FIF.L Regulatory News (FIF)

RNS Number : 5432T

Finsbury Food Group PLC

30 September 2010

 

Date: 30 September 2010

On behalf of: Finsbury Food Group plc ('Finsbury' or the 'Group')

For immediate release

 

 

Finsbury Food Group plc

Preliminary Results 2010

Finsbury Food Group plc (AIM:FIF), a leading manufacturer of cake, bread and morning goods, today announces its preliminary results for the year ended 3rd July 2010. Highlights

§ Adjusted* PBT up 7% to £5.4m (2009: £5.0m)

§ Strong Bread and Free From absolute sales growth of 14% to £43.7m (2009: £38.2m) including national roll out of Genius brand fresh 'free from' bread

§ Improved integration and internal efficiencies with administrative expenses reduced 6% to £36.1m (2009: £38.3m)

§ Adjusted* diluted earnings per share of 7.0p (2009: 6.9p)

§ Capital investment of £3.5m to support growth including £2.0m in new Free From production facility

§ Strengthened Executive Board team with new Group FD Stephen Boyd

§ Total net bank debt reduced 11% from £41.0m to £36.5m at year end within established banking facilities of £50.2m

§ Successful rescheduling of £4.8m deferred consideration previously due in the first quarter of new financial year

 

\* These figures have been adjusted to eliminate the impact of significant non-recurring items and certain charges required by IFRS for the 52 weeks ended 3 July 2010 and the 53 weeks ended 4 July 2009. Refer to the analysis in the Business Review for further details.

Commenting on the results, John Duffy, Chief Executive of Finsbury Food Group plc, said: "These results underline our progress to date. We have responded to a difficult trading climate by adapting our range of products, developing strategies to meet the modified purchasing habits of our customers while stepping up the pace of internal change. "Our vision is clear. Success for this business depends on trading through the present period, paying off a proportion of our debt, remaining within financial covenants, building a financial position that is less leveraged and returning to growth in an expanding marketplace. "I feel extremely encouraged by the way our staff have responded to the challenges of the last 12 months. As we head into a new financial year, the pace of progress is being maintained and I feel confident that our continued investment in people, products and facilities will continue to serve us well for many years to come."

 

For further information:
Finsbury Food Group plc	www.finsburyfoods.co.uk
John Duffy (Chief Executive)	07901 514 390
Stephen Boyd (Finance Director)	07768 600 842
Panmure Gordon	020 7459 3600
Katherine Roe
Callum Stewart
Redleaf Communications	finsbury@redleafpr.com
Emma Kane/Rebecca Sanders-Hewett/	020 7566 6700
Lucy Salaman

 

Publication quality photographs are available via Redleaf Communications 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 participant in the UK cake industry, a market valued at  £1.51bn (TNS, January 2008)

 

§ 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

right bolt on acquisitions to drive longer term value as opportunities and circumstance allow

 

Chairman's Statement

 

My first year as Chairman has been unprecedented in the history of our business. It was a year in which we witnessed the full impact of the recession that had been widely forecast during the previous period and one characterised by customers moving away from the premium products that have been our traditional area of strength.

 

I am extremely proud of the way our business has responded. In an environment dominated by declining turnover, we have delivered growth in key areas, increased profitability and restructured the business to achieve operational efficiencies.

 

Ours is not a Group reliant on mechanised production processes, what we do is about craft, tradition and experience. It is precisely those qualities on which the future of our business depends and will continue to drive our thinking going forward.

 

 

A New Team in the Boardroom

 

During the course of the last year, we have brought in a new senior team. John Duffy has taken over as Chief Executive Officer and Stephen Boyd has come onboard as Group Finance Director.

 

Both have significant experience of the Food sector, working in leveraged environments and delivering operational change in complex businesses. Having built their respective reputations in the world of Private Equity, John and Stephen are highly accomplished at managing relationships with banks and major customers in a challenging environment.

 

The new board has been assembled with a view towards the long term. Rather than focusing on acquisition-led growth, this is a team capable of dealing with a very different macro environment but positioned to manage an expanded business once growth returns. It is a team fully equipped to provide the skills necessary for the next phase in the evolution of our company.

 

 

Business Performance

 

During the last 18 months, our focus has been on shaping and improving performance across the organisation by delivering efficiencies.

 

Although profits are up, the reality is that sales are down for the first time in our history. Our largest market in cakes has been heavily discounted, creating the need to revise our own pricing structures. In addition to the difficulty of implementing price rises under current market conditions, we have also had to cope with increased prices of raw materials in some areas.

 

Against such a testing backdrop, our strategy has remained robust and resolute. By taking advantage of growth opportunities and restructuring the Group to deliver cost savings, we are navigating our way through difficult trading conditions with the full support of our bank. We have continued to ease our cash requirements and remain committed to investing in growth where practicable.

 

In a challenging market, there is quiet cause for celebration. We remain market leaders in free from bakery, Genius has become a £10 million brand and our other licensed brands are delivering measurable value.

 

Behind the scenes, a regular stream of new products is being launched. The economic tide will turn in due course and we are continuing to do all the right things to prepare ourselves for a more positive trading environment.

 

 

In Conclusion

 

No one can be sure what is around the corner. While organisations would clearly rather be trading with the benefit of a tailwind - rather than into a headwind as at present - trading conditions are likely to remain challenging in the short term.

 

This is a time for pragmatism, patience and hard work. The task is to trade through the next period, stay within bank covenants, retain shareholder value and position ourselves for growth in an expanding marketplace.

