FIF.L Regulatory News (FIF)

Finsbury Food Group Plc

Preliminary Results

Preliminary unaudited results for the year ended 1 July 2023

Summary

Finsbury delivered an encouraging performance and the Company is seeing steady demand for its product range whilst also continuing to make good progress on the Group's three strategic pillars of Excellence, Growth and Responsibility.

· Group revenue up 16.0% to £413.7 million driven by price and volume with:

o  UK foodservice, up 25.1%;

o  UK retail, which includes Lees Foods Limited ("Lees"), up 11.8%; and

o  The Overseas businesses up 25.0%.

· Gross margins reduced by 2.4 percentage points to 30.0% (2022: 32.4%) as the Group continues to be impacted by significant cost inflation.

· Operating profit*1 up 10.9% (£1.9 million) to £19.8 million driven by:

o  The acquisition of Lees within UK Bakery (£0.5 million), and

o  Growth in the Overseas businesses (£1.4 million).

· Profit before tax*1  up 4.2% to £17.7 million.

· Group EBITDA*1 up 8.8% to £31.3 million.

· Adjusted Diluted EPS*2 (pence per share) in line at 10.1p.

· Net bank debt*3 (excluding IFRS 16 debt): £21.4 million (2022: £20.6 million), representing 0.7 x FY23 EBITDA.

Strategic Highlights

· Acquisition of Lees on 27 January for a consideration of £5.7 million, earnings enhancing and performing in line with expectations.

· Successful recovery of cost inflation through pricing, purchasing and cost out strategies, continued focus on and delivery of Operating Brilliance Program.

· Continue to enhance product capability and capacity with a new buns and rolls line in our Sheffield factory completed during the first half of the year.

· Onboarding of strategic own label premium brioche contract.

· Commencement of our five-year automation strategy.

· Continued improvement in waste management and investment in employee engagement.

*1The Group uses Alternative Performance Measures (APMs) which are non-IFRS measures to monitor performance of its operations and of the Group as a whole. These APMs along with their definitions are provided in the Adjusted Earnings Before Interest, Tax, Depreciation and Amortisation ( EBITDA), Operating Profit and Profit Before Tax tables on the following page and the tables in the Financial Review Section. APMs are disclosed as, in the opinion of the Board, this will allow shareholders to gain a clearer understanding of the trading performance of the Group.

*2 Adjusted EPS has been calculated using profit, excluding amortisation of intangibles, significant non-recurring and other items as shown in the tables in the Financial Review Section net of associated taxation. In the opinion of the Board, the adjustments made will allow shareholders to gain a clearer understanding of the trading performance of the Group.

*3 Not including a new invoice financing facility of which £4.9 million was drawn at year end.

Recommended Acquisition of Finsbury

On 20 September 2023, Finsbury announced the recommended offer by Frisbee Bidco Limited, an entity ultimately owned by funds managed by DBAY Advisors Limited, to acquire the entire issued and to be issued share capital of the Company (the "Acquisition"), to be implemented by means of a Court-sanctioned scheme of arrangement (the "Scheme"). The Company remains in an "offer period" in accordance with the City Code on Takeovers and Mergers and it is expected that a scheme document containing full details of the Scheme and containing notices convening the requisite meetings of Finsbury shareholders to approve the Scheme will be sent to shareholders shortly.

John Duffy, Chief Executive of Finsbury Food Group PLC, commented:

"To have delivered revenue performance, which is in line with market expectations, in light of the significant macro-economic challenges that we have had to overcome, is testament to our resilient business model, ability to align ourselves with consumer trends and the dedication of our teams. Across the Group, we have seen a stable performance in UK retail, ongoing recovery in UK foodservice and continued growth in our Overseas division.

"The entire Group's relentless focus and commitment towards our strategic objectives has not wavered and we have built on the strong foundations of our Group scale platform with further progress made on our journey to Operating Brilliance. We will continue this drive over the coming years as we commence on five-year automation journey which will be a key enabler for the Group. We were delighted to complete the acquisition of Lees which consolidated our position in the sweet treats sector and has been performing in line with our expectations.

"Looking ahead, whilst we are starting to see some of the inflationary pressures ease, costs remain inflationary, and we expect to have to navigate further macroeconomic challenges over the course of the current financial year. We will continue to deliver for our customers through our diversified product range and channels."

For further information:

Notes to Editors:

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

· The Company is one of the largest speciality bakery groups in the UK and, together with its overseas division, has sales in the financial year ending 1 July 2023 of £413 million.

· The Company's bakery product range is comprehensive and includes:

· Large premium and celebration cakes;

· Small snacking cake formats such as cake slices and bites;

· Sweet treat products;

· Artisan, healthy lifestyle and organic breads through to rolls, muffins (sweet and savoury) and morning pastries, all of which are available both fresh and frozen dependent on customer channel requirements; and

· Gluten Free bread, morning goods and cake ranges.

· The Company is one of the largest ambient cake manufacturers in the UK, a market valued at £1.4 billion (source: Kantar Worldpanel 52 w/e 06 August 2023). The retail bread and morning goods market has a value of £6.3 billion (source: Kantar Worldpanel 52 w/e 03 September 2023). The retail Free From cake market is valued at £69.6 million (source: Kantar Worldpanel 52 w/e 06 August 2023). The retail Free From bread and morning goods market is valued at £186.4 million (source: Kantar Worldpanel 52 w/e 03 September 2023).

