet the business and our customers, our structured approach has clearly started to bear fruit.

We are pleased to have returned to organic growth, an important milestone for the Group. Following an encouraging performance in the first half of the year, I am delighted to report that the underlying trends strengthened measurably during the second period.

Trading Performance

Results for the full 52-week period ending 2 July 2011 are detailed in full in the Business Review Section but a number of highlights merit specific attention:

§ Group revenue up 12.6% to £189.6 million

§ Underlying profit before tax up 8.3% to £5.8 million

§ Sales in the Cake division up 12.1% to £139.6 million

§ Sales in the Bread and Free From division up 14.2% to £50.0 million

§ Net debt down 10.4% to £32.7 million

§ Strong organic growth across all divisions, despite the exceptional impact of commodity and cost inflation

§ Licensed brand growth across all divisions

§ Working with Genius Foods Limited to expand the Free From product portfolio

§ Re-launch of Vogel's speciality bread brand

§ Adding Disney small cakes to our licensed portfolio

§ Banking facilities with HSBC extended to 2017

Reflections

The source of cake growth is twofold. Approximately 50% was generated by our UK cake business with the balance originating from Lightbody Europe (LBE), a 50% owned subsidiary export operation. Domestic growth was driven by a combination of own-branded retailer offerings and increases in promotional deals and support. Opening fresh sales outlets and distribution opportunities in France stimulated LBE's expansion.

Other indicators are similarly encouraging. The current year delivered strong growth in the fresh gluten free market for our Genius brand and an equally favourable outcome for our Vogels and Cranks brands in the speciality bread sector. The establishment of an agreement in January 2011 with Genius Foods Limited ("Genius") is aimed at expanding our fresh bakery free from portfolio further still.

The difficulties we face should not be underestimated. The global commodities bubble has exerted unprecedented pressure on margins. Prices for butter, sugar and wheat have soared over the past 18 months. I foresee no respite in commodity or general cost inflation in the near term. Pressure, if anything, is likely to increase the impact of such factors, redoubling our efforts to alleviate price rises by focussing on internal efficiencies and productivity initiatives.

Keeping things affordable for consumers is essential. Where circumstances permit, we will modify our product range to meet the demands of a fragile marketplace, working with our major customers to do so. Our interests are mutual. They want good suppliers and we want to be a good supplier.

In the wake of a fresh egg dioxin scare, retailers briefly removed a small selection of Memory Lane branded cakes from their shelves in January. At all times, the products remained safe for consumption, no public health risk was involved and the matter has now been successfully resolved.

Looking ahead, the business environment is set to remain difficult for suppliers like ourselves contending with a global inflationary commodity environment on the one hand, and a concentrated customer base with the ability to control the market through volume on the other.

Although consumer confidence remains low and the inflationary environment is difficult to predict, I believe that fresh growth opportunities will continue to emerge.

Our approach remains pragmatic. The cost-out phase of internal activity is over; emphasis is on maximising the benefits of recent acquisitions to drive longer-term value and grow our existing businesses.

I am delighted that we have succeeded in steering the Group through another demanding year. The reality is that testing times still lie in wait. However, our distinctive range of products, commitment to value and robust performance in a testing climate augur well for the challenge ahead.

John Duffy

Chief Executive Officer

Business Review

Strategy

Our business strategy is to generate returns for shareholders by building a crafted bakery group within the cake and bread & free from markets which is focused on premium, celebration and well being that delivers for customers and consumers. We will continue to develop our licensed brand portfolio to complement our core retailer brand relationships.

We are still a modest manufacturer in the total Bakery markets in which we operate and see exciting organic growth opportunities in all our businesses.

Whilst our short term focus is on integrating and growing our existing businesses, we aim to take advantage of the right bolt on acquisitions to drive longer term value as opportunities, financing and circumstance allow.

Our Markets

We operate in large markets with combined sales in excess of £4 billion per annum. We continue to lead our core areas within those markets, where there remains significant opportunity for growth by converting consumers to our product range.

The total annual UK ambient cake market (including pre-packed cake and in-store bakery) is valued at £1.15 billion. The past 12 months has seen value growth of 1.1% (source: IRI/Kantar) due to price increases with a decline in volume of -0.2%. We continue to be the second largest supplier of cake to the UK's multiple grocers, with a 15.7% share of the total pre-packed cake market up from 14.3% and have maintained our leading position in the niche areas on which we focus.

