Baking brilliance
makes every day
special
Annual Report & Accounts 2018
1 Finsbury Food Group
Annual Report & Accounts 2018
Strategic Report
Highlights
The Group has achieved a stable and resilient
trading performance, growing like for like sales
and adjusted profit year on year, and reducing
net debt. We have achieved this despite cost
inflation and a volatile retail environment.
Highlights
These figures are for the 52 weeks ended 30 June 2018 and 52 weeks ended 1 July 2017 unless stated otherwise.
Adjusted Operating Profit
Adjusted Profit Before Tax
2018
£000
2017
£000
2018
£000
2017
£000
Results from operating activities
5,237
13,564
Profit before tax
4,475
13,038
Significant non-recurring items
– SNR (refer to Note 4 for detail)
Difference between defined benefit
pension scheme charges and cash cost
Movement in the fair value of foreign
exchange contracts
Adjustments SNR and other items
Adjusted results from operating activities
13,067
4,000
(411)
(200)
(49)
12,607
17,844
71
3,871
17,435
Significant non-recurring items
– SNR (refer to Note 4 for detail)
Difference between defined benefit
pension scheme charges and cash cost
Movement in the fair value of interest rate swaps
Movement in the fair value of foreign
exchange contracts
13,067
4,000
(134)
(143)
(49)
4
(555)
71
Adjustments SNR and other items
Adjusted profit before tax
12,741
17,216
3,520
16,558
Adjusted operating profit and profit before tax exclude significant and non-recurring and other items as shown in the tables above and includes
amortisation of intangibles. The adjusted operating profit has been given as in the opinion of the Board this will allow shareholders to gain
a clearer understanding of the trading performance of the Group.
Adjusted diluted EPS has been calculated using earnings, amortisation of intangibles, significant non-recurring and other items as shown in the
tables above. Other than significant non-recurring items the adjustments to EPS reflect non-cash items including amortisation of intangibles,
as in the opinion of the Board this will allow shareholders to gain a clearer understanding of the underlying trading performance of the Group.
2 Finsbury Food Group
Annual Report & Accounts 2018
Group Performance
Measures
Statutory Measures
Contents
Group Revenue1
£290.2m
2.4%
on a like for like basis
Group Revenue
£303.6m
3.4%
Adjusted EBITDA
£25.6m
2.7%
Adjusted Operating Profit
£17.8m
2.3%
Adjusted Profit before Tax
£17.2m
4.0%
Adjusted EPS
10.2p
4.1%
Capital Investment
£12.6m
In line
Net Debt
£15.6m
10.5%
Total Dividend
3.3p
10.0%
EBITDA
£13.0m
38.3%
Operating Profit
£5.2m
61.4%
Profit before Tax
£4.5m
65.7%
Basic EPS
1.7p
76.1%
The Group uses Alternative Performance
Measures (APMs) which are non-IFRS
measures to monitor performance of its
operations and of the Group as a whole.
These APMs along with their definitions
and reconciliations to IFRS measures are
provided in the tables on the previous
page, narrative below and the tables
in the Financial Review Section.
1Like for like revenue is the revenue
from operations excluding the revenue
from closed bakeries during the first
half of the current year.
To view our Annual Report online visit
finsburyfoods.co.uk/investor-relations/
annual-reports
Strategic Report
01 Highlights
03 Chairman’s Statement
05 Our Business
07 Market Review
09 Strategy and Objectives
11 Business Model
15 Chief Executive’s Report
20 Key Performance Indicators
23 Risk Report
27 Financial Review
Corporate Governance
31 Chairman's Introduction to Governance
32 Report on Corporate Governance
35 The Directors
37 Directors' Report
39 The GEC
40 Audit Committee Report
42 Directors' Remuneration Report
(unaudited)
48 Statement of Directors' Responsibilities
in Respect of the Annual Report and the
Financial Statements
49
Independent Auditor's Report to the
Members of Finsbury Food Group Plc
Financial Statements
53 Consolidated Statement of Profit and
Loss and Other Comprehensive Income
54 Consolidated Statement of Financial
Position
55 Consolidated Statement of Changes
in Equity
56 Consolidated Cash Flow Statement
57 Notes to the Consolidated Financial
Statements
87 Company Balance Sheet
88 Company Statement of Changes in Equity
89 Notes to the Company's Financial
Statements
97 Advisers
Corporate GovernanceFinancial StatementsStrategic Report
3 Finsbury Food Group
Annual Report & Accounts 2018
Chairman's Statement
We have demonstrated our resilience
in a changing market, and an ability
to adjust to keep our strategy
on track.
£290.2m
Excluding the revenue associated
with the closed bakeries, sales
grew by 2.4%.
£25.6m
Adjusted EBITDA £25.6 million
up 2.7% from last year’s EBITDA
of £24.9 million.
£17.2m
Adjusted Profit Before Tax
of £17.2 million, up 4.0% on last
year when excluding significant
non-recurring and other items.
3.3p
The dividend per share of 3.3p
per share is up 10% on last year’s
dividend of 3.0p per share.
4 Finsbury Food Group
Annual Report & Accounts 2018
Chairman's Statement
" We continue to build a Group of scale, but one
that can deal with the manufacturing complexity
and flexibility required for premium and
higher-margin products."
The overall story from the year is one of a stable
trading performance by the Group, delivered
in the face of unprecedented cost inflation of
commodity inputs, especially butter. We have
achieved a like for like top-line and an underlying
bottom-line growth despite this cost pressure,
and in a rapidly changing market. This not only
demonstrates our resilience, but also that we
have the operational abilities to adjust, keep
our strategy on track, and achieve the financial
performance expected by our investors.
Revenues were up 2.4%, which excludes
revenues from our closed loss-making Grain
D’Or factory. Including this, Group revenues
are down 3.4%. Profit before tax is £4.5 million,
reflecting significant one-off closure costs,
but is 4.0% up on last year on an adjusted basis.
Cash generated from operations increased
by 19.8% to £26.9 million, due to the strong
underlying performance, and net debt is further
reduced to 0.6 times EBITDA. We have also
announced a growth in the dividend. The final
dividend per share of 2.2p will take the total
dividend for the year to 3.3p per share, up 10%
from last year’s dividend of 3.0p per share.
There were no changes to the Board of Directors
during the year. The Board has adopted the
Quoted Companies Alliance Code and we
explain our compliance in the Corporate
Governance Report.
The Vision Remains the Same
Our vision is to be a leading speciality bakery
group, producing a broad range of high-quality
products that deliver growth and differentiation
for our customers, while fulfilling the needs of end
consumers, both in the UK and into Europe.
We continue to build a Group of scale, but
one that can deal with the manufacturing
complexity and flexibility required for premium
and higher-margin products. For ten years
we've been doing this while improving margins
and efficiency, reducing debt and improving
diversification. We believe scale will become
increasingly important in the food manufacturing
sector as we see our main customers
getting larger.
The bakery sector, outside of sliced bread, is
reasonably unconsolidated. Over the years we
have made major acquisitions and investments,
targeting or evolving opportunities based on
consumer trends, market niches, growing
channels and added-value products that
retail and foodservice customers are trying
to develop.
Through a combination of organic growth and
targeted acquisitions, we will continue to invest
to consolidate and grow in existing areas, such
as round cake and artisan bread, and expand
into new areas. To this end, our successful
investment programme will continue. We will
invest to expand our capabilities in new product
formats, and to diversify into new channels such
as foodservice cake, and into healthier style
products, particularly 'Free From'. We have further
strengthened our capabilities, with the acquisition
of Free From baker Ultrapharm after the year end.
The Group has increased in scale, and the
individual businesses benefit from this. A lot
of work has gone into creating a structure that
enables Group-wide cost-effectiveness and
allows innovation, common process and best
practice to flourish.
Stability in a Changing Market
Markets, channels and customers are
consolidating rapidly in response to changing
consumer shopping and ‘on-the-move’
consumption behaviour – Tesco and Booker,
Amazon and Whole Foods, Co-op and Nisa, the
plans of Sainsbury's and Asda – each pairing
demonstrates a changing market environment,
to which we can add discounter and online
shopping growth. In addition to adapting to
these changes, bakers and other food producers
have faced commodity price increases, with
the weaker pound and the cost of butter
rocketing.
We believe Finsbury is increasingly well
positioned to respond to this fast-changing
environment, due to our continuing focus on
operating excellence, quality and innovation,
and cost effectiveness, combined with our
sustainable approach and our commitment
to our partners, all underpinned by people who
care. We have and continue to invest to manage
the risks and grasp the opportunities available
for scale manufacturers.
Operational Highlights
Some years ago, we may have struggled to cope
with the degree of volatility and unexpected
cost increases we have seen of late. However,
our diversification over prior years has ensured
we are in a healthy position, and able to capitalise
on opportunities available to us.
We continued to invest heavily in capital
this year, at 1.8 times depreciation, which has
enabled us to implement key projects such
as our ‘automated craft’ cake line, now fully
commissioned and operational in Cardiff, and
introduce our new business-wide IT platform.
These sorts of change management projects,
often Group-wide, do add a lot of pressure to
the workload of our employees. As does new
operational equipment, or worries over, for
example, the decision to close our loss-making
Grain D'Or factory. Much of this added pressure
is often on top of the commitment people
already put in to simply doing their jobs well.
For this I would like to thank all employees
once again for their sterling efforts and
commitment during the year.
Peter Baker
Non-Executive Chairman
14 September 2018
Corporate GovernanceFinancial StatementsStrategic Report 5 Finsbury Food Group
Annual Report & Accounts 2018
Our Business
Our business is split into UK bakery,
Overseas and Group operations. The UK
bakery manufactures and sells bakery
products to the UK's multiple grocers
and foodservice sectors. The split
of manufacturing, products and
customers is shown below.
5
6
3
4
8
2
1
7
Manufacturing
Finsbury Food Group includes six
manufacturing facilities and bakery
companies, and one distribution
company, plus the newly acquired
Ultrapharm Group:
1
2
3
4
5
6
7
Salisbury
Nicholas & Harris
Cardiff
Memory Lane Cakes
Manchester
Kara Foodservice
Sheffield
Fletchers Bakeries
East Kilbride
Johnstone’s Food Service
Hamilton
Lightbody of Hamilton
Rennes, France
Lightbody Europe
(Distribution company)
Acquired after year end:
8
9
Pontypool
Ultrapharm UK
Żywiec, Poland
Ultrapharm Poland
9
6 Finsbury Food Group
Annual Report & Accounts 2018
Our Business
Our Products
Our bakery division serves a
UK bread and cake retail market
of over £6 billion and produces
for our UK foodservice channel
serving a UK market of a further
£1.5 billion.
Bread, Morning Goods and Cakes
• Artisan loaves
• Buns and rolls
• Celebration cakes
• Sharing cakes
• Snacking cakes
• Retailer own-label bakery product
• Memory Lane, our own cake brand
Foodservice
Kara is our own foodservice brand. The range
covers an ever-growing portfolio of sweet
and savoury baked goods, including floured
baps, artisan breads, brioche buns, traybakes
and large premium cakes, focusing on the
latest consumer trends.
Licensed Brands
We have a long-standing relationship with
many licensed brands, manufacturing quality
bread and cakes for some of the biggest
names in the market.
Thorntons
A partnership spanning two decades, with
continuing innovation in celebration.
Mary Berry
Loaf, sharing and celebration cakes, all true
to Mary Berry’s original recipes, appealing
to a broad customer base.
Disney
A long-term partner, we continue to help
consumers enjoy the Disney brand in cake.
Mars
Collaborating on an innovative cake range
for classic confectionery brands such as
Galaxy, M&M and Maltesers.
Baileys
New brand launches include a milkshake-
shaped cake with an Irish cream filling
and topping.
Character Licensed Portfolio
Developing products to meet consumer
trends and occasions, and to bring popular
characters to life across different cake formats.
Successful licences this year include Batman,
Pokemon, Paw Patrol, Peppa Pig, Jurassic
World 2 and JoJo Siwa.
Vogel’s
Alfred Vogel was a pioneering Swiss
nutritionist who used natural ingredients.
Vogel’s loaves are baked without added
sugar, emulsifiers, enzymes, or artificial
preservatives or flavourings, and are
bursting with seeds and grains.
Village Bakery
The range of organic fresh rye bread brands
for those looking to avoid wheat. All made
with no added yeast, emulsifiers or enzymes.
Cranks
Wholesome, simple, nutritious bread baked
with organic stoneground wholemeal flour
and fermented for longer, made without any
additives such as emulsifiers and enzymes.
Our Customers
Our bakery segment covers the following:
UK Retail
• Supermarkets
• Discounters
• Convenience
UK Foodservice
• Hotels
• Pubs
• Restaurants
• High-street chains
• Fast-food outlets
• Contract caterers
International Markets
• France
• Belgium
• Netherlands
• Ireland
Corporate GovernanceFinancial StatementsStrategic Report 7 Finsbury Food Group
Annual Report & Accounts 2018
Market Review
Here we give an overview of the markets
we operate in, and a summary of the key
trends we aim to take advantage of.
Foodservice
UK foodservice spans many sub-sectors including
coffee chains, restaurants, pubs, hotels and the
non-profit sector such as the prison service or
education. Each has different routes to market.
The UK foodservice cake and sweet treat bakery
sector is worth approximately £807 million per
annum (source: Derived from MCA data 52 weeks
to 31 March 2018). Our presence is primarily
within the coffee chains and, through the larger
wholesalers, restaurants and pubs.
The UK foodservice B&MG sector is worth £691
million per annum (source: Derived from MCA
data 52 weeks to 31 March 2018). We have a
significant presence primarily with our buns
and rolls business.
Overseas
Our overseas markets are primarily Europe,
principally France and Ireland, with a smaller
presence in the Benelux countries and some
of eastern Europe. The size of these markets
is significant, and their structure is similar
to the UK.
Broad Consumer Trends
Innovation and product development is essential
to the Group’s strategy, helping our customers
differentiate themselves and meet the needs of
their end customers. Our challenge is to maintain
a dynamic product portfolio that matches and
satisfies macro consumer trends and niches.
We show some of these current trends
overleaf.
Our Markets
UK bakery is a large market valued at over
£6.2 billion. In its broadest sense, UK bakery
comprises the cake market and the bread and
morning goods market. Both these markets
straddle the grocery retail market and
foodservice market, often also known
as out-of-home (OOH) eating.
We can break the whole market down further
into smaller sub categories:
• Cake: sharing, bites, celebration and seasonal.
• Bread and morning goods: 'plant' (packaged
or factory) bread, artisan bread, buns and rolls,
seasonal hot cross buns, pastry, muffins,
doughnuts, Italian and many more.
Both markets also have a wide range of
ingredients that can be allergens – including
wheat, dairy, eggs and nuts – in which there
are growing sub markets such as Free From.
Cake
The total UK ambient cake market (including
prepacked cake and in-store bakery is valued
at over £950 million (source: IRI, 52 w/e 23 June
2018). We trade across all categories, with large
presences in celebration, sharing and seasonal.
Bread
The annual retail bread and morning goods
market has a value of over £4 billion (source:
Cantor World panel 52 weeks to 17 June 2018).
This market is further divided as plant bread
(£1.8 billion) and the rest, bread and morning
goods (B&MG) (£2.2 billion). We trade only in
B&MG, with sizeable presences in buns and
rolls, hot cross buns and artisan bread.
8 Finsbury Food Group
Annual Report & Accounts 2018
Market Review
Economic
Consumer confidence has been weak for some
time, and price and value will remain important.
Although consumers will remain cautious and
price-conscious, they will continue to want
affordable treats, so pricing policies need
to reflect household economics.
Grocery
Consolidation has started to reshape the grocery
market in recent times and this will continue.
Online and discount will be the two fastest
growing grocery channels, and will account for
22% share of grocery expenditure by 2023 (IGD).
The convenience channel is also forecast to
see strong growth.
Out-of-home
In the out-of-home (OOH) market, volume
growth is forecast to be negative as weakening
consumer confidence and general consumer
caution mean people will eat out less. The casual
dining restaurant sector is likely to struggle, but
fast-food outlets, coffee shops, supermarket cafés
and food-to-go offers will see better growth.
Healthy Eating
Consumers continue to pursue more healthy
eating options generally, though indulgence is
also a key trend in 'sweet-treating'. Media focus
and regulatory pressure will continue to drive
recipe reformulation and portion size. The ‘Better
for you’ market is proliferating rapidly, with
protein, gut health, low sugar, vegetarian, plant
health, grains and seeds, and slow energy release
all growing in popularity over recent years.
Free From
The overall Free From market continues to
grow, doubling in size in the past five years.
Mintel forecasts it to grow by an additional 25%
to £899 million by 2022. It's boosted by consumers
who don’t cite a specific allergy or intolerance,
but choose to avoid certain ingredients as part
of a general healthy lifestyle. Dairy-free and
gluten-free are the biggest sub-sectors.
The Free From bakery market is valued at
£129 million and has grown 14.5% year on year.
Artisan Bread
The market has grown due to the perceived
health benefits, the wider trend of provenance
and the ‘craft' movement. Consumers respond
well to products they perceive to be less
mass-manufactured.
Fragmentation
Social and demographic trends have a major
bearing on the food sector. These include
smaller households, single-person mealtimes,
an ageing UK population, urbanisation, and
an increasingly mobile population with less
time to eat. These are fuelling the growth
of convenience, online and out-of-home
channels. But the growing fragmentation
of consumers, channels, eating moments
and needs will also translate into increasing
demand for personalised products to meet
individual needs. Thus single-serve and
individually wrapped products are becoming
more prevalent and important.
Technology
Technology is fundamentally changing the
relationship between businesses and customers,
who are increasingly using mobile devices to
make purchases. Demand for anytime, anywhere
purchasing and access to information will
accelerate. Online ordering is not just for the
weekly shop, it is also for top-up and 'dinner
tonight' shopping.
" The overall Free From market continues
to grow, doubling in size in the past five years.
Mintel forecasts it to grow by an additional
25% to £899 million by 2022."
Corporate GovernanceFinancial StatementsStrategic Report 9 Finsbury Food Group
Annual Report & Accounts 2018
Strategy and Objectives
Our Purpose, Strategy and Operating Principles provide a vision
and framework for strategic governance, creating value, sharing
best practice and working effectively as a Group.
Our Purpose and Strategy
Our Operating Principles
“ Baking brilliance
makes every
day special.”
Our Purpose
People love the high-quality products we make. They are essential
parts of their daily lives and enjoyable treats and choices for every
occasion. So we are committed to building the leading speciality
bakery group – because baking brilliance makes every day special.
Our Vision and Strategy
Our strategic objective is to create sustainable value for our
shareholders, customers and other stakeholders by building the
leading speciality bakery group. We produce a broad range of
high-quality bread, cake and bakery snacking products targeted
at growing channels and market niches. These offer growth
potential and differentiation for our major customers, while
fulfilling the changing needs and desires of end consumers.
To achieve this our strategy is to:
• Invest in our people and our manufacturing sites to form
a strong foundation for our strategy
• Create innovative, high-quality bakery products that anticipate
key market trends
• Ensure customer and consumer needs are at the heart
of our decision making
• Develop a strong licensed brand portfolio to complement
our core retailer brand relationships
• Aim to succeed in both the retail grocery and out-of-home channels
• Grow through a combination of organic growth and targeted
acquisitions.
To achieve baking brilliance, we have to constantly raise standards
and work effectively as a Group. The Finsbury Operating Principles
are a set of practical commitments and guidelines for how we run our
business, and which bring our strategy to life in our day-to-day work.
Operating Excellence
We continually invest in our bakeries to improve our efficiency
and customer satisfaction.
Sustainable Approach
We optimise our use of resources and focus on reducing waste
throughout our supply chain and in our bakeries.
Quality and Innovations
Our innovative, high-quality bakery products reflect changing
customer needs and anticipate key market trends.
Cost Effectiveness
We maintain strict cost controls without compromising quality,
streamlining our processes from sourcing to delivery.
Growth with Our Partners
Through long-term relationships with our customers, and an
understanding of their needs, we can all enjoy profitable growth.
People Who Care
We invest in our people, who take personal pride in their contribution
to our success, and are strong advocates of our business and products.
10 Finsbury Food Group
Annual Report & Accounts 2018
Strategy and Objectives
Operational
excellence
See page 13
Sustainable
approach
See page 18
Quality and
innovations
Cost
effectiveness
See page 19
See page 22
Growth with
our partners
See page 25
People
who care
See page 29
Corporate GovernanceFinancial StatementsStrategic Report 11 Finsbury Food Group
Annual Report & Accounts 2018
Business Model
Our vision is to be a leading speciality bakery group, producing
a broad range of high-quality products targeted at growing channels
and market niches, and which deliver growth and differentiation
for our customers while fulfilling the needs of end consumers.
The Resources we Employ
Operating Principles in Action
Financial Capital
AIM-listed with access to institutional funding. Bank support
for strategic investment and acquisitions.
• 3 banks supporting total facilities up to £90.0 million.
• Scottish and Welsh businesses benefit from local government
initiatives to promote investment and employment opportunities.
• Low leverage with net debt to EBITDA < 1.
Intellectual Capital
• Extensive speciality bakery product know-how, category
insight and understanding.
• Extensive customer relationships in both the Retail and
Foodservice sectors, and known brand in Foodservice.
• Licence arrangements with brand owners.
Manufacturing Capital
• Plant and machinery well invested and maintained,
with flexibility to cover niche to mainstream products.
• Own all major sites, with available space for new production
or consolidation of facilities.
• Moving towards common Group IT platforms.
Human Capital
• Talent management programme to attract and develop
graduates and other employees.
• Structured learning programmes and performance
development review process.
Relationship Capital
• Long-term relationships with key partners, suppliers
and customers.
Social and Natural Capital
• Signed up to Fairtrade, sustainable sourcing for ingredients.
• Food safety and technical standards are maintained to the
highest level.
• Health and Safety (H&S) is a top priority for the Group, with
a largely uniform H&S system across the business units and
the drive forward of the "Home Safe Every Day" strategy.
Operating Excellence
• Sustained strategy to invest in the capability
and capacity of our manufacturing assets:
– £8.0 million new cake line with scale and automation.
– New IT platform across all sites – 50% complete.
• Group manufacturing process blueprint leading
to specific product design framework and improved
efficiency and quality.
Sustainable Approach
• Most Finsbury sites are sending zero waste to
landfill already. All will have achieved this by 2020.
• All sites have a nominated energy champion responsible
for identifying and reducing consumption. Heat recovery
projects are underway at several sites, and all lighting
will be converted to LED by 2020. The asset investment
strategy includes a focus on energy consumption.
• All sites are involved in the reducing and eliminating
single-use plastics. With good progress already,
we are targeting a 50% reduction by 2020.
Quality and Innovations
• Extensive insight capabilities mean new product
development is in line with market trends.
• Over 60 employees are engaged in developing new products.
• Leading organic bakery in the UK.
• Manufacturing process blueprint embraces the
production of high-quality premium product.
• All sites hold BRC A-grade or above.
• Health agenda embedded into development process,
with over 90% of products achieving FSA salt targets.
Good progress made across all categories in reducing sugar
in line with PHE targets, and further research underway
to achieve their 2020 objectives.
• Acquisition of Ultrapharm after year end gives
us scale in Free From.
12 Finsbury Food Group
Annual Report & Accounts 2018
Business Model
We make bread, cakes and morning goods for the
UK retail and foodservice markets, and are extending
our reach into Europe.
The business model below illustrates our chosen
system of inputs of capital, and how we transform
them through various business activities into outputs.
Cost Effectiveness
• Centralised Group buying focused on high-quality
and cost effective ingredients.
• Operational excellence initiatives focused on achieving
lowest-cost-producer status in areas where we have
niche strength e.g. artisan breads or round sharing cake.
• Group logistics leverages our scale to achieve lowest
cost route to customers.
Growth with Our Partners
• Our scale and diversity of products across UK bakery
means the relationship with grocery retail customers
is a partnership.
• Our business with discounters is growing in line with
their growth within UK grocery.
• Our channel diversification into foodservice, our Kara
foodservice brand, and our broad frozen foodservice
range of products, sees us as the leading foodservice
partner to the industry, growing at 6% in the year.
People Who Care
• A health and safety risk management team with a mantra
of "Home Safe Every Day", supported by resources and
a common Group-wide strategy and programme.
• Values of teamwork, honesty, ownership, respect
and communication:
– New workplace Facebook communication tool to
facilitate communication between all employees.
• A people strategy for all employees, embracing courses
in basic English, an engineering apprenticeship programme,
a graduate recruitment programme and leadership
development programmes.
• Annual employee survey to obtain our employees' views.
Creating Value
Value for Shareholders
Using our Operating Principles effectively achieves our Purpose and
Strategy, creating long-term shareholder value through share price
growth and attractive dividends. Over the year, the share price
increased 2.5p to 118.5p and the dividend increased from 3p per
share to 3.3p per share, a 10% increase.
Bread and Cakes for Customers and Consumers
We define ourselves as a Speciality Bakery group. Everything we do
is with a view to achieving baking brilliance. We are predominantly
a ‘retailer brand’ manufacturer, but target our product development
at 'wowing' consumers, in line with emerging trends and shopping
evolution. We constantly innovate and refresh our hot cross buns,
artisan breads, celebration cakes, sharing cakes, Christmas Yule
logs, and our Kara range of foodservice bakery products.
We measure success by the closeness of our long-term relationships
with our retail partners, by our growing presence in the discounter and
convenience channel, and by the growth in our foodservice business.
Our products reach a broader base of consumers through a strategy
to diversify across all UK channels and indeed European markets.
Our customer base is broad, and having no single dependency
lowers risk and creates value.
Employment and Development Opportunities
for Individuals and Communities
People are important to our business. We have approximately
3,000 employees, ranging from unskilled, through semi-skilled,
to management. Opportunities exist within all our bakeries for
training and development programmes and talent management
initiatives. We recognise potential and develop skills, facilitating
personal development and advancement. Our 'People Who Care'
Operating Principle, and initiatives that support it, reflects the
importance of people to our business.
Tax Paid
A UK manufacturing group generates substantial tax for the country.
Our employees pay tax on their earnings and the Company pays
national insurance on those earnings. The Company pays Corporation
Tax with an effective tax rate of circa 21%, as well as paying packaging
and apprenticeship levies. There are a variety of other indirect
taxes, e.g. 50% of our energy bills are fixed government-imposed
renewable costs.
As a Group, we do not engage in initiatives to shelter profits
from tax.
Corporate GovernanceFinancial StatementsStrategic Report
13 Finsbury Food Group
Annual Report & Accounts 2018
Operating Excellence
We're improving
operating excellence,
every day
14 Finsbury Food Group
Annual Report & Accounts 2018
Operating Excellence
5times bigger
Rising Stars
Our new state-of-the-art artisan bakery in Salisbury has
enabled us to grow our artisan breads business five-fold
since 2016, with a wide range of new hand-made
products for our retail and foodservice partners.
The Artisan team has adapted quickly to a fast-track
training programme where they try new methods,
work flows and planning tools, to ensure they can
combine craft and quality with business scale.
5.5inches
Topping for Cakes
We've made a significant investment in our
whole-cake production line in Cardiff. We now possess
industry-leading output and automation, improved
consistency and quality, and by far the largest
capacity in the UK for producing 5.5" cakes.
Corporate GovernanceFinancial StatementsStrategic Report 15 Finsbury Food Group
Annual Report & Accounts 2018
Chief Executive's Report
Q&A with John Duffy.
Clear steps forwards
as a Group.
10.2p
The EPS calculated on adjusted
profit has grown by 4.1% year
on year.
£12.6m
Record capital investment
of £12.6 million.
£15.6m
Net debt at £15.6 million is down
£1.9 million from £17.5 million
reported in the prior year.
16 Finsbury Food Group
Annual Report & Accounts 2018
Chief Executive's Report
" The aim is to continue our strategy of
establishing efficient, cost-effective scale
bakeries in our chosen product areas."
How was the year overall, and what
were the performance highlights?
We've grown like for like sales and adjusted
profit year on year, reduced debt further after
significant investment, and grown the dividend
payable. We've achieved this despite the volatile
retail environment, and the unprecedented
input cost inflation we have seen over the period.
Our relentless investment and efficiency focus of
recent years has enabled us to not only cope with
this market environment, but also to maintain
our margin. At the same time, we've also ensured
we are not over-dependent on any one customer
or product area. The true measure of success
is that we have achieved underlying growth
ahead of our market, and have demonstrated
the growth available from premium, healthy
and authentic on-trend innovation.
For example, we've introduced our own Free From
brand in Europe, Wiso, which capitalises on the
fact that people choosing to avoid gluten is now
a lifestyle and health choice across North America,
Europe and UK.
In addition, our Mary Berry cake brand launched
in the final quarter of last year, with a number of
product formats across a broad customer base.
It's been hugely successful, with a significant level
of sales for the Group, illustrating the potential
of a licence with good consumer recognition and
emotional engagement, plus of course, some very
good products – all traditional, with an artisanal
finish, and very much in keeping with Mary's
credentials.
Another example of innovation is our artisan
bread, which may be hand-crafted, require long
fermentation, and baking in stone ovens. It was
a slight trend we noticed a few years ago and
decided could have a big impact, so we invested
in capacity in 2016. We have now filled that
capacity and are looking to invest further
to meet growing demand.
These all show that on top of productivity and
efficiency, we're very good at craft and innovation,
and consumers are prepared to pay for great
products that have a lot of craft. These examples
are meaningful opportunities for Finsbury to
achieve growth and sales, and are what we're
good at. These successes, alongside hard work
and ongoing investment, have allowed us to
maintain a resilient performance for the year,
one which we are proud of.
How do you maintain this resilience
in the face of margins being squeezed?
Inflationary costs, larger customers and
competitive markets all present a margin
challenge to manufacturers across the market.
Improving margins, or even maintaining them,
is difficult in the short term. But strong, innovative,
well-invested manufacturers of scale are an
essential ingredient in helping our consolidating
customers achieve their own strategies.
Finsbury is striving to be exactly that – the leading
speciality baker, providing our customers with
brilliant bakery products at affordable prices.
While we continue to aim for this ambition, the
shock butter price increase at the end of last year
came on top of broader input price inflation
in everything from labour and commodities to
energy. We had to offset these increased costs
with efficiency improvements, reformulation
and cost recovery, to protect margins. At the
same time, we had to take some big decisions,
such as the decision to close Grain D'Or.
What happened at Grain D'Or?
The escalating butter price – triple what it was just
a few years ago – ultimately led to uncompetitive
pricing, lost contracts and widening financial
losses at our London bakery, Grain D’Or. With the
losses caused by the butter increase, we had to
change our commercial plans. This precipitated
the difficult decision to close the business
in the first half, following extensive employee
consultation. Thanks to the hard work of the
Grain D’Or and wider Finsbury team, we were
able to maintain good customer relationships,
and we went out of our way with unions and
employees to help them find alternative local
employment. All in all, it was a necessary step
back to take stronger steps forward.
What are these steps forward?
In particular, another year of record capital
investment, at £12.6 million. The aim is to
continue our strategy of establishing efficient,
cost-effective scale bakeries in our chosen
product areas. This brings the total capital
spend of the last five years to over £50.8 million.
Our new IT platform is a sizeable investment
for us. We have successfully rolled it out to
three of our six manufacturing sites, with the
remaining three sites due in the first half of
the new financial year. IT and management
information goes to the heart of all businesses,
so this project is to define our business processes,
and get them up and running in each of the sites,
to provide managers with really good quality
information. At the businesses where we've done
that, we are seeing much better understanding
of labour and waste costs by product. This allows
us to gain further insight into the true efficiency
of our manufacturing operations, and make
informed commercial decisions.
We also commissioned the new £8.0 million cake
line at our Cardiff bakery and began continuous
seven-day operations. Our new line is completely
up to date in oven and process technology, and
much faster. So we're future-proofing an area
where we are number one in the marketplace,
with around 50% share – making sure we gain
the process and quality benefits, as well as
improve our cost effectiveness.
Finsbury has been described as a series
of bakeries across the UK making
different products. Is it a Group?
Yes. In recent years, we have acquired a
collection of very good, but varied and
historically independent businesses, making
many different products for many different
markets. It pays to diversify. But the truth
is, they all have baking in common, and this
is where being a Group is important.
We've moved in recent years to a Group
divisional structure and brought in strong
expertise in Group functional Directors, with
the aim to derive scale benefits from a common
approach across the Group. There's a lot of
opportunity to define a way of working across
the Group, which won't take away from the
individual independence of our companies.
Corporate GovernanceFinancial StatementsStrategic Report 17 Finsbury Food Group
Annual Report & Accounts 2018
Chief Executive's Report
But it means they can do their day job, and do
it well, without having to worry about matters
such as IT change, or Group purchasing of
insurance, and similar. It also means we benefit
from common insights into consumer trends,
or common approaches to maintenance and
safety, for example. It's really a way of looking
to improve the sum of the parts and gain some
leverage from being a larger Group.
We believe brilliant baking makes every day
special, so are applying brilliance to the entire
process. To be brilliant we have to constantly
raise standards, inspire innovation and work
effectively as a Group. We've developed the
Finsbury 'Recipe for Growth' and Operating
Principles, which allow all our businesses to
understand and use the strengths of the Group,
and benefit from common approaches such
as the Group-wide IT platform mentioned
previously, and our new Group-wide people
strategy.
Tell me more about this
people strategy?
Our people strategy is now entering into its
third year. It includes talent management and
leadership development programmes, with
increased investment in training. We've also
conducted our second employee engagement
survey. It all underpins our belief that
maximising the potential and contribution
of our people is essential to unlocking the
longer-term potential of the business.
On the subject of our people, I must also say the
scale of change management we've undertaken
this year is unprecedented. I travel around meeting
people, who are often also travelling around the
Group. Our work is putting additional demands
on teams across the Group, over and above their
normal day jobs. And the jobs themselves, using
craft skills to develop and make craft products,
for demanding customers, day in, day out.
Our people still take time to put the effort in.
They have responded brilliantly, and I'm very
grateful for that.
As for further development of the
Group, your strategy talks about
growth through acquisition?
With further acquisitions we can introduce new
product, customer or channel diversification,
or accelerate market consolidation in our main
product areas. This year, we continued to explore
several acquisition opportunities without finding
the right balance of risk and reward. However,
we were delighted to have completed the
acquisition of Free From baker, Ultrapharm,
shortly after the year end. This offers the Group
a significant opportunity to increase our access
to an exciting and high-growth marketplace.
We remain committed to future acquisition-led
growth as part of our strategy.
That brings us on to the future.
What's your view on the outlook
for Finsbury Food Group?
We are looking ahead at steady organic growth,
which is no bad thing in the market we're in,
but the desire remains to be a strong competitor
within our bakery markets. The Free From growth
opportunity open to us in the UK and Europe
through the above-mentioned acquisition of
Ultrapharm is a good example of how we can
increase scale through acquisition. This follows
three years where we've benefited from
optimising the growth platform we've built,
and where we are now capable of taking the
next steps competently. Three years I think
we've put to good use.
John Duffy
Chief Executive Officer
14 September 2018
18 Finsbury Food Group
Annual Report & Accounts 2018
Sustainable Approach
Taking a sustainable
approach, every day
20% reduction
Increasing energy
and water efficiency
Over the last 18 months, we've been converting
the lighting in our offices and ancillary areas to LED
lighting with motion sensors. We're currently around
65% complete and hope to be over 80% complete
by the end of the coming year. And for our new cake
manufacturing line at our Memory Lane site in Cardiff,
we specified best-in-class energy efficiency. The fully
insulated tin-wash has reduced energy use by 80%
compared to previously, while the oven we selected
has brought about a 20% reduction in gas use
compared to the previous ovens.
Corporate GovernanceFinancial StatementsStrategic Report 19 Finsbury Food Group
Annual Report & Accounts 2018
Quality and Innovations
Focused on quality
and innovation,
every day
40% improvement
Continuous Improvement
We set up a multi-functional project team to look
to improve product quality on our 'bite' products at
our Small Cake Centre of Excellence at Lightbody
of Hamilton. Using laser height control technology
to enable real-time continuous yield control on our
high-speed in-line process, saving money on key
ingredients. It has also brought significant consistency
benefits to the bite products – and internal quality
evaluation scores have improved 40%.
20 Finsbury Food Group
Annual Report & Accounts 2018
Key Performance Indicators
Financial
Sales Growth %
Performance
-3.4%
0.2%
2018
2017
Like for Like Sales Growth %
Performance
2.4%
2018
2017
0.3%
Adjusted Operating Profit %
Performance
5.9%
5.5%
2018
2017
Adjusted EPS
Performance
Basic
Diluted
10.2p
9.8p
9.8p
9.5p
Net Debt
Performance
-£15.6m
-17.5m
2018
2017
2018
2017
2018
2017
Debt to Adjusted EBITDA
Performance
0.6
0.7
2018
2017
Definition
Revenue £ this year/Revenue £
last year as a percentage.
2018 Performance
The closure of two loss-making bakeries, Grain
D’Or and Campbells, during the first half of the
year, resulted in a year-on-year decline in sales.
Definition
As above, but comparing like for like,
excluding decline from closures.
2018 Performance
Excluding the revenues associated with
the closed bakeries, sales grew across all
UK bakery, and within foodservice by 5.7%.
Definition
Adjusted operating profit £/
Revenue £ as a percentage.
2018 Performance
The closure of loss-making bakeries and
the benefit of significant capital investment,
as well as a relentless focus on operational
efficiency, delivered and underpinned the
growth in adjusted operating profit %.
Definition
Adjusted Basic: adjusted profit attributable to
the equity holders/weighted average number
of ordinary shares in issue during the period.
Adjusted Diluted: adjusted profit attributable
to the equity holders/(weighted average number
of ordinary shares in issue during the period
+ dilutive effect of share options).
2018 Performance
With growth in operating profits, the growth
in operating profit %, and with the weighted
average number of ordinary shares in issue
during the period being consistent with that
of the previous period, we have seen growth
in EPS.
0.00.20.40.60.81.0
0.00.20.40.60.81.0
0.00.20.40.60.81.0
0.00.20.40.60.81.0
0.00.20.40.60.81.0
0.00.20.40.60.81.0
0.00.20.40.60.81.0
0.00.20.40.60.81.0
Definition
Interest-bearing loans and borrowings plus
unamortised transaction costs, including
cash balances.
2018 Performance
The Group continues to generate cash. EBITDA
of £25.6 million facilitates the consistent levels of
capital investment of £12.6 million, the closure
costs of the bakeries, as well as the dividend.
The dividend cover of 2.6 times reflects a healthy
and sustainable cash position.
Definition
As above expressed as a ratio to adjusted
EBITDA (operating profit adding back
depreciation and amortisation).
2018 Performance
This is driven by the reduction in net debt from
£17.5 million to £15.6 million, coupled with the
growth in EBITDA from £24.9 million to £25.6 million.
Return on Capital Employed (ROCE)
Performance
13.3%
13.3%
2018
2017
Definition
Adjusted operating profit/average capital
employed.*
*Average capital employed = fixed assets + current
assets + liabilities, excluding cash, interest-bearing
borrowings, and pension deficit.
2018 Performance
Maintaining the ROCE at 13.3% is a satisfactory
result considering the inflationary trading
environment created by commodities and national
living wage. Also, we implemented two of the major
capital investment programmes – the £8.0 million
Cake 3 line and the new M3 ERP systems – during
the year.
Corporate GovernanceFinancial StatementsStrategic Report
21 Finsbury Food Group
Annual Report & Accounts 2018
Key Performance Indicators
Non-Financial
Revenue £k per Employee
Performance
102
99
2018
2017
Number of Employees
Performance
2,988
3,162
2018
2017
Number of BRC A Grade Ratings
Performance
6
5
2018
2017
Complaints per Million Units
Performance
20.0
19.8
2018
2017
Definition
Revenue/The average number of persons
employed by the Group including Directors
and excluding agency staff during the year.
2018 Performance
An important productivity measure. Growth
in like for like sales accompanied by a reduction
in the average numbers of people employed,
brought a 3% improvement.
Definition
The average number of persons employed
by the Group including Directors and
excluding agency staff during the year.
2018 Performance
A consequence of the closures of the bakeries
halfway through the year, as well as capital
investment to improve capability and
productivity.
0.00.20.40.60.81.0
Definition
Number of sites attaining BRC A grade ratings.
Definition
Number of complaints/(number of units
sold/1,000,000).
2018 Performance
A consequence of our focus on operational
excellence, it underlines our strategy, and
our purpose – of Baking Brilliance.
0.00.20.40.60.81.0
0.00.20.40.60.81.0
0.00.20.40.60.81.0
0.00.20.40.60.81.0
2018 Performance
Our long-term commitment to product quality
makes this a key measure. The small deterioration
in the period arose in one of the six factories due
to the launch of a particular range of niche bread
products. Prompt management response and
product redevelopment means the trend
is unlikely to continue.
2018 Performance
The relentless focus on health and safety and
the "Home Safe Every Day" initiative, promoted
by a motivated health and safety executive,
management and staff at each bakery, has
resulted in significant improvement in
accident statistics.
RIDDORs per 100k Hours Worked
Performance
0.13
0.21
2018
2017
Definition
Number of RIDDORS in 12 months/(number
of hours worked in 12 months/100,000).
The Group uses Alternative Performance Measures ('APMs') which are non-IFRS measures to monitor the performance of its operations and
of the Group as a whole. These APMs along with their definitions and reconciliations to IFRS measures are provided in the tables on page 27.
22 Finsbury Food Group
Annual Report & Accounts 2018
Cost Effectiveness
3 years
Top Talent
For the past three years, we've been investing in
and redesigning our leadership team structure at
Hamilton, creating a modern business culture within
our manufacturing and engineering functions, and
creating the foundation for a wider modernisation
programme. The projects for both functions will help
us attract and retain the best talent and enhance
our leadership capability.
250suppliers
Improved Performance
Across the Group, we have relationships with
over 250 suppliers of ingredients and packaging,
managed by our buyers to ensure our supply chain
runs efficiently, without duplication and with correct
agreements at the outset. We work closely with our
suppliers, not only to optimise costs, but to ensure
their high-quality ingredients improve our factory
performance and finished-product quality.
Making the Group
more cost effective,
every day
Corporate GovernanceFinancial StatementsStrategic Report 23 Finsbury Food Group
Annual Report & Accounts 2018
Risk Report
The Directors recognise the need for a
healthy system of internal controls and
risk management. We have identified
the following as the principal risks and
uncertainties the Group faces.
Operational Risks:
Health and Safety
The importance of health and safety is widely
recognised across the Group. Failure to adhere
to health and safety regulations within the
workplace not only puts our employees at risk,
but could also carry serious financial, reputational
and legal risk. We have appointed a Group Head
of Health and Safety to create a largely uniform
system across all business units and to promote
our 'Home Safe Every Day' strategy.
The Group’s technical function is responsible for
implementing and maintaining high standards of
food safety, striving for best practice. We manage
quality assurance procedures at site level, and
review and audit them continually, making
improvements as appropriate.
All manufacturing sites are registered under
the British Retail Consortium (BRC) Unannounced
Scheme. The sites are subject to regular internal
and independent food safety and quality control
audits, both announced and unannounced,
including those carried out for our customers.
We maintain appropriate insurance cover,
including product recall insurance, to mitigate
the potential financial impact of a breach
in food safety compliance.
Principal Risks and Uncertainties
The Group's management team assesses risks
regularly and develops strategies for dealing
with them. We carry out an annual formal review
of risks. This process involves identifying risks,
and determining the likelihood of them affecting
the business, the potential severity of their
impact, and what we need to do to manage them
effectively. This risk management is essential
to our ability to achieve our strategic objectives.
The risks we consider are as follows:
Strategic Risks:
Retailer Consolidation
There have been a number of high-profile
mergers and prospective mergers reported
in the press in the past year, including those
of Tesco and Booker, and of Asda and Sainsbury’s.
There is always a risk in these situations that
as the newly merged entities look to offer the
consumer lower prices through economies
of scale, they rationalise their supplier base.
Also, the exceptional buying power of these
new entities could pressurise suppliers into
lowering prices to preserve trade.
As a supplier to all parties mentioned above,
we are not immune to this risk. However, we
strive to be the highest-quality, most-innovative
and lowest-cost supplier and believe this, along
with our strong relationships with our customers,
will ensure we are strongly placed to continue
to supply them.
Competitive Environment and
Customer Requirements
The Bakery sector remains competitive.
Monitoring key performance indicators at
customer level, such as service or customer
complaints, is part of our risk management
process. Providing high-quality products,
investing in innovation, and competing in value,
helps strengthen customer relations and support
growth initiatives. We invest heavily in category
management, new product development and
marketing. This investment has helped create
an insight into customer and consumer demands.
Consumer Trends
Since the EU referendum, consumer optimism
and spending has remained resilient. However,
trends suggest that as we move closer to the exit
deadline, uncertainty over what Brexit deal will be
implemented is having an impact on sentiment.
British consumers have stopped taking on more
debt and have started saving their money again,
in a reversal to the trends that upheld economic
growth over the last year. The risk to the Group
is that spending on non-essential goods and
treats will fall, affecting the demand for our
key products.
We will continue to focus on quality and value,
and will look for new channels, new products
and new formats to gain competitive advantage.
Health continues to be a major focus for the
business. Special teams continue to work on
reducing sugar and salt as part of the Government
obesity strategy and Public Health England
recommendations. Our development teams
work closely with our customers to ensure
we meet or exceed all guidelines for health
and nutrition, and work continuously with
suppliers to reduce salt, fat and sugar in our
products. We are committed to meeting the
FSA 2017 salt targets and are already over
90% compliant.
24 Finsbury Food Group
Annual Report & Accounts 2018
Risk Report
We maintain a high level of expertise in our
buying team, and will consider long-term
contracts where appropriate, to reduce
uncertainty in input prices. The team also
cultivates strong relationships with major
suppliers, to ensure continuity of supply
at competitive prices.
Regular renovation and innovation in our product
range can help to manage margin pressures
effectively, as far as the competitive environment
allows. We also purchase forward foreign currency
to minimise the fluctuation of input costs linked
to future currency conversion rates.
The National Living Wage is increasing the cost
of labour above inflation and demand-related
adjustments. More recently, the future availability
of labour has become a concern. Ongoing capital
investment and improvements in operational
efficiency help us reduce the impacts of both
labour availability and cost, as well as material
inflation.
Pension Fund Deficit
The Group has one defined benefit pension
scheme within its Memory Lane Cakes Limited
business in Cardiff. The scheme was closed to new
members in 2010, to reduce the funding risk to
Memory Lane Cakes. The valuation of the scheme
on a technical provision basis, as well as the
underlying performance of the invested assets,
can cause large fluctuations in valuations.
There is an agreed deficit recovery plan fixed
until September 2023, or until a new schedule
is agreed, based on the next valuation, which
will be at 31 December 2018.
Foreign Exchange
We supply UK-manufactured products to
Lightbody Stretz Ltd, our 50%-owned selling
and distribution business which trades in
mainland Europe. We also buy a small amount
of commodities and capital equipment in foreign
currency. As a consequence, we are exposed to
fluctuations in foreign currency rates. We manage
this risk by continually monitoring our exposure
to foreign currency transactions. We use forward
currency contracts when required and our
procurement team works hard to ensure we get
the best prices for commodities and equipment,
giving special consideration to the benefits of
contracts denominated in foreign currency.
External Risks:
Brexit
There is significant uncertainty over the type
of Brexit deal the UK will agree with its European
neighbours. Anything different from the current
situation is likely to have an impact on both the
food manufacturing industry and on the Group.
The majority of the Group’s trading is in the UK,
but we have sales in Europe, including through
Lightbody Europe, our 50% subsidiary.
We buy a material proportion of bakery
commodities, such as dairy and egg, from Europe.
Any tariffs on trade will therefore have a bearing
on the UK bakery market, the UK manufacturing
industry and the Group. We already have
contingency planning in place, looking at
alternative UK sources of products.
We are also likely to face higher logistics and
administration costs due to increased customs
border checks, and will require higher stock levels
due to lengthening delivery times for ingredients.
Equally, the food manufacturing industry,
including Finsbury, typically relies on low-skilled
labour. We are developing labour strategies to
retain and develop existing workers, attract and
hire new workers and reduce labour, while
boosting productivity with our capital
investment programme.
We are not being complacent in our
response to likely Brexit scenarios, and have
a cross-functional team preparing a number
of strategies to minimise its impact.
Cyber Security
The Group may be potentially exposed to
random, malicious attacks from cyber criminals.
Maintaining protection software is one tool
in protecting our data. In addition, we are
implementing common information systems
across all companies, with standard protection,
operating requirements and security protection.
Real-time back-up, training, and regular
communication, pulls our defences together.
During 2017/18, the Audit Committee
reviewed cyber security in four areas: network
security, hardware and software maintenance
and updates, disaster recovery and related
controls, and governance. Where we made
recommendations for improvements, we are
implementing them. We will run an annual
security review, including penetration testing,
auditing of all software and hardware, and
testing of disaster recovery plans.
Financial Risks:
Commodity and Labour Pressures
Bakery involves the use of commodities whose
prices are determined by worldwide demand
and macro-economic factors. Commodity
pressures have increased as a consequence
of a number of factors;
1. A change in the value of Sterling against
both the Euro and Dollar following the EU
referendum.
2. The commodity cycle, which, in the recent
past, has been relatively low. The cycle has
seen significant increases in the price of a
number of commodities over and above any
exchange rate deterioration.
3. European policies, particularly for butter
and sugar.
Corporate GovernanceFinancial StatementsStrategic Report
25 Finsbury Food Group
Annual Report & Accounts 2018
Growth with Our Partners
We're growing
with our partners,
every day
26 Finsbury Food Group
Annual Report & Accounts 2018
Growth with Our Partners
Top10 cake brand
Building New Relationships
Our ambition for growth has led to many successful
and strategic partnerships. We've increased the
number of customers we serve from our bread sites,
grown category numbers with our long-established
cake customers, and established long-term licence
partnerships with Thornton’s and Disney, as well as
newer licensed brand successes such as creating
a top-10 cake brand with Mary Berry.
Corporate GovernanceFinancial StatementsStrategic Report
27 Finsbury Food Group
Annual Report & Accounts 2018
Financial Review
Group revenue for the 52-week period to 30 June 2018, including revenue from the bakeries closed during the year, is £303.6 million, 3.4% lower than
last year. Continuing Group revenue (i.e. excluding the revenue from the bakeries closed) is, at £290.2 million, up 2.4% or £6.8 million. Growth in
continuing revenue is within markets that are seeing value growth with a slight volume decline.
We have stripped significant and non-recurring costs of £13,067,000, which primarily relate to the closure of the bakeries, out of operating profit,
to give adjusted operating profit, which provides a clearer presentation of the underlying trading performance of the Group. Adjusted operating
profit at £17.8 million is up 2.3% on last year. Adjusted operating profit margins are 5.9% (2017: 5.5%), a consequence of removing the losses of the
bakeries closed. The Group’s performance is seen as resilient in the face of severe commodity and labour inflation. This resilience is underpinned
by capital investment, a focus on operational efficiency and a removal of low-profit business to optimise product mix.
Dividend
Subject to shareholder approval at the Company’s AGM on 21 November 2018, the final dividend of 2.2 pence per share will be paid on 21 December 2018
to all shareholders on the register at 23 November 2018, and will be recognised in the year ending 29 June 2019.
The tables below show what the Directors consider to be the underlying performance of the Group. The adjustments eliminate the impact of significant
and non-recurring items and other accounting items.
52 week period ended 30 June 2018
Revenue
Cost of sales
Gross profit
Other costs excluding depreciation and amortisation
EBITDA
Depreciation and amortisation
Results from operating activities
Finance income
Finance costs
Profit before tax
Share of losses of equity accounted investees after tax
Taxation
Profit for the year
52 week period ended 1 July 2017
Revenue
Cost of sales
Gross profit
Other costs excluding depreciation and amortisation
EBITDA
Depreciation and amortisation
Results from operating activities
Finance income
Finance costs
Profit before tax
Share of losses of equity accounted investees after tax
Taxation
Profit for the year
Details of significant non-recurring items are detailed in Note 4.
Adjusted
operating
performance
£000
Significant
non-recurring
items
£000
303,600
(211,511)
92,089
(66,489)
25,600
(7,756)
-
-
-
(13,067)
(13,067)
-
17,844
(13,067)
24
(652)
-
-
17,216
(13,067)
-
-
(3,708)
2,452
13,508
(10,615)
Adjusted
operating
performance
£000
314,296
(216,493)
97,803
(72,883)
24,920
(7,485)
Significant
non-recurring
items
£000
-
-
-
(4,000)
(4,000)
-
17,435
(4,000)
-
(877)
-
-
16,558
(4,000)
(22)
(3,578)
12,958
-
680
(3,320)
Defined
benefit
pension
scheme
£000
-
-
-
411
411
-
411
-
(277)
134
-
(23)
111
Defined
benefit
pension
scheme
£000
-
-
-
200
200
-
200
-
(204)
(4)
-
1
(3)
Fair value
of interest
rate swaps/
foreign
exchange
contracts
£000
As per
Consolidated
Statement of
Comprehensive
Income
£000
-
-
-
49
49
-
49
143
-
192
-
(32)
160
303,600
(211,511)
92,089
(79,096)
12,993
(7,756)
5,237
167
(929)
4,475
-
(1,311)
3,164
Fair value
of interest
rate swaps/
foreign
exchange
contracts
£000
-
-
-
(71)
(71)
-
(71)
555
-
484
-
(62)
422
As per
Consolidated
Statement of
Comprehensive
Income
£000
314,296
(216,493)
97,803
(76,754)
21,049
(7,485)
13,564
555
(1,081)
13,038
(22)
(2,959)
10,057
28 Finsbury Food Group
Annual Report & Accounts 2018
Financial Review
Earnings Per Share (EPS)
EPS comparisons to the year before can be distorted by significant non-recurring items and other items highlighted in the tables on the previous page.
The Board is focused on growing adjusted diluted EPS, which is calculated by eliminating the impact of the items highlighted on the previous page,
as well as amortisation of intangibles, and incorporates the dilutive effect of share options. Adjusted diluted EPS is 9.8p (2017: 9.5p).
Basic EPS
Adjusted basic EPS
Diluted basic EPS
Adjusted* diluted** EPS
* You can find further details in Note 9.
** Diluted EPS takes basic EPS and incorporates the dilutive effect of share options.
2018
1.7p
10.2p
1.6p
9.8p
2017
7.1p
9.8p
6.9p
9.5p
Cash Flow
There was a decrease in our working capital
requirement of £1.3 million (2017: £2.5 million
increase) in the financial year. Corporation Tax
payments made in the financial year totalled
£3.3 million (2017: £2.7 million). The payments
in the current and prior year took account of the
research and development tax relief due to the
Group, tax losses being utilised, and a higher
tax rate charged on overseas profits. Capital
expenditure in the year amounted to
£12.6 million (2017: £12.5 million).
The Group recognises the inherent risk from
interest rate rises, and uses interest rate swaps
to mitigate these risks. The Group entered into
a swap for £20.0 million for five years from 3 July
2017 (fixed) at 0.455%. The total balance of
swaps at 30 June 2018 is £20.0 million (2017:
£nil). The counterparty to these transactions
is HSBC Bank Plc.
The effective interest rate for the Group at the
year end, taking account of the interest rate swap
in place with base rate at 0.5% and LIBOR at
0.501%, was 1.66% (2017: 2.15%).
Debt and Bank Facilities
The Group’s total net debt is £15.6 million
(2017: £17.5 million), down £1.9 million from the
prior year. During the year, the Group refinanced
its debt facilities. The new facility is a £45.0 million
revolving credit facility provided by a club of three
banks – HSBC, Rabobank and RBS. The facility
is on improved terms, is available for five years,
and also includes scope for it to be increased
by up to a further £45.0 million.
The Group is able to offer strong asset backing
to secure its borrowings. The Group owns freehold
sites at Memory Lane in Cardiff, Fletchers’ site at
Sheffield and Lightbody in Scotland. In addition,
the Group has a strong trade debtor book made
up primarily of the UK’s major multiple retailers.
This debtor book stood at £40.0 million (2017:
£45.2 million) at the period-end date.
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.
Interest cover (based on adjusted earnings before
interest, tax, depreciation and amortisation –
EBITDA) for the 52 weeks to 30 June 2018 was
40.7 (2017: 28.4). Net bank debt to EBITDA
(based on adjusted EBITDA) for the year
to 30 June 2018 was 0.6 (2017: 0.7).
Taxation
The Group taxation charge for the year was
£1.3 million (2017: £3.0 million). This represents
an effective rate of 21.5% on profits before
significant and non-recurring and other items
(2017: 21.6%). You can find further details
on the tax charge in Note 8 to the Group’s
Financial Statements.
Financial and Non-Financial Key
Performance Indicators
We monitor a range of financial and
non-financial KPIs at site level covering, amongst
others, customer service, quality and health
and safety.
The Group Board receives a regular overview
of these. We discuss these KPIs in further detail
on pages 20 and 21.
The Strategic Report was approved by the Board
of Directors on 14 September 2018 and was
signed on its behalf by:
Stephen Boyd
Director
Corporate GovernanceFinancial StatementsStrategic Report
29 Finsbury Food Group
Annual Report & Accounts 2018
People Who Care
Working with
people who care,
every day
30 Finsbury Food Group
Annual Report & Accounts 2018
People Who Care
4graduates
Finance Graduate Scheme
As part of our desire to build a pipeline of future
talent, this year we introduced our first graduate
scheme. Four high-calibre finance graduates have
joined the business on a three-year programme
where they will complete a number of rotations as
well as professional qualifications. We now aim to
replicate the programme across other functions.
1team
Engineering Apprenticeships
We support engineering apprenticeships at our
manufacturing sites, to ensure we have the skills
and capabilities to support our growth. For the first
time this year, we are bringing our apprentices from
across the business together to join ‘Team Apprentice’
– a business-wide, cohesive team which will more
effectively support communication with our apprentices,
as well as improve their development and retention.
Corporate GovernanceFinancial StatementsStrategic Report
31 Finsbury Food Group
Annual Report & Accounts 2018
Corporate Governance
Chairman’s Introduction
to Governance
As Chairman of the Board it is my responsibility to ensure that the Group
has both an effective corporate governance and Board leadership.
The Group has decided to follow the Quoted Companies Alliance
Corporate Governance Code (the ‘QCA Code’) and this report follows
the structure of these guidelines and explains how we have applied
the guidance. The Board considers that the Group complies with
the QCA Code in all respects.
32 Finsbury Food Group
Annual Report & Accounts 2018
Report on Corporate Governance
The Board
The Board believes that corporate governance is more than just a set of guidelines; rather it is a framework which underpins the core values for
running the business in which we all believe, including a commitment to open and transparent communications with stakeholders. We believe
that good corporate governance improves performance while reducing or mitigating risks.
QCA Principles
1. Establish a strategy and business model which promote long-term value for shareholders
The Group’s vision is to be the UK’s most innovative speciality bakery group, providing differentiation for our customers. Our business model,
and the Finsbury ‘recipe for growth’ operating principles by which we manage our business, are shown on page 11. Our strategy and markets are
explained in detail in our Strategic Report on pages 7 to 10.
2. Seek to understand and meet shareholder needs and expectations
Relationships with our shareholders are important to us and we seek to provide effective communications through our Interim and Annual Reports
along with Regulatory News Service announcements. We also use the Company’s website, www.finsburyfoods.co.uk for both financial and general
news relevant to shareholders. The Executive Directors meet shareholders and other investors/potential investors at regular intervals during the
year and host broker and analyst meetings at operating sites from time to time.
The broker and NOMAD, Cenkos, is briefed regularly and updates the Board during the year on shareholder expectations.
The Annual General Meeting (AGM) is regarded as an opportunity to meet, listen and present to shareholders, and their participation is encouraged;
all Directors attend the AGM and are available to meet shareholders individually or as a group. All 2017 AGM resolutions were passed comfortably.
3. Take into account wider stakeholder and social responsibilities and their implications for long-term success
Our continued success is built entirely on the talented people who work here, and employee engagement forms a major part of our operating principles.
Everyone at Finsbury Food Group is a valued member of the team, and our aim is to help every individual achieve their full potential. We offer equal
opportunities regardless of race, gender, gender identity or reassignment, age, disability, religion or sexual orientation.
Another key element of our recipe for growth is to work for mutual benefit with our partners, including retail grocery and foodservice customers,
all of whom benefit from tailored innovation and service. Joint business plans are agreed, customers visit our sites on a regular basis to be involved
in product development and business planning activities.
Our key strategic suppliers are long term in nature and work in partnership with the Group on innovations in both product and service. We believe
an ethical supply chain is a sustainable one. Finsbury Food Group is a long-standing member of Sedex, an organisation for promoting improvement
in responsible and ethical business practices in supply chains.
4. Embed effective risk management, considering both opportunities and threats, throughout the organisation
The Board recognises the need for a robust system of internal controls and risk management. 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. Risk management is integral to the ability of the
Group to deliver on its strategic objectives.
The system of internal control is structured around an assessment of the various risks to the business and is designed to address those risks that
the Board considers to be material, to safeguard assets against unauthorised use or disposition and to maintain proper accounting records which
produce reliable financial and management information.
The key features of the Group’s system of internal control are as follows:
• An ongoing process of risk assessment to identify, evaluate and manage business risks
• Management structure with clearly defined responsibilities and authority limits
• A comprehensive system of reporting financial results to the Board
• A rolling programme of internal audit activities carried out by group finance reporting to the Audit Committee
• Appraisal and authorisation of capital expenditure projects
• Dual signatories on all bank accounts
Corporate GovernanceFinancial StatementsStrategic Review 33 Finsbury Food Group
Annual Report & Accounts 2018
Report on Corporate Governance
5. Maintain the Board as a well-functioning, balanced team led by the Chair
The Board is made of up two Executive Directors and four independent Non-Executive Directors and is chaired by Peter Baker who has held this post
for four years and is also regarded as independent. Meetings are open and constructive, with every Director participating fully. Meetings are held
at operating sites on a rotating basis, enabling the Board to meet the senior site teams and to visit the factories.
The Chairman is responsible for the leadership of the Board and ensuring its effectiveness in all aspects of its role. He is also responsible for creating
the right Board dynamic and for ensuring that all important matters, in particular strategic decisions, receive adequate time and attention at Board
meetings. The Executive Directors are responsible for the day-to-day running of the business and developing corporate strategy while the Non-Executive
Directors are tasked with constructively challenging the decisions of executive management and satisfying themselves that the systems of business
risk management and internal financial controls are robust.
The Board met five times in the year; a calendar of meetings and principal matters to be discussed is agreed at the beginning of each year. Board papers
are circulated at least one week before meetings, allowing time for full consideration and necessary clarifications before the meetings. Board dinners
are held on the evening before meetings and allow broader discussion and development of effective Board relations.
Terms of reference for the committees are published on the Group’s website. The committees have the necessary skills and knowledge to discharge
their duties effectively.
All Directors have access to the Company Secretary, who is responsible for ensuring that Board procedures are followed and that the Company complies
with all applicable rules, regulations and obligations governing its operation. If required, the Directors are entitled to take independent legal advice
and if the Board is informed in advance, the cost of the advice will be reimbursed by the Group.
6. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities
The Non-Executive Directors have both a breadth and depth of skills and experience to fulfil their roles. Details of the Directors’ experience and areas
of expertise are outlined on pages 35 and 36. They met during the year without executives present and maintain ongoing communications with
executives between formal meetings.
In addition to their general Board responsibilities, Non-Executive Directors are encouraged to be involved in specific workshops or meetings, in line
with their individual areas of expertise.
The Audit Committee Chairman updates his technical and financial experience by attending workshops held by the major accounting firms.
7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement
The Board evaluation exercise was designed and led by the Company Secretary, working closely with the Chairman of the Board and followed the
same process as last year in order to provide objectivity. The areas covered were structure and skills, operating effectiveness, operating efficiency,
quality of information and ongoing development.
Individual reviews of Non-Executive Director performance were carried out with the Chairman and the Non-Executive Directors undertook a review
of the performance of the Chairman. This concluded that the Chairman has an open, facilitating leadership style; demonstrates independence
and objectivity; and shows a strong understanding of the business.
The Board evaluation exercise identified a number of positive areas including greater exposure of the Board during the year to members of the senior
team and more involvement in the strategic development plans for the business. Although the Board and sub-committees are working well, areas
highlighted for improvement included the need to develop succession planning and implement post investment reviews. These matters will be
addressed during the 2018/19 financial year.
8. Promote a corporate culture that is based on ethical values and behaviour
The Group’s operating principles were updated during the year and widely communicated with all employees. As an innovative food business in a highly
competitive market our success depends crucially on people who care and are fully engaged to do their best for Finsbury. A common culture is evolving
based upon six key points:
• Operating excellence
• Sustainable approach
• Quality and innovations
• Cost effectiveness
• Growth with our partners
• People who care
By visiting all sites during the year, the Board is able to talk to staff and observe behaviour in order to satisfy itself on the status of the culture.
An annual survey of employee engagement is carried out every two years.
34 Finsbury Food Group
Annual Report & Accounts 2018
Report on Corporate Governance
9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board
The Board is committed to high standards of corporate governance and has chosen to adopt the QCA Corporate Governance Code and to join
the QCA. We review our corporate governance arrangements regularly and expect to evolve these over time.
The Board has revised its schedule of matters reserved for its decision during the year. These matters include:
• Strategy
• Acquisition policy
• Corporate governance
• Risk management
• Health and safety
• Approval of major capital expenditure
• Approval of annual budgets
• Approval of Annual Reports
• Dividend recommendations and policy
10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
The Board delegates authority to three committees to assist in meeting its business objectives while ensuring a sound system of internal control
and risk management. The committees meet independently of Board meetings.
Group Executive Committee
The GEC is the CEO’s direct team of executives supporting him in the delivery of the strategy and running of the Company.
Audit Committee
The Audit Committee has three members, Bob Beveridge (Chairman), Zoe Morgan and Ray Duignan. The Group Finance Director and external auditors
attend meetings by invitation. The Audit Committee’s responsibilities include the review of the scope, results and effectiveness of the external audit,
the review of half-year and annual accounts, and the review of the Company’s risk management and internal control systems. The committee met
three times during the year. A separate report of the Audit Committee activities is outlined on pages 40 and 41.
Remuneration Committee
The report of the Remuneration Committee is set out on pages 42 to 47. The Remuneration Committee has three members, Zoe Morgan (Chairman),
Marnie Millard and Ray Duignan. The Committee is responsible for setting the remuneration arrangements, including short-term bonus and long-term
incentives, for Executive Directors as well as approving, the remuneration principles for senior staff. The committee met twice during the year.
Nominations Committee
The Nominations Committee has two members, Peter Baker (Chairman) and Ray Duignan. The Nominations Committee considers succession planning,
reviews the structure, size, skills, diversity and composition of the Board and nominates candidates to fill Board vacancies. The Committee met once
during the year.
Going Concern
The Group has prepared a budget for the year ended 29 June 2019 and financial projections for the following two years. During the year the Group
has entered into a new five-year debt facility with scope for the facility to be increased by up to a further £45.0 million, providing increased capacity
for the Group to explore future growth opportunities and support its long-term investment strategy. It should be noted that current liabilities exceed
current assets. The Group has a relatively conservative level of debt to earnings. Having due consideration of the projections, the level of debt,
and available facilities it is the opinion of the Board that the Group has adequate resources to continue in operation for the foreseeable future
and therefore that it is appropriate to prepare the Financial Statements on the going concern basis.
Peter Baker
Chairman
Corporate GovernanceFinancial StatementsStrategic Review 35 Finsbury Food Group
Annual Report & Accounts 2018
The Directors
The Board is made of up two Executive Directors and four independent
Non-Executive Directors, and chaired by Peter Baker. The matters
overseen by the Board are detailed in section 9 of the Corporate
Governance Report.
Peter Baker
Non-Executive Chairman
Peter joined the Board on 1 July 2014 and is Chairman of the
Nominations Committee. Peter has over 30 years’ senior CEO and
Board level experience within the global bakery and consumer
packaged goods industry. He also chairs another Board and is
a Non-Executive Director in one other business. Peter held the
position of Managing Director of Maple Leaf Bakery from 2009
to 2013, moving into this position after the sale of La Fornaia
Bakeries, where he was the CEO. Prior to these roles, Peter held
COO and Divisional Managing Director positions at RHM in the
Consumer Brands, British Bakeries and Cereals Divisions (including
Rank Hovis Mills). Peter was previously a Non-Executive Director
at Jordan’s Cereals, now a part of Associated British Foods.
He has also served as Vice President of CIAA (a European trade
association for food and drink) and was on the Executive Board
of FDF the UK Food and Drink Federation.
John Duffy
Chief Executive Officer
John was appointed CEO of Finsbury Food Group with effect from
30 September 2009, following a year as interim COO, and has led
the turnaround of an indebted Group with a market capitalisation
of only £6.0 million in 2009 to the restructured and fast growing
£150 million+ market cap growth business of today. This transformation
required significant operational improvements and new leadership
throughout the Group as well as both a business disposal and several
acquisitions. The acquisition of Fletchers Bakery Group for £56.0
million in 2014 delivered a step change in scale to £300 million+
sales and diversification into the faster growing ‘out of home
eating’ channel.
Following an engineering degree, John’s early career was in the oil
industry in exploration and production with Shell International.
John then completed a full-time MBA at the University of Strathclyde
Business School before enjoying 10 years at Director-level
in manufacturing and logistics roles at Mars, the global FMCG
business. This was followed by private equity experience within
the portfolio investments of both L&G Ventures and Bridgepoint
e.g. as Operations Director at crisps and snacks manufacturer
Golden Wonder and Managing Director of WT Foods’ largest
chilled foods subsidiary, Noon Products, before and after its
sale to Kerry Foods.
John has Non-Executive experience in both start-up and
established businesses including Denby the household
pottery manufacturer.
36 Finsbury Food Group
Annual Report & Accounts 2018
The Directors
Stephen Boyd
Group Finance Director
Steve was appointed Group Finance Director
in January 2010. Steve has spent 21 years
in the food manufacturing sector and
previously was Group Finance Director
at Golden Wonder, subsequent to that
was Group Finance Director and Chief
Operating Officer at WT Foods Group
Plc. Steve worked with John Duffy at
both Golden Wonder and WT Foods.
Raymond Duignan
Non-Executive Director
Raymond was appointed to the Board
in July 2013. He has extensive industry
experience having set up a specialist
investment bank, Stamford Partners,
in the mid-1990s advising the European
food and drink industries with clients
including many blue chip companies.
He is currently a Non-Executive Director
of Science in Sport Plc, where he chairs
the Audit Committee, and is a member
of the Advisory Board of Active Private
Equity Partners, the consumer focused
investment group.
Marnie Millard
Non-Executive Director
Marnie was appointed to the Board on
1 February 2016. Marnie, is currently Group
Chief Executive of Nichols Plc, an AIM listed
branded soft drinks group, serving both the
UK retail and out of home channels, as well
as achieving international sales across 70
countries. Marnie joined the Nichols group
in October 2012 as MD of Vimto Soft Drinks.
She has worked in the soft drinks industry
for the last 20 years in a number of senior
roles with Macaw Soft Drinks, Refresco
Gerber Ltd. She was appointed Nichols Plc
Group Chief Executive in May 2013.
Bob Beveridge
Non-Executive Director
Bob was appointed to the Board on 1 July 2017.
He is a Chartered Accountant with extensive
financial management, city and corporate
transaction experience in consumer goods
and technology companies, including
Cable & Wireless Communications Plc,
Marlborough Stirling Plc, and McBride Plc,
a European private label manufacturer.
For the last 6 years he has been a portfolio
Independent Director and Audit Committee
Chairman and is currently Senior Independent
Director on the Boards of Brady Plc and
Inspiration Healthcare Plc. He also provides
mentoring services to aspiring and existing
Finance Directors via the Institute of
Chartered Accountants. He chairs the
Audit Committee.
Zoe Morgan
Non-Executive Director
Zoe was appointed to the Board on 4 July
2016. Zoe has 15 years Executive Director
experience with significant retail, consumer
and financial services businesses, including
the role of Group Marketing Director
of The Co-operative Group, HBoS Retail
and Boots UK. Zoe has developed a broad
commercial background in multi-site, retail,
manufacturing and service businesses,
with key strengths in strategy, brand
management and customer relationship
management. For the last 10 years she
has held a portfolio of Non-Executive
Directorships and is currently a Board
member of Moss Bros, Kind Consumer
and Kintell Ltd. She is the Chair of the
Remuneration Committee.
Corporate GovernanceFinancial StatementsStrategic Review 37 Finsbury Food Group
Annual Report & Accounts 2018
Directors’ Report
Background
The Group is a speciality bakery group which is focused on premium, celebration and well-being products. These products are supplied both under
the retailers’ own brands and through a number of licensed brands to which the Group has access.
A review of the activities and any likely future developments in the business of the Group is given in the Chairman’s Statement, Chief Executive’s Report
and the Strategic Report on pages 1 to 28.
Dividend
An interim dividend for the six months to 31 December 2017 of 1.1p per share was paid on 27 April 2018 to shareholders on the register at the close
of business on 3 April 2018. Subject to shareholder approval at the Company’s AGM on 21 November 2018, the final dividend of 2.2p per share will
be paid on 21 December 2018 to all shareholders on the register at 23 November 2018.
Directors and their Interests in the Company
The Directors and brief biographies are detailed on pages 35 and 36.
In accordance with the Articles of Association, Peter Baker and John Duffy retire by rotation and being eligible offer themselves for re-election
at the Company’s forthcoming AGM.
The beneficial interests of the Directors in the Ordinary Shares of the Company on 30 June 2018 and 1 July 2017 are set out below:
Ordinary Shares
P Baker
S A Boyd
J G Duffy
M Millard
Z Morgan
30 June 2018
1 July 2017
86,000
1,065,543
2,343,679
9,366
70,028
86,000
1,011,455
2,269,238
9,366
70,028
Details of Directors’ share options are set out in Note 6 to the Financial Statements. There has been no change to the Directors’ share interests
since 30 June 2018.
Details of the emoluments of the Directors are given in Note 6 to the Financial Statements.
Share Capital
Details of the changes in the share capital of the Company during the year are set out in Note 23 to the Financial Statements.
Substantial Interests
The following substantial interests (3 percent or more) in the Company’s issued share capital have been notified to the Company as at 31 August 2018:
Ruffer LLP
Cannacord Genuity Wealth Management
Investec Wealth & Investment Limited
Miton Asset Management Limited
Polar Capital LLP
FIL Investment International
London Finance & Investment Group Plc
Research and Development
Research and development (R&D) expenditure is expensed in the year in which it is incurred.
Directors and Officers’ Liability Insurance
The Company maintains a Directors and Officers liability insurance policy.
Number
of shares
% of issued
share capital
21,290,536
12,137,609
10,850,851
10,622,108
9,893,610
6,281,932
6,000,000
16.33%
9.31%
8.32%
8.15%
7.59%
4.82%
4.60%
38 Finsbury Food Group
Annual Report & Accounts 2018
Directors’ Report
Financial Instruments
The Group’s financial instruments comprise revolving a credit facility, cash and liquid resources, and various items arising directly from its operations,
such as trade creditors. The main purpose of these financial instruments is to finance the Group’s acquisitions and operations. It is the Group’s policy
that no trading in financial instruments shall be undertaken.
During the year the Group refinanced its debt facilities. The new facility is a £45.0 million revolving credit facility provided by a club of three banks
– HSBC, Rabo Bank and RBS. The facility is on improved terms, is available for five years and also includes scope for the facility to be increased
by up to a further £45.0 million.
The main risks arising from the Group’s financial instruments are interest rate risk and liquidity risk. The Board reviews and agrees policies
for managing these risks, which have remained substantially unchanged for the year under review. The policies are summarised below:
Interest Rate Risk
The new facility totalling £45.0 million plus a further £45.0 million accordion is available of which £25.0 million was drawn at the balance sheet
date leaving a headroom of £29.4 million, which comprise of £20.0 million on the facility plus a cash balance of £9.4 million with a further approved
accordion of £45.0 million. The interest rate risk is managed through interest rate swap transactions. The Group entered into a swap for £20.0 million
for five years from 3 July 2017 (fixed) at 0.455%. The total balance of swaps at 30 June 2018 is £20.0 million (2017: £nil). The counterparty to these
transactions is HSBC Bank Plc.
Liquidity Risk
Short-term flexibility is available through existing bank facilities and the netting off of surplus funds. Full details of the Group’s financial assets
and liabilities are given in Note 21.
Foreign Exchange Risk
The Group uses forward foreign exchange contracts to manage its exposure to fluctuations in foreign currency rates. Full details are given in Note 21.
Diversity
Finsbury Food Group is committed to encouraging diversity, promoting a diverse culture where everyone is treated with respect and valued for their
individual contribution and creating a work environment free of bullying, harassment, victimisation and unlawful discrimination. We have a Diversity
Policy in place to ensure that selection for employment, promotion, development or any other benefit is on the basis of merit and ability and does
not impact negatively upon diversity. It is a key objective to ensure that all employees are helped and encouraged to fulfil their potential.
Equal Opportunities
It is our policy to ensure equal opportunity in recruitment, selection, promotion, employee development, training and reward policies and we have
an equal opportunities and diversity policy in place. It is a key objective to ensure that successful candidates for appointment and promotion are
selected taking account of individual ability, skills and competencies without regard to age, gender, race, religion, disability or sexual orientation.
Involvement of Employees
Employees are key to the Company’s success and we rely on a committed workforce to help us achieve our business objectives. Employees are
encouraged to operate in an open environment, embracing teamwork and aligning personal development with the strategy of the business and their
behaviours with Company Values. We are keen to engage our employees by providing an environment where they can contribute their own ideas
and challenge those of others. We are committed to involving employees and consider that good communication helps to achieve this. All sites have
regular briefings, employee forums and communication mechanisms which are designed to keep colleagues informed of, amongst other things,
the financial and economic factors that affect the Company’s performance. Many sites also hold open days to allow employees’ families to see
the environment in which their family members work.
Political and Charitable Contributions
During the year charitable donations amounting to £9,000 (2017: £75,000) were made. No political donations were made.
Going Concern
On the basis of current financial projections and available funds and facilities, the Directors are satisfied that the Group has adequate resources
to continue in operation for the foreseeable future and, therefore, consider it appropriate to prepare the Financial Statements on the going concern
basis. Further details are set out in the basis of preparation.
Auditor
In accordance with Section 489 of the Companies Act 2006, a resolution for the reappointment of KPMG LLP as auditor is to be proposed
at the forthcoming AGM.
• So far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and
• Each Director has taken all the steps that they ought to have taken as a Director in order to make himself or herself aware of any relevant
audit information and to establish that the Company’s auditor is aware of that information.
The Directors’ Report was approved by the Board of Directors on 14 September 2018 and was signed on its behalf by:
Stephen Boyd
Director
Corporate GovernanceFinancial StatementsStrategic Review 39 Finsbury Food Group
Annual Report & Accounts 2018
The GEC
The Executive Directors are responsible for implementing and
achieving the strategy through the day-to-day running of the
business. They are supported by a team of direct Executives
on the Group Executive Committee.
Ian Chree
Group Efficiency Improvement
Director
Ian joined Finsbury Food Group in 2005.
He now has 22 years’ experience in the food
industry as well as 18 years’ experience in
process control in non-food manufacturing.
Ian’s first role in food was in engineering
and operations for a prepared vegetable
business, before moving to chilled high-care
food manufacturing with Food Partners,
where he was Managing Director. Ian moved
to his current role from a position of Joint
Managing Director of our Cake business.
Sat Hanspal
Group Purchasing Director
Sat joined Memory Lane Cakes in 1998
as a packaging buyer. Memory Lane was
subsequently acquired by Finsbury Food
Group and Sat progressed to his current
position. After studying Chemical
Engineering, Sat started his career
with Cima Foods as a process controller.
He moved to the purchasing side of the
business, looking after juice procurement
and logistics. Cima was acquired by Princes
Foods and during his 15 years with the
company, Sat progressed to Senior Buyer,
before his move to Memory Lane.
Jackie Kent
Group Human Resources Director
Jackie joined Finsbury Food Group in 2015.
She has over 20 years’ experience in the
food manufacturing sector. Before joining
Finsbury, she was HR Director at Burton’s
Biscuit Company for a number of years,
and also worked in the meat processing
sector. Her early roles were operational and
HR positions within Rank Hovis McDougall,
having completed their graduate
programme. Jackie holds a BA Hons degree
from the University of Leeds, and a Diploma
in Personnel Management, as well as
qualifications in occupational testing.
Frances Swallow
Group Technical Director
Frances joined Finsbury Food Group in
October 2009. She has worked in the food
industry for over 28 years, 18 of them
at Technical Executive or Director level.
Previous positions include senior roles
at Greencore, Fresh-Pak, Geest Prepared
Foods and United Biscuits, in a range of
operational, technical, manufacturing
and engineering roles.
Simon Staddon
Managing Director – Bread and
Morning Goods
Simon joined Finsbury Food Group in 2005 as
Managing Director of the Nicholas & Harris
speciality bread business. Before this he
was a commercial Director at Greencore.
This followed a long career at Unigate,
having joined after graduating from
Manchester University with a degree
in Management Sciences. He held many
roles within the St.Ivel division, including
Sales Director. Simon has been Managing
Director of Finsbury’s bread business for
the last 2 years.
Lawrence Trist
Managing Director – Cake
Lawrence joined Finsbury Food Group in
May 2009 as Cake Sales Director, gaining
promotion to his current role. He offers
over 20 years’ senior and Board-level
experience in the UK FMCG industry.
Before joining Finsbury, Lawrence
was Director of Sales at Allied Bakeries,
having been with the firm for seven years.
Prior to this, Lawrence had sales roles
in the media industry for companies
such as Shop Smart and Katz media.
40 Finsbury Food Group
Annual Report & Accounts 2018
Audit Committee Report
Overview
The Committee met three times during the year. The external auditors attended two of these meetings at the invitation of the Committee Chairman.
The Committee also met with the external auditors without the presence of Executive Directors or management.
During the year, in addition to its core responsibilities the Committee discussed the development of new M3 financial reporting system and revised
the Committee’s terms of reference in line with best practice.
Terms of Reference
The principle duties carried out in the year were to:
Review and monitor the integrity of the Financial Statements, reviewing significant financial reporting issues and judgements which they contain,
and recommend to the Board whether the Financial Statements give a fair, balanced and understandable view of the Group’s assets, liabilities and
financial position.
Receive reports on and keep under review the effectiveness of the internal controls and risk management processes, carry out an annual assessment
of these processes and approve statements to be included in the Annual Report concerning internal controls and risk management.
Oversee the Company’s relations with the external auditors and consider and make recommendations on the appointment, reappointment and
removal of the external auditors.
Monitor and review the effectiveness of the internal audit programme in the context of the overall risk management system to ensure that the internal
audit is operating efficiently and effectively within the organisation, review and assess the internal audit plan and reports, recommendations and
management responses.
Additional duties were to review foreign exchange, interest rate and commodity hedging policies, review and approve the Group’s insurance policies,
review and approve new bank facility agreements and review Health and Safety policies, practices and risk management procedures.
Financial Reporting
During the year, the Committee concluded that the Annual Report and Financial Statements, taken as whole, were fair, balanced and understandable
and provided the information necessary for shareholders to assess the Group’s business model, strategy and performance. During the year,
the Committee considered the following key matters of judgement:
• Revenue recognition policy and the future impact of IFRS 15
• Valuation of goodwill and intangible assets
• Significant non-recurring items
• The Committee considered the budget for 2019 and the business plan for 2020/21 and the debt financing arrangements at year end
and concluded that the going concern basis is appropriate.
The Committee reviewed the full-year and half-year results announcement, Annual Report and Financial Statements and considered reports from
the external auditors identifying accounting or judgemental issues requiring its attention. The committee also reviewed the Strategic Report and
concluded that it presented a useful and fair, balanced and understandable review of the business.
External Audit
The Committee considered the effectiveness of last year’s external audit against five criteria, Qualification, Expertise and Resources, Effectiveness,
Independence and Value and concluded that the audit was effective.
The Committee will assess the external auditor’s performance and effectiveness for the current year through a questionnaire to be completed by Audit
Committee members and the Group’s senior finance team. The output from the process will be reviewed and discussed by the Audit Committee
and with the external auditor at the Committee’s October 2018 meeting.
Independence and Non-audit Services
The Committee agreed a new policy on the provision of non-audit services in May 2018. The general principle is that the External Auditor should not
provide a non-audit service if this would have a material effect on, or relevance to, the production of the company’s Financial Statements and/or
involve taking decisions or making significant subjective judgement that should properly be the responsibility of management. During the year,
the fees paid to the auditor, KPMG, were £180,000 (2017: £173,000) for audit services, and £207,000 (2017: 142,000) for non-audit services.
No services were provided pursuant to contingent fee arrangements.
The Committee reviewed and considered the following factors to assess the objectivity and independence of KPMG:
• The auditor’s procedures for maintaining and monitoring independence, including those to ensure that the partners and staff have no personal
or business relationships with the Group, other than those in the normal course of business permitted by UK ethical guidance.
• The degree of challenge to management and the level of professional scepticism shown by the audit partner and the audit team throughout the process.
• The nature of non-audit work undertaken during the year and its approval in accordance with the Audit Committee’s policy on non-audit services.
The additional services provided during the year comprised due diligence on proposed acquisitions, pension advice on pensions fund investment
procedures and tax compliance work, none of which had an effect on the Company’s Financial Statements or involved executive decisions.
• A report from KPMG that they have adequate policies and safeguards in place to ensure that auditor objectivity and independence is maintained.
Corporate GovernanceFinancial StatementsStrategic Review 41 Finsbury Food Group
Annual Report & Accounts 2018
Audit Committee Report
Audit Committee Effectiveness
In May 2018, the Committee performed a self-assessment of its effectiveness. Overall the Committee is effective but areas for improvement
were identified in terms of extending the meeting times or adding in an additional meeting in the calendar.
Internal Audit
A programme of rolling internal control and risk reviews was monitored by the Committee together with follow up actions required.
Risk Management and Internal Controls
Group management prepared a report for the Committee’s consideration that identified the risks and uncertainties to which the Group is exposed,
the procedures in place to mitigate those risks and uncertainties and the potential impact on the Group. The Committee reviewed this report and
reported its views to the Board. Following this review, the Committee, is satisfied that the Group has in place effective internal control systems
and risk management.
The principal risks and uncertainties to which the Group is exposed are set out in the Strategic Report on pages 1 to 28.
During the year the Audit Committee reviewed cyber security in four areas, network security, hardware and software maintenance/updates, disaster
recovery and related controls and governance. Recommendations for improvements were made and are being implemented, including an annual
security review.
During the year the Committee also reviewed Health and Safety procedures and policies including resources, training and communications. A new common
safety management system has been implemented.
The Committee continues to keep under review the need for a separate dedicated internal audit function in the Group. The Committee remains
satisfied that the Group’s system of internal control is appropriate for a Group of the size and nature of the Company and the Committee’s current
view is that a separate formal independent internal audit function is not required at this time. The Committee will monitor the situation closely
as the Group continues to expand.
Bob Beveridge
Chairman, Audit Committee
42 Finsbury Food Group
Annual Report & Accounts 2018
Directors’ Remuneration Report
(unaudited)
Statement from the Chairman of the Remuneration Committee
Dear Shareholder
I am delighted to present the Directors’ Remuneration Report as Chair of the Remuneration Committee of Finsbury Food Group for the year ended
30 June 2018.
I became the Chair of the Remuneration Committee with effect from 1 January 2018 and I would like to thank Ray Duignan for all his support during
the transition and the work undertaken earlier in the year with the Committee in assessing and changing the reward structure for the Executive,
which I explain further below.
Remuneration Policy
The Committee presented its first Policy to shareholders at the 2015 AGM and it demonstrated a maturing in our business and approach to setting
pay and incentivising and rewarding our Executive Directors in a structured way reflecting our business strategy. At that time our policy was to focus
on reward delivered through variable pay and in particular to remunerate predominantly through our Long-Term Incentive Plan (“LTIP”) reflecting
our growth aspirations. Fixed pay was set at a level which meant that the overall package was competitive and appropriate. Very stretching EPS targets
were introduced, together with a relative TSR measure to ensure there was quality earnings growth which was reflected in our share price as compared
to the market. The LTIP award was set at 200% of base salary. The Committee recognised that this was at the higher end of practice but considered
this to be appropriate in light of base pay levels and the stretch in the EPS targets.
Since that time our Executive Directors have continued to deliver exceptional performance and under their leadership the Group has been transformed
over recent years via a combination of organic growth and acquisition. More recently however, there have been greater challenges facing the business
to deliver stretch EPS performance with a number of head winds which our Executives have handled superbly. In this context, the Committee recognises
that our philosophy of “super reward” for “superstretch performance” was not appropriate in the current climate. It also recognised that the fixed
pay levels did not reflect the increased complexity of the Group and the extended role and scope of responsibilities of our very experienced CEO
and Group Finance Director. Most importantly was the need to retain the senior management team, and in particular the Executive Directors,
by providing remuneration and performance targets which are appropriate for the current landscape.
The Committee therefore undertook a detailed exercise earlier in the year to rebalance fixed and variable pay in a way which slightly increased the
expected value of the remuneration package, whilst reducing the overall maximum total compensation. This led to a reduction in the LTIP opportunity
from 200% to 100%, the bonus opportunity being maintained at 100% and an increase in fixed pay of 20% for our CEO John Duffy and 16% for our
GFD Steve Boyd.
We undertook extensive discussions with a majority of our shareholders following the changes and I am pleased to say that we received good support
for these changes and a recognition of the rationale behind them.
Our updated Policy is provided on our website at www.finsburyfoods.co.uk/investor-relations/corporate-governance, pre-faced with a summary
of the limited changes which have been made to our original 2015 Policy.
The Annual Report on Remuneration which is on pages 42 to 47 provides details of the amounts earned in respect of the year ended 30 June 2018
and how the Remuneration Policy will be operated for the year commencing 1 July 2019.
Similar to last year and as a matter of best practice, the Annual Report on Remuneration has been prepared taking into account the remuneration
reporting regulations applicable to fully listed companies in the UK.
Review of the 2017-2018 Financial Year
As described earlier in the Annual Report, the Company has delivered a resilient trading performance in the face of unprecedented cost inflation
of commodity inputs. The strong investment and efficiency focus have enabled the Company to cope with cost pressures and the volatile retail
environment.
The 2017-2018 annual bonus was subject to an EBITDA performance metric. The Company achieved EBITDA in line with our forecast for the year.
However, recognising the exceptional costs incurred in relation to the Grain D’Or closure and the absence of bonuses elsewhere in the Group, the
Executive Directors have asked to waive their bonus entitlement and the Committee has agreed. This is a further demonstration of the prudent
and reflective approach which both the Committee and the Executive Directors consistently take on matters of remuneration.
Awards made under the LTIP in December 2015 vested in respect of performance over the three financial years ending on 30 June 2018. These vested
88.63% in respect of the EPS element and 100% in respect of the relative TSR element, delivering an overall vesting of 94.32% of the maximum award.
Our definition of Earnings Per Share is adjusted diluted EPS and for this year, adjustments included the exclusion of exceptional costs relating to the
closure of our loss making sites. The Committee considered that this underlying EPS measure was a fairer reflection of the real improvement in earnings
of the business over the last three years, in spite of significant increases in commodity prices. Our senior managers also participate in the LTIP and
it was important to reward them for their long-term hard work and commitment to the business. These vested shares are subject to a further two
year holding period. Full details of the vested awards are provided on page 45.
Awards under the LTIP were made during the year. As explained above these were made at a reduced level of 100% of salary compared to the historic
levels of 200% of salary to reflect the resetting of performance targets and the rebalancing of fixed and variable pay. The awards will vest based
on relative TSR performance and absolute EPS targets over the three year period to 2020. These awards are subject to a two year post vesting
holding period.
Corporate GovernanceFinancial StatementsStrategic Review 43 Finsbury Food Group
Annual Report & Accounts 2018
Directors’ Remuneration Report (unaudited)
Outlook for the 2018-2019 Financial Year
Details in relation to the application of the Directors’ Remuneration Policy can be viewed in the investor section of the website
at www.finsburyfoods.co.uk/investor-relations/corporate-governance, however, the key elements will be as follows:
• No salary increases for Executive Directors.
• Annual bonus opportunity will remain at 100% of salary. The annual bonus will continue to be based on adjusted EBITDA performance
as the Committee considers this to be the most appropriate short-term measure for assessing Executives performance.
• Awards under the LTIP will be made following the announcement of our results and the Committee will discuss the performance conditions
which will apply, although anticipate that this will continue to be absolute EPS targets and relative TSR against the FTSE Small Cap.
The targets will be disclosed in the Remuneration Report next year. The overall maximum award will be 100% of salary.
• There were no increases to the Non-Executive Directors’ basic fee or the Chairman’s fee. As part of the three year review cycle for Non-Executive
fees, these will be reviewed next year.
Zoe Morgan
Chairman of the Remuneration Committee
14 September 2018
44 Finsbury Food Group
Annual Report & Accounts 2018
Directors’ Remuneration Report (unaudited)
The full policy can be viewed in the investor section of the website at www.finsburyfoods.co.uk/investor-relations/corporate-governance.
The main aim of the Company’s Policy is to align the interests of Executive Directors with the Company’s strategic vision and the long-term creation
of shareholder value. The Company aims to provide returns to shareholders through both organic and acquisitive growth. The Policy is intended
to remunerate our Executive Directors competitively and appropriately for effective delivery of this and allows them to share in this success and
the value delivered to shareholders. The Policy is based on a broad set of remuneration principles:
• Promote shareholder value creation
• Support the business strategy
• Promote sound risk management
• Ensure that the interests of the Directors are aligned with the long-term interests of shareholders
• Deliver a competitive level of pay for the Directors without paying more than is necessary to recruit and retain individuals
• Ensure that the Executive Directors are rewarded for the contribution to the success of the Group and share in the success delivered
to shareholders and
• Motivate the Directors to deliver enhanced sustainable performance
Unaudited Annual Report on Remuneration
Single Total Figure of Remuneration
The tables below detail the total remuneration earned by each Director in respect of the financial years ended 30 June 2018 and 1 July 2017:
2018
Executive Directors
J G Duffy
S A Boyd
Non-Executive Directors
P Baker
R Beveridge2
R P E Duignan
M J Millard
Z Morgan
2017
Executive Directors
J G Duffy
S A Boyd
Non-Executive Directors
P Baker
R P E Duignan
M J Millard
Z Morgan
Salaries/fees
£000
Taxable
benefits
£000
Annual
bonus
£000
LTIP1
£000
Total
remuneration
£000
403
284
687
85
54
58
53
56
306
993
12
12
24
-
-
-
-
-
-
24
-
-
-
-
-
-
-
-
-
-
818
595
1,413
-
-
-
-
-
-
1,413
1,233
891
2,124
85
54
58
53
56
306
2,430
Salaries/fees
£000
Taxable
benefits
£000
Annual
bonus
£000
LTIP
£000
Total
remuneration
£000
349
253
602
75
60
53
53
241
843
12
12
24
-
-
-
-
-
24
304
220
524
-
-
-
-
-
524
1,192
755
1,947
-
-
-
-
-
1,947
1,857
1,240
3,097
75
60
53
53
241
3,338
1. Long-term incentive awards vested with respect to the performance period ended 1 July 2017 and 30 June 2018 are subject to a two-year holding
period. The LTIP values for the year ended 30 June 2018 were based on the average three month share price to the financial year end of 124.83p
per share. The LTIP values for the year ended 1 July 2017 have been updated from the prior year to reflect the actual share price value at vesting
which was 107.50p per share.
2. Appointed to the Board on 1 July 2017.
Corporate GovernanceFinancial StatementsStrategic Review
45 Finsbury Food Group
Annual Report & Accounts 2018
Directors’ Remuneration Report (unaudited)
Notes to the Table
Base Salaries
The base salaries for the Executive Directors are set with effect from 1 October each year. The salaries in the financial years ended 1 July 2017
and 30 June 2018 were as follows:
Executive Director
J G Duffy
S A Boyd
From 1 October 2016
From 1 October 2017
Percentage increase
£350,265
£254,500
£420,000
£294,200
20%
16%
The rationale for the increase in base salaries, and the related reduction in LTIP award, is set out in the Statement from the Chairman of the
Remuneration Committee on page 42.
Taxable Benefits
The taxable benefits for the Executive Directors in the year included a car allowance and private medical insurance. The Executive Directors
do not receive a pension allowance.
Annual Bonus
The annual bonus is the total value of the bonus earned in respect of the financial year (including the amount delivered in shares). For the financial
year ended 30 June 2018 Executive Directors were able to earn a bonus of up to 100% of annual base salary subject to the achievement of stretching
EBITDA performance targets.
The following table sets out the bonus pay-out to the Executive Directors for 2017-18 and how this reflects EBITDA performance for the year.
Performance measure
Earnings before interest, tax, depreciation
and amortisation (EBITDA)
Actual performance
Resulting level of award
for each Executive as a
percentage of salary*
Bonus to be paid
EBITDA £25,600,000
25%
Nil
The Executive Directors have waived this bonus as the Group has incurred significant exceptional costs in respect of the closure of two sites
during the year.
Long-term Incentives
Awards granted on 4 December 2015 were based on performance over the three financial years to 30 June 2018 and vested as to the amounts set
out below. These awards are subject to a two year holding period.
Performance conditions
Adjusted diluted EPS
% vesting
Actual performance
(adjusted diluted EPS)
% of this element vesting
% of award
50% of the award subject to
adjusted diluted Earnings Per
Share in the final year of the
performance period
50% of the award based upon
Relative Total Shareholder
Return against the FTSE Small
Cap (excluding investment
trusts) (“TSR”) over the
performance period
Total % of award vesting
Below 7.65p
7.65p
Between 7.65p and 10.20p Straight-line vesting
10.20p
0
25%
100%
9.81p
88.63%
44.32%
Relative TSR ranking
% vesting
Below median
Median
Between median and
upper quartile
10.20p
0
25%
Straight-line vesting
100%
Above upper
quartile
100.00%
50.00%
94.32%
In arriving at the adjusted EPS out-turn of 9.81p the Committee has excluded the exceptional costs relating to the closure of two sites.
J G Duffy
S A Boyd
Number of shares granted
Number of shares vesting
Value of LTIP shares vesting1
695,095
505,051
655,613
476,364
£818,401
£594,645
1. The LTIP has been valued based on the three month average share price to the financial year end of 124.83p per share.
46 Finsbury Food Group
Annual Report & Accounts 2018
Directors’ Remuneration Report (unaudited)
Chairman and Non-Executive Director Fees
Details of Chairman and Non-Executive Directors’ fees for 2017-18 are as set out below:
Chairman fee
£85,000
Non-Executive
Director fee
£50,000
Chairman of the
Remuneration
Committee
£5,000
Member of the
Remuneration
Committee
£2,500
Chairman of the
Audit Committee
£5,000
Member of the
Audit Committee
£2,500
Payments Made to Former Directors during the Year
No payments were made in the year to any former Director of the Company.
Payments for Loss of Office Made During the Year
No payments for loss of office were made in the year to any Director of the Company.
Statement of Directors’ Shareholding and Share Interests
The interests of the Directors and their immediate families in the Company’s ordinary shares as at 30 June 2018 and 1 July 2017 were as follows:
Executive Directors
J G Duffy
S A Boyd
Non-Executive Directors
P Baker
R P E Duignan
M J Millard
Z Morgan
R Beveridge
30 June 2018
Number
1 July 2017
Number
2,343,679
1,065,543
2,269,238
1,011,455
86,000
-
9,366
70,028
-
86,000
-
9,366
70,028
-
The current personal shareholdings of J G Duffy and S A Boyd equate to circa 6.6 and 4.3 times salary respectively.
The interests of the Directors and their immediate families in the Company’s ordinary shares did not change between 30 June 2018 and the date
these accounts were signed on 14 September 2018.
The interests of each Executive Director of the Company as at 30 June 2018 and 1 July 2017 in the Company’s share schemes were as follows:
Executive Director
J G Duffy
J G Duffy
J G Duffy
J G Duffy
J G Duffy
S A Boyd
S A Boyd
S A Boyd
S A Boyd
S A Boyd
Number of options
at 1 July 2017
1,137,898
695,095
515,464
-
-
721,217
505,051
374,532
-
-
3,949,257
Granted
-
-
-
410,423
27,777
-
-
-
287,492
27,777
753,469
Lapsed
(29,017)
-
-
-
-
(18,392)
-
-
-
-
(47,409)
Number of options
at 30 June 2018
1,108,881
695,095
515,464
410,423
27,777
702,825
505,051
374,532
287,492
27,777
4,655,317
Corporate GovernanceFinancial StatementsStrategic Review 47 Finsbury Food Group
Annual Report & Accounts 2018
Directors’ Remuneration Report (unaudited)
Details of the LTIP awards granted on 27 October 2017 are given in the table below:
J G Duffy
S A Boyd
Number of
shares*
438,200
315,269
Basis of award**
Performance period
Performance conditions
100% of salary
100% of salary
3 financial years from 2 July 2017
3 financial years from 2 July 2017
50% subject to EPS growth and 50% subject
to relative TSR (further details below).
*
The total number of shares awarded include 27,777 options under the Company Share Option Plan (CSOP) for both J G Duffy and S A Boyd.
** The basis of award for the awards under the LTIP was calculated using the average price of the shares over the three business days following
the announcement on 18 September 2017 of the Company’s preliminary results for the year ended 1 July 2017.
** The basis of award for the CSOP options of 27,777 awarded to both J G Duffy and S A Boyd was calculated using the closing price of the shares
of the day preceding the award date of 27 October 2017.
Awards will be subject to a further two year holding period following the end of the performance period.
The vesting of the LTIP options is linked to the vesting of the CSOP options, if the CSOP awards are exercised at a gain then the LTIP awards will
be scaled back at the same value to ensure that the total pre-tax value delivered to the Executive Directors remains unchanged.
Vesting of 50% of the award will be based upon the amount of the adjusted diluted Earnings Per Share (EPS) delivered in the final Financial Year of the
performance period. Below the threshold vesting target of 10.29p, none of this component of the award will vest. 25% of this component will vest
if adjusted diluted EPS is 10.29p, with 100% vesting at 12.46p, and vesting determined on a straight-line basis between these figures.
Vesting of 50% of the award will be based upon Relative TSR against the FTSE Small Cap (excluding investment trusts) over the performance period.
At below median relative TSR ranking, none of this component of the award will vest. 25% of this component will vest at median ranking, with 100%
vesting at upper quartile or above ranking, and vesting determined on a straight-line basis between these points.
The awards are also subject to a general performance underpin assessing factors, including ROCE and other financial indicators of performance
over the performance period, at the discretion of the Remuneration Committee.
Approval
This Report was approved by the Board on 14 September 2018 and signed on its behalf by:
Zoe Morgan
Chairman of the Remuneration Committee
48 Finsbury Food Group
Annual Report & Accounts 2018
Statement of Directors’ Responsibilities in Respect
of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the Group and Parent Company Financial Statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare Group and Parent Company Financial Statements for each financial year. As required by the AIM Rules
of the London Stock Exchange they are required to prepare the Group Financial Statements in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the Parent Company Financial
Statements in accordance with UK accounting standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 101 Reduced
Disclosure Framework.
Under Company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state
of affairs of the Group and Parent Company and of their profit or loss for that period. In preparing each of the Group and Parent Company Financial
Statements, the Directors are required to:
• Select suitable accounting policies and then apply them consistently;
• Make judgements and estimates that are reasonable, relevant, reliable and prudent;
• For the Group Financial Statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• For the Parent Company Financial Statements, state whether applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the Financial Statements;
• Assess the Group and Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
• Use the going concern basis of accounting unless they either intend to liquidate the Group or the Parent Company or to cease operations, or
have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Parent Company’s transactions
and disclose with reasonable accuracy at any time the financial position of the Parent Company and enable them to ensure that its Financial Statements
comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial
Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report and a Directors’ Report that complies
with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
By Order of the Board
Stephen Boyd
Director
14 September 2018
Corporate GovernanceFinancial StatementsStrategic Review 49 Finsbury Food Group
Annual Report & Accounts 2018
Independent Auditor’s Report to the
Members of Finsbury Food Group Plc
1. Our Opinion is Unmodified
We have audited the Financial Statements of Finsbury Food Group Plc (“the Company”) for the 52 week period ending 30 June 2018 which comprise
the Consolidated Statement of Profit and Loss and Other Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement
of Changes in Equity, Consolidated Cash Flow Statement, Company Balance Sheet, Company Statement of Changes in Equity, and the related notes,
including the accounting policies in Notes 1 and 30.
In our Opinion:
• The Financial Statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 June 2018
and of the Group’s profit for the 52 week period then ended;
• The Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union (IFRSs as adopted by the EU);
• The Parent Company Financial Statements have been properly prepared in accordance with UK accounting standards, including FRS 101
Reduced Disclosure Framework; and
• The Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described
below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including
FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for
our opinion.
Materiality:
Group Financial Statements as a whole
Coverage
Risks of material misstatement
Recurring risks
£850,000 (2017: £875,000)
5% of adjusted profit before tax
(2017: 5% of adjusted profit before interest and tax)
99% (2017: 90%) of Group profit after tax
vs 2017
Recoverability of Group goodwill and of Parent’s investment in subsidiaries
2. Key Audit Matters: Our Assessment of Risks of Material Misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the Financial Statements and include
the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest
effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. This matter was addressed
in the context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on this matter. In arriving at our audit opinion above, the key audit matter is as follows:
Recoverability of Group goodwill
and of Parent’s investment in
subsidiaries
(Group’s goodwill: £69.2 million;
2017: £69.2 million
Parent investment in subsidiaries:
£101.0 million; 2017: £100.8 million)
Refer to page 59 (Accounting Policy)
and page 70 (Financial Disclosures).
The risk
Forecast-based valuation:
Our response
Our procedures included:
In planning our audit we identified risks that
may have indicated risks of irrecoverability
of the Group’s significant goodwill balance,
potential changes in customer demand and
preferences in certain markets and general
cost inflation across the industry.
Assessing the recoverability of goodwill involves
forecasting and discounting future cash flows,
which rely on the Directors’ assumptions and
estimates of future trading performance.
Parent Company’s investment is assessed
in a similar manner.
• Benchmarking assumptions: We challenged the
discount rate used in the forecasts by benchmarking
this against similar companies.
• Sensitivity analysis: We performed sensitivity analysis
on key assumptions including: sales growth; margins
(incorporating potential adverse pricing as a result
of changes to future tariff rates); and the discount rate.
• Tests of detail: We compared the carrying amount
of the investments with the net assets value of the
respective subsidiary, being an approximation of
their minimum recoverable amount, to identify
whether the net asset values were in excess
of the carrying amounts.
• Our sector experience: Where the investment value
was not supported by the net assets of the subsidiary
we obtained the forecasts used by the Directors’ in their
assessment of the recoverability of their investments.
We challenged the forecasts by agreeing the brought
forward position to actual results and, based on our
understanding of the Company and sector, assessed
whether expected future conditions had been
incorporated.
We continue to perform procedures over revenue however, following reassessment of the associated risks, we have not assessed this as one
of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.
50 Finsbury Food Group
Annual Report & Accounts 2018
Independent Auditor’s Report to the
Members of Finsbury Food Group Plc
3. Our Application of Materiality and an Overview of the Scope of our Audit
Materiality for the Group Financial Statements as a whole was set at £850,000 (2017: £875,000), determined with reference to a benchmark of Group
profit before tax and one-off costs for closure of operations £17.5m, of which it represents 5% (2017: Group profit before interest and tax, of which
it represents 5%).
Materiality for the Parent Company Financial Statements as a whole was set at £608,000 (2017: £656,000), determined with reference to a benchmark
of Company total assets, of which it represents 0.5% (2017: 0.5%).
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £42,000 (2017: £43,750), in addition
to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 8 (2016: 8) reporting components, which include the Parent Company, we subjected 6 (2016: 7) to full scope audits for Group
reporting purposes.
We conducted reviews of financial information (including enquiry) at a further 1 (2017: 1) non-significant component. The component for which
we performed work other than audits for Group reporting purposes was not individually significant but was included in the scope of our Group reporting
work in order to provide further coverage over the Group’s results.
The components within the scope of our work accounted for the following percentages of the Group’s results.
The Group team instructed component auditors as to the significant areas to be covered, including the relevant risks and the information to be reported
back. The Group team approved the component materialities, which ranged from £42,900 to £608,000 (2017: £20,000 to £456,000), having regard
to the mix of size and risk profile of the Group across the components. The work on 4 of the 7 components (2017: 4 of the 8 components) was performed
by component auditors and the rest by the Group audit team.
The Group audit team visited 4 (2017: 4) component locations in the UK. At these visits, the findings reported to the Group team were discussed
in more detail, and any further work required by the Group team was then performed by the component auditor.
Corporate GovernanceFinancial StatementsStrategic Review 51 Finsbury Food Group
Annual Report & Accounts 2018
Independent Auditor’s Report to the
Members of Finsbury Food Group Plc
Adjusted Profit before Tax
£17.6 million (2017: £17.6 million)
Group Materiality
£850,000 (2017: £875,000)
£850,000
Whole Financial Statements materiality
(2017: £875,000)
£637,500
Range of materiality at 7 components
£42,900 - £608,000
(2017: £20,000 to £656,000)
£42,000
Misstatements reported to the Audit
Committee (2017: £43,750)
Total Profits and Losses that
made up Group Profit before Tax
Group Total Assets
12
10
99%
(2017 100%)
90
87
4
5
100%
(2017 100%)
95
96
Adjusted PBIT
Group materiality
Group Revenue
11
10
100%
(2017 100%)
90
89
Full scope for Group audit purposes 2018
Specified risk-focused audit procedures 2018
Full scope for Group audit purposes 2017
Specified risk-focused audit procedures 2017
Residual components
52 Finsbury Food Group
Annual Report & Accounts 2018
Independent Auditor’s Report to the
Members of Finsbury Food Group Plc
4. We have nothing to Report on going Concern
We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed
material uncertainty that may cast significant doubt over the use of that basis for a period of at least twelve months from the date of approval of the
Financial Statements. We have nothing to report in these respects.
5. We have nothing to Report on the other Information in the Annual Report
The Directors are responsible for the other information presented in the Annual Report together with the Financial Statements. Our opinion on the
Financial Statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below,
any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our Financial Statements audit work, the information
therein is materially misstated or inconsistent with the Financial Statements or our audit knowledge. Based solely on that work we have not identified
material misstatements in the other information.
Strategic Report and Directors’ Report
Based solely on our work on the other information:
• We have not identified material misstatements in the Strategic Report and the Directors’ Report;
• In our opinion the information given in those reports for the financial year is consistent with the Financial Statements; and
• In our opinion those reports have been prepared in accordance with the Companies Act 2006.
6. We have nothing to Report on the other Matters on which we are required to Report by Exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• Adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• The Parent Company Financial Statements and the part of the Directors’ Remuneration Report which we were engaged to audit are not
in agreement with the accounting records and returns; or
• Certain disclosures of Directors’ remuneration specified by law are not made; or
• We have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
7. Respective Responsibilities
Directors’ Responsibilities
As explained more fully in their statement set out on page 48, the Directors are responsible for: the preparation of the Financial Statements including
being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of Financial Statements
that are free from material misstatement, whether due to fraud or error; assessing the Group and, Parent Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to
liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s Responsibilities
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement, whether due
to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of the Financial Statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
8. The Purpose of our Audit Work and to whom we owe our Responsibilities
This Report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the
Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Jeremy Thomas
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
3 Assembly Square, Britannia Quay, Cardiff, CF10 4AX
14 September 2018
Corporate GovernanceFinancial StatementsStrategic Review 53 Finsbury Food Group
Annual Report & Accounts 2018
Financial Statements
Consolidated Statement of Profit and Loss and Other Comprehensive Income
for the 52 weeks ended 30 June 2018 and 52 weeks ended 1 July 2017
Revenue
Cost of sales
Gross profit
Administrative expenses – underlying
Administrative expenses – significant and non-recurring
Administrative expenses
Results from operating activities
Finance income
Finance cost
Net finance cost
Profit before tax and share of losses of equity accounted investees
Share of losses of equity accounted investees
Profit before tax
Taxation
Profit for the financial year
Other comprehensive (expense)/income
Items that will not be reclassified to profit and loss
Remeasurement on defined benefit pension scheme
Movement in deferred taxation on pension scheme liability
Other comprehensive expense for the financial year, net of tax
Total comprehensive income for the financial year
Profit attributable to:
Equity holders of the Parent
Non-controlling interest
Profit for the financial year
Total comprehensive income attributable to:
Equity holders of the Parent
Non-controlling interest
Total comprehensive income for the financial year
Earnings per ordinary shares
Basic
Diluted
The Notes on pages 57 to 86 form an integral part of these Financial Statements.
Note
2018
£000
2017
£000
2
3
7
7
8
13
20
9
9
303,600
(211,511)
92,089
(73,785)
(13,067)
(86,852)
5,237
167
(929)
(762)
4,475
-
4,475
(1,311)
3,164
(172)
29
(143)
3,021
2,180
984
3,164
2,037
984
3,021
1.7
1.6
314,296
(216,493)
97,803
(80,239)
(4,000)
(84,239)
13,564
555
(1,081)
(526)
13,038
(22)
13,016
(2,959)
10,057
(4,031)
621
(3,410)
6,647
9,048
1,009
10,057
5,638
1,009
6,647
7.1
6.9
54 Finsbury Food Group
Annual Report & Accounts 2018
Consolidated Statement of Financial Position
at 30 June 2018 and 1 July 2017
Non-current assets
Intangibles
Property, plant and equipment
Investments in equity accounted investees
Other financial assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Other financial assets – fair value of derivatives
Total assets
Current liabilities
Other interest-bearing loans and borrowings
Trade and other payables
Provisions
Other financial liabilities – fair value of derivatives
Current tax liabilities
Non-current liabilities
Other interest-bearing loans and borrowings
Provisions and other liabilities
Deferred tax liabilities
Pension fund liability
Total liabilities
Net assets
Equity attributable to equity holders of the Parent
Share capital
Share premium account
Capital redemption reserve
Employee share reserve
Retained earnings
Non-controlling interest
Total equity
Note
2018
£000
2017
£000
10
11
12
12
20
14
15
16
12
17
19
19
12
17
19
20
13
23
22
22
22
22
22
83,313
49,922
-
28
3,890
137,153
13,456
44,575
9,363
558
67,952
205,105
(24,685)
(55,598)
(3,798)
(40)
-
(84,121)
-
(4,623)
(1,243)
(10,536)
(16,402)
(100,523)
80,302
48,857
269
28
4,063
133,519
12,684
50,018
3,024
560
66,286
199,805
(14,586)
(60,461)
(18)
(234)
(1,650)
(76,949)
(5,800)
(221)
(1,335)
(10,498)
(17,854)
(94,803)
104,582
105,002
1,304
64,956
578
(3,282)
38,954
102,510
2,072
104,582
1,304
64,956
578
(3,585)
39,862
103,115
1,887
105,002
These Financial Statements were approved by the Board of Directors on 14 September 2018 and were signed on its behalf by:
Stephen Boyd
Director
Registered Number 00204368
The Notes on pages 57 to 86 form an integral part of these Financial Statements.
Corporate GovernanceFinancial StatementsStrategic Review
55 Finsbury Food Group
Annual Report & Accounts 2018
Consolidated Statement of Changes in Equity
for the 52 weeks ended 30 June 2018 and 1 July 2017
Balance at 2 July 2016
Profit for the financial year
Other comprehensive (expense)/income:
Remeasurement on defined benefit pension
Deferred tax movement on pension scheme
remeasurement
Total other comprehensive expense
Total comprehensive income for the period
Transactions with owners, recorded
directly in equity:
Shares issued from EBT
Impact of share based payments
Deferred tax on share options
Foreign exchange translation differences
Dividend paid
Balance at 1 July 2017
Balance at 1 July 2017
Profit for the financial year
Other comprehensive (expense)/income:
Remeasurement on defined benefit pension
Deferred tax movement on pension scheme
remeasurement
Total other comprehensive expense
Total comprehensive income for the period
Transactions with owners, recorded
directly in equity:
Shares issued from EBT
Impact of share based payments
Deferred tax on share options
Foreign exchange translation differences
Dividend paid
Balance at 30 June 2018
Note
Share
capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Employee
share
reserve
£000
Retained
earnings
£000
Non-
controlling
interest
£000
Total
equity
£000
1,304
64,956
578
(3,920)
36,569
1,583
101,070
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,048
1,009
10,057
(4,031)
-
(4,031)
621
(3,410)
5,638
-
-
1,009
621
(3,410)
6,647
-
-
-
-
-
1,304
-
-
-
-
-
64,956
-
-
-
-
-
578
335
-
-
-
-
(3,585)
(158)
1,240
47
171
(3,645)
39,862
-
-
-
-
(705)
1,887
177
1,240
47
171
(4,350)
105,002
1,304
64,956
578
(3,585)
39,862
1,887
105,002
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,180
984
3,164
(172)
-
(172)
29
(143)
2,037
-
-
984
29
(143)
3,021
-
-
-
-
-
1,304
-
-
-
-
-
64,956
-
-
-
-
-
578
303
-
-
-
-
(3,282)
(217)
1,138
58
34
(3,958)
38,954
-
-
-
-
(799)
2,072
86
1,138
58
34
(4,757)
104,582
13
20
23
23
24
13
20
23
23
24
The Notes on pages 57 to 86 form an integral part of these Financial Statements.
56 Finsbury Food Group
Annual Report & Accounts 2018
Consolidated Cash Flow Statement
for the 52 weeks ended 30 June 2018 and 1 July 2017
Cash flows from operating activities
Profit for the financial year
Adjustments for:
Taxation
Net finance costs
Depreciation
Amortisation of intangibles
Significant non-recurring items
Share of losses of equity accounted investees after tax
Contributions by employer to pension scheme
Change in fair value of foreign exchange contracts
Operating profit before changes in working capital
Changes in working capital:
Increase in inventories
Decrease in trade and other receivables
Decrease in trade and other payables
Cash generated from operations before costs of disposals and acquisitions
Costs relating to closure of bakeries and acquisitions
Interest paid
Tax paid
Net cash from operating activities
Cash flows from investing/divesting activities
Purchase of property, plant and equipment
Disposal of property, plant and equipment
Purchase of companies/investments
Net cash used in investing activities
Cash flows from financing activities
Repayment of invoice discounting
Drawdown of revolving credit
Repayment of mortgage and bank loans
Repayment of asset finance liabilities
Options exercised/(purchase) of shares by employee benefit trust
Dividend paid to non-controlling interest
Dividend paid to shareholders
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Opening cash and cash equivalents
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at end of period
The Notes on pages 57 to 86 form an integral part of these Financial Statements.
Note
2018
£000
2017
£000
3,164
10,057
8
7
11
10
4
12
13
12
18
18
18
18
24
35
16
1,311
762
7,041
715
13,067
-
(411)
(49)
25,600
(757)
6,235
(4,160)
26,918
(4,594)
(634)
(3,338)
18,352
(12,606)
768
-
(11,838)
(11,646)
25,000
(8,794)
(57)
86
(799)
(3,958)
(168)
6,346
3,024
(7)
9,363
2,959
526
6,948
537
4,000
22
(200)
71
24,920
(39)
153
(2,566)
22,468
-
(892)
(2,650)
18,926
(12,542)
-
(80)
(12,622)
822
-
(2,937)
(133)
177
(705)
(3,645)
(6,421)
(117)
3,024
117
3,024
Corporate GovernanceFinancial StatementsStrategic Review
57 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
(forming part of the Financial Statements)
Presentation of Financial Statements
Basis of Preparation
These accounts cover the 52 week period ended 30 June 2018 (prior financial year is the 52 week period ended 1 July 2017). The Group Financial
Statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”). The Company is a public company which
is incorporated, domiciled and registered in the UK.
The Group Financial Statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards
as adopted by the EU (“Adopted IFRSs”). The Financial Statements for the Company have been prepared in accordance with UK Accounting Standards
and applicable law (UK Generally Accepted Accounting Practice), including Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”),
these are presented on pages 87 to 96.
It should be noted that current liabilities exceed current assets. Having reviewed the Group’s short and medium-term plans and available financial
facilities, the Board has reasonable expectations that the Group has adequate resources to continue in operational existence for the next 12 months
and the foreseeable future.
The Group meets its funding requirements through internal cash generation and bank credit facilities, which are committed until February 2023.
Committed banking facilities are £45.0 million plus a further £45.0 million accordion, of which £25.0 million were drawn at the year end, with a net
debt of £15.6 million. The Group’s forecasts and projections, taking account of reasonably possible changes in trading performance, including the
possible effect of the UK’s decision to withdraw from the EU, show that the Group will be able to operate within its current bank facilities. The Group
has a relatively conservative level of debt to earnings. As a result, the Directors believe that the Group is well placed to manage its business risks
successfully despite the current uncertain economic outlook.
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 for the foreseeable future. All covenant tests were passed at the year end.
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, they continue to adopt the going concern basis in the preparation of the Financial Statements.
Accordingly, the Board continues to adopt the going concern basis in preparing the Financial Statements for both the Group and the Parent Company.
The Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of derivative financial instruments
and pension scheme assets.
Critical Accounting Estimates and Judgements
The Group is required to make estimates and assumptions concerning the future. These estimates and judgements are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting
estimates will, by definition, seldom equal the related actual results. Accounting estimates and judgements have been required for the production
of these Financial Statements. The following are those that are deemed to require the most complex judgements about matters that have the most
significant effect on the amounts recognised in the Financial Statements.
• The Group has one defined benefit pension scheme. The net deficit or surplus is the difference between the plan assets and plan liabilities at the
period end date. The valuation of the assets and liabilities is based on a number of judgements. The assets are based on market value at the period
end date, the liabilities are based on actuarial assumptions such as discount, inflation and mortality rates. The assumptions applied are based
on advice provided by the scheme’s actuary in accordance with IAS 19 (Revised), further detail can be found in Note 13.
• A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary
difference can be utilised. The deferred tax asset recognised for losses relate to acquired businesses. Based on current and forecast levels
of profitability, the losses are expected to be utilised within 3 years.
• The Group recognises provisions where an obligation exists at the period end date and a reliable estimate can be made. Provisions for restructuring,
reorganisation and closure of the Grain D’Or site and pension augmentation have been recognised in these Financial Statements. Estimates for
closure and reorganisation have been made across property leases and contracts, property and people related costs and legal and professional
costs using latest information on the site exit plan. The pension provision relates to a contractual liability for pension augmentation that has
been valued by the pension scheme actuaries. See Note 13 for further detail.
58 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
1. Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these consolidated Financial Statements,
except as explained in the basis of preparation, which addresses any changes in accounting policies resulting from new or revised standards.
Basis of Consolidation
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration
the potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The Financial Statements of subsidiaries
are included in the consolidated Financial Statements from the date that control commences until the date that control ceases. The accounting
policies of new subsidiaries are changed when necessary to align them with the policies adopted by the Group. Intra-group balances and transactions
are eliminated in preparing the consolidated Financial Statements.
Lightbody Stretz Limited which is 50% owned by the Group has been consolidated into the Group accounts as a subsidiary with a corresponding
non-controlling interest on the basis that the Group has the controlling interest. Control arises by virtue of the fact that Lightbody Group Limited,
a wholly owned subsidiary of Finsbury Food Group, has a majority of voting rights arising from an agreement between Lightbody Group Limited
and Philippe Stretz, the owner of the remaining 50%. Note 2 showing Europe under geographical split by country of origin shows the revenue,
operating profit, assets and liabilities of Lightbody Stretz Limited.
Business Combinations
The acquisition method of accounting is used in accounting for the acquisition of businesses. In accordance with IFRS 3 Business Combinations,
the assets and liabilities of the acquired entity are measured at fair value. When the initial accounting for a business combination is determined
provisionally, any adjustments to the provisional values allocated are made within twelve months of the acquisition date and are effected from
the date of acquisition.
Foreign Currency
Transactions in foreign currencies are translated to Sterling at the foreign exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the period end date are retranslated to Sterling at the foreign exchange rate ruling at that date.
Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which
they were initially recorded are recognised in the Consolidated Statement of Profit and Loss in the period in which they arise.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to Sterling,
at foreign exchange rates ruling at the period end date. The revenues and expenses of foreign operations are translated at an average rate for the
year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions.
Derivative Financial Instruments
The Group has derivative financial instruments in respect of interest rate swaps and foreign exchange hedges. The Group does not hold derivative
financial instruments for trading purposes. The existing interest rate swaps and foreign exchange hedges used by the Group while they function
as hedges, do not meet the criteria for hedge accounting set out by IAS 39, and have thus been treated as financial assets and liabilities which are
carried at their fair value in the Consolidated Statement of Financial Position. Fair value is deemed to be market value, which is provided by the
counterparty at the year end date.
Changes in the market value of interest rate swaps have been recognised through the Consolidated Statement of Profit and Loss as finance income
or cost. Changes in the market value of foreign exchange hedges have been recognised through the Consolidated Statement of Profit and Loss
within administrative costs.
Non-derivative Financial Instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents,
loans and borrowings, and trade and other payables.
Unless otherwise indicated, the carrying amounts of the Group’s financial assets and liabilities are a reasonable approximation of their fair values.
Trade and other Receivables
The value of trade and other receivables is the amount that would be received if the receivable was paid on the period end date which is a close
approximation to amortised cost.
Trade and other Payables
The value of trade and other payables is the value that would be payable to settle the liability at the period end date.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances. Bank overdrafts that are repayable on demand and which form an integral part of the Group’s
cash management are included as a component of cash and cash equivalents.
Interest-bearing Borrowings
Interest-bearing borrowings are stated at amortised cost using the effective interest method.
Corporate GovernanceFinancial StatementsStrategic Review 59 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
1. Significant Accounting Policies (continued)
Property, Plant and Equipment
Recognition and Measurement
Items of property, plant and equipment are measured at cost or fair value at the date of acquisition, less accumulated depreciation and impairment
provisions. Costs include expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost
of materials and direct labour and any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs
of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality
of the related equipment is capitalised as part of that equipment.
Depreciation
Depreciation is provided to write off the cost, less estimated residual value, of the property, plant and equipment by equal instalments over their
estimated useful economic lives to the Consolidated Statement of Profit and Loss. When parts of an item of property, plant and equipment have different
useful lives, they are accounted for as separate items (major components) of property, plant and equipment. The depreciation rates used are as follows:
Freehold buildings
Leasehold property
Fixtures and fittings
2%-20%
Up to the remaining life of the lease
10%-33%
Plant and equipment
Assets under construction Nil
Motor vehicles
6%-33%
25%-33%
Impairment reviews of fixed assets are undertaken if there are indications that the carrying values may not be recoverable.
Leased Assets
Leases under the terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial
recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Assets acquired by finance lease and hire purchase are depreciated over the lease term or their useful lives.
Obligations under finance leases are included in liabilities net of the finance charge allocated to future periods. The finance element of the rental
payment is charged to the Consolidated Statement of Profit and Loss as finance expense so as to produce a constant periodic rate of charge on the
net obligations outstanding in each period.
Other leases are operating leases and the leased assets are not recognised on the Group’s Consolidated Statement of Financial Position.
Operating Lease Payments
Payments made under operating leases are recognised in the Consolidated Statement of Profit and Loss on a straight-line basis over the term
of the lease.
Equity Accounted Investees
Equity Accounted Investees (Associates) are those entities in which the Group has significant influence, but not control, over the financial and operating
policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity.
Application of the Equity Method to Associates and Joint Ventures
Equity Accounted Investees are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group’s
investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated Financial Statements include
the Group’s share of the total comprehensive income and equity movements of equity accounted investees, from the date that significant influence
commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee,
the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal
or constructive obligations or made payments on behalf of an investee.
Intangible Assets and Goodwill
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested
annually for impairment. Intangible assets are capitalised separately from goodwill as part of a business combination, only if the fair value can be
measured reliably on initial recognition and if the future economic benefits are expected to flow to the Group. All intangible assets recognised are
considered to have finite lives and are amortised on a straight-line basis over their estimated useful economic lives that range from 15 to 20 years.
Goodwill arises when the fair value of the consideration for the business exceeds the fair value of the net assets acquired. Where the excess is negative
(negative goodwill), the amount is taken to retained earnings. Goodwill is capitalised and subject to impairment reviews both annually and where
there are indications that the carrying value may not be recoverable.
60 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
1. Significant Accounting Policies (continued)
Impairment
The carrying amounts of the Group’s intangible assets and goodwill are reviewed at each period end date to determine whether there is an indication
of impairment. Intangible assets and goodwill are considered to be impaired if objective evidence indicates that one or more events have had a negative
effect on the estimated future cash flows of that asset. If any such indication exists, the asset’s recoverable amount is estimated.
For goodwill and intangible assets that have an indefinite useful life, the recoverable amount is estimated at each period end date.
An impairment loss would be recognised whenever the carrying amount of an intangible asset, goodwill or its cash generating unit exceeds
its recoverable amount. Impairment losses are recognised in the Consolidated Statement of Profit and Loss.
Calculation of Recoverable Amount
The recoverable amount is the greater of the asset’s fair value less costs to sell and its value in use. In assessing an assets’ value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset.
Inventories
Inventories are measured at the lower of cost and net realisable value. Cost is determined on the first-in first-out basis, and includes all direct costs
incurred and attributable production overheads. Net realisable value is based upon estimated selling price allowing for all further costs of completion
and disposal. Specific provisions are made against old and obsolete stock taking the value to zero or an estimated reduced value based on the most
likely route for disposal of each particular item of stock.
Employee Benefits
Defined Benefit Plans
Memory Lane Cakes Ltd operates a defined benefit pension scheme and the pension costs are charged to the Consolidated Statement of Profit and Loss
and Other Comprehensive Income in accordance with IAS 19 (revised), with current and past service cost being recognised as an administrative expense,
interest on assets and liabilities is shown as finance income or a finance cost in the Consolidated Statement of Profit and Loss. The remeasurements
are recognised in full in Other Comprehensive Income.
Defined Contribution Plans
The costs of contributing to defined contribution and personal pension schemes are charged to the Consolidated Statement of Profit and Loss
as an administrative expense in the period to which they relate.
Share Based Payment Transactions
The value, as at the grant date, of options granted to employees is recognised as an employee expense, with a corresponding increase in equity,
over the period in which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using
an option valuation model, taking into account the terms and conditions upon which the options were granted.
Revenue
Revenue represents the amounts derived from the sale of bakery products. Revenue is the invoiced value of consideration received or receivable
excluding value added tax, trade discounts and the cost of price promotions and sales related rebates known as over-riders. Revenue is recognised
upon despatch of goods. The nature and timing of promotions and overriders is typically known, accruals are established at the time of sale based
on information available and management’s expectations of the amounts necessary to meet the claims of customers.
Segmental Reporting
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including
revenues and expenses that relate to transactions with any of the Group’s other components. All segments’ operating results are reviewed regularly
by the Group’s Board of Directors. The Group’s Chief Operating Decision Maker is considered to be the Board.
Licence Fees
Payments made for licence fee charges are recognised under cost of sales in the Consolidated Statement of Profit and Loss in the period to which
they relate. Any charges relating to future years are deferred and recognised in the Consolidated Statement of Profit and Loss under cost of sales
over the life of the contract.
Finance Income and Cost
Finance costs comprise loan interest payable, interest payable and finance charges on finance leases recognised using the effective interest method,
unwinding of the discount on provisions and deferred consideration, interest on the net defined benefit pension plan position and adverse changes
in the fair value of interest rate swaps.
Finance income comprises interest receivable on funds invested and favourable changes in the fair value of interest rate swaps. Interest income
is recognised in Consolidated Statement of Profit and Loss as it accrues, using the effective interest method.
Corporate GovernanceFinancial StatementsStrategic Review 61 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
1. Significant Accounting Policies (continued)
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the Consolidated Statement of Profit and Loss except
to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the period end date,
and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The following temporary differences are not provided for:
• The initial recognition of goodwill;
• The initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and
• The differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the period end date. A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the temporary difference can be utilised.
Research and Development Expenditure
The expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised
in the Consolidated Statement of Profit and Loss as incurred.
2. Revenue and Segment Information
Operating segments are identified on the basis of internal reporting and decision making. The Group’s Chief Operating Decision Maker is considered
to be the Board as it is primarily responsible for the allocation of resources to segments and the assessment of performance by segment.
The Board uses adjusted 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:
• Net financing expense
• Significant non-recurring items
• Pension charges or credits in relation to the net pension position
• Revaluation of interest rate swaps and forward foreign currency contracts
The UK bakery segment manufactures and sells bakery products to the UK’s multiple grocers and foodservice sectors. This segment primarily comprises
the operations of Memory Lane Cakes Ltd, Lightbody Group Ltd, Johnstone’s Food Service Ltd, Fletchers Bakeries Ltd and Nicholas & Harris Ltd.
These subsidiaries are aggregated into a single reporting UK bakery segment as they share similar economic characteristics. The characteristics
considered are:
• The nature of the products – products are similar in nature and are classed as manufactured bakery products
• The production process – the production processes have the same or similar characteristics
• The economic characteristics – the average gross margins are expected to be similar
• The type and class of customer – customers are the same grocery retailers and foodservice companies
• The method of distribution – the method is the same or similar throughout the segment
• The regulatory environment – the environment is the same
Costs of Group operations plus a 10% premium have been allocated across the segments on the basis of their operating profit. The premium has been
charged to reflect the synergies achieved from obtaining resources centrally giving benefits across the operating segments.
A purchasing premium of 2% is charged from Group operations, and is calculated on materials and packaging spend at segmental level. This charge
is based on the rationale that Group operations, through its Group buyers, optimises the Group’s procurement spend through leveraging its
purchasing power.
This has resulted in a loss from continuing operations of £0.1 million (2017: £0.2 million loss) being presented within the Group operations segment.
The Group’s finance income and expenses cannot be meaningfully allocated to the individual operating segments.
62 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
2. Revenue and Segment Information (continued)
52 week period ended 30 June 2018
External revenue continuing
Adjusted operating profit
Fair value foreign exchange contracts
Defined benefit pension scheme
Significant non-recurring items
Results from operating activities
Finance income
Finance cost
Net finance cost
Share of losses of equity accounted investees after tax
Profit before taxation
Taxation
Profit for the financial year
UK bakery
£000
271,127
15,607
(145)
411
(13,067)
2,806
Overseas
£000
32,473
2,348
194
-
-
2,542
Group operations
£000
Total Group
£000
-
(111)
-
-
-
(111)
303,600
17,844
49
411
(13,067)
5,237
167
(929)
(762)
-
4,475
(1,311)
3,164
195,150
9,955
205,105
(75,703)
(24,820)
(100,523)
12,606
7,041
715
987
-
Liabilities
£000
(24,685)
(40)
-
(95)
(24,820)
At 30 June 2018
Segment assets
Unallocated assets
Consolidated total assets
Segment liabilities
Unallocated liabilities
Consolidated total liabilities
Other segment information
Capital expenditure
Depreciation included in segment profit
Amortisation
Impairment of assets
Inter-segmental sale/(purchases)
Analysis of unallocated assets and liabilities:
Investments
Financial instruments
Cash and cash equivalents
Taxation balances
Unallocated assets
187,260
7,138
752
(64,358)
(4,684)
(6,661)
12,433
6,979
715
987
9,538
173
62
-
-
(9,538)
-
-
-
-
-
Assets
£000
28
558
9,363
6
9,955
Loans and borrowings
Financial instruments
Cash and cash equivalents
Taxation balances
Unallocated liabilities
With regard to revenue, five customers with sales of £60.0 million, £40.0 million, £31.0 million, £24.0 million and £18.0 million account for 57%
of revenue, which is attributable to the UK bakery and Overseas segments above.
Corporate GovernanceFinancial StatementsStrategic Review
63 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
2. Revenue and Segment Information (continued)
52 week period ended 1 July 2017
UK bakery
£000
Overseas
£000
Group operations
£000
Total Group
£000
External revenue continuing
Adjusted operating profit
Fair value foreign exchange contracts
Defined benefit pension scheme
Significant non-recurring items
Results from operating activities
Finance income
Finance cost
Net finance cost
Share of losses of equity accounted investees after tax
Profit before taxation
Taxation
Profit for the financial year
At 1 July 2017
Segment assets
Unallocated assets
Consolidated total assets
Segment liabilities
Unallocated liabilities
Consolidated total liabilities
Other segment information
Capital expenditure
Depreciation included in segment profit
Amortisation
Impairment of assets
Inter-segmental sale/(purchases)
Analysis of unallocated assets and liabilities:
281,580
15,369
(350)
200
(4,000)
11,219
32,716
2,219
279
-
-
2,498
-
(153)
-
-
-
(153)
188,628
6,543
712
(62,483)
(5,041)
(6,564)
12,430
6,906
537
4,000
8,710
112
42
-
-
(8,710)
-
-
-
-
-
Investments
Financial instruments
Cash and cash equivalents
Taxation balances
Unallocated assets
Assets
£000
297
560
3,024
41
3,922
Loans and borrowings
Financial instruments
Cash and cash equivalents
Taxation balances
Unallocated liabilities
314,296
17,435
(71)
200
(4,000)
13,564
555
(1,081)
(526)
(22)
13,016
(2,959)
10,057
195,883
3,922
199,805
(74,088)
(20,715)
(94,803)
12,542
6,948
537
4,000
-
Liabilities
£000
(20,386)
(234)
-
(95)
(20,715)
With regard to revenue, five customers with sales of £64.0 million, £39.0 million, £31.0 million, £22.0 million and £22.0 million account for 57%
of revenue, which is attributable to the UK bakery and Overseas segments above.
Impairment relates to the assets held in Grain D’Or, which fall under the UK bakery segment.
64 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
2. Revenue and Segment Information (continued)
An analysis by geographical segment is shown below:
Geographical split of revenue by destination
Continuing:
United Kingdom
Europe
Total continuing
Capital expenditure on segment assets is detailed in Note 2.
2018
£000
2017
£000
257,701
45,899
303,600
276,177
38,119
314,296
Geographical split by country of origin
United Kingdom
£000
Europe
£000
Total
£000
2018
Continuing revenue
Adjusted operating profit
Unadjusted operating profit
Total assets
Total liabilities
Net assets
2017
Continuing revenue
Adjusted operating profit
Unadjusted operating profit
Total assets
Total liabilities
Net assets
271,127
15,496
2,695
197,874
(95,748)
102,126
United Kingdom
£000
281,580
15,216
11,066
193,262
(89,762)
103,500
32,473
2,348
2,542
7,231
(4,775)
2,456
Europe
£000
32,716
2,219
2,498
6,543
(5,041)
1,502
303,600
17,844
5,237
205,105
(100,523)
104,582
Total
£000
314,296
17,435
13,564
199,805
(94,803)
105,002
The net assets shown under Europe comprises Lightbody Stretz Ltd, being the 50% owned Parent Company of Lightbody Europe SAS, the French
based selling and distribution business.
Corporate GovernanceFinancial StatementsStrategic Review
65 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
3. Expenses and Auditor’s Remuneration
Included in profit are the following:
Amortisation of intangibles
Depreciation of owned tangible assets
Depreciation on assets under finance leases and hire purchase contracts
Impairment of assets and goodwill
Loss on foreign exchange
Hire of plant and machinery – operating leases
Hire of other assets – operating leases
Movement on fair value of foreign exchange contracts
Research and development
Share option charges
Government grants
2018
£000
715
6,859
182
987
260
797
1,302
(49)
1,567
1,138
25
2017
£000
537
6,715
233
4,000
1,360
1,006
1,833
71
2,328
1,240
-
Amortisation of intangibles for the year was £715,000 (2017: £537,000) relating to the Fletchers acquisition in October 2014 and business systems.
Auditor’s remuneration:
Audit of these Financial Statements
Amounts receivable by the auditor and its associates in respect of:
Audit of the Financial Statements of subsidiaries of the Company
Taxation compliance services
Other tax advisory
Other services
2018
£000
60
120
24
10
173
2017
£000
50
123
35
7
100
The auditor’s remuneration is in respect of KPMG LLP. Fees for other services relates to pension advisory services and services relating to information
technology.
4. Significant Non-recurring Items
The Group presents certain items as non-recurring and significant. These relates 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 27 of the Financial Review section are the following costs:
Site closures – reorganisation people costs
Site closures – property, leases and contract costs
Site closures – legal and professional costs
Impairment of assets and investments
Acquisition related costs
2018
£000
2,266
9,604
121
373
703
13,067
2017
£000
-
-
-
4,000
-
4,000
The site closure provision relates primarily to the closure of the Grain D’Or site during the year, the provision is based on best estimates of the outcome
of negotiations. Whilst site exit negotiations are still ongoing, the expectation is that these will conclude within the new financial year.
The pension provision relates to a contractual liability for pension augmentation, the amount utilised during the year represents payments in relation
to the augmentations which are being paid over 14 years.
66 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
5. Staff Numbers and Costs
The average number of persons employed by the Group including Directors and excluding agency staff during the year, analysed by category,
was as follows:
Production
Selling and distribution
Administration, technical, new product development
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Share option charges
Social security costs
Charge in respect of defined benefit plans
Charge in respect of defined contribution pension plans
Number of Employees
2018
2017
2,513
173
302
2,988
2018
£000
68,330
1,138
6,469
200
1,372
77,509
2,617
243
302
3,162
2017
£000
72,127
1,240
6,427
-
1,257
81,051
Corporate GovernanceFinancial StatementsStrategic Review
67 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
6. Remuneration of Directors
Fees
Executive salaries
Bonuses and benefits
2018
£000
306
711
523
2017
£000
300
626
583
1,540
1,509
The aggregate of emoluments and amounts receivable under long-term incentive schemes of the highest paid Director was £718,000 (2017: £693,000),
there were no Company pension contributions made to a defined contribution scheme during the current or prior year. Bonuses include cash bonus
of £223,000 (2017: £241,000) and shares issued with a total cost of £80,000 (2017: £91,000). There were no share options exercised in the period
by the highest paid Director.
There were no retirement benefits accruing to Directors during the current or previous year.
The emoluments paid to Directors were as follows:
P Baker
E J Beale
R Beveridge
S A Boyd – paid
S A Boyd – shares
J G Duffy – paid
J G Duffy – shares
R P E Duignan
M J Millard
P J Monk
Z Morgan
Fees
£000
85
-
54
-
-
-
-
58
53
-
56
306
Salary
£000
-
-
-
284
-
403
-
-
-
-
-
687
Benefits
£000
Annual bonus
£000
Year ended
30 June 2018
£000
Year ended
1 July 2017
£000
-
-
-
12
-
12
-
-
-
-
-
24
-
-
-
162
58
223
80
-
-
-
-
523
85
-
54
458
58
638
80
58
53
-
56
1,540
75
23
-
442
64
612
91
60
53
36
53
1,509
Shares comprise 74,441 shares issued to J G Duffy and 54,088 shares issued to S A Boyd. During the year awards over 753,469 shares under the
long-term incentive plan (LTIP) were granted to Directors in the form of nil cost options (2017: 889,996). The vesting of the awards is conditional
upon performance conditions over a three-year period commencing 2 July 2017 and are subject to a further two year holding period.
Directors’ rights to subscribe for shares in the Company are listed below:
S A Boyd
S A Boyd
S A Boyd
S A Boyd
J G Duffy
J G Duffy
J G Duffy
J G Duffy
Number of
options at
30 June 2018
702,825
505,051
374,532
315,269
1,108,881
695,095
515,464
438,200
4,655,317
Number of
options at
1 July 2017
721,217
505,051
374,532
-
1,137,898
695,095
515,464
-
3,949,257
Exercise
price
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Earliest
exercise date
01/07/2019
01/07/2020
30/06/2021
02/07/2022
01/07/2019
01/07/2020
30/06/2021
02/07/2022
Exercise
expiry date
26/06/2025
04/12/2025
29/09/2026
26/10/2027
26/06/2025
04/12/2025
29/09/2026
26/10/2027
The mid-market price of the ordinary shares on 30 June 2018 was 117.5p (2017: 116p) and the range during the 52 week period to 30 June 2018
was 99p to 131p (2017: 103p to 137p).
68 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
7. Finance Income and Cost
Recognised in the Consolidated Statement of Profit and Loss
Finance income
Change in fair value of interest rate swaps
Interest on interest rate swap agreements
Bank interest receivable
Total finance income
Finance cost
Interest on net pension position
Bank interest payable
Interest on interest rate swap agreements
Total finance cost
8. Taxation
Recognised in the Consolidated Statement of Profit and Loss
Current tax
Current year
Adjustments for prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Retirement benefit deferred tax charge
Adjustments for prior years
Total deferred tax
Total tax expense
2018
£000
143
18
6
167
(277)
(638)
(14)
(929)
2017
£000
555
-
-
555
(204)
(752)
(125)
(1,081)
2018
£000
2017
£000
1,236
(93)
1,143
328
-
(160)
168
1,311
3,270
(196)
3,074
(222)
1
106
(115)
2,959
Reconciliation of Effective Tax Rate
The weighted average hybrid rate of UK and French tax is 22.5% (2017: 22.2%). The tax assessed for the period is higher (2017: lower) than the hybrid
rate of UK and French tax. The UK corporation tax rate for the period is 19.0% (2017: 20.0%). The differences are explained below:
Profit before taxation before losses from equity accounted investees
Tax using the UK corporation tax rate of 19.00% (2017: 19.76%)
Overseas profits charged at different taxation rate
Non-deductible expenses
Restatement of opening net deferred tax due to rate change and differences in rates
R&D uplift current year
Adjustments to tax charge in respect of prior periods
Tax expense (excluding prior year disallowable impairment)
2018
£000
4,475
850
277
586
(49)
(100)
(253)
1,311
2017
£000
13,038
2,577
344
160
68
(100)
(90)
2,959
Corporate GovernanceFinancial StatementsStrategic Review
69 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
8. Taxation (continued)
The UK corporation tax rate reductions from 20% to 19% from 1 April 2017 and 18% from 1 April 2020 were substantively enacted on 26 October 2015.
An additional reduction to 17% from 1 April 2020 was substantively enacted on 6 September 2016. The deferred tax assets and liabilities at 30 June 2018
have been calculated based on these rates.
The adjustment of £253,000 for prior year includes, ineligible capital spends and disallowable expenses being different to the assumed levels
at the time of preparation of the Annual Report.
The Company has an unrecognised deferred tax asset of £162,605 (2017: £162,605) 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.
9. Earnings Per Ordinary Share
Basic earnings per share for the period is calculated on the basis of profit for the year after tax, divided by the weighted average number of shares
in issue being 127,611,000 (2017: 126,979,000).
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 30 June 2018, the diluted weighted average number of shares in issue was 132,162,000 (2017: 130,992,000).
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
• IAS 39 ‘Financial Instruments: Recognition and Measurement’ fair value adjustment relating to the Group’s interest rate swaps and foreign
exchange contracts
• IAS 19 (revised) ‘Accounting for retirement benefits’ relating to net income
• The taxation effect at the appropriate rate on adjustments
• Amortisation of intangible assets
Profit
Profit attributable to equity holders of Company
(basic)
Significant non-recurring and other items
as per Strategic Report
Intangible amortisation net of deferred tax
Numerator for adjusted earnings per share
calculation (adjusted basic)
Shares
Weighted average number of ordinary shares in issue
during the period
Dilutive effect of share options
Earnings per share (pence per share)
Basic and diluted
Adjusted basic and adjusted diluted
52 weeks to
30 June 2018
£000
2,180
10,344
446
12,970
52 weeks to
1 July 2017
£000
9,048
2,901
446
12,395
Basic
‘000
Diluted
‘000
Basic
‘000
Diluted
‘000
127,611
127,611
126,979
126,979
-
127,611
4,551
132,162
-
126,979
4,013
130,992
Basic
pence
Diluted
pence
Basic
pence
Diluted
pence
1.7
10.2
1.6
9.8
7.1
9.8
6.9
9.5
Significant non-recurring and other items are tabled in the Strategic Report on page 27 and comprise: significant non-recurring charges (£10,615,000),
defined benefit pension scheme £111,000 and fair value of interest rate swaps and foreign exchange contracts £160,000.
70 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
10. Intangibles
Intangible assets comprise customer relationships, brands and goodwill.
Cost at 2 July 2016
Transfer from tangible assets
Additions
Cost at 1 July 2017
Transfer from tangible assets
Additions
Cost at 30 June 2018
Amortisation/impairment at 2 July 2016
Charge for the year 1 July 2017
Amortisation/impairment at 1 July 2017
Charge for the year 30 June 2018
Amortisation/impairment at 30 June 2018
Net book value at 2 July 2016
Net book value at 1 July 2017
Net book value at 30 June 2018
Goodwill
£000
73,458
-
-
73,458
-
-
73,458
(4,290)
-
(4,290)
-
(4,290)
69,168
69,168
69,168
Business
systems
£000
Brands and
licences
£000
Customer
relationships
£000
600
548
2,695
3,843
-
3,726
7,569
-
-
-
(178)
(178)
600
3,843
7,391
3,683
-
-
3,683
-
-
3,683
(1,073)
(143)
(1,216)
(143)
(1,359)
2,610
2,467
2,324
5,909
-
-
5,909
-
-
5,909
(691)
(394)
(1,085)
(394)
(1,479)
5,218
4,824
4,430
Total
£000
83,650
548
2,695
86,893
-
3,726
90,619
(6,054)
(537)
(6,591)
(715)
(7,306)
77,596
80,302
83,313
The brand and customer relationships recognised were purchased as part of the acquisition of Fletchers Group of Bakeries in October 2014. They are
considered to have finite useful lives and are amortised on a straight-line basis over their estimated useful lives of twenty years for the brand and
fifteen years for customer relationships. The intangibles were valued using an income approach, using Multi-Period Excess Earnings Method for
customer relationships and Relief from Royalty Method for brand valuation. The amortisation of intangibles has been charged to administrative
expenses in the Income Statement. Amortisation on business systems, commenced during the year as the systems are brought into use.
Goodwill has arisen on acquisitions and reflects the future economic benefits arising from assets that are not capable of being identified individually
and recognised as separate assets. The goodwill reflects the anticipated profitability and synergistic benefits arising from the enlarged Group
structure. The goodwill is the balance of the total consideration less fair value of assets acquired and identified. The carrying value of the goodwill
is reviewed annually for impairment. The carrying value of all goodwill has been assessed during the year.
The Group tests goodwill for impairment on an annual basis, or more frequently if there are indications that the goodwill may be impaired. The recoverable
amounts of the cash generating units are determined from value in use calculations. The key assumptions for the value in use calculations are the
discount rate used for future cash flows and the anticipated future changes in revenue, direct costs and indirect costs. The assumptions used reflect
the past experience of management and future expectations.
The Group prepares cash flow forecasts covering a five-year period based on the detailed financial forecasts approved by management for the next
three years with estimated growth and inflation of 3% (2017: 3%) and 3% (2017: 3%) respectively thereafter. The cashflows beyond this forecast are
extrapolated to perpetuity using a nil growth rate on a prudent basis, to reflect the uncertainties of forecasting further than five years. Changes in revenue
and direct costs are based on past experience and expectations of future changes in the market.
The revenue growth rate combines volume, mix and price of products. An inflation factor has been applied to costs of sales, variable costs and indirect
costs and takes into consideration the general rate of inflation, movements in commodities.
A pre-tax discount rate of 10% (2017: 10%) has been used in these calculations. The Group has considered the economic environment and higher
level of return expected by equity holders due to the perceived risk in equity markets when selecting the discount rate. The discount rate used for each
cash generating unit has been kept constant as the market risk is deemed not to be materially different between the different segments of the
bakery sector, nor over time.
Corporate GovernanceFinancial StatementsStrategic Review
71 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
10. Intangibles (continued)
Sensitivity analyses have been carried out by the Directors on the carrying value of all remaining goodwill using discount rates ranging between
6.4% and 15.0% which would not result in an impairment of any cash generating units. Management believe any increase in discount rates above
15.0% to be remote.
The carrying amount of goodwill has been allocated to cash generating units or groups of cash generating units as follows:
Nicholas & Harris
Lightbody of Hamilton
Memory Lane Cakes
Fletchers Bakery
Johnstone’s Food Service
11. Property, Plant and Equipment
Cost
Balance at 2 July 2016
Exchange adjustments
Transfers to intangible assets
Additions
Transfers
Disposals
Balance at 1 July 2017
Balance at 1 July 2017
Exchange adjustments
Transfers to intangible assets
Additions
Transfers
Disposals
Balance at 30 June 2018
Depreciation and impairment
Balance at 2 July 2016
Impairment
Depreciation charge for the financial period
Transfers
Disposals
Balance at 1 July 2017
Balance at 1 July 2017
Impairment
Depreciation charge for the financial period
Transfers
Disposals
Balance at 30 June 2018
Net book value
At 2 July 2016
At 1 July 2017
At 30 June 2018
2018
£000
2,980
45,698
-
20,118
372
69,168
2017
£000
2,980
45,698
-
20,118
372
69,168
Land and
buildings
£000
Plant and
equipment
£000
Fixtures and
fittings
£000
Assets under
construction
£000
Total
£000
15,336
-
-
17
(29)
-
15,324
15,324
-
-
2,655
1,917
(570)
19,326
(5,164)
-
(390)
28
-
(5,526)
(5,526)
-
(461)
(153)
570
(5,570)
10,172
9,798
13,756
81,068
-
-
6,837
798
(4,364)
84,339
84,339
-
-
3,234
5,558
(17,805)
75,326
(45,635)
(4,000)
(6,057)
223
4,360
(51,109)
(51,109)
(718)
(5,785)
(1,310)
17,743
(41,179)
35,433
33,230
34,147
3,599
7
-
611
570
(43)
4,744
4,744
-
-
337
39
(57)
5,063
(2,304)
-
(501)
(251)
45
(3,011)
(3,011)
-
(795)
4
63
(3,739)
1,295
1,733
1,324
3,601
-
(548)
2,382
(1,339)
-
4,096
4,096
-
-
2,654
(7,514)
-
(764)
-
-
-
-
-
-
-
-
-
1,459
-
1,459
3,601
4,096
695
103,604
7
(548)
9,847
-
(4,407)
108,503
108,503
-
-
8,880
-
(18,432)
98,951
(53,103)
(4,000)
(6,948)
-
4,405
(59,646)
(59,646)
(718)
(7,041)
-
18,376
(49,029)
50,501
48,857
49,922
72 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
11. Property, Plant and Equipment (continued)
Leased Plant and Equipment
The net book value of assets held under finance lease or hire purchase contracts included above is as follows:
Plant and equipment
2018
£000
-
2017
£000
302
Security
HSBC Bank Plc, HSBC Asset Finance (UK) Ltd, HSBC Equipment Finance (UK) Ltd and HSBC Corporate Trustee Company (UK) Limited have debentures
incorporating fixed and floating charges over the undertaking and all property and assets including goodwill, book debts, uncalled capital, buildings,
fixtures, fixed plant and machinery.
12. Other Financial Assets and Liabilities
Non-current
Investments in equity accounted investees
At the beginning of the financial year
Additions
Impairment
Share of losses
At the end of the financial year
Other financial assets
Current assets – derivatives
Fair value of interest rate swaps
Fair value of foreign exchange contracts
Total of derivatives with positive fair values
Current liabilities – derivatives
Fair value of interest rate swaps
Fair value of foreign exchange contracts
Total of derivatives with negative fair values
2018
£000
2017
£000
269
-
(269)
-
-
28
558
-
558
-
(40)
(40)
211
80
-
(22)
269
28
415
145
560
-
(234)
(234)
Investment in Associates
During the year the Group assessed the carrying value of its investment in Dr Zaks and in the challenging economic environment the carrying value
has been fully impaired.
Interest Rate Swaps at Fair Value
The Group has a forward dated interest rate swap arrangement to hedge its risks associated with interest rate fluctuations:
£20.0 million for five years from 3 July 2017 (fixed) at 0.455%.
There was £20.0 million coverage in place at the year end (2017: £nil).
A credit of £143,000 (2017: credit £555,000) is shown in finance income for the periods reflecting changes in the fair values of interest rate swaps.
Forward Foreign Exchange Contracts at Fair Value
The Group has entered into a number of forward foreign exchange contracts to minimise the impact of fluctuations in exchange rates. A credit
of £49,000 (2017: charge £71,000) is shown in administrative expenses for the periods reflecting changes in their fair value.
Corporate GovernanceFinancial StatementsStrategic Review
73 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
13. Pension Schemes
A number of companies within the Group operate defined contribution pension schemes with one company also operating a defined benefit scheme.
Defined Contribution Scheme
The Group made contributions in respect of its defined contribution pension arrangements of £1,372,000 (2017: £1,257,000).
Defined Benefit Scheme
The Group’s defined benefit scheme is the Memory Lane Cakes Pension Scheme, which is a separately administered plan. At the financial year end,
the scheme had no active members accruing benefits (2017: nil), 186 deferred pensioner members (2017: 196) and 218 pensioner members (2017: 217).
The scheme was closed to future accrual on 31 May 2010. The assets of the scheme are held separately from those of the Company. The amounts
in the Financial Statements for the 52 weeks ended 30 June 2018 relating to defined benefit pension are based on a full actuarial valuation dated
31 December 2015, which was updated at the end of the scheme’s financial year 2017.
A £393,000 contribution was paid during the financial year by Memory Lane Cakes Limited (2017: £200,000). The Group’s contribution has been
agreed based on the outcome of the full actuarial valuation dated 31 December 2015. The valuation of the scheme on an equity/bond basis and
projected unit method, showed that there was a deficit at 31 December 2015 of £2,505,000 equivalent to an 11% deficit of liabilities over assets.
The valuation was conducted by a qualified independent actuary. This deficit is payable at a rate of £200,000 per annum until September 2020,
and £100,000 thereafter until September 2023. The next full valuation is due by 31 December 2018, which will challenge the appropriateness
of this recovery plan taking into consideration the deficit recovery contributions and actual returns realised on the pension scheme assets.
The present value of the Company’s committed deficit reduction contributions does not give rise to a net pension asset or additional balance
sheet liability in accordance with IFRIC 14.
Approximately 90% of the assets are held in two diversified growth funds which target 6 month LIBOR +5% and CPI +5% respectively. The scheme’s
assets are expected to provide real returns over the long term. The expected return on cash balances held is based on the current Bank of England
base rate rather than long-term deposit rates as cash is held to cover short-term requirements.
The full actuarial valuation differs from the financial year end valuation deficit of £10,536,000 (2017: £10,498,000). No allowance is made in the
financial year end valuation for any outperformance expected from the scheme’s actual asset holding over and above high quality corporate bonds.
Fair value of plan assets
Present value of defined benefit obligations
Deficit recognised
The fair value of plan assets and the return on those assets were as follows:
Equities/target return fund
Property
Cash
Fair value of plan assets
Actual return on plan assets
2018
£000
2017
£000
18,834
(29,370)
(10,536)
19,985
(30,483)
(10,498)
2018
£000
2017
£000
16,608
2,145
81
18,834
(251)
17,872
1,989
124
19,985
1,319
None of the fair values of the assets shown above include any of the Company’s own financial instruments or any property occupied by,
or any other assets used by, the Company.
74 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
13. Pension Schemes (continued)
Movements in present value of defined benefit obligation
At beginning of financial year
Interest on plan obligations
Benefits paid
Remeasurement – settlement or curtailment
Remeasurement – gains/(losses) from changes to financial assumptions
At end of financial year
Movements in fair value of plan assets
At beginning of financial year
Interest on plan assets
Return on plan assets less interest
Benefits paid
Contributions by employer
At end of financial year
2018
£000
2017
£000
(30,483)
(805)
1,293
18
607
(29,370)
19,985
528
(779)
(1,293)
393
18,834
(25,750)
(811)
821
-
(4,743)
(30,483)
19,287
607
712
(821)
200
19,985
Remeasurement gains and losses arise due to changes in the key assumptions such as inflation, mortality rates, demographic rates and discount
rates as well as experience gains and losses.
Expense Recognised in the Consolidated Statement of Profit and Loss
Interest on plan assets/finance income
Interest on plan obligations/finance expense
Total (expense)/income
528
(805)
(277)
607
(811)
(204)
Remeasurement Gains and Losses Recognised directly in Equity in the Statement of Comprehensive Income and Expense since 1 July 2006,
the transition date to Adopted IFRS
Cumulative amount at beginning of financial year
Recognised in the financial year – return on plan assets less interest
Recognised in the financial year – gains/(losses) from changes to financial assumptions
Cumulative amount at end of financial year
Principal Long-term Actuarial Assumptions at the Year End
CPI Price inflation assumption
Increases to pensions in payment
Discount rate for liabilities
Rate of return for plan assets
(12,631)
(779)
607
(12,803)
(8,600)
712
(4,743)
(12,631)
2018
%
2.3
2.3
2.7
2.7
2017
%
2.4
2.4
2.7
2.7
The differential between the assumed rate of inflation and the discount rate for liabilities is 0.4% (2017: 0.3%).
Salary inflation assumptions are as determined by the Board with regard to price inflation. The salary inflation from 31 May 2010 when the scheme
closed to future accrual was assumed to be in line with inflation.
Corporate GovernanceFinancial StatementsStrategic Review
75 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
13. Pension Schemes (continued)
The financial assumptions are based on market conditions as at the review date of 30 June 2018 with discount rates based on the yields on long-dated
high quality corporate bonds. The discount rate remains at the same level as the discount rate used last year. The rate of return for plan assets is the
long-term rate that reflects the yield on high quality corporate bonds as required under changes to IAS 19. The rate of return is effectively based
on the discount rate with no allowance made for any outperformance expected from the scheme’s actual asset holding. The actual return on the
scheme’s assets, net of expenses, over the year to the review date was around -1.3% (2017: 6.9%), the negative return that occurred in the current
year was impacted by the uncertainty and volatility in equity markets.
Changing the year end 2018 assumptions to those of 2017 year end listed on the previous page, the deficit would have been £11,143,000 compared
to the reported deficit of £10,536,000.
Pre-retirement mortality assumption
Post-retirement mortality assumption
2018
S2NA year of birth tables with CMI 2015
projections and 1.25% pa long-term rate of
improvement
S2NA year of birth tables with CMI 2015
projections and 1.25% pa long-term rate of
improvement
2017
S2NA year of birth tables with CMI 2015
projections and 1.25% pa long-term rate of
improvement
S2NA year of birth tables with CMI 2015
projections and 1.25% pa long-term rate of
improvement
Under the mortality tables adopted, the assumed future life expectancy at age 65 is as follows:
Male currently at age 45
Female currently at age 45
Male currently at age 65
Female currently at age 65
2018
24.3
26.6
22.6
24.7
2017
24.2
26.5
22.5
24.6
Sensitivity Analysis
The calculation of the defined benefit obligation is sensitive to the assumptions set out above. The following table summarises changes in these
assumptions and their approximate (decrease)/increase in liabilities.
Discount rate plus 0.5%
Discount rate minus 0.5%
Inflation plus 0.5%
Inflation minus 0.5%
Life expectancy plus 1.0 years
Life expectancy minus 1.0 years
2018
(£2.6 million)
£2.9 million
£3.0 million
(£2.9 million)
£0.7 million
(£0.7 million)
The above sensitivities are approximate and only show the likely effect of an assumption being adjusted whilst all other assumptions remain the same.
The weighted average duration of the defined benefit obligation is around 18 years.
Risk Mitigation Strategies
Whilst the scheme does not explicitly hold risk mitigation strategies such as swaps, annuities or liability driven investments, the investment strategy
is dominated by diversified growth funds which are intended to reduce the investment risk through diversification.
Effect of the Scheme on the Company’s Future Cashflows
The Company is required to agree a Schedule of contributions with the Trustees of the scheme following a valuation which must be carried out at least
once every three years. The next valuation of the scheme is due as at 31 December 2018. In the event that the valuation reveals a larger deficit than
expected the Company may be required to increase contributions above those set out in the existing Schedule of Contributions. Conversely, if the
position is better than expected contributions may be reduced. The total cash cost to the Company for the current financial year is £454,000, this
includes deficit recovery contributions, pension protection fund levy fees and cost of advisors. The Company expects to pay deficit recovery contributions
of £200,000 in the year to 29 June 2019. The projected net interest charge to the Consolidated Statement of Profit and Loss for the year to 29 June 2019
is £281,000. This projection assumes cashflows to and from the scheme are broadly unchanged from the current year figures and that there will
be no events that would give rise to a settlement/curtailment/past service cost.
76 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
13. Pension Schemes (continued)
Consolidated Statement of Financial Position
Fair value of plan assets
Present value of the defined benefit obligation
Deficit
Experience adjustments on plan assets
as a percentage of plan assets
Experience adjustments on plan liabilities
as a percentage of plan liabilities
Total remeasurement (losses)/gains
as a percentage of plan liabilities
14. Inventories
Raw materials and consumables
Finished goods
Inventories Recognised as an Expense
Opening inventories
Purchases
Increase/(decrease) in stock provisions
Closing inventories
Expensed during the period
15. Trade and Other Receivables
Trade receivables due from third parties
Other debtors
Prepayments and accrued income
Current tax asset
2018
£000
2017
£000
2016
£000
2015
£000
2014
£000
18,834
(29,370)
(10,536)
(779)
(4.1%)
-
0.0%
(172)
0.6%
19,985
(30,483)
(10,498)
712
3.6%
-
0.0%
(4,031)
13.2%
19,287
(25,750)
(6,463)
(1,451)
(7.5%)
236
0.9%
(2,595)
10.0%
20,587
(24,424)
(3,837)
656
3.2%
-
0.0%
(153)
0.6%
19,741
(23,371)
(3,630)
927
4.7%
-
0.0%
(726)
3.1%
2018
£000
2017
£000
5,555
7,901
13,456
5,378
7,306
12,684
2018
£000
2017
£000
12,684
138,570
16
(13,456)
137,814
12,577
130,302
5
(12,684)
130,200
2018
£000
2017
£000
39,967
1,807
2,282
519
44,575
45,163
2,610
2,245
-
50,018
Specific provisions are made against doubtful debts taking the value of trade receivables to an estimated value based on the most likely outcome.
Cash received under the invoice discounting facility, amounting to £Nil (2017: £11,646,000) is shown within current liabilities and is secured on the trade
receivables above. All the risks and rewards of the trade debtors lie with the Group.
16. Cash and Cash Equivalents Including Bank Overdrafts
Cash at bank and on hand
Bank overdraft
2018
£000
22,610
(13,247)
9,363
2017
£000
11,305
(8,281)
3,024
Corporate GovernanceFinancial StatementsStrategic Review
77 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
17. Other Interest-bearing Loans and Borrowings
This Note provides information about the contractual terms and repayment terms of the Group’s interest-bearing loans and borrowings, which are
measured at amortised cost, using the effective interest rate method.
2018
Margin
Frequency of
repayments
Year of
maturity
Facility
£000
Drawn
£000
Current
£000
Non-current
£000
Revolving credit
Unamortised transaction costs
1.30%/LIBOR
Varies
2023
45,000
25,000
(315)
24,685
25,000
(315)
24,685
-
-
-
Margin
Frequency of
repayments
Year of
maturity
Facility
£000
Drawn
£000
Current
£000
Non-current
£000
1.50%/base
2.00%/LIBOR
2.00%/LIBOR
1.75%/LIBOR
1.76%/base
2.00%/base
On demand
Quarterly
Varies
Quarterly
Monthly
On demand
Revolving*
2019
2019
2022
Various
-
22,000
13,400
8,000
3,470
2,000
2,000
50,870
11,646
6,337
-
2,457
57
-
20,497
(111)
20,386
11,646
2,568
-
369
57
-
14,640
(54)
14,586
2017
Invoice discounting
Term loan
Revolving credit
Mortgage
Finance lease liabilities
Overdraft
Unamortised transaction costs
Secured bank loans and mortgages over one year
Unamortised transaction costs
Repayments are as follows:
Between one and two years
Between two and five years
Between five and ten years
-
3,769
-
2,088
-
-
5,857
(57)
5,800
5,857
(57)
5,800
2,894
2,292
614
5,800
*Revolving maturity above relates to the payment terms on the invoice discounting which is up to 90 days from the date of invoice.
Finance lease liabilities are payable as follows:
Minimum lease
payments
£000
2018
Interest
£000
Principal
£000
2017
Minimum lease
payments
£000
Interest
£000
Principal
£000
Less than one year
-
-
-
-
-
-
58
58
1
1
57
57
All of the above loans are denoted in pounds Sterling, with various interest rates and maturity dates. The main purpose of the above facilities is to finance
the Group’s operations. For more information about the Group’s exposure to interest rate risk, see Note 21.
There were no finance leases payable at the end of 30 June 2018.
As part of the bank borrowing facility the Group needs to meet certain covenants every six months. There were no breaches of covenants during the year.
The covenant tests required are Net bank debt : EBITDA, Interest cover, debt service cover and capital expenditure.
The bank facilities available for drawdown are £45.0 million plus a further £45.0 million accordion facility (2017: £48.9 million). At the period end date,
the facility utilised was £25.0 million (2017: £20.5 million), giving £20.0 million (2017: £28.4 million) headroom. A further £45.0 million of unutilised
accordion facility is available for drawdown.
78 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
18. Analysis of Net Debt
Cash at bank
Debt due within one year
Debt due after one year
Invoice discounting due within one year
Hire purchase obligations due within one year
Total net bank debt
Debt
Cash at bank
Unamortised transaction costs
Total net bank debt
Cash at bank
Total debt payable excluding cash
19. Trade, Other Payables and Provisions
Trade and Other Payables
Current
Trade creditors
Other creditors including taxes and social security
Accruals and deferred income
Provisions
Balance at beginning of financial year
Made during the year
Utilised during the financial year
Balance at end of financial year
Current provisions
Non-current provisions
Note
At year ended
1 July 2017
£000
17
3,024
(2,937)
(5,857)
(11,646)
(57)
(17,473)
(20,386)
3,024
(111)
(17,473)
3,024
(20,497)
Cash flow
£000
6,339
(22,063)
5,857
11,646
57
1,836
(4,299)
6,339
(204)
1,836
6,339
(4,503)
At year ended
30 June 2018
£000
9,363
(25,000)
-
-
-
(15,637)
(24,685)
9,363
(315)
(15,637)
9,363
(25,000)
2018
£000
2017
£000
37,210
2,088
16,300
55,598
Site closure
£000
Pension
£000
-
11,316
(3,112)
8,204
3,780
4,424
239
-
(22)
217
18
199
36,663
2,002
21,796
60,461
Total
£000
239
11,316
(3,134)
8,421
3,798
4,623
The site closure provision relates to the closure of the Grain D’Or site during the year, the provision is based on best estimates of the outcome
of negotiations. Whilst site exit negotiations are continuing the expectation is that these will conclude within the new financial year.
The pension provision relates to a contractual liability for pension augmentation, the amount utilised during the year represents payments in relation
to the augmentations which are being paid over 14 years.
Corporate GovernanceFinancial StatementsStrategic Review
79 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
20. Deferred Tax Assets and Liabilities
Recognised Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities are attributable to the following:
Intangibles
Property, plant and equipment
Foreign exchange contracts
Short-term temporary differences
Interest rate swaps
Pension scheme charges
Employee share scheme charges
Losses
Tax assets/(liabilities)
Net tax assets/(liabilities)
Assets
2018
£000
2017
£000
-
73
7
28
-
1,791
711
1,280
3,890
2,647
-
651
40
73
-
1,785
460
1,054
4,063
2,728
2018
£000
(1,148)
-
-
-
(95)
-
-
-
(1,243)
-
Liabilities
2017
£000
(1,239)
-
(25)
-
(71)
-
-
-
(1,335)
-
Short-term temporary differences relate to general provisions which will be allowed when utilised. The deferred tax asset recognised for losses
relate to acquired businesses, based on current and forecast levels of profitability, the losses are expected to be utilised within 3 years.
Movement in Deferred Tax during the Year
Intangibles
Property, plant and equipment
Foreign exchange contracts
Short-term temporary differences
Interest rate swaps
Pension scheme
Employee share scheme
Losses
Intangibles
Property, plant and equipment
Foreign exchange contracts
Short-term temporary differences
Interest rate swaps
Pension scheme
Employee share scheme
Losses
1 July
2017
£000
(1,239)
651
15
73
(71)
1,785
460
1,054
2,728
2 July
2016
£000
(1,409)
(138)
3
37
25
1,163
202
2,062
1,945
Recognised
in income
£000
Recognised
in equity
£000
91
(540)
(8)
(83)
(24)
(23)
193
226
(168)
-
-
-
-
-
29
58
-
87
Recognised
in income
£000
Recognised
in equity
£000
170
789
12
36
(96)
1
211
(1,008)
115
-
-
-
-
-
621
47
-
668
30 June
2018
£000
(1,148)
111
7
(10)
(95)
1,791
711
1,280
2,647
1 July
2017
£000
(1,239)
651
15
73
(71)
1,785
460
1,054
2,728
The deferred tax liability in respect of intangible assets will unwind in line with the amortisation of the intangible assets.
80 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
21. Financial Risk Management
The main purpose of the Group’s financial instruments is to finance the Group’s operations. The financial instruments comprise of revolving credit facility,
interest rate swaps, foreign currency forwards, cash and liquid resources and various items arising directly from its operations, such as trade receivables
and trade payables, the main risks arising from the Group’s financial instruments are interest rate risk and liquidity risk. The Group’s policies on the
management of liquidity, credit, interest rate and foreign currency risks are set out below and the main risks are also referred to in the Strategic Report
on pages 23 to 24.
a) Fair Values of Financial Instruments
All financial assets and liabilities are held at amortised cost apart from forward exchange contracts and interest rate swaps, which are held at fair value,
with changes going through the Consolidated Statement of Profit and Loss. The Group has not disclosed the fair values for financial instruments
such as short-term trade receivables and payables, because their carrying amounts are a reasonable approximation of fair values.
The fair values of forward exchange contracts and interest rate swaps are determined using a market comparison valuation technique. The fair values
are based on broker quotes. Similar contracts are traded in an active market and the quotes reflect the actual transactions in similar instruments.
The fair values relating to these instruments represent level 2 in the fair value hierarchy which relates to the extent the fair value can be determined
by reference to comparable market values. The classifications range from level 1 where instruments are quoted on an active market through to level 3
where the assumptions used to arrive at fair value do not have comparable market data.
b) Liquidity
The Group’s policy is to ensure that it has sufficient facilities to cover its future funding requirements. Short-term flexibility is available through the
existing bank facilities and the netting off of surplus funds. The carrying amounts are the amounts due if settled at the period end date. The contractual
undiscounted cash flows include estimated interest payments over the life of these facilities. The estimated interest payments are based on interest
rates prevailing at the 30 June 2018.
At year ended 30 June 2018
Carrying amount
£000
Total
£000
Contractual cashflows including estimated interest
1 year
or less
£000
1 to 2
years
£000
2 to 5
years
£000
5 years
and over
£000
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Invoice discounting
Trade creditors
At year ended 1 July 2017
Non-derivative financial liabilities
Secured bank loans
Finance lease liabilities
Invoice discounting
Trade creditors
(25,000)
-
-
(37,210)
(62,210)
(25,037)
-
-
(37,210)
(62,247)
(25,037)
-
-
(37,210)
(62,247)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Carrying amount
£000
Total
£000
1 year
or less
£000
1 to 2
years
£000
2 to 5
years
£000
5 years
and over
£000
Contractual cashflows including estimated interest
(8,683)
(57)
(11,646)
(36,663)
(57,049)
(9,162)
(58)
(11,646)
(36,663)
(57,529)
(3,110)
(58)
(11,646)
(36,663)
(51,477)
(3,042)
-
-
-
(3,042)
(2,390)
-
-
-
(2,390)
(620)
-
-
-
(620)
The information relating to the interest rate swaps shown in the tables above indicate the cash flows associated with these instruments. This also
reflects the expected effect on the future profit. These amounts will change as interest rates change.
Short-term flexibility is available through existing bank facilities and the netting off of surplus funds.
Corporate GovernanceFinancial StatementsStrategic Review
81 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
21. Financial Risk Management (continued)
c) Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations,
and arises principally from the Group’s receivables from customers. These trading exposures are monitored and managed at operating level and
are also monitored at Group level. Whilst there is a concentration of credit risk arising from the profile of five customers accounting for 57% of total
revenue, the Group deems this to be low risk due to the nature of these customers. The carrying amount of the financial assets represents the maximum
credit exposure. Therefore, the maximum exposure to credit risk for the trade receivables at the period end date was £40.0 million (2017: £45.2 million)
and the ageing of trade receivables at the period end date was:
Not past due
Past due 0-30 days
Past due 31-120 days
Past due more than 120 days
2018
£000
35,806
3,248
869
44
39,967
2017
£000
41,553
3,236
317
57
45,163
The above numbers are net of impairment provisions. Group policy is to provide in full against all receivable balances whose full recovery is significantly
in doubt. The provision is netted off the gross receivable.
The Group’s strategy is to focus on supplying UK multiple grocers and foodservice distributors, the nature of these customers is such that there
is a relatively low risk of them failing to meet their contractual obligations. There is no impairment necessary to the value of trade receivables at the
period end date over and above the specific credit note provision and bad debt provision held at the year end. The balance of £0.9 million past due
by more than 30 days is equivalent to less than 2 days sales (2017: £0.4 million, equivalent to less than 1 day).
d) Market Risk
i) Interest Rate Risk
The Group’s interest rate risk exposure is primarily to changes in variable interest rates. The Group has entered into three interest rate swap
arrangements in order to hedge its risks associated with any fluctuations. Details of swaps are given in Note 12.
The profile of the Group’s loans and overdraft at the period end date were split as follows:
Variable rate liabilities
2018
£000
2017
£000
25,000
20,497
Swaps amounting to £20.0 million (2017: Nil) limit the risk associated with the variable rate liabilities. The interest rate for the forward dated swap
is 0.455% (2017: Nil coverage).
Sensitivity
A 1% increase in the base rate or LIBOR would have the following impact on interest charges and associated net assets for the Group, this sensitivity
relates to interest-bearing bank borrowings and interest rate swaps only and excludes possible changes in pension financing costs.
Profit decrease
Decrease in net assets
2018
£000
250
250
2017
£000
197
197
A 1% decrease in the base rate or LIBOR would have an equal and opposite impact to those listed above.
The above movement is not equal to 1% of interest-bearing loans because of interest rate swap cover that is in place.
ii) Commodity Prices
Any rises in commodity prices can adversely impact the core profitability of the business. The Group will aim to pass on its increased costs to its customers
as far as is reasonable in the circumstances whilst maintaining its tight control over overhead costs to mitigate the impact on consumers. The Group
maintains a high expertise in its buying team and will consider long-term contracts where appropriate to reduce uncertainty in commodity prices.
Further information on input prices and risks is contained in the Strategic Report.
iii) Foreign Exchange Risk
The Group currently supplies UK manufactured products to Lightbody Stretz Ltd, its 50% owned selling and distribution business trading primarily
in Europe. The Group also purchases some raw materials and capital equipment in foreign currency. The consequence of this is that the Group is exposed
to movement in foreign currency rates. Forward foreign exchanges contracts are used to manage the net foreign exchange exposure.
82 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
21. Financial Risk Management (continued)
e) Debt and Capital Management
The Group’s objective is to maximise the return on net invested capital while maintaining its ongoing ability to operate and guaranteeing adequate returns
for shareholders and benefits for other stakeholders, within a sustainable financial structure. An interim dividend for the six months to 30 December 2017
of 1.1p per share was paid on 22 April 2017 to shareholders on the register at the close of business on 3 April 2017. Subject to shareholder approval
at the Company’s AGM on 21 November 2018, the final dividend of 2.2p per share will be paid on 21 December 2018 to all shareholders on the register
at 23 November 2018. It is the Company’s intention to pay dividends at an affordable rate so that the Company can continue to invest in the business
in order to grow profits.
The Group manages its capital by monitoring its gearing ratio on a regular basis, there are also covenant tests which are monitored regularly and
presented to the Group’s banks every six months. There have been no breaches of covenant tests during the year and the gearing ratio stands at 0.1
(2016: 0.2). The gearing ratio is calculated taking the total net debt including deferred consideration over net assets.
The Group considers its capital to include share capital, share premium and capital redemption reserve.
The Group does not have any externally imposed capital requirements.
22. Capital and Reserves
The reconciliation of movement in capital and reserves is shown as a primary statement: Consolidated Statement of Changes in Equity on page 55.
Equity comprises the following:
• Share capital representing the nominal value of equity shares;
• Share premium representing the excess of the fair value of consideration received for the equity shares; (net of expenses of the share issue)
over nominal value of the equity shares;
• Capital redemption reserve representing the buyback and cancellation of shares at nominal value;
• Employee share reserve representing ordinary shares held in an employee benefit trust (EBT) to satisfy awards made to employees;
• Retained earnings representing retained profits
23. Share Capital
In issue at beginning of the financial year
Shares issued
In issue at end of the financial year – fully paid
Allotted, called up and fully paid
Ordinary shares of 1p each
2018
000’s
2017
000’s
130,383
-
130,383
130,383
-
130,383
£000
£000
1,304
1,304
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings
of the Company. Shares are held in an Employee Benefit Trust, which is intended to be used to satisfy awards made to employees (2,704,030 shares
were held at the year end). All shares are the same class with equal rights.
Corporate GovernanceFinancial StatementsStrategic Review 83 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
23. Share Capital (continued)
Share Based Payments
The Group operates both approved and unapproved share option schemes.
The fair value is calculated at the grant date and ultimately expensed in the Consolidated Statement of Profit and Loss over the vesting period, based
on the best available estimate of the number of share options expected to vest, with a corresponding credit to reserves. Upon exercise of the share
options the proceeds received net of attributable transaction costs are credited to share capital and where appropriate share premium.
There were a number of options granted during the course of the financial year to 30 June 2018 with further details given below:
Date of grant
26 October 2017
26 October 2017
Charge relating to options granted in the current year
Charge relating to options granted in prior years
Charge included in Administrative expenses
Number of
options
granted
858,659
753,469
Number of
options
expected
to vest
503,260
697,195
Exercise
price
Fair value
£000
Nil
Nil
364
448
Amount
expensed
in year to
30 June 2018
£000
83
102
185
953
1,138
There were a number of options granted during the course of the financial year to 1 July 2017 with further details given below:
Date of grant
29 September 2016
29 September 2016
Charge relating to options granted in the current year
Charge relating to options granted in prior years
Charge included in Administrative expenses
Number of
options
granted
Number of
options
expected
to vest
Exercise
price
Fair value
£000
889,996
544,384
889,996
544,384
Nil
Nil
760
524
Amount
expensed
in year to
1 July 2017
£000
190
131
321
919
1,240
Period of
expense
4.7 years
4.7 years
Period of
expense
3 years
3 years
Details of share options outstanding at 30 June 2018 and movements during the year by exercise price is shown below:
Exercise
price
58.0p
54.8p
Nil
Nil
Nil
Nil
Nil
Nil
Nil
First
exercise
date
Last
exercise
date
May 2017
Jul 2017
Sep 2018
Jul 2019
Jul 2020
Jun 2021
Sep 2019
Jul 2022
Jul 2022
May 2024
Jul 2024
Dec 2025
Jun 2025
Dec 2025
Sep 2026
Sep 2026
Oct 2027
Oct 2027
At 1 July 2017
Granted
Forfeited
Cancelled
Exercised
At 30 June 2018
-
155,172
394,081
1,859,115
1,200,146
889,996
544,384
-
-
5,042,894
-
-
-
-
-
-
-
753,469
858,659
1,612,128
-
-
-
-
-
-
-
-
-
-
-
-
(32,121)
(47,409)
-
-
(37,416)
-
-
(116,946)
-
(155,172)
-
-
-
-
-
-
(155,172)
-
-
361,960
1,811,706
1,200,146
889,996
506,968
753,469
858,659
6,382,904
84 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
23. Share Capital (continued)
A summary of share options outstanding and movements for the year to 1 July 2017 is shown below:
At 2 July 2016
Granted
Forfeited
Cancelled
Exercised
At 1 July 2017
Number of options
3,941,171
1,434,380
-
(29,899)
(302,758)
5,042,894
There were no options exercisable at the period end date (2017: nil). There were 155,172 options exercised during the year (2017: 302,758). The average
share price at dates of exercise was 115p per share (2017: 114p per share).
The options outstanding at the year end have weighted average exercise price of Nil (2017: 1.7p) and a weighted average contractual life of 3.9 years
(2017: 5.9 years).
The Company uses a Monte Carlo model for the valuation of the award subject to relative performance to the TSR of AIM listed companies. An external
consultant assists with the valuation of the awards.
The key inputs into the Monte Carlo model are as follows:
Expected life of option
Volatility of share price
Dividend yield
Risk free discount rate
Share price at grant date
Exercise price
2018
2017
3.0 years
23%
2.8%
0.6%
108.0p
Nil
3.0 years
25%
2.1%
0.10%
126.5p
Nil
24. Dividends
On 22 December 2017, a final dividend for the year ended 1 July 2017 of 2.0p per share was paid to shareholders on the register at the close of business
on 24 November 2017, the amount paid was £2,553,413.
An interim dividend for the six months to 30 December 2017 of 1.1p per share was paid on 27 April 2018 to shareholders on the register at the close
of business on 3 April 2018. The amount paid was £1,404,473. A final dividend for the year ended 30 June 2018 of 2.2p per share has been proposed
taking the total dividend for the year to 3.3p per share. Subject to shareholder approval at the Company’s AGM on 21 November 2018, the final dividend
will be paid on 21 December 2018 to shareholders on the register at 23 November 2018.
During the year a dividend of £799,000 (2017: £705,000) was paid to the holders of the non-controlling interest in Lightbody Stretz Ltd.
25. Operating Leases
The Group has annual commitments under non-cancellable operating leases relating primarily to land and buildings, fork lift trucks and office
equipment. Land and buildings have been considered separately for lease classification. Land and buildings amounts relate to leasehold properties
at the Nicholas & Harris site, part of the Lightbody of Hamilton site, Fletchers’ sites in London and Manchester and Johnstone’s site in East Kilbride.
During the year £2,099,000 was recognised as an expense in the Consolidated Statement of Profit and Loss in respect of operating leases
(2017: £2,839,000).
Future minimum lease repayments under non-cancellable operating leases at the end of the financial periods are as follows:
On leases which expire in:
Less than one year
Between one and five years
More than five years
Land and Buildings
Other
2018
£000
2017
£000
2018
£000
2017
£000
2,066
6,604
6,809
15,479
2,372
7,979
7,805
18,156
956
1,023
29
2,008
839
1,064
29
1,932
Corporate GovernanceFinancial StatementsStrategic Review
85 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
26. Capital Commitments
At the financial year ended 30 June 2018, the Group had capital expenditure commitments of £259,000 (2017: £429,000).
27. Related Parties
Related Party Transactions and Directors’ Material Interests in Transactions
A 50% owned subsidiary, Lightbody Stretz Ltd, paid Mr P Stretz, the Managing Director of Lightbody Stretz Ltd, £73,000 (2017: £55,000) in respect
of rent for offices. No balances were outstanding at either year end.
The Group paid £33,000 (2017: £31,000) for the supply of finished products from and received £32,000 (2017: £52,000) for the sale of finished
products to Party Fizz, a company 50% owned by Mr P Stretz. The amount payable and receivable at the year end was £nil (2017: £nil) and £2,000
(2017: £3,000) respectively.
The Group sold finished product to Dr Zak’s for a value of £98,000 during the year (2017: £196,000), the amount receivable at the year end was
£104,000 (2017: £68,000).
Transactions with the Memory Lane Pension Scheme are detailed in Note 13.
Mr P Baker is a Director of Crosta & Mollica Limited. The Group sold finished product to Crosta & Mollica for a value of £154,000 (2017: £284,000),
the amount receivable at the year end was £nil (2017: £36,000).
Transactions with Key Management Personnel
Directors of the Company and their immediate relatives control 3% (2017: 3%) of the voting shares of the Company.
The aggregate compensation of key management personnel (Main Board Executive Directors, Divisional MDs, and Executive Committee) is as follows:
Company contributions to money purchase pension schemes
Executive salaries and benefits
Executive bonuses
2018
£000
55
1,702
562
2,319
2017
£000
62
1,663
1,683
3,408
Share options held by Group Directors are set out in Note 6. Details of share options outstanding at 30 June 2018 for other key management
personnel by exercise price is shown in the table below:
Exercise
price
Nil
Nil
Nil
54.75p
Number of
options at
30 June 2018
304,068
338,951
279,596
-
922,615
Number of
options at
1 July 2017
-
338,951
279,596
51,724
670,271
Earliest
exercise
date
02/07/2022
30/09/2019
30/09/2018
03/07/2017
Exercise
expiry
date
26/10/2027
29/09/2026
04/12/2025
03/07/2024
28. Ultimate Parent Company
Finsbury Food Group Plc is the ultimate Parent Company, contact details on page 97.
86 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Consolidated Financial Statements
29. Post Balance Sheet Events
On 3 September 2018, the Company acquired 100% of the share capital of Ultrapharm Limited, a Free From bakery manufacturer, supplying
an extensive product range including bread, buns and rolls and other morning goods to a diverse blue chip customer base.
The acquisition of Ultrapharm supports the Group’s ongoing strategy to further diversify its product capability into high growth areas and to expand
the Group’s existing facilities to manufacture Free From products, a category of which the Group has previous expertise.
Ultrapharm employs more than 240 people across manufacturing sites in the UK and in Poland, for the year ended 31 December 2017, Ultrapharm
generated EBITDA of £1.6 million and a profit before tax of £0.8 million on revenues of £19.5 million. As at the 31 December 2017, gross assets
were £10.8 million.
The total consideration is split between £17.0 million payable in cash on completion, up to £3.0 million in annual instalments to the period to 30 June 2021
subject to the continued employment of key management and a final incentive payment subject to performance criteria over the period to 30 June 2021
estimated at approximately £1.0 million. The consideration will be funded from the Group’s existing cash and debt facilities. The professional costs
associated with the acquisition included with significant non-recurring items under administrative expenses in the Group’s Profit and Loss for the
52 weeks ended 30 June 2018 is £432,500.
Given the timing of the acquisition, the initial accounting for the business combination including the associated fair value exercise has not been
completed at the time the Annual Report is authorised.
Therefore, it is impracticable to provide certain related information required by IFRS 3.B64 at this time.
Corporate GovernanceFinancial StatementsStrategic Review 87 Finsbury Food Group
Annual Report & Accounts 2018
Company Balance Sheet
at 30 June 2018 and 1 July 2017
Non-current assets
Investments
Deferred taxation
Unamortised bank fees
Current assets
Debtors
Other financial assets – fair value foreign exchange contracts
Cash and cash equivalents
Note
37
38
39
2018
£000
2017
£000
101,009
712
248
101,969
43,046
558
8,305
51,909
100,827
460
-
101,287
25,173
560
6,509
32,242
Creditors: amounts falling due within one year
41
(31,719)
(9,633)
Net current assets
Total assets less current liabilities
20,190
22,609
122,159
123,896
Creditors: amounts falling due after more than one year
42&43
(95)
(5,896)
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Employee share reserve
Profit and loss account
Shareholders’ funds
122,064
118,000
1,304
64,956
578
(3,282)
58,508
122,064
1,304
64,956
578
(3,585)
54,747
118,000
44
44
44
45
These Financial Statements were approved by the Board of Directors on 14 September 2018 and were signed on its behalf by:
Stephen Boyd
Director
Registration number: 00204368
The Notes on pages 89 to 96 form an integral part of these Financial Statements.
88 Finsbury Food Group
Annual Report & Accounts 2018
Company Statement of Changes in Equity
for the 52 weeks ended 30 June 2018 and 52 weeks ended 1 July 2017
Share
capital
£000
Share
premium
£000
Note
Capital
redemption
reserve
£000
Employee
share reserve
£000
Retained
earnings
£000
Total
equity
£000
Balance at 2 July 2016
Loss for the financial year
Total comprehensive loss for the period
Transactions with owners, recorded directly in equity:
Shares issued from EBT
Shares issued during the year
Impact of share based payments charge to subsidiaries
Impact of share based payments
Deferred tax on share options
Dividend received
Dividend paid
Balance at 1 July 2017
Balance at 1 July 2017
Profit/(loss) for the financial year
Total comprehensive loss for the period
Transactions with owners, recorded directly in equity:
Shares issued from EBT
Shares issued during the year
Impact of share based payments charge to subsidiaries
Impact of share based payments
Deferred tax on share options
Dividend received
Dividend paid
Balance at 30 June 2018
1,304
-
-
-
-
-
-
-
-
-
1,304
1,304
-
-
-
-
-
-
-
-
-
1,304
23
23
24
23
23
24
64,956
-
-
-
-
-
-
-
-
64,956
64,956
-
-
-
-
-
-
-
-
-
64,956
The Notes on pages 89 to 96 form an integral part of these Financial Statements.
578
-
-
-
-
-
-
-
-
-
578
578
-
-
-
-
-
-
-
-
-
578
(3,920)
-
-
335
-
-
-
-
-
-
(3,585)
(3,585)
-
-
303
-
-
-
-
-
-
(3,282)
51,021
(157)
(157)
113,939
(157)
(157)
(158)
-
(5)
1,240
47
6,404
(3,645)
54,747
54,747
(646)
(646)
(217)
-
(13)
1,138
58
7,399
(3,958)
58,508
177
-
(5)
1,240
47
6,404
(3,645)
118,000
118,000
(646)
(646)
86
-
(13)
1,138
58
7,399
(3,958)
122,064
Corporate GovernanceFinancial StatementsStrategic Review
89 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Company’s Financial Statements
(forming part of the Financial Statements)
30. Accounting Policies
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
Financial Statements.
Basis of Preparation
The financial year was the 52 weeks ended 30 June 2018 (prior financial year 52 weeks ended 1 July 2017).
These Financial Statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”).
In preparing these Financial Statements, the Company applies the recognition, measurement and disclosure requirements of International Financial
Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes amendments where necessary in order to comply with Companies Act 2006
and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
The Company proposes to continue to adopt the reduced disclosure framework of FRS 101 in its next Financial Statements.
Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own Profit and Loss Account.
The profit or loss for the year is set out in the Statement of Changes in Equity.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under the standard in relation to the
following disclosures;
• Presentation of a Cash Flow Statement and related notes
• Capital management
• Comparative period reconciliations for share capital and tangible fixed assets
• Impairment of assets
• Transactions with wholly owned subsidiaries
• The effects of new but not yet effective IFRSs
• Key management personnel
As the consolidated Financial Statements of Finsbury Food Group Plc include the equivalent disclosures, the Company has also taken
the exemptions under FRS 101 available in respect of the following disclosures:
• IFRS 2 Share Based Payments in respect of Group settled share based payments
• Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial Instrument Disclosures
Where required equivalent disclosures are given in the Group accounts of Finsbury Food Group Plc, which are available within this report. The Financial
Statements are prepared on the historical cost basis except where stated at their fair value. The principal accounting policies of the Company are
as follows:
Investments
Investments are stated at cost less provision for any permanent impairment. Any impairment is charged to the profit and loss as it arises. Impairment
to investments is tested via impairment testing performed over goodwill, as discussed in Note 1 of the Group Significant Accounting Policies.
Foreign Currency
Transactions in foreign currencies are translated to Sterling at the foreign exchange rate ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the period end date are retranslated to Sterling at the foreign exchange rate ruling at that date.
Any exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which
they were initially recorded are recognised in the Consolidated Statement of Profit and Loss in the period in which they arise.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to Sterling,
at foreign exchange rates ruling at the period end date. The revenues and expenses of foreign operations are translated at an average rate for the
year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. This revaluation is recognised through
Other Comprehensive Income.
Derivative Financial Instruments
The Company has derivative financial instruments in respect of interest rate swaps and foreign exchange hedges. The Company does not hold derivative
financial instruments for trading purposes. The existing interest rate swaps and foreign exchange hedges used by the Company while they function
as hedges, do not meet the criteria for hedge accounting set out by IAS 39, and have thus been treated as financial assets and liabilities which are
carried at their fair value in the Company Balance Sheet. Fair value is deemed to be market value, which is provided by the counterparty at the year
end date.
Changes in the market value of interest rate swaps have been recognised through the Consolidated Statement of Profit and Loss as finance income
or cost. Changes in the market value of foreign exchange hedges have been recognised through the Consolidated Statement of Profit and Loss
within administrative costs.
90 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Company’s Financial Statements
30. Accounting Policies (continued)
Non-derivative Financial Instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents,
loans and borrowings, and trade and other payables.
Unless otherwise indicated, the carrying amounts of the Group’s financial assets and liabilities are a reasonable approximation of their fair values.
Trade and Other Payables
The value of trade and other payables is the value that would be payable to settle the liability at the period end date.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances. Bank overdrafts that are repayable on demand and which form an integral part of the Group’s
cash management are included as a component of cash and cash equivalents.
Interest-bearing Borrowings
Interest-bearing borrowings are stated at amortised cost using the effective interest method.
Share Based Payment Transactions
The value, as at the grant date, of options granted to employees is recognised as an employee expense, with a corresponding increase in equity,
over the period in which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using
an option valuation model, taking into account the terms and conditions upon which the options were granted.
Taxation
The credit for taxation is based on the loss for the year and takes into account taxation deferred because of temporary differences between the treatment
of certain items for taxation and accounting purposes.
Deferred tax is recognised, without discounting, in respect of all temporary differences between the treatment of certain items for taxation and
accounting purposes which have arisen but not reversed by the balance sheet date.
Going Concern
After making enquiries and on the basis of current financial projections and available funds and facilities, the Directors are satisfied that the Company
has adequate resources to continue in operation for the next 12 months and, therefore, consider it appropriate to prepare the Financial Statements
on the going concern basis.
Shares held by Employee Share Trusts
Shares held to satisfy options are accounted for in accordance with IAS 32 ‘Financial Instruments’. All differences between the purchase price
of the shares held to satisfy options granted and the proceeds received for the shares, whether on exercise or lapse, are charged to reserves.
31. Remuneration of Directors
Details of Directors’ remuneration are set out in Note 6 of the Group’s Financial Statements.
32. Staff Numbers and Costs
The average number of persons employed by the Company (including Directors) during the year, analysed by category, was as follows:
Directors and administrative staff
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Other pension costs
Number of employees
2018
44
2018
£000
4,354
465
249
5,068
2017
39
2017
£000
4,219
382
198
4,799
Corporate GovernanceFinancial StatementsStrategic Review 91 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Company’s Financial Statements
33. Share Based Payments
Details of Directors share options are set out in Note 6 of the Group’s Financial Statements and details of all share options issued are set out in Note 23
to the Group Financial Statements. During the year 496,429 (2017: 330,301) of the total 858,659 (2017: 544,384) share options granted were issued
to employees of the Company. The remaining options were granted to employees of the subsidiary companies with corresponding charges to the
relevant profit and loss accounts. The total charge in the financial year to the Company for all share options relating to current and prior years was
£944,000 (2017:1,084,000). Credits relating to options exercised, cancelled or lapsed after vesting have also been passed to the subsidiaries during
the year. The charge totalled £194,000 (2017: £151,000) and has resulted in an increase (2017: increase) in the total cost of investments in the
Company balance sheet. Details of Directors’ share options are set out in Note 6 of the Group’s Financial Statements.
34. Finance Income and Cost
Recognised in the Company Statement of Profit and Loss
Finance income
Change in fair value of interest rate swaps
Inter-group recharge
Bank interest receivable
Income from interest rate swap agreements
Total finance income
Finance cost
Bank interest payable
Interest on interest rate swap agreements
Total finance cost
Net finance cost
2018
£000
143
182
1
2
328
(406)
-
(406)
(78)
2017
£000
555
157
1
-
713
(428)
(125)
(553)
160
35. Dividends
On 22 December 2017, a final dividend of 2.0p per share was paid to shareholders on the register at the close of business on 24 November 2017,
the amount paid was £2,553,413. An interim dividend for the six months to 30 December 2017 of 1.1p per share was paid on 27 April 2018 to shareholders
on the register at the close of business on 3 April 2018. The amount paid was £1,404,473.
A final dividend of 2.2p per share has been proposed taking the total dividend to 3.3p per share. Subject to shareholder approval at the Company’s
AGM on 21 November 2018, the final dividend will be paid on 21 December 2018 to all shareholders on the register at 23 November 2017.
92 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Company’s Financial Statements
36. Investment in Subsidiaries and Equity Accounted Investees
Set out below are all undertakings of the Company whose results are included in the Consolidated Financial Statements for the period ended
30 June 2018.
Subsidiary
Anthony Alan Foods Ltd
Maes Y Coed Rd, Cardiff, CF14 4XR
California Cake Company Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
California Cake Company (Holdings) Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Campbells Cake Company Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Campbells Cake (Holdings) Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Dr Zak’s Ltd
Unit 3 Stirling Court, Stirling Way, Borehamwood, WD6 2BT
Fennel Acquisition Ltd
Maes Y Coed Rd, Cardiff, CF14 4XR
Fletchers Bakeries Ltd
Maes Y Coed Rd, Cardiff, CF14 4XR
Fletchers Bakeries Investment Ltd
Maes Y Coed Rd, Cardiff, CF14 4XR
Goswell Enterprises Ltd
Maes Y Coed Rd, Cardiff, CF14 4XR
Goswell Marketing Ltd
Maes Y Coed Rd, Cardiff, CF14 4XR
Johnstone’s Food Service Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Lightbody Celebration Cakes Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Lightbody Group Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Lightbody Holdings Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Lightbody of Hamilton Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Lightbody-Stretz Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Lightbody Europe SAS
14 Allée Coysevox, CS 56939, 35069 Rennes Cedex France
Memory Lane Cakes Ltd
Maes Y Coed Rd, Cardiff, CF14 4XR
Murray Traders Ltd
3 Inch Marnock, St Leonards, East Kilbride, South Lanarkshire, G74 2JQ
Nicholas & Harris Ltd
Maes Y Coed Rd, Cardiff, CF14 4XR
Storesurvey Ltd
Maes Y Coed Rd, Cardiff, CF14 4XR
Direct/Indirect
ownership
Country of incorporation
Class of
shares held
2018
2017
Direct
England and Wales
Ordinary £1
100%
100%
Indirect
Direct
Indirect
Direct
Scotland
Ordinary £1
100%
100%
Scotland
Ordinary £1
100%
100%
Scotland
Ordinary £1
100%
100%
Scotland
Ordinary £1
100%
100%
Indirect
England and Wales
Ordinary £1
31%
31%
Direct
England and Wales
Ordinary £1
100%
100%
Indirect
England and Wales
Ordinary £1
100%
100%
Indirect
England and Wales
Ordinary £1
100%
100%
Indirect
England and Wales
Ordinary £1
100%
100%
Indirect
England and Wales
Ordinary £1
100%
100%
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Scotland
Ordinary £1
100%
100%
Scotland
Ordinary £1
100%
100%
Scotland
Ordinary £1
100%
100%
Scotland
Ordinary £1
100%
100%
Scotland
Ordinary £1
100%
100%
Scotland
Ordinary £1
50%
50%
France
Ordinary £1
50%
50%
Direct
England and Wales
Ordinary 1p
100%
100%
Indirect
Scotland
Preference £1
10.5% 10.5%
Indirect
England and Wales
Ordinary £1
100%
100%
Direct
England and Wales
Ordinary £1
100%
100%
Corporate GovernanceFinancial StatementsStrategic Review 93 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Company’s Financial Statements
37. Fixed Asset Investments
Cost
At beginning of financial year
Additions
At end of financial year
Net book value
At 30 June 2018
At 1 July 2017
£000
100,827
182
101,009
101,009
100,827
The additions relate to share option charge of £182,000 (2017: £151,000) passed down to individual subsidiaries.
38. Deferred Tax
Recognised deferred tax assets and liabilities:
Employee share scheme charges
Interest rate swaps
Foreign exchange contracts
Tax assets/(liabilities)
Net tax assets
Assets
Liabilities
2018
£000
2017
£000
2018
£000
2017
£000
712
-
-
712
617
460
-
-
460
364
-
(95)
-
(95)
-
(71)
(25)
(96)
The deferred tax asset at 30 June 2018 has been calculated based on the rate of 17% substantively enacted at the balance sheet date.
Movement in Deferred Tax during the Year
Employee share scheme
Interest rate swaps
Foreign exchange contracts
Movement in Deferred Tax during the Prior Year
Employee share scheme
Interest rate swaps
Foreign exchange contracts
39. Debtors
Amounts owed by Group undertakings
Other taxation
Prepayments and accrued income
1 July
2017
£000
Recognised
in income
£000
Recognised
in equity
£000
30 June
2018
£000
460
(71)
(25)
364
194
(24)
25
195
58
-
-
58
2 July
2016
£000
Recognised
in income
£000
Recognised
in equity
£000
202
25
(89)
138
211
(96)
64
179
47
-
-
47
712
(95)
-
617
1 July
2017
£000
460
(71)
(25)
364
2018
£000
2017
£000
42,907
63
76
43,046
24,928
57
188
25,173
94 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Company’s Financial Statements
40. Forward Foreign Exchange Contracts at Fair Value
The Group has entered into a number of forward foreign exchange contracts to minimise the impact of fluctuations in exchange rates. A charge
of £145,000 (2017: charge £350,000) is included in administrative expenses for the periods reflecting changes in their fair value. The closing fair
value is nil (2017: £145,000 asset).
41. Creditors: Amounts Falling Due Within One Year
Bank loan
Trade creditors
Amounts due to Group undertakings
Corporation tax
Other taxes and social security
Accruals and deferred income
2018
£000
24,932
111
20
106
151
6,399
31,719
2017
£000
2,883
45
52
134
122
6,397
9,633
Other Financial Liabilities – Fair Value Interest Rate Swaps
The Group has one interest rate swap for five years from 3 July 2017 with a coverage of £20.0 million fixed at a rate of 0.455%.
There was 80% coverage at year end (2017: £nil).
A credit of £143,000 (2017: £555,000) is shown in finance income for the previous year reflecting changes in the fair values of interest rate swaps.
The fair values are liabilities as a result of the current low levels of base and LIBOR interest rates. The closing fair value of the asset is £558,000
(2017: £415,000).
42. Creditors: Amounts Falling Due After More Than One Year
Total bank loans and mortgages
Deferred tax liability
2018
£000
-
95
95
2017
£000
5,800
96
5,896
HSBC Bank Plc, HSBC Asset Finance (UK) Ltd, HSBC Equipment Finance (UK) Ltd and HSBC Corporate Trustee Company (UK) Limited have debentures
incorporating fixed and floating charges over the undertaking and all property and assets including goodwill, book debts, uncalled capital, buildings,
fixtures, fixed plant and machinery.
Corporate GovernanceFinancial StatementsStrategic Review 95 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Company’s Financial Statements
43. Interest-bearing Loans and Borrowings
This Note provides information about the contractual terms and repayment schedule of the Company’s interest-bearing loans and borrowings,
which are measured at amortised cost. For more information about the Group’s exposure to interest rate risk, see Note 21.
2018
Currency
Margin
Above
Frequency of
repayments
Year of
maturity
Total
£000
Current
£000
Non-current
£000
Revolving credit
Unamortised transaction costs
GBP
1.30%
LIBOR
Varies
45,000
25,000
(315)
24,685
25,000
(315)
24,685
-
-
-
2017
Currency
Margin
Above
Frequency of
repayments
Year of
maturity
Total
£000
Current
£000
Non-current
£000
GBP
GBP
GBP
2.00%
2.00%
1.75%
LIBOR
LIBOR
LIBOR
Quarterly
Varies
Quarterly
2019
2019
2022
6,337
-
2,457
(111)
8,683
2,568
-
369
(54)
2,883
Term loan
Revolving credit
Mortgage
Unamortised transaction costs
Repayments are as follows:
Between one and two years
Between two and five years
Between five and ten years
Between ten and fifteen years
3,769
-
2,088
(57)
5,800
2,894
2,292
614
-
5,800
44. Called Up Share Capital
Note 23 in the Group Financial Statements gives details of called up share capital.
45. Capital and Reserves
The reconciliation of the movement in capital and reserves is shown as a primary statement in the Company’s Financial Statements: Company
Statement of Changes in Equity on page 88 with definition details in Note 22 to the Consolidated Financial Statements.
46. Contingent Liabilities
The Company has guaranteed the overdrafts of its subsidiaries; there was a net cash position at the year end of £9,363,000 (2017: £3,024,000).
47. Related Party Disclosures
Note 27 in the Group’s Financial Statements gives details of related party transactions.
48. Financial Risk Management
The Company’s policies on the management of liquidity, credit and interest rate risks are managed at a Group level and are set out in Note 21
in the Group’s Financial Statements and also referred to in the Strategic Report.
96 Finsbury Food Group
Annual Report & Accounts 2018
Notes to the Company’s Financial Statements
Presentation of Financial Statements
Basis of Preparation of Consolidated Financial Statements
The Group has adopted the following IFRSs in these Financial Statements:
• Clarification of Acceptable Methods of Depreciation and Amortisation – Amendments to IAS 16 and IAS 38 (effective date 1 January 2016)
• Equity Method in Separate Financial Statements – Amendments to IAS 27 (effective date 1 January 2016)
• Annual Improvements to IFRSs – 2012-2014 Cycle (effective date 1 January 2016)
The application of the above standards and interpretations has not had a material effect on the net assets, results and disclosures of the Group.
The IASB and the IFRIC have also issued the following standards and interpretations with an effective date after the date of these Financial Statements.
New Standards and Interpretations Endorsed but not yet Effective
• IFRS 9 Financial Instruments – effective 1 January 2018
IFRS 9 Financial Instruments addressed the classification, measurement and recognition of financial assets and liabilities.
The Group has an interest rate swap and foreign exchange forward contracts, these financial assets and liabilities are carried at their fair value
in the Consolidated Statement of Financial Position. Fair value is deemed to be market value, which is provided by the counterparty at the year
end date.
The requirements of IFRS 9 have been reviewed in respect of the financial assets and financial liabilities of the Group for classification and
measurement and impairment, and the current hedging arrangements have been considered. The Directors do not anticipate that the adoption
of IFRS 9 will have a material impact on the Financial Statements of the Group.
• IFRS 15 Revenue from Contracts with Customers – effective 1 January 2018
IFRS 15: ‘Revenue from Contracts with Customers’ will be effective for annual periods beginning on or after 1 January 2018, and therefore
the Group will apply the standard for its reporting period commencing 1 July 2018.
The standard, which replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction contracts’, deals with revenue recognition and establishes principles
for reporting useful information about the nature, amount, timing and uncertainty of revenues and cash flows arising from the Group’s contracts
with its customers. The standard provides clarification about when control of goods is passed to customers and contains more guidance about
the measurement of revenue contracts which have discounts, rebates and other payments to customers.
The Group has considered its customer contracts, standard terms and conditions and agreed joint business plans when working through the five-step
model of IFRS 15 to assess the impact of the adoption of the new standard on reported revenue. The areas the Group considered included a review
of any variable consideration arrangements, such as rebates, promotions and other payments such as for range support and marketing.
As a result of the review, it has been concluded that the Group’s current accounting policies and practices are materially in line with the new accounting
standard and therefore the adoption of IFRS 15 will not have a significant impact. The Group will continue to review transactions with customers
to ensure compliance.
New Standards and Interpretations not yet Endorsed and not yet Effective
• IFRS 16 Leases – effective from 1 January 2019
IFRS 16 Leases sets out the principle for the recognition, measurement, presentation and disclosure of leases for both lessee and lessor. It eliminates
the classification of leases as either operating leases or finance leases and introduces a single lessee accounting model where the lessee is required
to recognise assets and liabilities for all material leases that have a term of greater than a year. Note 25 details current leases.
The Group will apply the standard for the reporting period commencing 30 June 2019. The Company has gathered a comprehensive database
of all leases and will consider break clauses, rent reviews, material changes to contracts and appropriate discount rates. This work is ongoing
to enable the modelling of the impact on adoption of the new standard.
• IFRS 2 Classification and Measurement of Share-based Payment Transactions – effective 1 January 2018
• Annual Improvements to IFRSs – 2014-2016 Cycle (effective date 1 January 2018)
• IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration (effective date 1 January 2018)
Work will begin in the new financial year to assess the impact of the new standards and interpretations on the Group’s Financial Statements.
Corporate GovernanceFinancial StatementsStrategic Review 97 Finsbury Food Group
Annual Report & Accounts 2018
Advisers
Registered Office
Maes Y Coed Road
Cardiff
CF14 4XR
Tel: 029 20 357 500
Registrars
Capita Registrars
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Company Secretary
Laura Nuttall
ONE Advisory Limited
201 Temple Chambers
3-7 Temple Avenue
London
EC4Y 0DT
Tel: 020 7583 8304
Auditor
KPMG LLP
Chartered Accountants
3 Assembly Square
Britannia Quay
Cardiff Bay
CF10 4AX
Nominated Adviser and Broker
Cenkos Securities Plc
6.7.8 Tokenhouse Yard
London
EC2R 7AS
Solicitors
CMS Cameron McKenna LLP
Cannon Place
78 Cannon Street
London
EC4N 6AF
Remuneration Committee Adviser
Deloitte LLP
Four Brindleyplace,
Birmingham,
B1 2HZ
Registered Number
00204368
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