 

I am delighted with the progress we have made. Our smaller divisions have done a great job of managing to grow while larger divisions pursue their quest for efficiency. We are continuing to perform in line with management expectations and I remain confident, given our quality heritage and brand portfolio that we will exit this recession in a position of strength.

 

 

Martin Lightbody

Non-Executive Chairman

Chief Executive's Report

 

Business is never easy. In times of plenty or famine, those entrusted with responsibility for their organisations, and the financial welfare of their employees and shareholders, have a duty to establish foundations capable of withstanding subsequent reversals of commercial fortune.

 

Timing, so they say, is everything. Stepping into the role of Chief Executive Officer at the height of an economic crisis may not have been ideal on a personal level. However, looking back on a testing year, I feel comfortable that the new board is delivering a restructuring process that will create enduring benefits for the business.

 

The results underline our progress to date. We have responded to a difficult trading climate by adapting our range of products, developing strategies to meet the modified purchasing habits of our customers while stepping up the pace of internal change.

 

I feel extremely encouraged by the way our staff have responded to the challenges of the last 12 months. And there will be no let-up. As we head into a new financial year, the pace of progress is being maintained and I feel confident that our continued investment in people, products and facilities will continue to serve us well for many years to come.

 

Performance

 

Results for the full 52 week period ending 3 July 2010 are described in greater detail in the Business Review Section but there are a number of key areas I would like to take this opportunity to highlight:

 

·; Strong performance of the bread & free from sales division, registering like for like growth of 9%

·; Improved Group margins despite volatility of input pricing

·; Integration of the Goswells bread acquisition into Nicholas & Harris, providing a branded bread platform with Vogels

·; Sales of Thorntons branded cake up 5%

·; Completion of £2m investment in new fresh free from bread production facility

·; National roll out of Genius fresh free from branded bread

·; New Scottish central cake distribution warehouse and supply chain systems

·; Creation of cake marketing and category marketing teams

·; Successful rescheduling of £4.8m deferred consideration previously due in the first quarter of the new financial year

 

Future Prospects

 

Without the benefit of a crystal ball, it would be unwise to anticipate any dramatic change in the economic climate. Nonetheless, our position in the marketplace remains both distinctive and healthy while our commitment to product quality and innovation is second to none.

 

Among other recent initiatives, we have put a huge amount of work and effort into Category Management - determining what goes where on a supermarket bakery shelf. This recession will end eventually. When our major customers decide it is time to lead consumers into a new era, our job is to be there, working alongside them to ensure our products are given the prominence they deserve.

 

Our vision is clear. Success for this business depends on trading through the present period, paying off a proportion of our debt, remaining within financial covenants, building a financial position that is less leveraged and returning to growth in an expanding marketplace.

 

It is upon these criteria that my colleagues and I are happy to be judged. Looking back on our most difficult trading period to date, I am delighted by our response to the challenges we faced. Further hurdles may yet need to be overcome but I feel greatly encouraged by the prospects for this business.

 

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 wider 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 £1.5 billion. The past 12 months has seen value decline accelerate to -2.6% (source: AC Nielsen) with a decline in volume of 1.8%. We continue to be the second largest supplier of cake to the UK's multiple grocers, with a 20% share of the total pre-packed cake market 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 £180 million (source: AC Nielsen), with growth of c1.6% in the last year. The area of this market in which we operate i.e. bread, cake and other bakery products, accounts for c£30 million of these sales, with growth of 48% year on year. The bakery sector growth significantly outstrips the total gluten free market growth due to the introduction 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 despite 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 acquisitions of Goswells and from the launch of Genius gluten free bread.

Lightbody of Hamilton Ltd ('Lightbody'), based in Hamilton, employs around 1,150 people and is the UK's largest supplier of celebration cake. 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 950 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. During the year Memory Lane has suffered a market led sales decline, and as a result has restructured its operations whilst also improving factory fabric and product quality. These actions led to a strong second half of the year which is continuing into the new financial year.

Sales revenues within the integrated cake businesses were down 9.7% compared with the prior year after adjusting for its extra trading week. This is driven by the decline in the overall cake market, our decision to exit specific low margin business and our bias towards premium and healthier products, which have particularly been affected by the decline.

United Central Bakeries Ltd ('UCB'), based in Bathgate near Edinburgh, employs around 180 people and manufactures a range of gluten free bakery products and morning goods. The year saw the successful national roll out of the Genius free from fresh bread brand. 

Livwell Ltd ('Livwell'), based in Hull, employs around 100 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, such as pain au chocolate and ciabatta. This business operates under a combined commercial team with UCB.

Nicholas & Harris Ltd ('N&H'), based in Salisbury, employs around 220 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.

Growth in sales revenues within the bread & free from business has continued to accelerate with a combined increase for the division of 9.3%, after adjusting for the acquisitions and the additional week of trading in the prior year. 

Brands and Licences

The Group remains primarily a retailer branded business, with sales of retailer own label products accounting for around 65% of our total revenue compared to 70% 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 69% of the low fat cake market in terms of value. The brand continues to perform slightly better than the category which declined by 13.4% in value terms compared to 11.1% on 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 growth of 15.2% retail sales year on year (source: AC Nielsen). This represents significant out-performance of the rest of the premium cake market.

We have recently launched two new products under the brand and we will 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 and Munchies. The celebration cake range is showing strong year on year growth which is being offset by a below market performance for the snacking range driven by lower levels of promotion when compared to the competition.

Disney

Access to the full portfolio of Disney properties allows us to maintain our position as the licensed celebration cake market leader. Brands within the portfolio such as Hannah Montana, High School Musical and Toy Story 3 celebration cake have been a success during the year backed up by the continued growth of the Princess property. The release of the second Cars movie in July 2011 will see us continue to drive our Disney business forward.