Within the bread & free from segment, annual bread sales are in excess of £3 billion (source: Mintel). We are a smaller player in this market, with a focus on speciality and organic bread products and we have continued to benefit from the growth in demand for our products, despite the tough economic climate and a general decline in organic bread sales. Moving to the free from part of this segment, the total gluten free market is around £208 million (source: Kantar), with growth of c17% in the last year. The area of this market in which we operate i.e. bread, cake and other bakery products, accounts for c£39 million of these sales, with growth of 21% year on year. The bakery sector growth significantly outstrips the total gluten free market growth due to the continued growth of Genius fresh bread and our strategy of introducing 'fresh' bakery products through retailers' Own Labels.

Our Business

The Group consists of businesses acquired over a number of years that have been integrated to facilitate a focus on operational cost efficiency. Over the year we have significantly reduced our costs to manufacture enabling us to offset substantial increases in most commodity prices. At the same time our focus over the year has been to capitalise on the growth opportunities arising from the recent acquisitions of Goswells and from the growth in the fresh free from sector through the Genius brand and our own label fresh free from products.

Lightbody of Hamilton Ltd ('Lightbody'), based in Hamilton, employs around 1,050 people and is the UK's largest supplier of celebration cake with Disney and Thorntons product within its portfolio. It also produces a range of small cakes, a number of which are under our licensed brands including Thorntons, Nestlé and WeightWatchers.

Memory Lane Cakes Ltd ('Memory Lane'), based in Cardiff, employs around 900 people and is the leading manufacturer of the UK retailers' premium own label cake ranges. It also produces under a number of brands notably Nestlé, WeightWatchers and Thorntons. The last financial year has been one of double digit growth with the promotional support driving the growth primarily in premium own label cake. Gross margins were put under pressure by commodity price inflation, this will be the main issue in the next year. Management aims to recover cost inflation through both price increases and efficiency improvements.

Sales revenues within the integrated cake businesses were up 12.1% compared with the prior year. This growth comes from a combination of own-branded retailer offerings in domestic markets and fresh sales outlets and distribution opportunities in France through our 50% owned subsidiary Lightbody Europe.

United Central Bakeries Ltd ('UCB'), based in Bathgate near Edinburgh, employs around 200 people and manufactures a range of gluten free bakery products and morning goods. The year saw significant growth out of the Genius free from fresh bread brand including new lines to enhance the range.

Livwell Ltd ('Livwell'), based in Hull, employs around 110 people and is the UK's leading supplier of gluten free bread, cake and morning goods to the UK's grocery retailers. It continues to deliver new products into the free from market, focusing on fresh own label products and has started to contribute to the Genius range. This business operates under a combined commercial team with UCB.

Nicholas & Harris Ltd ('N&H'), based in Salisbury, employs around 250 people and produces a range of speciality bread products to the UK retailers. It has maintained its leadership position in the supply of 'clean-label' breads. This position has been strengthened following its acquisition of Goswell Enterprises Ltd ('Goswells') in June 2009 and with it a number of licensed brands including Vogels and Cranks. These were relaunched in October 2010 and sales on each have grown in excess of 30%.

Growth in sales revenues within the Bread & Free From business has continued to accelerate with a combined increase for the division of 14.2%.

Brands and Licences

The Group remains primarily a retailer branded business, with sales of retailer own label products accounting for around 56% of our total revenue compared to 65% a year ago. This reflects the strength of the licensed brands under our control and the fact that, in a number of cases, they have outperformed the rest of the market.

WeightWatchers

WeightWatchers is one of the largest food brands in the UK and we hold the licence to manufacture and distribute low fat cake to the UK and Ireland's multiple grocers under this brand. Since the acquisition of Anthony Alan in 2007, the brand has been developed through utilisation of the broad production capability within the Group and our skills in developing new products that adhere to brand guidelines. WeightWatchers now accounts for 72% of the low fat cake market in terms of value up from 69%. The brand continues to perform slightly better than the total Health category which declined by -6.9% in value terms compared to -2.8% on the WeightWatchers brand which is due to the Masterbrand launch of 'Pro-Points' which has attracted new dieters to the WeightWatchers brand.