· The Company comprises a core UK bakery division and an overseas division:

· The UK bakery division has manufacturing sites in Cardiff, East Kilbride, Hamilton, Salisbury, Sheffield, Manchester, Pontypool and now Coatbridge.

· The overseas division comprises the Company's 85% owned company, Lightbody-Stretz Limited, which supplies and distributes the Group's UK-manufactured products and third-party products, primarily to Europe, and the Company's manufacturing facilities in Rybarzowice and Żywiec in Poland.

Adjusted EBITDA and Profit Reconciliation of Statutory to Adjusted

In order to set out the business performance, adjusted measures for the Group are presented which exclude the impact of significant non-recurring items and other items to present adjusted EBITDA, operating profit and profit before tax. In the opinion of the Board the adjusted measure allows shareholders to gain a clearer understanding of the trading performance of the Group. The analysis below shows the movement from adjusted to statutory measures.

*1The Group uses Alternative Performance Measures (APMs) which are non-IFRS measures to monitor performance of its operations and of the Group as a whole. These APMs along with their definitions are provided in the Adjusted EBITDA, Operating Profit and Profit Before Tax tables on the previous page and the tables in the Financial Review Section. APMs are disclosed as, in the opinion of the Board, this will allow shareholders to gain a clearer understanding of the trading performance of the Group.

Adjusted EPS has been calculated using profit, excluding amortisation of intangibles, significant non-recurring and other items as shown in the tables above net of associated taxation. In the opinion of the Board, the adjustments made will allow shareholders to gain a clearer understanding of the trading performance of the Group.

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

Chairman's Statement

Overview

FY23 has been a tough but encouraging year as Finsbury continues to drive growth and build momentum despite the unprecedented macroeconomic uncertainty. Inevitably these external factors have impacted both the consumer sector and wider market with persistent headwinds including input cost inflation, staff shortages and other supply chain disruptions. However, the Group has shown the resilience of its business model and expertise of its management team by delivering another year of good revenue growth, alongside sustained progress against our three key strategic pillars of Excellence, Growth and Responsibility, underpinned by our Operating Principles.

The Group's ability to remain aligned with market trends and the needs of its customers has been a key factor in achieving this performance. The business has consistently evidenced its agility in being able to adapt and achieve sustainable growth in adverse market conditions. While the various challenges are likely to persist in the near future, we can look forward with confidence that we have the right team in place to continue on this trajectory, execute on our strategy and further strengthen our position in the market.

Delivering growth in a difficult consumer environment

The Group's navigation of the various sector headwinds has allowed us to achieve a robust performance for the year with record revenues, strong operational progress and sustained investment in the business.

Group revenue increased to £413.7 million, including the acquisition of Lees Foods Limited ("Lees") in January 2023, showing growth of 16.0% versus the previous year, and 12.6% excluding Lees. This performance was bolstered by a strong second half performance, with revenues for the six months increasing 17.1% year-on-year. This growth in sales was achieved primarily by price increases and the incremental volume from Lees.

Adjusted EBITDA increased by 8.8% to £31.3 million (2022: £28.7 million), adjusted profit before tax increased by 4.2% to £17.7 million (2022: £17.0 million) and the Group delivered adjusted diluted EPS of 10.1p. The Group's net bank debt position by year end was £21.4 million (2022: £20.6 million), which does not include a new invoice financing facility of which £4.9m was drawn at year end.

Our strategy to have a diverse mix of product, channels and markets has been a driving factor to our sustained success and it mitigates a lot of the risk that impacts more focused businesses within our sector. The acquisition of Lees is a prime example of this strategy, with Finsbury entering adjacent markets and seeing the benefits on total Group sales immediately through being earnings enhancing and performing in line with expectations.

Dividend

Given the pleasing performance and sound financial position of the Group, The Directors expect to pay a further dividend of 1.73p per share by the end of the calendar year, taking the full year dividend to 2.60p per share subject to the terms and conditions set out in the announcement dated 20 September 2023 (relating to the recommended acquisition of Finsbury by DBAY).

Continued Strategic Execution and Drive for Operational Excellence 

Continued investment in our operations remains a central focus for the Group as we progress the Operating Brilliance Programme ("OBP"), which has allowed us to improve internal efficiencies and ensure the necessary flexibility required to navigate the challenging market conditions. The centralisation and consolidation of management and services continued during the year and this has provided a platform for improved communication, control and purpose at a time when it is most needed. There is a positive restlessness within the Group to achieve greater standards and to deliver continuous improvement. I have no doubt that it is this culture that sets the Group apart from many.

I am pleased to note that through this programme, and having deployed industry leading systems and strategies, Finsbury has finished the year with a new level of operational maturity which will enable considerable scale benefits, alongside increased ROI and greater resilience. However, whilst achievements to date have been pleasing and there is no room for complacency and we will not rest on our laurels as there is still much to do as we continue to drive Finsbury further forward and position the business to most effectively capitalise on the opportunities available to us within the market.

Our strategic acquisition of Lees has further consolidated our position in the sweet treats sector and has grown our manufacturing presence in Scotland. Lees has a well-established number one position in the UK meringue category and strong relationships across a high quality and diverse customer base.

During the period we have continued to enhance product capability and capacity with a new buns and rolls line in our Sheffield factory completed during the first half of the year, alongside further innovation in gluten-free recipes and product quality which is driving organic growth both in the UK and in Europe.

A Responsible Business

Being a responsible and ethical business is a core part of our strategy. We consistently strive to operate in an ethical and sustainable manner and to help our people play a positive role in the communities in which we operate.

As part of our ongoing strategy, we are committed to reducing our emissions in line with the Science Based Targets initiative ("SBTi") methodology and continue to work with our supply and customer partners to source raw materials in a sustainable and ethical way. I am pleased to report that our sustainability forum is now fully established to aid the governance of our Sustainable Approach, driving continued improvement in energy and waste management which remains a central focus of our ESG strategy.

We are dedicated to making Finsbury an enjoyable, attractive, safe and inclusive workplace for everyone. The progress made already has been considerable and there is more to come. The relationship with our various communities is important in order to ensure we remain a responsible local business and to be viewed as an attractive and enjoyable workplace for both current and future employees.

Investing in our people to drive growth

At the centre of our success is the brilliant team we have at Finsbury. We will continue to invest in our various teams with dedicated training programmes to develop skills and ensure we are up to date with best practice.

Specifically, during the year, we have continued to invest through graduate talent, apprenticeships and leadership development for the future, as well as launching our Diversity and Inclusion strategy through a series of policies, campaigns and training programmes so as to build awareness and understanding. We have continued to drive our ''HomeSafe'' safety programme and have initiated a culture-based safety improvement programme to drive further improvement in our safety performance. Moreover, we have further developed our Diversity and Inclusion, Health and Wellbeing and Community Engagement programmes.

I am pleased to report the seamless integration of Lees and I would like to take this opportunity to welcome them into the Group as we continue to build upon both businesses' existing retail relationships and unlock further commercial opportunities, including out of home eating.

On behalf of the Board, I extend our sincere gratitude and thanks to all of our staff for their ongoing diligence and commitment which has allowed Finsbury to navigate the various challenges and to achieve such a resilient performance during the period.

As mentioned, this has been a prolonged period of unprecedented macroeconomic challenges for the Group and the progress made to date would not have been possible without the expertise and hard work of our Board. Their dedication to navigate the various challenges and to ensure that the Company is constantly progressing has been excellent and I am sincerely grateful for their continued support.

Confidence in outlook and well positioned to achieve growth in the medium term

FY23 has been yet another period set against a backdrop of exceptional macroeconomic headwinds. Finsbury has consistently shown its ability to not only navigate these challenges but to achieve sustained growth. These results are a great achievement and whilst we recognise the ongoing turbulence in the sector, I believe we are well positioned to demonstrate both the resilience and agility of our business model driven by the expert management of our senior leadership team.

The investments we have made over a prolonged period of time have laid the necessary foundations to allow us to execute on our strategy and we have ended the period as a financially and operationally stronger Company. As we look to the future with a renewed focus on growth, we remain aligned with the consumer trends within the sector and to ensure that our proposition is as competitive as possible.

The Group continues to regularly monitor the wider macro environment and while there remains a considerable amount of uncertainty surrounding the impact of inflationary pressures, our performance during this period, and over the course of the last few years, gives us confidence in the Group's ability to continue on this trajectory.

Peter Baker

Non-Executive Chairman

25 September 2023

Chief Executive's Report

Throughout the period under review Finsbury has, once again, had to navigate significant macro challenges that have impacted ourselves, our customers and our suppliers. However, as previously, we have navigated those challenges whilst also growing our business to a record £413.7m turnover. This is a result of the entire Group's relentless focus and commitment towards our strategic objectives. We have built on the strong foundations of our Group scale platform with further progress made on our journey to Operating Brilliance, we completed the acquisition of Lees which consolidated our position in the sweet treats sector, and we have remained committed to our responsibility goals.

For many years we have been investing in our people, systems and bakeries to build a best-in-class speciality bakery Group of scale, one that is well diversified, efficient and agile thereby increasingly resilient in the face of adversity. Without these investments, Finsbury wouldn't have been able to deliver the performance it has in this financial year.

Record Revenue Performance Despite Continued Challenges

The Group delivered a resilient full year performance despite the challenges of persistent significant cost inflation and macroeconomic uncertainty. Total Group sales of £413.7m, which includes the acquisition of Lees Foods Limited ("Lees"), increased by 16.0% versus the previous year, and 12.6% excluding Lees. The Group delivered a strong second half performance, with H2 revenues up 17.1% versus the corresponding period in the prior year. The growth in sales has been driven primarily by price and the incremental volume from Lees.

The Group's core division, UK Bakery, which includes Lees, delivered a robust performance with a 14.5% sales increase versus the prior year, this includes a continuation of the recovery in foodservice, up 25.1%, whilst the Group's Overseas division again performed strongly, delivering a 25.0% increase versus the prior year. 

We have continued to operate in an incredibly challenging environment as significant cost inflation and macroeconomic uncertainly has persisted throughout the period. As a consequence of a decline in like-for-like volumes, ongoing cost inflation and the timing lag between cost inflation and price recovery, the Group has experienced some margin pressure in FY23. However, once again we have successfully focused on managing these challenges through commercial terms, operational improvements and other supply chain and overhead initiatives. This focus will remain as further challenges are expected in the new financial year.

Strategic Review

Our strategy is central to the ongoing success of our business and is spread over three key pillars: Excellence, Growth and Responsibility.

Excellence

We invest in our people and our operating sites to form a strong foundation to underpin our strategy. We create innovative high-quality bakery products that anticipate key market trends and ensure that customer and consumer needs are at the heart of our decision making.

Growth

Our Group seeks to drive growth both organically and through acquisition, targeting both the retail grocery and out-of-home channels in the UK and Europe. We have developed a strong licensed brand portfolio to complement our core retailer brand relationships.

Responsibility

Our commitment to building a sustainable operating model is built on a holistic framework that puts our people's development, engagement and health and wellbeing at the heart of our business. We strive to continually reduce our impact on the planet by investing in technology, expertise and driving shared ownership across our growth partners.

1. Excellence

Our continued investment in our Operating Brilliance Programme (OBP), underpinned by systems investment and centred around building stronger people and process capability, has enabled us to reach a more mature level of operational excellence.

Across the Group, we are committed to accelerating our operational maturity even further, deploying best in breed systems and strategies to deliver scale benefits, and building the business skills and process capability to deliver a strong return on investment and resilience. In FY23, our OBP initiatives were responsible for a combined £3.4 million of gross annual savings, and we expect these benefits to continue.

Throughout FY23 we have invested in the following key areas:

Moving forwards, in FY24, we will commence the deployment of phase two of our Operating Brilliance Programme which will focus on delivering end to end value chain improvement, benchmarking ourselves against businesses that have excelled in building world class operating excellence. This will allow us to broaden the brilliance programme scope whilst also building on our existing internal capabilities. In addition, we will continue our five-year automation journey which we see as the next stage of our capital investment following our significant historical investment in systems and growth capacity.

2. Growth

We are pleased to have delivered continued growth through a combination of organic growth and targeted acquisitions in FY23. During the year, we focused organic growth through category strategies that have put consumer insight at the heart of our UK growth initiatives, continued to deliver growth in Europe through our market leading cake and free from product formats and acquired Lees Foods Limited in January 2023.

Building best-in class customer relationships across all our customer channels is a key driver of growth, and we have continued to build on our already excellent relationships. Within Grocery, our best practice customer relationship management has driven organic growth, in categories such as artisan bread and premium buns and rolls, with our strategic customers. In Foodservice, we have utilised our longstanding customer relationships to grow in the out of home channel and notable successes have been with key partners such as KFC and JD Wetherspoon. We have also grown our share of the Celebration cake category using category management and consumer insight to launch best in class Licensed brand Celebration cakes. 

Looking ahead, we will continue to work collaboratively with our partners to drive sales growth in our key markets, leveraging our category marketing expertise, capitalise on continued rapid growth across our Lightbody Europe subsidiary aligned to our celebration, small cake and free from category strategies, accelerating progress through our licensed brand portfolio and a strong innovation pipeline. We will also seek to deliver sustainable celebration and sharing cake growth across tiered price points through quality, cost and innovation, moving quickly to introduce new product trends and formats whilst continuing to leverage strengths across the small cake product range and both branded and own label formats, to establish Finsbury as the category supplier of choice.

In order to further leverage our scale, through the course of this year we combined our historical UK Cake and Bread divisional commercial structure to form a new group structure. The evolution of our sales functions saw the creation of two teams, a Grocery sales team and a Foodservice sales team. In addition, we also created a Group Category and Insight team and simultaneously invested in more extensive bakery market sales data. These structural changes have led to a much more customer and consumer centric way of working across Finsbury and will enable us to further understand market and category performance, how shoppers are interacting with our products, and categories. From a team perspective, this has allowed us to be more efficient and effective as experts across bakery, providing one face to our valued retail partners. We believe this group commercial strategy gives us the best platform to deliver continued growth.

Acquisition has always been a key pillar of the Finsbury growth strategy and we were delighted to welcome the Lees business into the Group this year. Over the last 90 years, Lees has evolved it's manufacturing and product capabilities from being a very Scotland centric based business to now supplying the whole of the UK market. Lees is best known for its manufacturing expertise of meringues (largest supplier in the UK), snowballs and tea cakes under retailer own brand and its very own Lees' brand, and supplying all major retailers, the convenience channel and food service markets.

Over the last six months, we have been working alongside our new Lees colleagues to integrate both businesses together and based on our approach and thanks to the leadership teams within both businesses, the transition has progressed well. Our target is to have Lees fully integrated into the Finsbury group by the end of 2023. We are excited about the prospects the acquisition brings and we remain confident that we will be able to leverage the scale and breadth of the Finsbury commercial team and licensed brand portfolio to drive incremental growth for Lees more efficiently utilising our scale.

The Board continues to explore opportunities to accelerate the growth of the Group through targeted acquisitions and strategic investments. Our strong long term credit facilities provide financial flexibility for the Group to pursue bolt on acquisitions as they arise, however, our low equity rating makes it difficult to deliver on our significant growth ambitions via larger transformational deals even when these opportunities meet our returns criteria.

3. Responsibility

Acting with integrity and care, both for our people and towards the planet, has always, and will continue, to be one of our primary focuses.

Our people are the heart of our business, and we are always striving to ensure that Finsbury is a recognised as a great place to work in order to attract and retain the right skills. In line with this, we have continued to invest in developing key skills and capability as a source of competitive advantage, including graduate talent, apprenticeships and leadership development. We also deployed our Employee Engagement survey to assess the impact of our Employee Engagement programme so that we can drive further improvement in our workplace culture.

Last year we launched our Diversity and Inclusion strategy through a series of policies, campaigns and training programmes to develop awareness and understanding, and throughout this year we further developed this strategy as well as our Health and Wellbeing and Community Engagement programmes including actively supporting colleagues during the cost-of-living crisis.

Sustainability is in our DNA, with metrics and goals embedded within all our business strategies and in order to ensure that this is embraced fully we have increased the number of internal communications to make our team members aware of our sustainability performance across sites and the Group as a whole. We have also further expanded our utilities metering and monitoring and introduced clear metrics around energy, water and waste that are discussed monthly at all sites and are also included in our PLC Board reports, increasing the transparency of our performance internally. Pleasingly, we have reduced our like for like gas and electricity usage by 8.6% and 3.4% respectively vs FY22 data.

We have reduced our ''Scope 1 and 2'' emissions against our 2016 base line by 43%. We continue to source raw materials to a variety of sustainable and ethical standards, including Fair Trade and Rainforest Alliance. Our palm oil adheres to RSPO segregated sustainability standard. We have introduced SugaTrack at all sites which allows us to identify and measure food waste and drive reduction at a production line level and will mature the use of this through FY24. We have strengthened our partnership with FareShare throughout the year which has resulted in 15% more food being redistributed to local charities to support the national cost of living crisis compared to FY22.

I would like to take this opportunity to thank our teams across the Group for their continued hard work, determination and commitment. They have been faced with numerous external challenges, but their effort has not wavered at all, and this has allowed us to navigate the challenges we have faced and deliver a record performance.

Outlook

Over the past six years our Group has faced a series of unprecedented challenges from the impact of Brexit, the pandemic and most recently dramatic input cost inflation and falling consumer confidence. Notwithstanding the scale of these challenges, we have been able to deliver strong growth and continued financial progress. . This is possible due to the resilience and agility achieved on the back of consistent investment strategies over many years, which we are starting to realise the benefits of.

We now have best-in class systems, a rapidly maturing Operating Brilliance Programme and an operating structure that is much more customer and consumer centric. The next step on our journey is the commencement of our five-year automation strategy across multiple locations, with both light automation and more integrated solutions being implemented initially at Sheffield and Hamilton. This will be a critical enabler of our strategic resourcing strategy and will deliver strong financial paybacks over the medium term.

Looking ahead, whilst we are starting to see some of the inflationary pressures ease, costs remain inflationary, and we expect to have to navigate further challenges over the course of the current financial year. However, we believe that Finsbury is now a stronger Group able to leverage our scale, our diversified product range and channels in order to continue to deliver for our customers and our shareholders. 

During the first two months of the new financial year, the Group has progressed in line with expectations amidst the incredibly challenging macro environment as significant cost inflation and macroeconomic uncertainty persist into FY24. The pressure on margins that the Group experienced in FY23 continues into FY24. However, we continue to carefully monitor the wider sector and have already embarked on mitigating this margin pressure through the usual tools of operational efficiency improvement, capital investment and product re-engineering.

 John Duffy

Chief Executive Officer

25 September 2023

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018.

Financial Review

Group revenue to 1 July 2023 is £413.7 million, 16.0% higher than last year. The growth in revenue is the result of volume uplift of 1.7% including the Lees acquisition in the second half of the year and price uplift of 14.3%. The recovery of foodservice is driving much of this growth with a 25.1% revenue increase year-on-year, with UK retail revenues up 11.8%. Sales from our overseas division increased by 25.0% driven by a strong cake performance in France.

Group adjusted operating profit at £19.8 million is up 10.9% on last year. This growth is driven by the acquisition of Lees, growth in overseas markets and the continuing success of our Operating Brilliance Programme here in the UK. The challenges of persistent and significant cost inflation have adversely affected our adjusted operating profit margins which at 4.8% is slightly down on last year (2022: 5.0%).

The net assets of the Group as at 1 July 2023 was £126.6 million (2 July 2022: £118.9 million).

Dividend

A final dividend for the year ending 2 July 2022 of 1.67p per share was paid on 21 December 2022 taking the full year dividend to 2.5p per share. An interim dividend for the year ending 1 July 2023 of 0.87p per share (2022: 0.83p) was paid on 20 April 2023 to shareholders on the register at the close of business on 24 March 2023.

The Directors expect to pay a further dividend of 1.73p per share by the end of the calendar year, taking the full year dividend to 2.60p per share (2022: 2.50p) subject to the terms and conditions set out in the announcement dated 20 September 2023 (relating to the recommended acquisition of Finsbury by DBAY).

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

52 week period ended 1 July 2023

53 week period ended 2 July 2022

Other Significant and Non-Recurring Items

Significant non-recurring cost of £3.1 million relates to litigation and legal fees of £2.0 million, acquisition costs of £0.6 million, other restructuring costs £0.5 million. All items have been excluded from operating profit in the table above to better reflect the ongoing trading position.

Earnings per Share (EPS)

EPS comparatives to the prior year can be distorted by significant non-recurring items and other items highlighted above. The Board is focused on growing adjusted diluted EPS which is calculated by eliminating the impact of the items highlighted above as well as amortisation of intangibles and incorporates the dilutive effect of share options. Adjusted diluted EPS is 10.1p (2022: 10.1p).

*Further details on adjustments can be found in Note 8.

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

Cash Flow

Cash generated from operating activities increased to £31.3m. Increased working capital of £3.3m driven by the growth in the business reduced this to £28.0m. Interest paid totals £2.1m. Taxation at £3.9m (2022 £2.0m) is higher than 2022 driven by higher taxable profits with a tax impact of +£0.5m, higher effective tax rates +£0.9m and phasing of instalments +£0.5m. Cash out flow relating to SNRs costs (note 5) was £1.6m and should be considered as one off in nature.

The resulting net cash from operating activities is £20.3m which finances spend on capital investment (£8.8 million) and payment of acquisition of subsidiary, net of cash received of £5.7m as the Company acquired 100% of the share capital of Lees Foods Limited ("Lees") in January 2023. The cash flows associated with the dividend are £3.2m relating to the final dividend of £2.1m paid in December 2022 (1.67pps) and an interim dividend of £1.1m for 2023 paid April 2022 (0.87pps).

Debt and Bank Facilities

The Group's total net debt is £21.4 million (2022: £20.6 million), up £0.7 million from the prior year. The Group secured selective receivables finance (SRF) facility with effect from June 2023.

The Group recognises the inherent risk from interest rate rises, and uses interest rate swaps to mitigate these risks. The Group has one swap to 10 June 2027 with a coverage of £10.0 million fixed at a rate of 2.589%. At the year end date the total balance of swaps was £10.0 million (2022: £20.0 million). The counterparty to these transactions is HSBC Bank Plc.

The effective interest rate for the Group during the year, taking account of the interest rate swap in place with average combined SONIA and EURIBOR rate at 2.69%, was 4.61% (2022: base rate 0.60% and LIBOR at 0.263%, was 1.8%).

Financial Covenants

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

Interest cover (based on adjusted earnings before interest, tax, depreciation and amortisation - EBITDA) for the 52 weeks to 1 July 2023 was 14.7 (2022: 48.6); minimum cover required is 4.0 times. Net bank debt to EBITDA (based on adjusted EBITDA) for the 52 weeks to 1 July 2023 was 0.7 (2022: 0.7) maximum level required under our new banking facility is 3.0 times.

Taxation

The Group taxation charge for the year was £4.8 million (2022: £2.7 million). The effective rate of tax on profits before significant and non-recurring and other items are shown in the table showing trading performance on page 12, is 24.5% (2022: 18.0%). This uplift is driven by an increase in UK tax rates from 19% to 25%, overseas profits charged at different tax rates and prior year adjustments. You can find further details on the tax charge in Note 7.

Financial and Non-Financial Key Performance Indicators

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

The Group Board receives a regular overview of all KPIs.

John Duffy

Director

25 September 2023

Consolidated Statement of Comprehensive Income (unaudited)

for the 52 weeks ended 1 July 2023

Consolidated Statement of Financial Position (unaudited)

 at 1 July 2023

Registered Number 00204368

The Notes on pages 20 to 30 form an integral part of these Financial Statements.

Consolidated Statement of Changes in Equity (unaudited)

for the 52 weeks ended 1 July 2023

Consolidated Cash Flow Statement (unaudited)

for the 52 weeks ended 1 July 2023

Notes to the Consolidated Financial Statements

Presentation of Financial Statements

Basis of Preparation

The financial information on pages 16 to 19 is extracted from the Group's consolidated Financial Statements for the 52 week period ended 1 July 2023.

The unaudited financial information included in this preliminary results announcement for the 52 week ended 1 July 2023 and audited financial information for the 53 week ended 2 July 2022 does not constitute statutory accounts within the meaning of sections 434(3) and 435(3) of the Companies Act 2006 or contain sufficient information to comply with the disclosure requirements in accordance with UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006. The "requirements of the Companies Act 2006" here means accounts in accordance with "International Accounting Standards" as defined in section 474(1) of that Act, as it applied immediately before Implementation Period ("IP") completion day (end of transition period), including where the Group also makes use of standards which have been adopted for use within the United Kingdom in accordance with regulation 1(5) of the International Accounting Standards and the European Public Limited Liability Company (Amendment etc.) (EU Exit) Regulations 2019

Statutory financial statements for the 53 week ended 2 July 2022 were approved by the Board of directors on 23 September 2022 and have been delivered to the Registrar of Companies. The report of the auditors on these financial statements was unqualified

Basis of Accounting

The Group's consolidated Financial Statements for the year ended 1 July 2023 have been prepared by the Directors in accordance with UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006. The Directors are satisfied that the Group has adequate resources to continue to operate for a period of not less than 12 months from the date of approval of the Financial Statements and that there are no material uncertainties around their assessment. Accordingly, the Directors continue to adopt the going concern basis of accounting.

The Group's principal accounting policies have been consistently applied throughout the year and will be set out in the notes to the Group's 2023 Annual Report.

Going Concern

When considering going concern, judgement must be made as to the impact of the ongoing macro challenges. Forecasts have been built on a bottom-up basis and stress tested to prepare an approved budget used as a basis for reviewing going concern. Risks and opportunities have been considered, and plausible downside risks have been assessed. Having reviewed the Group's short and medium-term plans and available financial facilities, the Board has reasonable expectations that the Group has adequate resources to continue in operational existence for the next 12 months and the foreseeable future.

The Group meets its funding requirements through internal cash generation and bank credit facilities, which are committed until June 2026. Committed banking facilities are £60.0 million with a further accordion available of £60.0 million, net bank debt at the year end was £21.4 million. The Group's forecasts and projections, taking account of possible changes in trading performance, show that the Group will be able to operate comfortably within its current bank facilities. The Group has a relatively conservative level of debt to earnings with a debt to adjusted EBITDA ratio of below one.

The Board reviews the Group's covenants on a regular basis to ensure that it has adequate facilities to cover its trading and banking requirements with an appropriate level of headroom. The forecasts are based on management's best estimates of future trading. There has been no breach of covenants during the year and none expected during the next 12 months. All covenant tests were passed at the year end.

While it is difficult to predict exactly how macro challenges will develop during the next 12 months, the Group's approach to responding to them will remain unchanged, with a consistent focus on commercial terms, operational improvements and other supply chain and overhead initiatives. Our robust performance to date is a further validation of the Group's range of quality products, the viability of our operational strategy and the long-term prospects of our selected markets. We will continue to monitor closely and work through ongoing pressures using the same strategies employed to date.

The Board is encouraged by the continuation of the Group's sales momentum and the progress made against the three strategic pillars of Excellence, Growth and Responsibility. While a level of uncertainty is likely to persist, the Board believes that steady ongoing demand and the Group's market position, diverse product range (including the fully commissioned new buns and rolls capacity) and track record of successfully navigating challenges as they arise stand the Company in good stead for the rest of the year.

We continue to see opportunities for significant sales growth through gaining market share in existing areas, and targeted acquisitions. On 27 January 2023 the Company acquired 100% of the share capital of Lees Foods Limited ("Lees"), a leading manufacturer of meringues, teacakes and snowballs. Lees has a broad customer base and holds strong supply relationships with the leading UK supermarkets in addition to foodservice and export customers. The Finsbury Board believes that it will be able to leverage the scale and breadth of the Finsbury commercial team and licensed brand portfolio to drive incremental growth for Lees. In addition, there will be scale cost synergies over time. This complements our increased holding of our French subsidiary from 50% to 85% in February 2022 reflecting our continued desire to invest behind our European growth.

On 20 September 2023, Finsbury announced the recommended offer by Frisbee Bidco Limited, an entity ultimately owned by funds managed by DBAY Advisors Limited, to acquire the entire issued and to be issued share capital of the Company, to be implemented by means of a Court-sanctioned scheme of arrangement. The Board is confident that Finsbury will continue to operate successfully under DBAY's stewardship in the private market, with access to DBAY's investment and operational support to pursue the current strategy of scaling Finsbury's buy and build M&A in the future.

The cash consideration payable to the Finsbury Shareholders under the terms of the Cash Offer will be financed by a combination of equity to be invested by funds managed by DBAY and debt to be provided under a new facilities agreement entered into with the Bidco Group. The Directors have considered the terms of the financing arrangements against the board approved budget, including plausible downsides. Based on this assessment, should the acquisition proceed, the Board has reasonable expectations that the Group has adequate resources to continue in operational existence for the next 12 months.

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Board continues to adopt the going concern basis in preparing the Financial Statements for both the Group and the Parent Company.

New and Upcoming Standards

The following new standards, new interpretations and amendments to standards and interpretations are applicable for the first time for the financial year ended 1 July 2023.

None of the amendments to the above standards had a material impact on the Financial Statements.

There are a number of new standards, interpretations and amendments to existing standards that are not yet effective and have not been adopted early by the Group. The future introduction of these standards is not expected to have a material impact on the Financial Statements of the Group.

Work will continue in the new financial year to assess the impact of the new standards and interpretations on the Group's Financial Statements.

On 27 January 2023 the Group acquired the entire share capital of Lees Foods Limited ("Lees") for £5.7 million. Lees has a UK market-leading position in the manufacture of meringues and has significant capability in the sweet treats category, adjacent to Finsbury's existing markets. The acquisition is in line with Finsbury's strategy to diversify its product capability into areas with high growth potential.

Details of the purchase consideration, the net assets acquired and the goodwill are as follows:

Purchase consideration:

The cash outflow under 'payment of acquisition of subsidiary, net of cash received' of £5,704,000 on the face of the Consolidated Cash Flow Statement in the 52 weeks ended 1 July 2023 relates to the following:

The acquisition had the following effect on the Group's assets and liabilities:

The goodwill is attributable to deferred tax liability £430,000 relating to the taxable temporary differences arising from the recognition of an intangible asset and goodwill of £172,000 attributable to the workforce and profitability of the acquired business.

This is an estimate, the valuation will be concluded at our interim reporting on 30 December 2023 . 

The acquired business revenue included within these financial results amounts to £11,936,000, profit after tax of £481,000 for the period 27 January 2023 to 1 July 2023 .If the acquisition had occurred on 2 July 2022 revenue and profit after tax for the period 2 July 2022 to 1 July 2023 would have been £24,023,000 and £288,000 respectively.

The fair value of acquired trade receivables is £2,777,000, the gross contractual amount for trade receivables due is £2,784,000, with a loss allowance of £7,000 recognised on acquisition.

Deferred consideration of £0.5 million paid during the year relates to the final quarterly instalment for the acquisition of Ultrapharm Limited. Amounts charged to finance expenses during the year for the unwinding of the discounting is £4,000 (2022: £54,000).

Operating segments are identified on the basis of the internal reporting and decision making. The Group's Chief Operating Decision Maker is deemed to be the Board, as it is primarily responsible for the allocation of resources to segments and the assessment of performance by segment. The Board assesses profit performance principally through adjusted profit measures consistent with those disclosed in the Financial Statements.

The UK bakery segment manufactures and sells bakery products to UK grocery and foodservice sectors. It comprises seven subsidiaries all of which manufacture and supply food products through the channels described above. These subsidiaries have been aggregated into one reportable segment as they share similar economic characteristics. The economic indicators considered are the nature of the products and production process, the type and class of customer, the method of distribution and the regulatory environment.

The overseas segment procures and sells bakery products to European grocery and foodservice sectors. It comprises Lightbody Europe SAS and Ultraeuropa SP.z.o.o., Ultraeuropa has manufacturing facilities in Poland where it manufactures and sells Free From bakery products into the European markets.

The UK bakery segment also made sales directly to overseas markets.

The Group has one customer (2022: two) which individually account for 10% or more of the Group's total revenue. This customer individually accounts for 23%. In the prior year two customers accounted for 24% and 12% of the revenue in the 53 weeks to 02 July 2022

Included in profit are the following:

Auditors' remuneration:

The Group presents certain items as significant and non-recurring. These relate to items which, in management's judgement, need to be disclosed by virtue of their size or incidence in order to obtain a more meaningful understanding of the financial information. They reflect costs that will not be repeated and therefore do not reflect ongoing trading of business which is most meaningful to users.

Included within significant non-recurring items shown in the table on page 12 of the Financial Review section are the following costs:

Acquisition costs are those associated with the acquisition of Lees (2022 costs related to an aborted acquisition during the year). Litigation and legal costs of £2.0 million (2022: £0.9 million) are in relation to a dispute over the consideration paid for an earlier year acquisition. Reorganisation costs of £0.5m relate to organisation design changes during the year to align the Group structure across all functions, there was a release of unused provision in the prior year.

Costs in the prior year of £0.3 million related to fixed assets disposals. The release of site closure provisions of £0.8 million in the prior year related to lease costs that had been avoided due to successful re-letting of closed site units.

Recognised in the Consolidated Statement of Comprehensive Income

Finance costs have increased as a result of higher average debt during the year and increases in SONIA and Euribor rates.

Recognised in the Consolidated Statement of Comprehensive Income

Reconciliation of Effective Tax Rate

The weighted average hybrid rate of UK, Polish and French tax is 22.2% (2022: 19.5%). The tax assessed for the period is higher (2022: lower) than the hybrid rate of UK, French and Polish tax. The UK Corporation Tax rate for the period is 20.5% (2022: 19%). The differences are explained below:

The UK Corporation Tax rate increase from 19% to 25% from 1 April 2023 was substantively enacted in March 2021. The deferred tax assets and liabilities at 1 July 2023 have been calculated based on a rate of 25%.

The adjustment of £320,000 for the prior year includes disallowable expenses relating to acquisition costs, capital allowances and research and development expenditure credits being different to the assumed levels at the time of preparation of the Annual Report.

The Company has an unrecognised deferred tax asset of £239,000 (2022: £239,000) relating to capital losses carried forward. This asset has not been recognised in the Financial Statements as it is not expected that suitable gains will arise in the future in order to utilise the underlying capital losses.

Basic earnings per share for the period is calculated on the basis of profit for the year after tax, divided by the weighted average number of shares in issue being 123,667,000 (2022: 124,265,000). 

Basic diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares. At 1 July 2023, the diluted weighted average number of shares in issue was 131,764,000, (2022: 132,352,000).

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

· Reorganisation and other significant non-recurring items;

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

· IAS 19 (revised) 'Accounting for Retirement Benefits' relating to net income;

· The taxation effect at the appropriate rate on adjustments; and

· Amortisation of intangible assets.