Other Celebration Cake Licences

These four major brands are complemented by a range of other licences which are particularly focused on driving celebration cake sales. Properties such as Ben 10 and Peppa Pig have their own target market and offer excellent additions to the range. Little Venice Cake Company has also recently joined the Finsbury brand roster. The first cake under the brand led by Mich Turner MBE will be launched for Christmas 2010 followed by an all year round range available in-store from January 2011.

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 £1 million 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.

We successfully completed a £2 million capital spend in January 2010, increasing the capacity for fresh free from bread. We introduced the Genius brand to the market last year and within 12 months have grown the retail sales to in excess of £10 million across the Retail and Foodservice channels. Genius is now the biggest brand in the free from Bakery market with a value market share of around 25% (Source: Nielsen Scantrak) and is listed in all major multiples, co-ops and many independent and convenience stores. At the beginning of 2010 we introduced new 600g sliced variants into the retail trade and 800g sliced variants into the Foodservice sector, where it is used by sandwich producers and stocked in major chains such as Starbucks. We will be expanding the range of fresh free from products beyond bread 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.

 

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 has recruited a Group Technical Director to help ensure 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.

 

The Group will aim to pass on increased costs to its customers as far as is reasonable in the circumstances whilst maintaining its tight control of overhead costs to mitigate the 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 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.

 

The Group has taken steps to improve the assessment of this promotional support to ensure an acceptable level of return on this expenditure. The strength of the brands at our disposal has also helped to mitigate the impact - this is reflected in the growth we have seen in Thorntons in particular.

 

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 is 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 3 July 2010 was £168.3 million (53 week period to 4 July 2009: £178.9 million), a decrease of £10.6 million (5.9%) year on year. Like for like sales from continuing operations decreased by £10.0 million after excluding the full year effect of prior year acquisitions (namely Goswells) and the extra 53rd week of trading in the prior year. .

 

Gross margin for the financial year was 28.0% representing an increase of 0.8% year on year. Production improvement initiatives, a decision to exit specific low margin business coupled with a bias towards premium products have assisted this increase.

 

Administrative expenses decreased by £2.2 million year on year, utilities decreased by £0.7 million, the Group has made good progress during the year in improving internal efficiencies.

 

 

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

 

 

		52 week period ended 3 July 2010
	Operating performance			Non-recurring significant items		Share options charge		Defined benefit pension scheme		Fair value of interest rate swaps/ foreign exchange contracts		Movement in the fair value of deferred consideration		As per Consolidated Statement of Comp-rehensive Income
	£000			£000		£000		£000		£000		£000		£000
Revenue	168,338			-		-		-		-		-		168,338
Cost of sales	(121,278)			-		-		-		-		-		(121,278)
Gross profit	47,060			-		-		-		-		-		47,060
Other costs excluding depreciation & amortisation	(36,089)			(399)		(131)		(14)		199		-		(36,434)
Other income	-			553		-		-		-		-		553
EBITDA	10,971			154		(131)		(14)		199		-		11,179
Depreciation & amortisation	(2,968)			-		-		-		-		-		(2,968)
Results from operating activities	8,003			154		(131)		(14)		199		-		8,211
Financial income	-			-		-		1,240		-		316		1,556
Financial expenses	(2,612)		`	-		-		(1,071)		(1,097)		(117)		(4,897)
Profit before tax	5,391			154		(131)		155		(898)		199		4,870
Taxation	(1,376)			(393)		37		(43)		251		(56)		(1,580)
Profit after tax	4,015			(239)		(94)		112		(647)		143		3,290

 

Adjusted profit before tax was £5.4 million (2009: £5.0 million). This was achieved after net interest payable of £2.6 million (2009: £2.6 million).

 

The significant non-recurring items in 2010 referred to above, totalling £0.2 million profit before tax relate to:

 

·; reorganisation costs (including redundancies) associated with the restructuring of the Group (£0.4 million)

·; curtailment of defined benefit pension scheme liabilities shown in other income of £0.6 million

·; within taxation on significant non-recurring items is a potential prior year tax inquiry liability of (£0.3 million)

 

 

		53 week period ended 4 July 2009
	Operating performance			Non-recurring significant items		Share options charge		Defined benefit pension scheme		Fair value of interest rate swaps		Movement in the fair value of deferred consideration		As per Consolidated Statement of Comp-rehensive Income
	£000			£000		£000		£000		£000		£000		£000
Revenue	178,931			-		-		-		-		-		178,931
Cost of sales	(130,180)			-		-		-		-		-		(130,180)
Gross profit	48,751			-		-		-		-		-		48,751
Other costs excluding depreciation & amortisation	(38,324)			(1,069)		(220)		(57)		-		-		(39,670)
Other income	-			-		-		-		-		-		-
EBITDA	10,427			(1,069)		(220)		(57)		-		-		9,081
Depreciation & amortisation	(2,790)			-		-		-		-		-		(2,790)
Results from operating activities	7,637			(1,069)		(220)		(57)		-		-		6,291
Financial income	-			-		-		1,309		-		-		1,309
Financial expenses	(2,589)			-		-		(1,086)		(1,793)		(357)		(5,825)
Profit before tax	5,048			(1,069)		(220)		166		(1,793)		(357)		1,775
Taxation	(1,296)			299		62		(46)		502		99		(380)
Profit after tax	3,752			(770)		(158)		120		(1,291)		(258)		1,395

 

 

The significant non-recurring items in 2009 referred to above, totalling £1.1 million loss before tax, can be broken down as follows:

 

·; reorganisation costs (including redundancies) associated with the integration of our cake business (£0.3 million)

·; exit costs relating to outgoing Chief Executive Officer (£0.5 million)

·; provision for company contributions to defined benefit scheme related to pension augmentation (£0.3 million)

 

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 7.0p for the 52 week period (53 week period 2009: 6.9p).

 

Basic earnings per share (EPS), calculated on the weighted average number of shares in issue during the year, is 5.7p (2009: 2.3p). Adjusted basic EPS is calculated by eliminating the impact of the items shown above and is 7.1p for the year (2009: 6.9p). The dilutive effect of share options is negligible.

 

Financial Key Performance Indicators

 

KPI	2010	2009	2008	2007	2006
Revenue	£168.3m	£178.9m	£165.1m	£107.6m	£72.0m
Adjusted EBITDA	£11.0m	£10.4m	£13.3m	£7.9m	£4.3m
Adjusted diluted EPS	7.0p	6.9p	10.5p	9.5p	6.3p
Net debt	£36.5m	£41.0m	£43.7m	£29.0m	£14.0m

 

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

Net 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. In June 2009, the Group (via N&H) acquired the entire issued share capital of Goswell Enterprises Ltd for a total consideration of £2.2 million (including costs), of which £1.7 million is deferred and unconditional. Loan notes have been issued in respect of the deferred consideration and these loan notes are interest free. The initial consideration was financed by the Group's existing cash flow.

 

During the year deferred consideration of £810,000 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 £2.4 million deferred consideration in respect of this acquisition, due to be paid over the next two years. This deferred consideration attracts interest payments at 6%.

 

During the year deferred consideration of £40,000 was paid in respect of the acquisition of Anthony Alan Foods Ltd acquired in October 2007. At the year end there remained a further £2.3 million deferred consideration in respect of the Anthony Alan Foods Ltd acquisition, due to be paid over the next two years. This deferred consideration attracts interest payments at 6%.

 

 

Cash Flow

 

The Group realised a net cash inflow from operating activities of £8.8 million during the financial year (2009: £8.2 million) representing an increase of 7% on the previous financial year. There was a reduction in our working capital requirement of £1.2 million compared to the last financial year reflecting the impact of an increased focus in this area over the past 12 months.

 

Corporation tax payments made in the financial year totalled £0.6 million (2009: £0.8 million), these payments took account of the research and development tax relief due to the Group and identified in the previous and current financial years. Capital expenditure in the year amounted to £3.5 million (2009: £3.4 million). Included in this spend was £2.0 million spent at UCB in advance of the national roll out of the Genius gluten free bread.

  

Debt & Bank Facilities

 

The Group's total net bank debt after deducting cash balances and including guaranteed loan notes as at 3 July 2010 was £36.5 million (4 July 2009: £41.0 million). Within this total net debt, £13.5 million is due within one year, including cash at bank, invoice finance and loan notes payable on demand (2009: £14.6 million). Net bank debt excludes deferred consideration payable in respect of acquisitions.

 

The Group's debt facility with HSBC Bank Plc totals £50.2 million, the key features of the facility are as follows:

 

§ overdraft (£2.0m)

§ confidential invoice discounting facility (£16.0m flexible)

§ 2 term loans repayable over five years (£12.9m)

§ 2 term loans repayable at the end of five years (£4.7m)

§ mortgage facility (£8.2m)

§ rolling asset finance facility (£6.4m)

 

Discounted deferred consideration of £6.0 million is outstanding at the year end and is payable over the next three years (2009: £7.1 million). Of this £4.4m (2009: nil) attracts an interest of 6% pa and £1.6m (2009: £7.1m) is interest free. There has been a change in the current year in relation to the treatment of loan notes issued as deferred consideration. Previously these had been shown in other interest-bearing loans and borrowings; they have been reclassified in the current year and for comparatives and are shown separately on the face of the Consolidated Statement of Financial Position as part of the deferred consideration. This change is presentational and has no impact on the reported result.

 

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 the UK's major multiple retailers. This debtor book stood at £21.4 million (2009: £21.9 million) at the period end date.

 

The Group recognises the inherent risk from interest rate rises. To mitigate these risks, the Group has five interest rate swaps in place with a total coverage of £26.4 million (equivalent to 72% of total net debt) at a weighted average rate of 4.9% and a forward starting fixed swap arrangement which was entered into in May 2010, this takes effect in July 2011 and runs for five years from that date.

 

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 0.7%, was 6.11% (2009: 5.26%).

 

Financial Covenants

 

The Board reviews the Group's cash flow forecasts and key covenants on a regular basis to ensure that it has adequate facilities to cover its trading and banking requirements with an appropriate level of headroom. The forecasts are based on management's best estimates of future trading. There has been no breach of covenants during the year.

 

Interest cover (based on adjusted EBITDA) for the 52 weeks to 3 July 2010 was 4.2 (2009: 4.0). Net debt to EBITDA (based on adjusted EBITDA) for the year to 3 July 2010 was 3.3 (2009: 3.9).

 

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. Existing bank facilities total £50.2m and the Group has stayed within these facilities during the year, meeting all existing covenant requirements. 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 corporation tax charge for the year was £1.6 million (2009: £0.4 million). This represents an effective rate of 32.4% (2009: 21.4%). The £1.6 million includes a potential prior year tax inquiry charge, the underlying effective rate of tax after eliminating the effect of this is 25.3%

 

There has been a change in presentation during the year. The net deferred asset (2009: liability) has been split to show the gross asset and liability position separately on the face of the Consolidated Statement of Financial Position and the prior year comparatives have been restated. This change is presentational and has had no impact on net assets or reported results.

 

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

 

Environmental matters

 

The Group is active in reducing its environmental impact either through investment in capital equipment or through active management initiatives. Capital investment in plant and machinery must include as part of its decision criteria the objectives of reducing energy requirement as well as reducing waste by-products. An example of successful management initiatives is within the Cake division where, with effect from August, all food waste will be sent for reprocessing into animal feed, rather than being sent to landfill. Our aim is to send zero waste of any kind to landfill and over the last 5 years we have reduced our waste to landfill by over a half. Significant project work has been undertaken to reduce the quantity of packaging used in our products and we estimate that this will deliver a 25% saving by weight.

 

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 Deal programme.

 

Consolidated Statement of Comprehensive Income

for the 52 weeks ended 3 July 2010 and 53 weeks ended 4 July 2009

				2010	2009
	Note	Before  significant  items	Significant non-recurring  items	Total	Before  significant  items	Significant non-recurring  items	Total
		£000	£000	£000	£000	£000	£000
Revenue	1	168,338	-	168,338	178,931	-	178,931
Cost of sales		(121,278)	-	(121,278)	(130,180)	-	(130,180)
Gross profit		47,060	-	47,060	48,751	-	48,751
Administrative expenses	2	(39,003)	(399)	(39,402)	(41,391)	(1,069)	(42,460)
Other income	3	-	553	553	-	-	-
Results from operating activities		8,057	154	8,211	7,360	(1,069)	6,291
Financial income	4	1,556	-	1,556	1,309	-	1,309
Financial expenses	4	(4,897)	-	(4,897)	(5,825)	-	(5,825)
Net financing expense		(3,341)	-	(3,341)	(4,516)	-	(4,516)
Profit before tax		4,716	154	4,870	2,844	(1,069)	1,775
Taxation	5	(1,187)	(393)	(1,580)	(679)	299	(380)
Profit from continuing operations		3,529	(239)	3,290	2,165	(770)	1,395
Profit for the financial year		3,529	(239)	3,290	2,165	(770)	1,395
Other comprehensive income
Actuarial losses on defined benefit pension scheme		(3,046)	-	(3,046)	(1,634)	-	(1,634)
Movement in deferred taxation on pension scheme liability		853	-	853	458	-	458
Foreign exchange translation differences		(24)	-	(24)	33	-	33
Other comprehensive expense for the financial year, net of income tax		(2,217)	-	(2,217)	(1,143)	-	(1,143)
Total comprehensive income for the financial year		1,312	(239)	1,073	1,022	(770)	252

Consolidated Statement of Comprehensive Income (continued)

for the 52 weeks ended 3 July 2010 and 53 weeks ended 4 July 2009

 

									2010		2009
			Note		Before  significant  items		Significant non-recurring  items		Total		Before  significant  items		Significant non-recurring  items		Total
					£000		£000		£000		£000		£000		£000
	Profit attributable to:
	Equity holders of the parent				3,214		(239)		2,975		1,942		(770)		1,172
	Non-controlling interest				315		-		315		223		-		223
	Profit for the financial year				3,529		(239)		3,290		2,165		(770)		1,395
	Total comprehensive income attributable to:
	Equity holders of the parent				997		(239)		758		799		(770)		29
	Non-controlling interest				315		-		315		223		-		223
	Total comprehensive income for the financial year				1,312		(239)		1,073		1,022		(770)		252
Earnings per ordinary share (pence)
	Basic		6						5.7						2.3
	Diluted		6						5.7						2.3

 

Consolidated Statement of Financial Position

 at 3 July 2010 and 4 July 2009

			Restated
		2010	2009
		£000	£000
Non-current assets
Intangibles		62,057	62,221
Property, plant and equipment		25,978	25,237
Other financial assets - investments		25	25
Deferred tax assets		1,752	830
		89,812	88,313
Current assets
Inventories		4,531	4,386
Trade and other receivables		23,881	24,868
Cash and cash equivalents		2,803	1,273
Other financial assets - fair value of forward/foreign exchange contracts		199	-
		31,414	30,527
Total assets		121,226	118,840
Current liabilities
Other interest-bearing loans and borrowings		(16,089)	(15,663)
Trade and other payables		(27,600)	(27,007)
Provisions		(424)	(750)
Deferred purchase consideration		(2,418)	(1,229)
Contingent deferred purchase consideration		-	(2,285)
Other financial liabilities-fair value of interest rate swaps/foreign exchange		(2,598)	(1,501)
Current tax liabilities		(1,069)	(371)
		(50,198)	(48,806)
Non-current liabilities
Other interest-bearing loans and borrowings		(22,454)	(25,631)
Provisions and other liabilities		(553)	(408)
Deferred purchase consideration		(3,611)	(3,564)
Deferred tax liabilities		(1,676)	(1,338)
Pension fund liability		(3,629)	(1,291)
		(31,923)	(32,232)
Total liabilities		(82,121)	(81,038)
Net assets		39,105	37,802
Equity attributable to equity holders of the parent
Share capital		527	514
Share premium account		26,918	26,680
Capital redemption reserve		578	578
Retained earnings		10,590	9,701
		38,613	37,473
Non-controlling interest		492	329
Total equity		39,105	37,802

These financial statements were approved by the Board of Directors on 29 September 2010 and were signed on its behalf by:

 

Stephen Boyd (Director)

 

Registered Number 204368

 

 

Consolidated Statement of Changes in Equity

for the 52 weeks ended 3 July 2010 and 53 weeks ended 4 July 2009

			Note	Share Capital	Share premium	Capital redemption reserve	Retained earnings	Non-controlling interest		Total equity
				£000	£000	£000	£000	£000		£000
	Balance at 29 June 2008			514	26,680	578	10,584	185		38,541
	Profit for the year			-	-	-	1,172	223		1,395
	Other comprehensive income/(expense):
	Actuarial loss on defined benefit pension plan			-	-	-	(1,634)	-		(1,634)
	Deferred tax movement on pension scheme actuarial loss			-	-	-	458	-		458
	Foreign exchange translation differences			-	-	-	33	-		33
	Total other comprehensive expense			-	-	-	(1,143)	-		(1,143)
	Total comprehensive income for the period			-	-	-	29	223		252
	Transactions with owners, recorded directly in equity:
	Impact of share based payments			-	-	-	220	-		220
	Dividend paid		8	-	-	-	(1,132)	(79)		(1,211)
	Balance at 4 July 2009			514	26,680	578	9,701	329		37,802
	Balance at 5 July 2009			514	26,680	578	9,701	329		37,802
	Profit for the year			-	-	-	2,975	315		3,290
	Other comprehensive income/(expense):
	Actuarial loss on defined benefit pension plan			-	-	-	(3,046)	-		(3,046)
	Deferred tax movement on pension scheme actuarial loss			-	-	-	853	-		853
	Foreign exchange translation differences			-	-	-	(24)	-		(24)
	Total other comprehensive expense			-	-	-	(2,217)	-		(2,217)
	Total comprehensive income for the period			-	-	-	758	315		1,073
	Transactions with owners, recorded directly in equity:
	Shares granted during the year			13	238	-	-	-		251
	Impact of share based payments			-	-	-	131	-		131
	Dividend paid		8	-	-	-	-	(152)		(152)
	Balance at 3 July 2010			527	26,918	578	10,590	492		39,105

 

Consolidated Cash Flow Statement

for the 52 weeks ended 3 July 2010 and 53 weeks ended 4 July 2009

	Note	2010	2009
		£000	£000
Cash flows from operating activities
Profit for the year		3,290	1,395
Adjustments for:
Taxation		1,580	380
Net finance expenses		3,341	4,516
Depreciation		2,804	2,753
Amortisation of intangibles		164	-
Loss on disposal of plant, equipment and trademark		-	15
Share options charge		131	220
Current service cost element of pension scheme		286	407
Contributions by employer to pension scheme		(272)	(350)
Curtailment of defined benefit pension scheme liabilities		(553)	-
Fair value charge for foreign exchange contracts		(199)	-
Operating profit before changes in working capital		10,572	9,336
Changes in working capital:
(Increase) / decrease in inventories		(145)	723
Decrease in trade and other receivables		987	356
Increase in trade and other payables		382	1,596
Cash generated from operations		11,796	12,011
Interest paid		(2,365)	(3,024)
Tax paid		(614)	(751)
Net cash from operating activities		8,817	8,236
Cash flows from investing activities
Purchase of property, plant and equipment		(3,546)	(3,393)
Proceeds from disposal property, plant and equipment		-	30
Purchase of subsidiary companies		(850)	(1,025)
Net cash used in investing activities		(4,396)	(4,388)
Cash flows from financing activities
(Repayment)/drawdown of invoice discounting		(1,065)	12,454
Repayment of bank loans		(2,366)	(6,039)
Repayment of former bank facility		-	(1,737)
Repayment of loan notes		(49)	(50)
Drawdown of asset finance facilities		1,653	1,277
Repayment of asset finance liabilities		(1,139)	(1,337)
Issue of ordinary share capital		251	-
Equity dividend paid	8	-	(1,132)
Non-controlling interest dividend paid	8	(152)	(79)
Net cash (used)/generated by financing activities		(2,867)	3,357
Net increase in cash and cash equivalents		1,554	7,205
Opening cash and cash equivalents		1,273	(5,965)
Effect of exchange rate fluctuations on cash held		(24)	33
Cash and cash equivalents at end of period		2,803	1,273

 

 

Notes to Financial Statements

1 Revenue and segment information

IFRS 8 'Operating Segments' requires that operating segments be 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 segment was originally defined as one operation involving the sale of celebration, health and indulgent products in the bakery sector and was reported as one segment. This segment has now been split into two segments "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 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.

 

Group operation costs 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, (1% charge in the previous year and the first half of the current financial year) 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 £1.4m (2009: £1.0m) being presented within 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)

 

	52 week period ended 3 July 2010
	Cake   £000	Bread & Free From £000	Group Operations £000	Total Group   £000
Revenue
External	124,600	43,738	-	168,338
Underlying operating profit	3,897	2,697	1,409	8,003
Non-recurring significant items				154
Fair value foreign exchange contracts				199
Share options charge				(131)
Defined benefit pension scheme				(14)
Results from operating activities				8,211
Financial income				1,556
Financial expenses				(4,897)
Profit before taxation				4,870
Taxation				(1,580)
Profit after taxation				3,290
Segment assets	86,435	30,986	52	117,473
Unallocated assets				3,753
Consolidated total assets				121,226
Segment liabilities	(30,009)	(10,267)	(541)	(40,817)
Unallocated liabilities				(41,304)
Consolidated total liabilities				(82,121)
Other segment information
Capital expenditure	1,026	2,520	-	3,546
Depreciation included in segment profit	1,827	977	-	2,804
Amortisation	-	164	-	164

 

Analysis of unallocated assets and liabilities:

	Assets		Liabilities
	£'000		£'000
Investments	25	Loans and borrowings	(38,543)
Financial instruments	199	Financial instruments	(2,598)
Cash and cash equivalents	2,803	Cash and cash equivalents	-
Taxation balances	726	Taxation balances	(163)
Unallocated assets	3,753	Unallocated liabilities	(41,304)

 

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.

Four customers with sales of £37m, £36m, £26m and £18m account for 70% 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)

 

	53 week period ended 4 July 2009
	Cake   £000	Bread & Free From £000	Group Operations £000	Total Group   £000
Revenue
External	140,684	38,247	-	178,931
Underlying operating profit	5,530	1,113	994	7,637
Non-recurring significant items				(1,069)
Fair value foreign exchange contracts				-
Share options charge				(220)
Defined benefit pension scheme				(57)
Results from operating activities				6,291
Financial income				1,309
Financial expenses				(5,825)
Profit before taxation				1,775
Taxation				(380)
Profit after taxation				1,395
Segment assets	88,675	28,222	224	117,121
Unallocated assets				1,719
Consolidated total assets				118,840
Segment liabilities	(27,311)	(10,261)	(616)	(38,188)
Unallocated liabilities				(42,850)
Consolidated total liabilities				(81,038)
Other segment information
Capital expenditure	1,046	2,347	-	3,393
Depreciation included in segment profit	1,929	824	-	2,753
Amortisation	-	-	-	-

 

Analysis of unallocated assets and liabilities:

 

	Assets		Liabilities
	£'000		£'000
Investments	25	Loans and borrowings	(41,294)
Cash and cash equivalents	1,273	Financial instruments	(1,501)
Taxation balances	421	Taxation balances	(55)
Unallocated assets	1,719	Unallocated liabilities	(42,850)

 

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.

Four customers with sales of £44m, £41m, £30m and £21m account for 76% 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)

 

An analysis by geographical segment is shown below:

 

Geographical split of turnover by destination				2010	2009
				£000	£000
United Kingdom				156,280	167,367
Europe				11,585	10,944
Rest of World				473	620
Total				168,338	178,931
Net asset and margin geographical split would not provide meaningful information owing to the necessity to allocate costs, assets and liabilities. Capital expenditure on segment assets, on a cash basis, in the year is in relation to the UK segment..
Geographical split of turnover by country of domicile			United Kingdom	Europe	Total
			£000	£000	£000
2010
Turnover			159,189	9,149	168,338
Gross Profit			44,480	2,580	47,060
Total assets			118,372	2,854	121,226
Total liabilities			(79,824)	(2,297)	(82,121)
Net assets			38,548	557	39,105
2009			United Kingdom	Europe	Total
			£000	£000	£000
Turnover			169,551	9,380	178,931
Gross Profit			45,909	2,842	48,751
Total assets			116,840	2,000	118,840
Total liabilities			(79,285)	(1,753)	(81,038)
Net assets			37,555	247	37,802

 

 

 

Notes (continued)

 

2 Expenses and auditors' remuneration Included in profit are the following:     2010  2009      £000 £000           Depreciation of owned tangible assets 2,282 2,138   Depreciation on assets under finance leases and hire purchase contracts 522 615   Difference on foreign exchange 356 388   Hire of plant and machinery - operating leases 285 323   Hire of other assets - operating leases 432 571   Share option charges 131 220   Movement on fair value of interest rate swaps 1,097 1,793   Research and development 1,497 1,487   Amortisation of intangibles 164 -     In addition to the above, an amount of £nil (2009: £60,000) relating to corporate finance fees has been capitalised during the year. These costs relate to acquisitions made during the year. Amortisation of intangibles for the year was £164,000 (2009:£nil) relating to the Goswell Enterprises Ltd acquisition during June 2009. Auditors' remuneration:   2010 2009    £000 £000       Audit of these financial statements 93 93 Amounts receivable by auditors and their associates in respect of:     Other services 11 - Other services in relation to taxation 15 83     The auditor's remuneration is in respect of KPMG Audit Plc. The fee for other services relate to advisory work carried out during the year on reporting matters, other services in relation to taxation in 2010 and 2009 includes tax inquiry work and tax planning.

 

 

 

Notes (continued)

 

3 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.

	2010	2009
	£000	£000
Reorganisation costs	(399)	(789)
Administrative expenses	-	(280)
Defined benefit pension scheme liability curtailment	553	-
	154	(1,069)

a) Reorganisation costs

The reorganisation costs relate to the following:

	2010	2009
	£000	£000
Reorganisation costs (including redundancies) associated with the restructuring of the cake business	(253)	(455)
Exit costs relating to outgoing senior personnel	(146)	(334)
	(399)	(789)
b) Administrative expenses In the prior year £280,000 relates to the provision for future company contributions as a result of a contractual liability for staff pension augmentation, relating to defined benefit scheme.
c) Defined benefit pension scheme liability curtailment Following a consultation period, the Memory Lane Cakes defined benefit scheme closed to future accrual on 31 May 2010. This closure has resulted in a curtailment of pension scheme liabilities, this credit of £553,000 has been treated as a significant non-recurring item and is shown as other income on the face of the Consolidated Statement of Comprehensive Income.

 

 

 

Notes (continued)

4 Finance income and expense

Recognised in the income statement

	2010	2009
	£000	£000
Finance income
Expected return on defined benefit pension plan obligation	1,240	1,309
Reduction in value of deferred consideration - Yorkshire Farm Bakeries and A&P Foods	153	-
Reduction in value of deferred consideration - Anthony Alan Foods Ltd	163	-
Total finance income	1,556	1,309
Finance expense
Interest on defined benefit pension plan obligations	(1,071)	(1,086)
Bank interest payable	(1,752)	(2,238)
Interest on interest rate swap agreements	(860)	(351)
Change in fair value of interest rate swaps	(1,097)	(1,793)
Unwinding of discount on deferred consideration - Goswell Enterprises Ltd	(58)	(2)
Unwinding of discount on deferred consideration - Yorkshire Farm Bakeries and A&P Foods	(45)	(173)
Unwinding of discount on deferred consideration - Anthony Alan Foods Ltd	(14)	(182)
Total finance expense	(4,897)	(5,825)

 

 

 

 

Notes (continued)

 

5 Taxation

Recognised in the income statement

	2010	2009
	£000	£000
Current tax expense
Current year	1,301	1,106
Adjustments for prior years	10	(84)
Current tax expense	1,311	1,022
Deferred tax expense
Origination and reversal of timing differences	52	(660)
Retirement benefit deferred tax charge	198	46
Adjustments for prior years	19	(28)
Deferred tax expense/(credit)	269	(642)
Tax expense in income statement	1,580	380

Reconciliation of effective tax rate

The tax assessed for the period is higher (2009: lower) than the standard rate of corporation tax in the UK of 28%. The differences are explained below:

 

	2010	2009
	£000	£000
Profit per accounts before taxation	4,870	1,775
Tax using the UK corporation tax rate of 28%, (2009: 28%)	1,364	497
Non-deductible expenses	22	6
Amortisation of intangible asset	46	-
Timing differences on share options	25	84
Unrelieved tax losses	2	5
Utilisation of tax losses	-	(63)
Recognition of tax losses	-	(81)
Differences on depreciation on IBA's and allowances claimed	76	-
Adjustments to tax charge in respect of prior periods	29	(112)
Overseas profits charged at different taxation rate	22	43
Subsidiaries profits charged at different tax rates	(6)	1
Total tax expense	1,580	380

The parent company has a deferred tax asset of £672,105 (2009: £672,105 restated at 28%). This asset has not been recognised in these Financial Statements as suitable profits are not expected to arise in the future.

 

 

 

 

Notes (continued)

6 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 52,378,466 (2009: 51,448,466).

 

Basic diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all potential dilutive ordinary shares. For 3 July 2010 the weighted average number is 52,578,967 shares, ( 2009: 51,734,501).

 

An adjusted earnings per share and a diluted adjusted earnings per share have also been calculated as in the opinion of the Board this will allow shareholders to gain a clearer understanding of the trading performance of the Group. These adjusted earnings per share exclude:

·; reorganisation and other significant non-recurring costs,

·; IAS 39 'Financial Instruments: Recognition and Measurement' fair value adjustment relating to the Group's interest rate swaps and foreign exchange contracts.

·; IAS 19 'Accounting for retirement benefits' relating to the net income

·; IFRS 3 'Business Combinations' discount charge relating to the deferred consideration payable for Anthony Alan Foods Limited, Yorkshire Farm Bakery and A&P Foods and Goswell Enterprises Ltd acquisitions.

·; The taxation effect at the appropriate rate on the adjustments and potential prior year taxation inquiry charge.

 

	Year ending 3 July 2010			Year ending 4 July 2009
	Earnings	Weighted average number of shares	Per share amount	Earnings	Weighted average number of shares	Per share amount
	£000	000's	Pence	£000	000's	Pence
Basic earnings per share
Basic earnings	2,975	52,378	5.7	1,172	51,449	2.3
Share option charge	131		0.3	220		0.4
Movement in the fair value of interest rate swaps/foreign exchange contracts	898		1.7	1,793		3.5
Defined benefit pension scheme	(155)		(0.3)	(166)		(0.3)
Fair value adjustments relating to acquisitions	(199)		(0.4)	357		0.7
Significant non-recurring items	(154)		(0.3)	1,069		2.1
Prior year tax inquiry	348		0.7	-		-
Taxation on adjustments	(144)		(0.3)	(916)		(1.8)
Adjusted earnings per share	3,700	52,378	7.1	3,529	51,449	6.9
Dilutive effect of options		201			286
Basic diluted earnings per share
Basic earnings	2,975	52,579	5.7	1,172	51,735	2.3
Adjusted earnings per share	3,700	52,579	7.0	3,529	51,735	6.9
The dilutive effect of share options is negligible.

 

 

 

 

Notes (continued)

 

7 Analysis of net debt

 

		As at year ended 4 July 2009 £000		Cash flow £000			As at year ended 3 July 2010 £000
Cash at bank		1,273		1,530			2,803
Loan notes		(85)		49			(36)
Debt		1,188		1,579			2,767
Debt due within one year		(2,365)		(1,234)			(3,599)
Debt due after one year		(24,125)		3,600			(20,525)
Invoice discounting due within one year		(12,454)		1,065			(11,389)
Hire purchase obligations due within one year		(974)		(306)			(1,280)
Hire purchase obligations due after one year		(2,312)		(208)			(2,520)
Total net debt		(41,042)		4,496			(36,546)
Net debt as detailed above excludes discounted deferred consideration of £4.4 million (2009: £5.5 million) and loan notes with a discounted value of £1.6m which were issued as part of the consideration of the purchase of the entire share capital of Goswell Enterprises Ltd. These are repayable over the next four years with the final payment due in June 2013.   8 Dividends The following dividends were paid during the period:     2010 2009       £000 £000               Nil (2008: 2.2p) per qualifying ordinary share - 1,132     During the year a dividend of £152,000 (2009: £79,000) was paid to the non-controlling interest, being the other shareholder in Lightbody Stretz Ltd.