Thorntons

The Group continues to develop its branded offering within the premium cake sector via its licensing arrangement with the Thorntons confectionery business. Through a combination of new product development, additional listings of existing products and targeted promotional activity, the Thorntons brand within Cake has seen fantastic growth of 17.4% value sales year on year (source: IRI/Kantar). This represents significant out-performance of the rest of the premium cake market. We have recently refreshed our celebration products and will look to launch some NPD in the new year in order to continue to invest in the brand to increase awareness and drive further profitable growth for both us and our customers.

Nestlé Confectionery

We continue to benefit from the rights to manufacture and distribute cake products under Nestlé confectionery brands such as Smarties, Jelly Tots, Toffee Crisp and Munchies. The range shows steady year on year growth of 2.2% (value sales IRI/Kantar) but the snacking products in some customers are heavily promoted.

Disney

We now have the license to produce Disney Small Cakes which gives us huge potential when adding to our already successful Disney Celebration range. Brands within the portfolio such as Toy Story, Disney Princess, Cars, Winnie The Pooh and Pirates of the Caribbean have been a success during the year. Sales value is up 16% year on year for the total brand.

Other Celebration Cake Licences

These four major brands are complemented by a range of 25 other licences which are particularly focused on driving celebration cake sales. Properties such as Ben 10, Peppa Pig, Hello Kitty and Spiderman have their own target market and offer excellent additions to the range. Little Venice Cake Company which joined the range last year has performed well and we are now working on how we can extend the range in this niche adult premium celebration.

Bread & Free From Licences

We are pleased to have branded offerings in our Bread & Free From businesses. The Village Bakery is an organic brand which N&H have been working with for a number of years, generating sales of around £800,000 per annum. The range is based primarily around clean label rye breads and lines are stocked by all our bread customers. The Vogels brand covers a range of natural sliced breads with added rye, grains and seeds to improve the health attributes of the product. The rights to manufacture products under this brand came along with the acquisition of Goswells in June 2009 and complements the mainly own label range of products within N&H's portfolio. This acquisition also brought with it the Cranks licence to manufacture a range of organic bread products.

The Genius brand has grown the retail sales to in excess of £15 million annually across the Retail and Foodservice channels. Genius remains the biggest brand in the free from Bakery market with a value market share of around 22% (Source: IRI) and is listed in all major multiples, co-ops and many independent and convenience stores. At the beginning of 2011 we introduced new 600g sliced seeded variant and fruited teacakes into the retail trade. We will continue to expand the range of fresh free from products in the next year.

Principal Operating Risks

The Group operates in an environment which is continually changing and as a result the risks it faces will also change over time. The assessment of risks and the development of strategies for dealing with these risks are achieved on an ongoing basis through the way in which the Group is controlled and managed internally. A formal review of these risks is carried out by the Group on an annual basis. The review process involves the identification of risks, assessment to determine the relative likelihood of them impacting the business and the potential severity of the impact, and determination of what needs to be done to manage them effectively.

The Directors have identified the following principal risks and uncertainties that could have the most significant impact on the Group's value generation:

Competitive Environment and Customer Requirements

There is strong competition between manufacturers in the Bakery sector. The monitoring of key performance indicators at customer level such as service levels and customer complaints is part of the risk management process associated with this specific risk. Strong customer service, quality products, low costs and innovative new product development are areas of focus to satisfy customer needs and remain strong in a competitive environment.

The Group has invested heavily in category management, new product development and marketing skills. This investment has helped create an insight into customers and consumer demands.

Continual monitoring of customer KPI's and production quality measures take place to ensure customer requirements are being met and issues are identified in a timely manner to limit their impact.

Product quality is a key strength of the Group and failure to maintain a high standard of food quality and safety would have a severe impact on service levels and customer relationships.

The Group's quality assurance procedures, managed at site level, are reviewed continuously with improvements made as appropriate. The Group's Technical Director helps provide focus to ensure there is continuous improvement across all sites to meet the increasingly high expectations of our customers. The operating subsidiaries are subject to regular internal and independent food safety and quality control audits including those carried out by, or on behalf of, their customers. The Group maintains product recall insurance cover to mitigate the potential impact of such an occurrence.

Raw Materials - Prices and Supply

Increases in the price of raw materials can adversely impact the core profitability of the business and any related shortage in supply will impact the business' ability to maintain its service levels to customers - another of its key performance indicators. The prices of certain key commodities (e.g. sugar) are tied to the Euro - the relative strength of sterling will, therefore, have an impact on the cost of these commodities.

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

Economic Environment

Whilst the price sensitivity of our products is relatively low, there have been some particular trends in the premium and health sectors of the cake market that have impacted the demand for products within these sectors. The value-focused recessionary environment has resulted in demand from customers for increased levels of support via promotional activity as they compete with each other to offer consumers greater value for money. The Group will continue to focus on quality and value for money in periods of reduced spending.

Interest Rates

Group funding is linked to either base rate or LIBOR, any increase in interest rate will increase the funding costs. The Group has interest rate swap arrangements in place to hedge its risks associated with interest rate fluctuations.

Bank Covenants

There is potential for the bank to withdraw funding should there be a breach of covenants. Bank covenants are reviewed monthly for actual and forecast. There are regular and open communications with the bank to ensure they are fully aware of the Group's position.

Trading Results

Group revenue for the 52 week period to 2 July 2011 was £189.6 million (52 week period to 3 July 2010: £168.3 million), an increase of £21.3 million (12.6%) year on year.

Gross margin for the financial year was 27.0% representing a decrease of 1.0% year on year. Commodity prices for sugar, flour and butter have reached record levels and have inevitably impacted on operating margins.

Administrative expenses have increased year on year. There has been an ongoing investment in staff particularly across the Cake and Bread & Free From sector. Wage inflation, range and marketing support and new product development has increased year on year. The Group has invested heavily in category management, new product development personnel and marketing skills.

The following analysis is included to show what the Directors consider to be the underlying performance of the Group and eliminates the impact of significant non-recurring items and certain charges required by IFRS

The significant non-recurring items in 2011 referred to above relate to £42,000 interest on a prior year tax inquiry liability, £200,000 under taxation relates to the release of overprovision on the prior year tax inquiry.

The taxation on IFRS charges include an element of rate change on opening balances from 28% to 26%.

The significant non-recurring items in 2010 referred to above, totalling £154,000 profit before tax relate to:

·; reorganisation costs of £399,000 (including redundancies) associated with the restructuring of the Group

·; curtailment of defined benefit pension scheme liabilities shown in other income of £553,000

·; within taxation on significant non-recurring items is a potential prior year tax inquiry liability of £348,000

Earnings per Share

EPS comparatives to the prior year can be distorted by significant non-recurring items and IFRS adjustments. The Board is focused on growing adjusted diluted EPS, which is calculated by eliminating the impact of the items highlighted above and incorporates the dilutive effect of share options. Adjusted diluted EPS is 7.1p for the 52 week period (2010: 7.0p).

* Adjusted EPS measures are calculated by eliminating the impact of significant non-recurring items and IFRS adjustments. Further details can be found in Note 6

** Diluted EPS incorporates the dilution effect of share options.

Financial Key Performance Indicators

EBITDA is calculated as earnings before interest, taxation, depreciation and amortisation

Net bank debt is calculated as overdrafts, bank loans, asset finance and mortgages less cash balances

Non-Financial Key Performance Indicators

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

Acquisitions

There were no acquisitions in the period.

During the year deferred consideration of £500,000 was paid in respect of the acquisition of Goswell Enterprises Ltd acquired in June 2009. At the year end there remained a further £1.2 million deferred consideration in respect of this acquisition, due to be paid over the next two years.

During the year deferred consideration of £840,000 was paid in respect of the acquisition of Yorkshire Farm Bakeries and A&P Foods, acquired in April 2008. At the year end there remained a further £1.6 million deferred consideration in respect of this acquisition, due to be paid over the next year. This deferred consideration attracts interest payments at 6%.

During the year deferred consideration of £620,000 was paid in respect of the acquisition of Anthony Alan Foods Ltd acquired in October 2007. At the year end there remained a further £1.6 million deferred consideration in respect of the Anthony Alan Foods Ltd acquisition, due to be paid over the next year. This deferred consideration attracts interest payments at 6%.

Cash Flow

The Group realised a net cash inflow from operating activities of £8.1 million during the financial year (2010: £8.8 million) representing a decrease of 8% on the previous financial year. There was an increase in our working capital requirement of £1.1 million compared to the last financial year reflecting the organic growth over the past 12 months. Corporation tax payments made in the financial year totalled £1.0 million (2010: £0.6 million), these payments took account of the research and development tax relief due to the Group and identified in the previous financial year. Capital expenditure in the year amounted to £2.2 million (2010: £3.5 million).

Debt & Bank Facilities

The Group's total net bank debt after deducting cash balances and including guaranteed loan notes as at 2 July 2011 was £32.7 million (3 July 2010: £36.5 million). Within this total net debt, £11.3 million is due within one year, including cash at bank, invoice finance and loan notes payable on demand (2010: £13.5 million). Net bank debt excludes deferred consideration payable in respect of acquisitions.

The Group's debt facility with HSBC Bank Plc totals £47.1m, the key features of the facility are as follows:

§ overdraft (£2.75m)

§ confidential invoice discounting facility (£17.5m flexible)

§ term loan repayable over six years (£14.2m)

§ mortgage facility (£8.2m)

§ rolling asset finance facility (£4.4m)

The Group re-negotiated its bank facility during the year, the renegotiated facility is a continuation of the old debt with a consolidation of four term loans into one term loan and an extension of the term loan from 2014 to 2017 with a smoothing of the repayments over this extended period.

Discounted deferred consideration of £4.3m is outstanding at the year end and is payable over the next two years (2010: £6.0m). Of this £3.1m (2010: £4.4m) attracts an interest of 6% pa and £1.2m (2010: £1.6m) is interest free.

The Group is able to offer strong asset backing to secure its borrowings. The Group owns freehold sites at Memory Lane in Cardiff, at Lightbody, UCB and Campbells in Scotland, and at Livwell in Hull. In addition, the Group has a strong trade debtor book to support the invoice discounting facility, made up primarily of UK's major multiple retailers. This debtor book stood at £25.5 million (2010: £21.4 million) at the period end date.

The Group recognises the inherent risk from interest rate rises. To mitigate these risks, the Group has four interest rate swaps in place with a total coverage of £24.3 million (equivalent to 74% of total net debt) at a weighted average rate of 4.9%.

The effective interest rate for the Group at the year end, taking account of the interest rate swaps in place and deferred consideration with base rate at 0.5% and LIBOR at 0.8%, was 5.61% (2010: 6.11%).

Financial Covenants

The Board reviews the Group's cash flow forecasts and key covenants on a regular basis to ensure that it has adequate facilities to cover its trading and banking requirements with an appropriate level of headroom. The forecasts are based on management's best estimates of future trading. There has been no breach of covenants during the year. The Group renegotiated its bank facility during the year extending the term loan facility to 2017, there was no covenant test date at the year end.

Interest cover (based on adjusted EBITDA) for the 52 weeks to 2 July 2011 was 4.3 (2010: 4.2). Net debt to EBITDA (based on adjusted EBITDA) for the year to 2 July 2011 was 2.8 (2010: 3.3).

It should be noted that current liabilities exceed current assets. Having reviewed the Group's plans and available financial facilities, the Board has reasonable expectations that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has stayed within its banking facilities during the year, meeting covenant requirements. The Group has the continued support from its bank with renegotiated facilities of

Financial Covenants (continued)

£47.1m extending term loans to 2017, In addition, the Group has a strong asset backing and strong trade debtor book. Accordingly, the Board continues to adopt the going concern basis in preparing the Financial Statements for both the Group and the parent company.

Taxation

The Group taxation charge for the year was £1.4 million (2010: £1.6 million). This represents an effective rate of 23.8% (2010: 32.4%), 27.2% after eliminating the prior year tax inquiry credit in 2011, charge in 2010 (2010: 25.3%).

Further details on the tax charge can be found in Note 5 to the Group's financial statements.

Environmental matters

As a result of significant capital investment and packaging innovation over the past year the Group has had major successes in reducing the amount of packaging used and have exceeded the previous target of 25% reduction. As an example the Cake Category transit packaging has reduced by 37% in some areas and projects are in place to reduce it further. Work in this area has been held up as best practice by several of our key customers and is now seen as the benchmark in the cake sector.

Employee Social and Community Issues

All manufacturing sites are active within their local community supporting local community initiatives provided they are economically viable considering the difficult trading conditions the Group has experienced over the last year. The Group also supports local and national government initiatives such as the New Work programme.

The Cake Category in particular have been working closely with local universities business projects and placements and plan to continue this partnership work further in several areas of training, development and project work.

Technical Matters

The Company continues to drive technical and quality standards across the business. All sites have achieved British Retail Consortium A grade standard. Key technical processes are being standardised across the business to ensure a consistent approach to working practices. The Group have plans in place to work with key industry partners to drive innovation in the areas of quality and healthy eating.Consolidated Statement of Comprehensive Income

for the 52 weeks ended 2 July 2011 and 3 July 2010

Consolidated Statement of Comprehensive Income (continued)

for the 52 weeks ended 2 July 2011 and 3 July 2010

Consolidated Statement of Financial Position

 at 2 July 2011 and 3 July 2010

These financial statements were approved by the Board of Directors on 23 September 2011 and were signed on its behalf by:

Stephen Boyd (Director)

Consolidated Statement of Changes in Equity

for the 52 weeks ended 2 July 2011 and 3 July 2010

Consolidated Cash Flow Statement

for the 52 weeks ended 2 July 2011 and 3 July 2010

Notes

(forming part of the Financial Statements)

Accounting Policies

The financial information set out in this preliminary announcement does not constitute Finsbury Food Group Plc's statutory accounts for the 52 week periods ended 2 July 2011 and 3 July 2010. Statutory accounts for the 52 week period ended 2 July 2011 will be delivered to the Registrar of Companies following the Company's Annual General Meeting. Statutory accounts for the 52 week period ended 3 July 2010 have been delivered to the Registrar of Companies. The Auditors have reported on those accounts; their reports were unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

This preliminary announcement has been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRS) and its interpretations as adopted by the International Accounting Standards Board (IASB) and by the EU (Adopted IFRS).

1. Revenue and segment information

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

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

Ø net financing expense

Ø share option charges

Ø non-recurring significant items

Ø fair value adjustments relating to acquisitions

Ø pension charges or credits in relation to the difference between the expected return on pension assets and interest cost on pension liabilities and

Ø revaluation of interest rate swaps and forward foreign currency contracts.

The Group's operating segments are "cake" and "bread & free from". The primary driver of this segmental structure is the commonality of the product categories operated in.

The Cake segment sells ambient cakes to the UK's multiple grocers. This segment primarily comprises the operations of Memory Lane Cakes Ltd, Lightbody Group Ltd and Campbells Cake Company Ltd, and also includes Yum Yum's which are produced at United Central Bakeries.

The Bread & Free From segment sells speciality bread & morning goods into the bakery sectors of the UK's multiple grocers. This segment is primarily made up of the operations of United Central Bakeries Ltd, Livwell Ltd and Nicholas & Harris Ltd. In addition to these operations, the 'In Store Bakery' range manufactured at Lightbody of Hamilton and Memory Lane Cakes Ltd is also included in the bread & free from segment as the nature of the product and their location in the multiple grocers product range is similar.

Costs of Group operations plus a 10% premium have been allocated across the segments on the basis of their operating profit. The premium has been charged to reflect the synergies achieved from obtaining resources centrally giving benefits across the operating segments. Operating profit levels have been chosen as the basis, as this reflects the underlying performance of the segment and is also the return the Group expects from those segments.

A purchasing premium of 2% is charged from Group operations, and is calculated on materials and packaging spend at segmental level. This charge is based on the rationale that Group operations, through its Group buyers, optimises the Group's procurement spend through leveraging its purchasing power.

This has resulted in a profit of £1.9m (2010: £1.4m) being presented within the Group operations segment.

The Group's finance income and expenses cannot be meaningfully allocated to the individual operating segments.

Notes (continued)

1 Revenue and segment information (continued) 

Analysis of unallocated assets and liabilities:

There are no inter-segmental sales. Certain operating costs have been incurred centrally, these costs have been allocated to the reporting segments on an appropriate basis.

Five customers with sales of £43m, £41m, £25m, £20m and £20m account for 79% of revenue, which is attributable to the cake and bread & free from segments above.

Group Operations profit comprises the central costs premium and a purchasing premium charged to the manufacturing operations.

Notes (continued)

1 Revenue and segment information (continued) 

Analysis of unallocated assets and liabilities: