Annual Report & Accounts 2019 •
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1 Finsbury Food Group
Annual Report & Accounts 2019
Strategic Report
Highlights
The Group has grown sales year on year, outperforming the market
in a challenging and uncertain environment, and in the face of cost
inflation. This is thanks to our continuing investment in innovation
and efficiency, and an extensive knowledge of our markets and the
needs and wishes of our end consumers.
Completed the acquisition of Ultrapharm, a
manufacturer of gluten-free bread and morning
goods both in the UK and in Europe.
Highlights
The figures are for the 52 weeks ended 29 June 2019 and 52 weeks
ended 30 June 2018:
Second half like for like growth of 7.5% compares
to first half of 0.5%, reflecting significant new
business gains.
Adjusted Operating Profit
Investment in automated individually wrapped
cake bar capacity was followed by the successful
launch of a new range of cake bars for ‘on the go’
consumption.
Significant number of product launches including
the new ‘vegan’ brioche style burger bun into
foodservice, approved by The Vegan Society
and a new line of Mary Berry cakes.
Group-wide review of bakery processes is leading
to the standardisation of best practice with tangible
improvement in quality and consistency and
reduction of production waste.
•
Award wins include Bakery Manufacturing Company
of the Year and several Quality Food Awards .
•
Successful roll out of a new IT platform, across all
companies in UK bakery.
•
Introduced Workplace by Facebook across the
Group to drive collaboration.
*1 Like for like revenue is the revenue from operations excluding
the revenue from the closed bakeries and acquired businesses.
*2 Profit is before significant non-recurring and other items.
*3 Adjusted EPS has been calculated using earnings excluding the
impact of amortisation of intangibles and significant non-recurring
and other items as shown on the face of the Statement of
Comprehensive Income. The adjusted diluted EPS and adjusted
EPS have 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.
Operating profit
Significant non-recurring items – SNR
(refer to Note 5 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 operating profit
Adjusted Profit before Tax
Profit before tax
Significant non-recurring items – SNR
(refer to Note 5 for detail)
Difference between Defined Benefit
Pension Scheme charges and cash cost
Movement in the fair value of foreign
exchange contracts
Discounting of deferred consideration
Movement in the fair value of
interest rate swaps
Adjustments, SNR and other items
Adjusted profit before tax
2019
£000
2018
£000
15,293
5,237
1,200
13,067
162
(411)
178
1,540
16,833
(49)
12,607
17,844
2019
£000
2018
£000
13,576
4,475
1,200
13,067
444
178
139
(134)
(49)
-
382
2,343
15,919
(143)
12,741
17,216
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 EPS has been calculated using profit before amortisation
of intangibles, significant non-recurring and other items as shown
in the tables above net of associated taxation. Other than significant
non-recurring items, the adjustments to EPS reflect non-cash items
(including amortisation of intangibles). In the opinion of the Board,
the adjustments made will allow shareholders to gain a clearer
understanding of the underlying trading performance of the Group.
2 Finsbury Food Group
Annual Report & Accounts 2019
Group Performance
Measures
Statutory Measures
Contents
Like for Like Group Revenue1
Group Revenue
£301.8m
£315.3m
4.0%
3.8%
Adjusted EBITDA
£25.5m
0.3%
EBITDA
£24.0m
84.6%
Adjusted Operating Profit
Operating Profit
£16.8m
5.7%
£15.3m
192.0%
Adjusted Profit before Tax
Profit before Tax
£15.9m
7.5%
£13.6m
203.4%
Adjusted EPS
9.3p
8.8%
Capital Investment
£11.0m
12.6%
Net Debt
£35.6m
127.8%
Total Dividend
3.5p
6.1%
Basic EPS
7.3p
329.4%
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 Adjusted Operating Profit
and Adjusted Profit Before Tax tables on
the previous page and the tables in the
Financial Review Section.
1 Like for like revenue is the revenue from
operations excluding the revenue from
closed bakeries and acquired businesses.
To view our Annual Report online visit
finsburyfoods.co.uk/investor-relations/
annual-reports
Strategic Report
01 Highlights
03 Our Business
05 Market Review
06 Strategy and Objectives
07 Business Model
11 Chairman’s Statement
13 Chief Executive’s Report
18 Key Performance Indicators
21 Risk Report
25 Financial Review
Corporate Governance
29 Chairman's Introduction to Governance
30 Report on Corporate Governance
33 The Directors
35 Directors' Report
37 The Group Executive Committee
38 Audit Committee Report
40 Directors' Remuneration Report
(unaudited)
45
Independent Auditor's Report to the
Members of Finsbury Food Group Plc
49 Statement of Directors' Responsibilities
in Respect of the Annual Report and the
Financial Statements
Financial Statements
50 Consolidated Statement
of Comprehensive Income
51 Consolidated Statement of Financial
Position
52 Consolidated Statement of Changes
in Equity
53 Consolidated Cash Flow Statement
54 Notes to the Consolidated Financial
Statements
82 Company Balance Sheet
83 Company Statement of Changes in Equity
84 Notes to the Company's Financial
Statements
91 Advisers
Corporate GovernanceFinancial StatementsStrategic Report
3 Finsbury Food Group
Annual Report & Accounts 2019
Our Business
Our business is split into UK bakery and Overseas. 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.
Manufacturing
Finsbury Food Group includes eight manufacturing
facilities and bakery companies (including two
facilities in the newly acquired Ultrapharm Group)
and one distribution company.
Nicholas & Harris
Salisbury
Memory Lane Cakes
Cardiff
Kara Foodservice
Manchester
Fletchers Bakeries
Sheffield
Lightbody of Hamilton
Hamilton
Johnstone’s Food Service
East Kilbride
Ultrapharm UK
Pontypool
Ultrapharm Poland
Żywiec, Poland
Lightbody Europe
(distribution company)
Rennes, France
Our Customers
Our bakery segment covers supermarkets,
discounters and convenience stores within
the retail sector and hotels, pubs, restaurants,
high street chains, fast food outlets and contract
caterers within the UK foodservice sector.
Our Overseas segment covers primarily Retail.
4 Finsbury Food Group
Annual Report & Accounts 2019
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. It also supplies
a range of cake and gluten-free products to our overseas business in Rennes as well as direct
to European retailers.
Bread, Morning Goods and Cakes
• Artisan loaves
• Buns and rolls
• Celebration cakes
• Sharing cakes
• Food to Go cake bars
• Gluten-free bread, morning goods
and 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, single
serve cakes and large premium cakes,
focusing on the latest consumer trends.
The latest successful innovation has been
a vegan brioche-style burger bun.
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
We are now in our 20th year with Thorntons
on our cake partnership. This brand partnership
has allowed Finsbury to bring a premium
feel to the category through celebration,
sharing, snacking, food to go and seasonal
cake formats. Thorntons is the 4th biggest
brand within the Cake category and the
biggest brand in celebration cake overall.
Mary Berry
Mary Berry continues to be a success for
the business and we continue to work closely
with Mary on NPD. Mary Berry is the 8th biggest
brand within the Cake category.
Mars
The Mars cake range is now well established
within the celebration cake category and this
year has seen a broad level of new product
launches across the key Mars brands of Galaxy,
M&M, Maltesers and Skittles. The important
aspect of the Mars product range is each
product is true to each respective brand in terms
of flavour and profile, which is the main driver
of success as consumers’ expectations have
been met. The Mars celebration cake range
is now the 2nd largest within the category.
Baileys
The Baileys brand has been a fantastic
experiential brand for the business this
year which was born out of the “boozy cake”
trend within the market. The range is a core
celebration Freak Shake cake and a Christmas
range of a Baileys yule log and cupcake.
Going forward the Baileys product range
will be an integral brand for our business.
Character Licensed Portfolio
We have a broad and unique portfolio of
character-based entertainment licenses that
meet a broad age demographic and diverse
consumer occasions. We work with some of the
biggest character licensed brands in the world.
Our ever-evolving portfolio is vital in meeting
consumer trends and expectations.
The second half of the year saw us expand
our ever-growing Disney business to support
key blockbuster movie releases of Toy Story 4,
the final Avengers instalment; End Game
and Spiderman: Far From Home as well as the
live action remake of the classic Lion King
movie. These launches were all supported
by the timeless Disney Princess franchise.
We also launched our first LOL Surprise cake
which is based on the biggest collectable
toy in the market today. Plus, we continued
to keep our core evergreen product portfolio
license refresh with the launch of our Batman,
Minions, Pokemon, Paw Patrol, Peppa Pig,
Trolls and Me to You products which are all
seen as the most popular franchises within
the cake market today.
Vogels
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.
Corporate GovernanceFinancial StatementsStrategic Report 5 Finsbury Food Group
Annual Report & Accounts 2019
Market Review
An overview of the markets we operate in, and a summary
of the key trends we aim to take advantage of.
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 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 £969.0 million (source: IRI, 52 w/e 20 July
2019). We trade across all categories, with large
presences in celebration, sharing and seasonal
categories.
Bread
The annual retail bread and morning goods
market has a value of £4.5 billion (source:
Kantar Worldpanel 52 w/e 14 July 2019).
This market is further divided as plant bread
(£1.6 billion) and the rest, bread and morning
goods (B&MG) (£2.9 billion). We trade only in
B&MG, with sizeable presences in buns and
rolls, hot cross buns and artisan bread.
The UK foodservice B&MG sector is worth
£747.0 million per annum (source: Derived from
MCA data 52 weeks to 31 March 2019). We have
a significant presence in this sector, primarily
with our buns and rolls business.
The UK foodservice cake and sweet treat bakery
sector is worth approximately £918.0 million per
annum (source: Derived from MCA data 52 weeks
to 31 March 2019). Our presence in this sector
is primarily within the coffee chains and, through
the larger wholesalers, restaurants and pubs.
Overseas
Our Lightbody Europe subsidiary has a
significant presence in France as well as
Belgium and Holland. The recent acquisition
of Ultrapharm has given us additional markets
of Scandinavia, Italy and to a lesser extent
Germany, Austria and Switzerland. Through
our UK retail customers, we trade regularly
with their Irish businesses.
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.
Relevant significant market trends are:
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.
Free From
The retail Free From bread and morning goods
market is valued at £125.3 million (source: Kantar
Worldpanel 52 w/e 21 April 2019). The retail
Free From cake market is valued at £49.5 million
(source: Kantar Worldpanel 52 w/e 24 March 2019).
Grocery and Convenience Channels
Online and discount will be the two fastest
growing grocery channels, and will account
for 23.5% share of grocery expenditure by
2024 (IGD). The convenience channel is also
forecast to see strong growth.
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.
Out-of-home
In the out-of-home market, volume growth has
declined as weakening consumer confidence
and general consumer caution mean people
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 (all types of food
ranges and products) continues to grow, doubling
in size in the past five years. Mintel forecasts
it to grow by an additional 25% to £899.0 million
by 2022. It is 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 £172.0 million and has grown
16.5% year on year (source: Kantar Worldpanel
52 w/e 24 March 2019).
Artisan Bread
The artisan bread 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.
6 Finsbury Food Group
Annual Report & Accounts 2019
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 suppliers,
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.
Corporate GovernanceFinancial StatementsStrategic Report
7 Finsbury Food Group
Annual Report & Accounts 2019
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
The Company is AIM-listed giving it the potential to access
institutional funding. The Group also benefits from 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 of 1.4x.
Intellectual Capital
• Extensive speciality bakery product know-how, category
insight and understanding.
• Extensive customer relationships in both the retail and
foodservice sectors in the UK and in France. The acquisition
of Ultrapharm delivers new customer relationships
throughout Europe.
• Known brand in foodservice in the UK.
• Licence arrangements with brand owners in the UK
and in Europe.
Manufacturing Capital
• Plant and machinery well invested and maintained,
with flexibility to cover niche to mainstream products.
• The Group owns all major sites, with available space
for new production or consolidation of facilities.
• Common Group IT ERP platform.
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:
– Automated single serve cake bar packing,
improving capability and cost effectiveness.
– New gluten-free factory in Poland with modern
travelling ovens improving capacity and efficiency.
– New IT platform across all sites now complete.
• Group engineering forum standardising processes and
practices improving plant performance and reliability.
• Group Process Blueprint leading to specific product design
framework and improved efficiency and quality work continues.
• Group bakery efficiency programme being worked up.
• Operational supply chain forum set up and objectives set.
Sustainable Approach
• Most Finsbury sites are sending zero waste to landfill
already. All are on target to achieve 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 reducing and eliminating single-use
plastics. With good progress already, we are targeting a 50%
reduction by 2020.
• A programme of plastic packaging reduction has started
across the Group. Where plastic cannot be removed
or reduced the aim is to ensure it is all recyclable.
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 for food safety standards.
• The Health agenda is embedded into the development
process, with over 98% of products achieving 2017 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 gives us scale in Free From.
8 Finsbury Food Group
Annual Report & Accounts 2019
Business Model
Cost Effectiveness
• Centralised Group buying focused on high-quality and
cost effective ingredients and efficiency of scale in the
procurement of indirect items (e.g. personal protective
equipment).
• 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.
• Our capital investment is focused on capability
and cost reduction.
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 5% in the year.
• We are growing with partners in the UK and across the
rest of Europe in both bread and cakes.
• Our Lightbody Europe subsidiary in France and the Ultrapharm
business in Poland gives a growing presence in Europe.
People Who Care
• A health and safety risk management team with their
mantra of ‘Home Safe Every Day’ is, supported by resource
and a common Group-wide strategy and programme.
• Values of teamwork, honesty, ownership, respect
and communication:
– New Workplace by 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.
• Biennial employee survey to obtain our employees’ views.
Creating Value
Value for Shareholders
Using our Operating Principles achieves effectively our Purpose
and Strategy, creating long-term shareholder value through share
price growth and attractive dividends. Despite our achievements,
the share price reduced from 117.5p at 30 June 2018 to 67.0p
a year later. Over the year the dividend increased from 3.3p per share
to 3.5p per share, a 6% increase. The ratio of enterprise value (EV)
to adjusted EBITDA is 4.8x. Adjusted Group EBITDA is £25.5 million,
consistent with the level achieved in 2018.
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 are
rapidly expanding our range of gluten-free products in both bread
and morning goods and cake.
We measure success by the closeness of our long-term relationships
with our retail and foodservice partners, by our growing presence in the
discounter and convenience channel, and by the growth in our foodservice
business, where we are one of the leading suppliers in bakery.
Our products reach a broader base of consumers through a strategy to
diversify across all UK channels and 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 over 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
Finsbury 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 24.2% (French corporation tax rates 33% to 31 December 2018
reducing to 31% from 1 January 2019), as well as paying indirect taxes
such as packaging, apprenticeship levies and in areas such as energy
where there are significant government imposed renewable taxes.
Our French and Polish-based subsidiaries pay similar taxes in their
respective jurisdictions.
Corporate GovernanceFinancial StatementsStrategic Report
9 Finsbury Food Group
Annual Report & Accounts 2018
Operating Excellence
Enhancements
Bring Results
Always Improving
Process Blueprint – During the past 12 months we have
been enhancing process control paperwork, improving
visual standards, enhancing knowledge of process
controls and links to quality control points, feeding
back improvements into the new product development
process, working with universities and industry bodies
to validate findings and embed into our processes.
New Investment – New Markets
We have made a significant investment in our bakery
in East Kilbride to deliver automated single serve
wrapping capability for baked and cold set bars,
which has allowed us to enter the “Food on the Go”
market place.
10 Minutes to Full Traceability
We have implemented our new ERP (enterprise resource
planning) system, providing real-time management
information from supplier, through our bakeries and to
our customers. Teams are able to identify improvement
opportunities through data-driven analysis. Using this
system we have transformed our ability to carry out
traceability exercises on our products, moving from
an estimated time of four hours to around just
10 minutes making us fit for the future.
10 Finsbury Food Group
Annual Report & Accounts 2019
Operating Excellence
Corporate GovernanceFinancial StatementsStrategic Report 11 Finsbury Food Group
Annual Report & Accounts 2019
Chairman's Statement
This robust performance delivered during the year highlights that
our exceptional management team and strategy has again delivered
results that significantly outperform the market against a backdrop
of consumer malaise, cost inflation and macro uncertainty, which has
undermined sentiment in the sector.
People
Our people are truly the heartbeat of the Group.
Over the last few years we have implemented
a considerable number of Group-wide initiatives
to ensure that we really are being the best
that we can be. The hard work of our teams
on a day-to-day basis and engagement with
the new initiatives we have introduced has
been truly inspiring. With these projects now
materially complete, the Group is focused on
harnessing the outcomes of these initiatives
to drive productivity. Alongside this, the teams’
skill and ability to continuously create products
that appeal to our customers is remarkable.
I would like to thank them all for their tireless
effort and look forward to working together
to continue to deliver baking brilliance.
Peter Baker
Non-Executive Chairman
13 September 2019
Our ability to innovate and provide our customers
with desirable and quality products is testament
to the strength of the Group’s creativity,
investment and growing operational maturity.
Group revenue increased by 3.8% to
£315.3 million. Adjusted EBITDA was £25.5
million and profit before tax was £13.6 million.
We have announced a growth in the dividend
which will take the total dividend for the year
to 3.5p per share, up 6.1% from last year.
Delivering on our Ever-consistent Vision
Our vision is to be the leading speciality bakery
group, producing a broad range of high-quality
products that fulfil the needs and demands of end
consumers, delivering a differentiated product
for our customers whilst driving growth for the
Group, both throughout the UK and Europe.
We continue to build a business of scale, but
also one that can deal with the manufacturing
complexity and flexibility required for the breadth
of ranges we deliver to the foodservice and the
retail markets – from specialist, artisan products
to premium or higher-margin products. For ten
years we've been delivering this while improving
efficiency, investing strategically and thoughtfully,
whilst 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.
Over the years we have made major acquisitions
and investments, targeting opportunities based
on consumer trends, market niches, new channels
and added-value products that retail and
foodservice customers are trying to develop.
As such, we are well positioned to continue
to successfully deliver this increasing product
range to our larger customers whilst still
maintaining strong relationships with our
smaller customers.
Illustrating our ability to complete strategic and
complementary acquisitions, the acquisition of
Ultrapharm has accelerated our access to the high
growth Free From market. We have established
a robust platform, increased capacity through
a new bakery and resourced the business to allow
it to have all the key ingredients to drive further
growth.
Through a combination of organic growth and
targeted acquisitions in what is a very fragmented
market, we will continue to invest, consolidate
and therefore grow in areas where we believe
we can drive the most value, such as artisan
bread, Free From and foodservice.
Operational Agility Delivering Results
Our diversification, agility and innovation has
allowed the Group to not only adapt but also
perform well in the face of the cost pressures
and market volatility we have seen of late.
We’ve continued to not only drive efficiency,
but at the same time deliver innovation, allowing
us to maintain our leading position in the market.
As part of our drive to ensure excellence across the
Group, our Operating Principles, were launched
in the first half of the year and are now being
applied consistently across the Group. This allows
us to deliver Group-wide initiatives to drive scale,
productivity and best practice. This will be a major
strategic theme over the coming years as we
unlock benefits from these investments, including
our recent IT roll out across the Group.
Board
The Board is committed to high standards
of corporate governance, and has chosen to
comply with the QCA Corporate Governance
Code. In April we announced that Zoe Morgan,
a Non-Executive Director of the Company and
Chairman of the Remuneration Committee,
would not be seeking renewal of her Directorship.
I would like to thank Zoe for her valuable
contribution over the last three years to both
the Board and to the Company. Subsequently,
Marnie Millard, a Non-Executive Director of the
Company, took over the Chairmanship of the
Remuneration Committee from 1 July 2019.
12 Finsbury Food Group
Annual Report & Accounts 2019
Chairman's Statement
We’ve continued to not only drive
efficiency, but at the same time
deliver innovation, allowing us
to maintain our leading position
in the market.
Corporate GovernanceFinancial StatementsStrategic Report“” 13 Finsbury Food Group
Annual Report & Accounts 2019
Chief Executive's Report
As consumer habits change it is vital
that our product offering remains
on trend and relevant to our end
customers, illustrated by the success
of our vegan brioche-style buns.
“” 14 Finsbury Food Group
Annual Report & Accounts 2019
Chief Executive's Report
The Board is pleased to report its full year results, which show strong
sales momentum which has continued into the new financial year.
The Group has grown sales year on year, driven
by organic growth, the Ultrapharm acquisition
and previously communicated new business wins,
despite the challenging retail environment and
unprecedented input cost inflation we have
experienced over the period.
This robust performance has been delivered
with a continuous focus on innovation using
our extensive knowledge of our markets and
what our end consumers want.
The relentless investment and efficiency focus
of recent years has enabled us to navigate this
market environment successfully. As we come
out of our intense investment phase, with capital
expenditure of £11.0 million in the period,
the Group will continue to benefit from the
investments made for years to come. The true
measure of success is that we have once again
achieved underlying growth ahead of our market
and have demonstrated the growth available
from premium, healthy and authentic on-trend
innovation.
Illustrating this, following the launch of our own
Free From brand in Europe last year, Wiso, we have
also launched Free From cakes in addition to the
comprehensive Free From bread and morning
goods ranges. These products capitalise on the
fact that making the choice to avoid gluten or
embrace veganism are growing lifestyle and
health choice across North America, Europe
and UK.
The Group’s diversification by channel has truly
delivered in the period with our 'out-of-home
eating' foodservice market, where we supply
pub and restaurant chains, fast-food outlets
and contract caterers, being a particularly strong
performer. As consumer habits change it is vital
that our product offering remains on trend and
relevant to our end customers, illustrated by
the success of our vegan brioche-style buns.
We continue to have a broad portfolio of licensed
brands that are complementary to our retailer
own label business and foodservice range.
This offering is vital in meeting consumer trends
and expectations with our portfolio evolving
all the time. The second half of the year has been
particularly active with the big block buster movie
releases of Toy Story 4 and the latest Avengers
and Spiderman instalments, which have all broken
cinematic records and have their own cake range.
We also continued to keep our core evergreen
product portfolio licenses fresh with a relaunch
of our Batman, Minions, Pokemon, Paw Patrol,
Peppa Pig, Trolls and Me to You cakes.
Artisan breads, which may be hand-crafted,
require long fermentation, baking in stone ovens,
and a skilled team, continues to grow strongly.
As such, we are looking to invest in further
capacity to capitalise on this growing trend,
going forward.
Innovation and Craftsmanship
Key components of our strategy are creating
innovative, high-quality bakery products that
anticipate and deliver on key market trends,
ensuring customer and consumer needs are
at the heart of our decision making. We always
strive to be front and centre of these trends and
this is driven by our deep knowledge of the
markets we serve combined with the skill and
experience of our employees. An example of this
is the successful launch of a new range of cake
bars for on the go consumption which drove our
investment in automated individually wrapped
cake bar capacity, and the launch of our vegan
brioche style bun into foodservice, which is
approved by The Vegan Society. We are constantly
listening, monitoring, and testing to make sure
that we’re on top of trends as they emerge.
Be it foodservice, licensed brands or retailer
owned brands – evolving consumer trends such
as indulgence, health and wellbeing, or adapting
single serve product formats for convenient
out-of-home eating occasions have played
a large part in driving the growth in our core
division, enabling the Group to perform ahead
of the wider market.
Illustrating this ability to deliver innovative,
on trend and high quality products, the Group
was delighted to be recognised at the Food
Manufacturer Excellence Awards, winning the
Bakery Manufacturer Company of the Year.
Meanwhile, a number of our products were
placed in the winner’s category at the Quality
Food Awards.
Sitting at the heart of the Group is our ability
to innovate and craft products that our
customers want to purchase.
Maximising the Benefits
of the Group’s Structure
Throughout the last couple of years, a core part
of our strategy has been to ensure that all our
businesses acknowledge and embrace the key
strengths of the Group, whilst benefitting from
common approaches. Our newly introduced
IT platform has been implemented to support
common business processes and further efficiency
improvement, and we have also developed our
Group-wide people strategy. Now that both
of these have been rolled out across the Group,
we are starting to see the benefits that this
approach is expected to deliver.
We are building a Group-wide Process Blueprint
which is standardising processes and practices
to improve plant performance and reliability,
which of course delivers improved efficiency
and quality. We know that there are still aspects
that we can further improve and we are in the
process of setting up a Group Bakery Efficiency
Programme and an Operational Supply Chain
Forum, which will continue to drive improvements
in quality and consistency, plus further reduce
production waste.
All of the initiatives mentioned above are
examples of our Operating Principles in action.
The Finsbury Operating Principles effectively
help to achieve our Purpose and Strategy,
creating long-term shareholder value through
share price growth and attractive dividends.
We know that the benefits of utilising our Group
structure and expertise will help us to be the
leading speciality group that we strive to be.
Corporate GovernanceFinancial StatementsStrategic Report 15 Finsbury Food Group
Annual Report & Accounts 2019
Chief Executive's Report
Strength in Collaboration
We are seeing encouraging results from our people
strategy throughout the Group. The positive
momentum is illustrated by a number of internal
promotions into senior roles over the last year.
These promotions demonstrate the benefits
of this programme, as well as our commitment
to growing our people with the business.
Employee engagement and communication has
been significantly improved with the introduction
of Workplace, a collaboration platform, across
the Group in the first half. The use of this platform
has enabled colleagues to collaborate more
effectively across teams, projects, sites and
accelerate functional best practice transfer
as well as create instant communication
opportunities and increase transparency.
I would like to thank all of our employees for the
way in which they have embraced and engaged
with all the initiatives that we have introduced
over the last few years. They have responded
brilliantly, and we’re very grateful for that.
We believe that by working together,
we become stronger as a Group.
Broadening our Group
through Acquisition
In September 2018 we acquired a specialist Free
From bakery, Ultrapharm. As with all acquisitions,
we completed a comprehensive multi-function
assessment, utilising expert resource from across
the Group as well as the existing management
team, against Group standards and best practice
before creating a prioritised integration action
plan. Additional expert resources from across
the Group have complemented management
to implement the year one plan which is now
largely complete as expected.
In addition, we have invested in new capacity,
with a new bakery in Poland, alongside additional
resources and skills to deliver a stronger platform
for anticipated future growth.
Whilst we remain committed to future
acquisition-led growth as part of our strategy,
as always, we are focused on driving organic
growth and efficiency within the current Group
structure. With any further acquisitions we would
be looking to introduce new product, customer
or channel diversification, or accelerate market
consolidation in our main product areas.
Outlook
We are confident that the strong second half
performance will continue into the year ahead,
as the core business continues to perform
well with strong quarter one growth to date,
outperforming Finsbury’s respective markets.
We have made a number of significant
investments across the Group that have stood
us in good stead throughout what has been
a more difficult period. With the Group now in its
strongest position in recent years and having
completed a period of intense investments
including the IT platform roll out and the new
Free From bakery in Poland, we are expecting
to significantly reduce our capital spend going
forward as we focus on driving further efficiencies
from the new systems and processes and
utilise our additional capacity.
Whilst the wider macroeconomic and political
environment remains challenging in the UK,
our drive for innovation, outperformance
of foodservice and our entry in the Free From
market provides a strong footing to continue
to drive organic growth. Our Group-wide drive
for efficiency and productivity coupled with
the skill of our people provides Finsbury with
a backbone to achieve further growth.
By maintaining a longer-term strategic approach,
given an uncertain consumer and inflationary
cost environment outlook, we are confident
that we will continue to build a strong, lean,
scale competitor and consolidator.
John Duffy
Chief Executive Officer
13 September 2019
16 Finsbury Food Group
Annual Report & Accounts 2019
Sustainable Approach
Savings with the
Planet in Mind
Reducing Energy
We have embarked on a programme within our biggest
bread factory to measure and track how we consume
energy to identify initiatives where real savings can
be achieved. On two key production lines we have
seen potential for a 10% reduction in energy usage.
The approach taken will be rolled out across the Group.
Reducing Plastic
Single use plastic is a key focus for our business and
wherever possible we are removing it. One project
alone has seen us remove 20 tonnes of plastic from
our business and we have plans for many more.
Where removal is not possible then we will ensure
that all our plastics are recyclable.
Corporate GovernanceFinancial StatementsStrategic Report 17 Finsbury Food Group
Annual Report & Accounts 2019
Quality and Innovations
Maintaining
High Standards
A Focus on Quality
Quality runs to the heart of our business supporting our
purpose of Baking Brilliance. We focus heavily on quality
metrics including complaints from customers. The
business as a whole has achieved over a 10% reduction
in complaints with our Fletcher’s business achieving
a standout 27% year on year reduction achieving
industry leading standards through their work with
our complaints investigation and reduction system.
Satisfying New Trends
Innovation is key to our partnership relationship,
particularly with our customers and consumers. Our
Kara brand vegan buns launched during the year for
our foodservice market meets a rapidly developing
consumer trend. We are very proud when our products
win awards and this year was no exception. We won nine
awards for our brilliant bakery products across the
business. We were also awarded Bakery Manufacturing
Company of the Year in recognition of the work
we have done in many areas of our business.
18 Finsbury Food Group
Annual Report & Accounts 2019
Key Performance Indicators
Financial
Sales Growth %
Performance
-3.4%
3.8%
2019
2018
Like for Like Sales Growth %
Performance
4.0%
2019
2018
2.4%
Adjusted Operating Profit %
Performance
5.3%
5.9%
2019
2018
Adjusted EPS
Performance
Basic
Diluted
9.3p
10.2p
2019
2018
9.0p
9.8p
2019
2018
Definition
Revenue £ this year/Revenue £
last year as a percentage.
2019 Performance
Strong organic growth with business wins,
acquisition during the year of Free From bakery
and closure of loss making business in the
prior year.
Definition
As above, but comparing like for like,
excluding decline from closures.
2019 Performance
Strong organic growth with significant
business wins.
Definition
Adjusted operating profit £/
Revenue £ as a percentage.
2019 Performance
Commodity, labour and general cost inflation
underpinned the decline in adjusted operating
profit %. There is a constant drive for efficiency
and strong capital investment.
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).
2019 Performance
With a decline in operating profits, and with
the weighted average number of ordinary shares
in issue during the period slightly higher than
that of the previous period, there is a decline
in the EPS.
Net Debt
Performance
-£35.6m
-£15.6m
2019
2018
Definition
Interest-bearing loans and borrowings plus
unamortised transaction costs, including
cash balances.
2019 Performance
The Group acquired Ultrapharm Limited,
a Free From business, during the year for an
initial consideration of £16.9 million. This gives
access for the Group to high growth areas
of Free From.
Debt to Adjusted EBITDA
Performance
1.4
2019
2018
0.6
Return on Capital Employed (ROCE)
Performance
10.8%
13.3%
2019
2018
Definition
As above expressed as a ratio to adjusted
EBITDA (operating profit adding back
depreciation and amortisation).
2019 Performance
This is driven by the increase in net debt
by £20.0 million, driven by acquisition during
the year and increased working capital driven
by significant business wins.
Definition
Adjusted operating profit/average capital
employed.*
*Average capital employed = net assets,
excluding cash, interest-bearing borrowings,
deferred consideration, fair value derivatives
and pension deficit.
2019 Performance
A decline in ROCE mainly driven by acquisition
during the year and continuing inflationary
trading environment created by commodities,
national living wage and general inflation.
The Group is investing in a stronger platform
for future growth with a more diversified Group.
Corporate GovernanceFinancial StatementsStrategic Report
19 Finsbury Food Group
Annual Report & Accounts 2019
Key Performance Indicators
Non-Financial
Revenue £k per Employee
Performance
103
102
2019
2018
Definition
Revenue/The average number of persons
employed by the Group including Directors
and excluding agency staff during the year.
2019 Performance
An important productivity measure. Growth
in like for like sales and growth through an
acquisition during the year accompanied by
an increase in the average number of people
employed with an acquisition during the year
has led to a small increase year on year.
Number of Employees
Performance
3,062
2,988
2019
2018
Number of BRC A Grade Ratings
Performance
6
6
2019
2018
Complaints per Million Units
Performance
18.9
20.0
2019
2018
Definition
The average number of persons employed
by the Group including Directors and
excluding agency staff during the year.
2019 Performance
An increase during the year primarily
due to the acquisition of Ultrapharm.
Definition
Number of sites attaining BRC A grade ratings
for food safety.
2019 Performance
A consequence of our focus on operational
excellence, it underlines our strategy, and
our purpose – of Baking Brilliance.
Definition
Number of complaints/(number of units
sold/1,000,000).
2019 Performance
Our long-term commitment to product quality
makes this a key measure. The improvement
during the year is the result of systematic focus
on key areas of complaint and eliminating
them and our focus on quality consistency
improvements. Process Blueprint should
drive further improvements across all sites.
RIDDORs* per 100k Hours Worked
Performance
0.22
0.13
2019
2018
Definition
Number of RIDDORS in 12 months/(number
of hours worked in 12 months/100,000).
* RIDDOR is the Reporting of Injuries, Diseases
and Dangerous Occurrences Regulations 2013.
2019 Performance
During FY19 we have seen an increase in
the number of accidents leading to a RIDDOR.
We believe we have the appropriate resourcing
in place to focus on identified root causes.
20 Finsbury Food Group
Annual Report & Accounts 2019
Cost Effectiveness
Efficient
Capabilities
The bakery market is competitive and cost effectiveness
is essential to success.
We continue to invest in capability and efficiency
of our plant and equipment:
- In Poland we have commissioned a state-of-the-art
new dedicated gluten-free factory with new travelling
ovens which are significantly more cost effective
than those replaced and with a higher throughput
and range capability.
- In East Kilbride we have invested in capability
and automation of our cake bar line to provide
a high-speed single serve product.
Corporate GovernanceFinancial StatementsStrategic Report 21 Finsbury Food Group
Annual Report & Accounts 2019
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.
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
The risk of a no deal Brexit and the uncertainty
surrounding Brexit more generally along
with political uncertainty continue to weigh
on consumer sentiment. British consumer
confidence has deteriorated in 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.
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 material 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 few years such as Tesco and Booker.
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 most grocery customers including
the ones mentioned above, we are not immune
to this risk. We strive to be the highest-quality,
most-innovative and lowest-cost supplier and
believe this, along with our strong partnership
relationships with our customers, will ensure we
are strongly placed to continue to supply them.
22 Finsbury Food Group
Annual Report & Accounts 2019
Risk Report
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 a Group Head of Health
and Safety to create a 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.
External Risks:
Brexit and Political Uncertainty
Anything different from the current environment
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 cross border sales from the UK into
Lightbody Europe, our 50% owned subsidiary,
and into Ireland. The Polish business of Ultrapharm
trades solely within Europe and not to the
UK market.
We buy some commodities from Europe.
Any tariffs on trade will therefore have a bearing
on the Group. We already have contingency
planning in place, looking at alternative UK
sources of products.
Higher logistics and administration costs may
result from border delays and could necessitate
higher stock levels.
To the extent that we use 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 program.
We are not being complacent in our response
to all scenarios, and have a cross-functional team
which has prepared 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.
Building on work carried out in 2018 we have
been working on an initiative to explore and
create best practice in cyber security, the result
of which is adoption of the Cyber Essentials
scheme. This is a cyber security standard
instigated by the HM Government, together
with industry, to create a call for evidence
based on a preferred organisational standard
in cyber security practices. It provides a clear
guidance on the implementation of policies
and procedures, gap analysis and risk
assessment that can culminate in two levels
of certification – with further levels being
developed for the future.
The scheme focuses on five essential
mitigation strategies:
• Firewalls
• Secure Configuration
• Access Control
• Malware Protection
• Patch Management
Cyber risks are evolving. We are aware of the
threat, vulnerability and impact of recognised
risks as a baseline for Group cyber security.
Analysing and recognising this fundamental
information will determine what parts are to
be driven to provide the wider improvements
and mitigate recognised risk events. As digital
transformation proceeds, cyber security must
be an enabling function rather than a block
to innovation and change.
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:
• A change in the value of Sterling against
both the Euro and Dollar following the
EU referendum.
• The commodity cycle has seen significant
increases in the price of a number of
commodities over and above any exchange
rate deterioration.
• European policies, particularly for butter
and sugar.
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 prepared as at 31 December 2018.
Foreign Exchange
We acquired manufacturing facilities in Poland
through the Ultrapharm acquisition. The sites
supply to mainland Europe with income in Euros
and local costs denominated in Polish złoty.
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 number
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.
Corporate GovernanceFinancial StatementsStrategic Report 23 Finsbury Food Group
Annual Report & Accounts 2019
Growth with Our Partners
The Power
of Teamwork
We consider customers, licence owners and suppliers
to be our partners. We work with customers to provide
a constant stream of high quality and innovative
products. Our customer and licence relationships have
continued over many years and recent growth in share
of licence and in the convenience and discounter channels
prove our strong partner credentials. We work with
suppliers to resource high quality ingredients in a
global market place but also to provide innovation
in raw materials and packaging that support our
innovation in product quality and range.
24 Finsbury Food Group
Annual Report & Accounts 2019
Growth with Our Partners
Corporate GovernanceFinancial StatementsStrategic Report 25 Finsbury Food Group
Annual Report & Accounts 2019
Financial Review
Group revenue for the 52-week period to 29 June 2019
is £315.3 million, 3.8% higher than last year.
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 that do not reflect the underlying performance of the Group.
52 week period ended 29 June 2019
Revenue
Cost of sales
Gross profit
Other costs excluding depreciation and amortisation
EBITDA
Depreciation and amortisation
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit for the year
52 week period ended 30 June 2018
Revenue
Cost of sales
Gross profit
Other costs excluding depreciation and amortisation
EBITDA
Depreciation and amortisation
Operating profit
Finance income
Finance costs
Profit before tax
Share of losses of equity accounted investees after tax
Taxation
Profit for the year
Operating
performance
£000
315,281
(219,849)
95,432
(69,905)
25,527
(8,694)
Significant
non-recurring
items
£000
-
-
-
(1,200)
(1,200)
-
16,833
(1,200)
77
(991)
15,919
(3,605)
12,314
-
-
(1,200)
128
(1,072)
Defined
Benefit
Pension
Scheme
£000
-
-
-
(162)
(162)
-
(162)
-
(282)
(444)
75
(369)
Fair value
of interest
rate swaps/
foreign
exchange
contracts
£000
Discounting
of deferred
consideration
£000
-
-
-
(178)
(178)
-
(178)
-
(382)
(560)
95
(465)
-
-
-
-
-
-
-
-
(139)
(139)
24
(115)
As per
Consolidated
Statement of
Comprehensive
Income
£000
315,281
(219,849)
95,432
(71,445)
23,987
(8,694)
15,293
77
(1,794)
13,576
(3,283)
10,293
Operating
performance
£000
303,600
(211,511)
92,089
(66,489)
25,600
(7,756)
Significant
non-recurring
items
£000
-
-
-
(13,067)
(13,067)
-
17,844
(13,067)
24
(652)
-
-
17,216
(13,067)
-
-
(3,708)
2,452
13,508
(10,615)
Defined
Benefit
Pension
Scheme
£000
Fair value
of interest
rate swaps/
foreign
exchange
contracts
£000
As per
Consolidated
Statement of
Comprehensive
Income
£000
-
-
-
411
411
-
411
-
(277)
134
-
(23)
111
-
-
-
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
26 Finsbury Food Group
Annual Report & Accounts 2019
Financial Review
Like for like Group revenue (excluding the revenue from the closed bakeries and acquired businesses) is, at £301.8 million, up 4.0% or £11.6 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 £1.2 million, which primarily relate to acquisition and restructuring costs, 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 £16.8 million is down 5.7% on last year. Adjusted operating profit margins are 5.3% (2018: 5.9%), a consequence of a challenging global environment.
We saw a second half year growth through a combination of organic growth, new business wins, price recovery and the acquisition of Ultrapharm.
The Group’s performance is seen as resilient attributable to our capital investment, the diversification of the Group into foodservice and high
growth areas such as Free From, our constant drive for efficiency and our relentless drive to deliver on customer trends.
Dividend
Subject to shareholder approval at the Company’s AGM on 20 November 2019, the final dividend of 2.34 pence per share will be paid on 23 December 2019
to all shareholders on the register at 22 November 2019, and will be recognised in the year ending 27 June 2020.
Earnings Per Share (EPS)
EPS comparatives to the prior year can be distorted by significant non-recurring items and other items highlighted in the tables. The Board is focused
on growing adjusted diluted EPS which is calculated by eliminating the impact of the items highlighted in the tables as well as amortisation of intangibles
and incorporates the dilutive effect of share options. Adjusted diluted EPS is 9.0p (2018: 9.8p).
Basic EPS
Adjusted basic EPS
Diluted** basic EPS
Adjusted* diluted** EPS
* Further details on adjustments can be found in Note 10.
** Diluted EPS takes basic EPS and incorporates the dilutive effect of share options.
52 week
2019
7.3p
9.3p
7.0p
9.0p
52 week
2018
1.7p
10.2p
1.6p
9.8p
Cash Flow
There was an increase in our working capital
of £5.6 million (2018: £1.3 million decrease)
in the financial year. Corporation Tax payments
made in the financial year totalled £2.0 million
(2018: £3.3 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 £11.0 million (2018:
£12.6 million).
Debt and Bank Facilities
The Group’s total net debt is £35.6 million
(2018: £15.6 million), up £20.0 million from the
prior year. During the year, the Group acquired
Ultrapharm for an initial consideration of £16.9
million. The Group has a revolving credit facility
available until February 2023 of £55.0 million
provided by a club of three banks – HSBC,
Rabobank and RBS – with scope for it to be
increased by up to a further £35.0 million.
The Group is able to offer strong asset backing
to secure its borrowings. The Group owns freehold
sites in Cardiff, Sheffield and 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 £45.2 million (2018:
£40.0 million) at the period-end date.
The Group recognises the inherent risk from
interest rate rises, and uses interest rate swaps
to mitigate these risks. The Group has two swaps,
one for £20.0 million for five years from 3 July
2017 (fixed) at 0.455% and one for £5.0 million
for three years from 28 March 2019 (fixed) at
1.002%. The total balance of swaps at 29 June
2019 is £25.0 million (2018: £20.0 million).
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 0.750% and LIBOR at
0.715%, was 2.047% (2018: base rate 0.500%
and LIBOR 0.501% effective interest rate 1.66%).
Financial Covenants
The Board reviews the Group’s cash flow
forecasts and key covenants regularly, to ensure
it has adequate facilities to cover its trading
and banking requirements with an appropriate
level of headroom. The forecasts are based
on management’s best estimates of future
trading. There has been no breach of covenants
during the year and the Board do not expect
any in the forecast periods.
Interest cover (based on adjusted earnings before
interest, tax, depreciation and amortisation –
EBITDA) for the 52 weeks to 29 June 2019 was
28.0 (2018: 40.7). Net bank debt to EBITDA
(based on adjusted EBITDA) for the year
to 29 June 2019 was 1.4 (2018: 0.6).
Taxation
The Group taxation charge for the year was
£3.3 million (2018: £1.3 million). This represents
an effective rate of 22.6% on profits before
significant and non-recurring and other items
(2018: 21.5%). You can find further details
on the tax charge in Note 9 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, productivity, quality and health and safety.
The Group Board receives a regular overview
of all KPIs. We discuss these KPIs in further
detail on pages 18 and 19.
The Strategic Report was approved by the
Board of Directors on 13 September 2019
and was signed on its behalf by:
Stephen Boyd
Director
Corporate GovernanceFinancial StatementsStrategic Report
27 Finsbury Food Group
Annual Report & Accounts 2019
People Who Care
28 Finsbury Food Group
Annual Report & Accounts 2019
People Who Care
Investing in
Our People
Targeted Safety Initiatives
During the year we have been progressing with our
‘Home Safe Every Day' programme with a renewed
Health and Safety strategy which details our vision
for the financial years 2020 to 2023, setting out the
ethos relating to Health and Safety. Our SHE Assure
System has facilitated improved data analysis which
allows us to focus on the key drivers of our accident
statistics, resulting in targeted initiatives to respond
appropriately.
Improving Communications
The introduction of Workplace by Facebook has taken
communication with employees and between employees
to new levels. It is facilitating the sharing of ideas
and best practice, better team working and creating
a community spirit; generating better engagement
with our colleagues.
Corporate GovernanceFinancial StatementsStrategic Report 29 Finsbury Food Group
Annual Report & Accounts 2019
Corporate Governance
Chairman’s Introduction
to Governance
As Chairman of the Board it is my responsibility to ensure that the
Group has both effective corporate governance and Board leadership.
The Group has decided to adopt 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.
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.
Save for the resignation of Zoe Morgan as a Non-Executive Director during the year under review and the resultant change to chairmanship and
composition of the Remuneration Committee, such role now undertaken by Marnie Millard, and composition of the Audit Committee there have
been no significant changes to the Company’s corporate governance arrangements during the past year.
30 Finsbury Food Group
Annual Report & Accounts 2019
Report on Corporate Governance
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 pages 5 to 8. Our strategy and markets
are explained in detail in our Strategic Report on pages 5 and 6.
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 2018 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
5. Maintain the Board as a well-functioning, balanced team led by the Chair
The Board is currently made of up two Executive Directors, the Chairman and three other independent Non-Executive Directors. During the year
under review, Zoe Morgan also served on the Board as an independent Non-Executive Director.
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.
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. 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.
Corporate GovernanceFinancial StatementsStrategic Review 31 Finsbury Food Group
Annual Report & Accounts 2019
Report on Corporate Governance
The Board held five scheduled meetings during the year under review. Attendance by individual Directors at Board and scheduled Committee
meetings was as follows:
Director
John Duffy
Steve Boyd
Peter Baker
Bob Beveridge
Ray Duignan
Marnie Millard
Zoe Morgan
Board Meetings
(5 meetings)
Audit Committee
(3 meetings)
Remuneration
Committee
(2 meetings)
Nominations
Committee
(0 meetings)
5
5
5
5
5
5
4
-
3
-
3
3
-
1
2
2
-
-
2
2
2
-
-
-
-
-
-
-
The Company’s Non-Executive Directors are expected to commit between 15-18 days per year to the Company and the Chairman is expected to commit
at least three days per month to the Company. 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.
6. Ensure that between them the Directors have the necessary up-to-date experience, skills and capabilities
The Non-Executive Directors have both the breadth and depth of skills and experience to fulfil their roles. With the Executive Team, the Board contains
a broad range of relevant skills, experience and contacts which are deployed to the benefit of the Company. Details of the Directors’ individual
experience and areas of expertise are outlined on pages 33 and 34. The Nominations Committee is responsible for considering Board composition,
including diversity issues and making appropriate recommendations. Diversity and gender balance will be taken into account in respect of any
future Board appointments with the overriding objective of securing the right person for the role.
The Non-Executive Directors 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.
The Remuneration Committee utilises specialist remuneration consultants to provide advice in relation to remuneration policy decisions and
the Board utilises specialist pension advisers to provide advice in relation to Group pension arrangements.
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.
7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement
The Board evaluation exercise is designed and led by the Company Secretary, working closely with the Chairman of the Board. Anonymous questionnaires
are used to promote disclosures with the results being collated and returned to the Board for consideration and action where appropriate. The areas
covered are structure and skills, operating effectiveness, operating efficiency, quality of information and ongoing development.
During the year under review, the Non-Executive Directors undertook a review of the performance of the Chairman. The Chairman also met on an
ongoing basis with Executive Directors and the Non-Executive Directors to discuss their performance and any suggestions they have for improving
the function of the Board. All reviews sought feedback from other Directors to ensure a balanced approach.
The 2018 Board evaluation exercise found that the Board and sub-committees were working well, but highlighted some areas for improvement
including the need to develop succession planning and implement post investment reviews.
In respect of succession planning, the Company has, where possible, identified internal candidates as possible replacements for senior managers/
site managers. In the event of a site manager leaving the Company in a situation where an internal candidate has not been identified or has been
deemed not to have the requisite experience, the Company will seek to recruit externally. In respect of succession planning for Non-Executive
Directors, the Board deemed that the current Board composition of two Executive Directors, the Chairman and three independent Non-Executive
Directors to be sufficient following the resignation of Zoe Morgan from the Board during the year under review.
The 2019 Board evaluation exercise was completed in June 2019 with evaluation scores improving relative to the 2018 evaluation exercise. No particular
areas for development were noted. Key areas of improvement included the level of interaction between the Non-Executives Directors and the Executive
Directors and divisional managing Directors in terms of challenging, agreeing and finalising the Group’s strategy.
8. Promote a corporate culture that is based on ethical values and behaviour
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. The values of Communication, Respect, Ownership, Honesty and Teamwork are integral to the corporate culture. The management
of the Group and all bakeries is underpinned by the Operating Principles which were agreed and rolled out in 2017/18. These are:
• Operating excellence
• Sustainable approach
• Quality and innovations
• Cost effectiveness
• Growth with our partners
• People who care
32 Finsbury Food Group
Annual Report & Accounts 2019
Report on Corporate Governance
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.
The Group has rolled out Workplace by Facebook to facilitate promotion of the corporate culture and values, communication across the Group
and sharing of ideas and best practice through all our sites and across all staff. Senior staff attend an annual conference which is again based
on communicating and embedding our core values throughout the business. A survey of employee engagement is also carried out every two
years to assess employee engagement with our corporate values and satisfaction with the Group and the employee experience.
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 reviewed the 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
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.
Audit Committee
The Audit Committee had three members during the year under review but now has two members following the resignation of Zoe Morgan earlier
in the year. These are Bob Beveridge (Chairman) 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 had three scheduled meetings
three times during the year. A separate report of the Audit Committee activities is outlined on pages 38 and 39.
Remuneration Committee
The report of the Remuneration Committee is set out on pages 40 to 44. The Audit Committee had three members during the year under review but
now has two members following the resignation of Zoe Morgan earlier in the year. They are Marnie Millard (Chairman) 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 had two scheduled meetings 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. Although the Committee
met informally twice, no formal scheduled meetings of the Nominations Committee were considered necessary during the year under review.
Group Executive Committee
In addition to the Board Committees, the Company has a Group Executive Committee comprising the CEO and a team of senior executives
supporting him in the delivery of the strategy and running of the Company.
10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
The Board maintains a general policy of keeping all interested parties informed by regular announcements and update statements. In doing this,
we keep in mind the proportions of direct, nominee and institutional shareholders, and distribute communications between them accordingly.
The Company retains a financial PR firm to assist it in ensuring that key messages reach the appropriate audiences.
Specific methods of communication are:
• The Annual General Meeting
• The Annual Report
• Corporate website
• Broker briefings
• Broker and analyst visits to operating sites
• One-to-one meetings with investors
The Board believes its shareholder communications to be healthy, effective and appropriate bearing in mind the composition of its shareholder
register. The Annual General Meeting provides a forum for shareholders to air their views, ask questions and talk to the Board inside and outside
of the formal meeting. It is primarily attended by members of our retail shareholder base. Meetings throughout the year with key institutional
shareholders (by the Executive and Non-Executive Board members) help to ensure that the Board is kept up to date with shareholder sentiment
on key issues and is able to take it into account where necessary and appropriate. The Company has also sought to provide a comprehensive
website to educate and inform all interested parties about the Company’s business, strategy and values.
Shareholders with a specific query can contact us on finsbury@almapr.co.uk or for company secretarial matters on
company.secretary@finsburyfoods.co.uk.
Peter Baker
Chairman
13 September 2019
Corporate GovernanceFinancial StatementsStrategic Review
33 Finsbury Food Group
Annual Report & Accounts 2019
The Directors
The Board is made of up two Executive Directors, three independent
Non-Executive Directors, and the Chairman, Peter Baker, who is also
considered to be independent. Zoe Morgan, an independent Non-Executive
Director, stepped down from the Board on 1 July 2019. 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
£80.0 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 £300.0 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.
34 Finsbury Food Group
Annual Report & Accounts 2019
The Directors
Stephen Boyd
Group Finance Director
Steve was appointed Group Finance Director in January 2010.
Steve has spent 23 years in the food manufacturing sector
and previously was Group Finance Director at Golden Wonder.
Subsequent to that he 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.
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 including
with Macaw Soft Drinks and Refresco Gerber Ltd. She was
appointed Nichols Plc Group Chief Executive in May 2013.
Marnie chairs the Remuneration Committee.
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 seven 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.
Corporate GovernanceFinancial StatementsStrategic Review 35 Finsbury Food Group
Annual Report & Accounts 2019
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 26.
Dividend
An interim dividend for the six months to 29 December 2018 of 1.16p per share was paid on 26 April 2019 to shareholders on the register at the close
of business on 5 April 2019. Subject to shareholder approval at the Company’s AGM on 20 November 2019, the final dividend of 2.34 pence per share
will be paid on 23 December 2019 to all shareholders on the register at 22 November 2019.
Directors and their Interests in the Company
The Directors and brief biographies are detailed on pages 33 and 34. Zoe Morgan, an independent Non-Executive Director, stepped down from the
Board on 1 July 2019.
In accordance with the Articles of Association, Marnie Millard and Bob Beveridge 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 29 June 2019 and 30 June 2018 are set out below:
Ordinary Shares
P Baker
R Beveridge
S A Boyd
J G Duffy
M Millard
Z Morgan
29 June 2019
30 June 2018
96,817
14,000
1,095,543
2,443,679
9,366
70,028
86,000
-
1,065,543
2,343,679
9,366
70,028
Details of Directors’ share options are set out in Note 7 to the Financial Statements. There has been no change to the Directors’ share interests
since 29 June 2019.
Details of the emoluments of the Directors are given in Note 7 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 25 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 28 August 2019:
Ruffer (London)
Investec Wealth & Investment (RS) (London)
Canaccord Genuity Wealth Mgt (London)
Polar Capital (London)
Miton Asset Mgt (London)
FIL Investment International (London)
London Finance & Investment Group (London)
Number of shares
% shareholding
22,506,605
11,661,414
11,541,798
8,313,914
7,522,108
7,061,994
6,000,000
17.3%
8.9%
8.9%
6.4%
5.8%
5.4%
4.6%
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.
Financial Instruments
The Group’s financial instruments comprise a revolving 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.
36 Finsbury Food Group
Annual Report & Accounts 2019
Directors’ Report
The bank facility is a £55.0 million revolving credit facility provided by a club of three banks – HSBC, Rabo Bank and RBS. The facility is available
until February 2023 and also includes scope for the facility to be increased by up to a further £35.0 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 facility totalling £55.0 million available of which £47.1 million was drawn at the balance sheet date leaving a headroom of £7.9 million plus a cash
balance of £12.4 million with a further approved accordion facility of £35.0 million. The interest rate risk is managed through interest rate swap
transactions. The Group has two interest rate swaps. A five-year swap from 3 July 2017 with a coverage of £20.0 million fixed at a rate of 0.455%
and a three-year swap from 28 March 2019 with a coverage of £5.0 million fixed at a rate of 1.002%.
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 and liabilities are given in Note 23.
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 23.
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. We have also rolled out Workplace by Facebook across the Group to improve communication
between employees, increase engagement and drive forward idea generation and sharing of good practices.
Political and Charitable Contributions
During the year charitable donations amounting to £9,000 (2018: £9,000) were made. No political donations were made.
Going Concern
The Group has prepared a budget for the year ended 27 June 2020 and financial projections for the following two years. The Group has a five-year
debt facility to February 2023 of £55.0 million with scope for the facility to be increased by up to a further £35.0 million, providing increased capacity
for the Group to explore future growth opportunities and support its long-term investment strategy. The Group has a relatively conservative level
of debt to earnings. Having due consideration of the financial projections, the level of debt, and available facilities, it is the opinion of the Directors
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.
Auditors
In accordance with Section 489 of the Companies Act 2006, a resolution for the appointment of PricewaterhouseCoopers LLP as auditors
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 auditors are 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 13 September 2019 and was signed on its behalf by:
Stephen Boyd
Director
Corporate GovernanceFinancial StatementsStrategic Review 37 Finsbury Food Group
Annual Report & Accounts 2019
The Group Executive Committee
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 Executives on the
Group Executive Committee.
Ian Chree
Group Efficiency Improvement
Director
Ian joined Finsbury Food Group in 2005.
He now has 23 years’ experience in the food
industry as well as 19 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.
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 29 years, 19 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 three years.
Lawrence Trist
Managing Director – Cake
Lawrence joined Finsbury Food Group
in May 2009 as Cake Sales Director,
progressing to his current role in 2015.
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.
38 Finsbury Food Group
Annual Report & Accounts 2019
Audit Committee Report
Overview
The Committee met four times during the year. The external auditors attended three 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 re-tendered the external audit.
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 impact of IFRS 15
• Valuation of goodwill and intangible assets
• Impairment
• Pensions
• Significant non-recurring items
• The Committee considered the budget for 2020 and the business plan for 2021/22 and the debt financing arrangements at year end
and concluded that the going concern basis is appropriate.
The Committee considered the future impact of IFRS 16, on lease accounting which is expected to have an immaterial impact on profit before tax
but will increase assets and liabilities by circa £11-£12.0 million.
The Committee reviewed the full-year and half-year results announcements, Annual Report and Financial Statements and considered reports
from the external auditors. 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. Although it concluded that the audit was effective there were several opportunities for improvement identified and the
Committee decided to proceed with a re-tendering exercise.
Three firms tendered for the audit and their proposals were assessed against eleven criteria covering quality, effectiveness and value for money.
PricewaterhouseCoopers LLP (PwC) were the strongest overall with a strong technology focus and the clearest plan for a high-quality audit.
Accordingly, PwC were appointed to conduct the audit upon the resignation of the previous auditor and the Board is recommending their ongoing
appointment at the AGM.
Independence and Non-audit Services
During the year, the fees paid to the auditors, PwC, were £193,000 (2018: nil) for audit services, and no fees in the current or previous year
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 PwC:
• The auditors 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.
• A report from PwC that they have adequate policies and safeguards in place to ensure that auditors’ objectivity and independence is maintained.
Corporate GovernanceFinancial StatementsStrategic Review 39 Finsbury Food Group
Annual Report & Accounts 2019
Audit Committee Report
Internal Audit
A programme of rolling internal control and risk reviews was monitored by the Committee together with follow up actions required. The Committee
reviewed the effectiveness of internal audit procedures and agreed improved procedures in terms of review of agreed actions and planning of reviews.
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 21 and 22.
The Committee remains satisfied that the Group’s system of internal control is appropriate for a Group of the size and nature of the Group and
the Committee’s current view is that an independent internal audit function is not required at this time. The Committee will monitor the situation
as the Group continues to expand.
Bob Beveridge
Chairman of the Audit Committee
40 Finsbury Food Group
Annual Report & Accounts 2019
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
29 June 2019.
I was appointed Chair of the Remuneration Committee (the “Committee”) with effect from 1 July 2019. I would like to take this opportunity to thank
Zoe Morgan for her valuable contribution over the last three years to both the Board and to the Company. I wish her all the best for the future.
During 2017-18 we updated our Directors’ Remuneration Policy (the “Policy”) which received good support following extensive discussions with
our major shareholders. The Committee believe that the Policy remains appropriate and will continue to apply in 2019-20. We have not included
the Policy in this report, however a copy is available on our website at www.finsburyfoods.co.uk/investor-relations/corporate-governance, pre-faced
with a summary of the limited changes which had been made to our original 2015 Policy.
The Annual Report on Remuneration which is on pages 40 to 44 provides details of the amounts earned in respect of the year ended 29 June 2019.
Similar to previous years 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 2018-2019 Financial Year and Remuneration Outcome
As described earlier in the Annual Report, the Company has grown like for like sales and profit year on year, driven by organic growth and previously
communicated new business wins despite the volatile retail environment and unprecedented input cost inflation we have experienced over the period.
This robust performance has been delivered with a continuous focus on innovation using our extensive knowledge of our markets and what end
consumers want.
For the financial year ended 29 June 2019, the Executive Directors were eligible for a maximum bonus award of up to 100% of base salary. The bonus
was assessed against an adjusted EBITDA performance measure. As set out on page 42, based on adjusted EBITDA performance of £25.5 million,
the Executive Directors did not earn a bonus for 2018-2019.
The LTIP awards granted on 29 September 2016 were based on a three year performance period ending on 29 June 2019. The LTIP awards have lapsed.
EPS (50% of the total award) as at 29 June 2019 was 9.00p which was below the threshold EPS target of 10.23p; and relative total shareholder return
(“TSR”) performance (50% of the total award) was below the threshold target of being ranked at median against the FTSE Small Cap (excluding
investment trusts).
For the purpose of our LTIP our definition of EPS is adjusted diluted EPS and for this year, adjustments include the exclusion of exceptional costs,
Defined Benefit Scheme charges and fair value of interest rate swaps and foreign exchange contract charges. The Committee considered that this
underlying EPS measure was a fairer reflection of the underlying earnings of the business over the last three financial years.
The Committee awarded nil-cost share options under the LTIP to Executive Directors, (and participants including senior management), during the year.
The number of shares awarded to each Executive Director was equivalent to 100% of salary based on the average price of the shares over the three
business days following the announcement on 17 September 2018 of the Company’s preliminary results for the year ended 30 June 2018. These awards
and the respective performance conditions are detailed on page 42.
Remuneration in Respect of the 2019-2020 Financial Year
The Policy as detailed on www.finsburyfoods.co.uk/investor-relations/corporate-governance will be implemented for the year ending 27 June 2020,
as set out below:
Salary and Fees
The next review of Executive Directors salary will be undertaken in October 2019. It is intended that the Executive Directors’ salaries will increase
in line with the general increases applied to the wider workforce.
Following a review of the Chairman and Non-Executive Directors’ base and additional fees. It was agreed no changes will be made to the base fee
and additional fees for the Chairman and Non-Executive Directors for the year ending 27 June 2020.
Annual Bonus
No changes have been made to the bonus structure. The maximum bonus opportunity for the Executive Directors will be 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 Executive Directors’ performance.
LTIP
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 it anticipated this will be EPS and TSR. The targets will be disclosed in the Remuneration Report next year. The maximum opportunity
for the Executive Directors will be 100% of salary.
The Committee recognises the contribution made and the importance of retaining and motivating the Executive Directors and the wider management
team. As such, the Committee is intending to grant an additional share award which will vest in three financial years from 30 June 2019. These awards
will be subject to continued employment. The maximum opportunity for the Executive Directors will be 100% of salary.
Marnie Millard
Chairman of the Remuneration Committee
13 September 2019
Corporate GovernanceFinancial StatementsStrategic Review 41 Finsbury Food Group
Annual Report & Accounts 2019
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 29 June 2019 and 30 June 2018:
2019
Executive Directors
J G Duffy
S A Boyd
Non-Executive Directors
P Baker
R Beveridge
R P E Duignan
M J Millard
Z Morgan
2018
Executive Directors
J G Duffy
S A Boyd
Non-Executive Directors
P Baker
R Beveridge
R P E Duignan
M J Millard
Z Morgan
Salaries/
fees
£000
Taxable
benefits
£000
Annual
bonus
£000
LTIP1
£000
Total
remuneration
£000
420
294
714
85
56
57
53
59
310
1,024
12
12
24
-
-
-
-
-
-
24
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
432
306
738
85
56
57
53
59
310
1,048
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
-
-
-
-
-
-
-
-
-
-
764
555
1,319
-
-
-
-
-
-
1,319
1,179
851
2,030
85
54
58
53
56
306
2,336
1. No long-term incentive awards vested with respect to performance period ending during 29 June 2019. Long-term incentive awards vested with
respect to the performance period ended 30 June 2018 are subject to a two year holding period. The LTIP values for the year ended 30 June 2018
have been updated from the prior year to reflect the actual share price value at vesting which was 116.50p per share.
42 Finsbury Food Group
Annual Report & Accounts 2019
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 30 June 2018
and 29 June 2019 were as follows:
Executive Directors
J G Duffy
S A Boyd
From 1 October 2017
£420,000
£294,200
From 1 October 2018
£420,000
£294,200
Percentage increase
0%
0%
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 29 June 2019 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. Based on adjusted EBITDA performance of £25.5 million, the threshold adjusted EBITDA target of £27.1 million was
not achieved. Thus the Executive Directors did not earn a bonus for 2018-2019.
The following table sets out the bonus pay-out to the Executive Directors for 2018-19 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 £25,500,000
nil
nil
Long-term Incentives
Awards granted on 29 September 2016 were based on performance over the three financial years to 29 June 2019 and vested as to the amounts
set out below. These awards are subject to a two year holding period.
Performance conditions
Actual performance % of this element vesting
% of award
Adjusted diluted EPS
% vesting
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 10.23p
10.23p
Between 10.23p and 11.80p Straight-line vesting
11.80p
0
25%
100%
Relative TSR ranking
% vesting
Below median
Median
Between median and
upper quartile
Upper quartile
0
25%
Straight-line vesting
100%
9.00p
Below median
nil
nil
nil
nil
nil
In arriving at the adjusted EPS out-turn of 9.00p the Committee has excluded the exceptional costs relating to restructuring and acquisitions.
J G Duffy
S A Boyd
Number of
shares granted
515,464
374,532
Number of
shares vesting
nil
nil
Value of LTIP
shares vesting
nil
nil
Corporate GovernanceFinancial StatementsStrategic Review
43 Finsbury Food Group
Annual Report & Accounts 2019
Directors’ Remuneration Report (unaudited)
Chairman and Non-Executive Director Fees
Details of Chairman and Non-Executive Directors’ fees for 2018-19 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 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 29 June 2019 and 30 June 2018 were as follows:
Executive Directors
J G Duffy
S A Boyd
Non-Executive Directors
P Baker
R Beveridge
R P E Duignan
M J Millard
Z Morgan
29 June 2019
30 June 2018
2,443,679
1,095,543
2,343,679
1,065,543
96,817
14,000
-
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 3.9 and 2.5 times salary respectively.
The interests of the Directors and their immediate families in the Company’s ordinary shares did not change between 29 June 2019 and the date
these accounts were signed on 13 September 2019.
The interests of each Executive Director of the Company as at 29 June 2019 and 30 June 2018 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
J G Duffy
S A Boyd
S A Boyd
S A Boyd
S A Boyd
S A Boyd
S A Boyd
Date of grant
26/06/2015
04/12/2015
29/09/2016
26/10/2017
26/10/2017
21/01/2019
26/06/2015
04/12/2015
29/09/2019
26/10/2017
26/10/2017
21/01/2019
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
Granted
-
-
-
-
-
344,262
-
-
-
-
-
241,147
585,409
Lapsed
-
(39,481)
(515,464)
-
-
-
-
(28,687)
(374,532)
-
-
-
(958,164)
Number of options
at 29 June 2019
1,108,881
655,614
-
410,423
27,777
344,262
702,825
476,364
-
287,492
27,777
241,147
4,282,562
44 Finsbury Food Group
Annual Report & Accounts 2019
Directors’ Remuneration Report (unaudited)
Details of the LTIP awards granted on 21 January 2019 are given in the table below:
J G Duffy
S A Boyd
Number of shares
344,262
241,147
Basis of award*
100% of salary
100% of salary
Performance period
3 financial years from 1 July 2018
3 financial years from 1 July 2018
Performance conditions
50% subject to EPS growth and 50% subject
to relative TSR (further details below)
* 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 17 September 2018 of the Company’s preliminary results for the year ended 30 June 2018.
Awards will be subject to a further two year holding period following the end of the performance period.
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 11.50p, none of this component of the award will vest. 25% of this component will
vest if adjusted diluted EPS is 11.50p with 60% vesting at 12.20p and vesting determined on a straight-line basis between these figures. 60% of this
component will vest if adjusted diluted EPS is 12.20p with 100% vesting at 13.0p 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 13 September 2019 and signed on its behalf by:
Marnie Millard
Chair of the Remuneration Committee
Corporate GovernanceFinancial StatementsStrategic Review 45 Finsbury Food Group
Annual Report & Accounts 2019
Independent Auditors’ Report to the
Members of Finsbury Food Group Plc
Report on the Audit of the Financial Statements
Opinion
In our opinion:
• Finsbury Food Group Plc’s Group Financial Statements and Company Financial Statements (the “Financial Statements”) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at 29 June 2019 and of the Group’s profit and cash flows for the 52 week period
(the “period”) then ended;
• The Group Financial Statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union;
• The Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and
• The Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the Financial Statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the Consolidated
Statement of Financial Position and Company Balance sheet as at 29 June 2019; the Consolidated Statement of Comprehensive Income, the Consolidated
Cash Flow Statement and the Consolidated and Company Statements of Changes in Equity for the 52 week period then ended; and the Notes to the
Consolidated and Company Financial Statements, which include a description of the significant accounting policies.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under
ISAs (UK) are further described in the auditors’ responsibilities for the audit of the Financial Statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the Financial Statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance
with these requirements.
Our Audit Approach
Overview
Materiality
• Overall Group materiality: £1.6 million based on 0.5% of revenue
• Overall Company materiality: £0.9 million, based on 1% of total assets
Audit Scope
• We performed full-scope audit procedures in respect of the Group’s largest manufacturing locations as well as Finsbury Food Group Plc
• Our audit scope also included specified audit procedures in respect of the acquisition of Ultrapharm in September 2018
• Our audit procedures covered entities contributing 86% of the Group’s revenues for the period ended 29 June 2019
Key Audit Matters
• Goodwill and Company investment in subsidiaries impairment assessments (Group and Company)
The Scope of our Audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the Financial Statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override
of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement
due to fraud.
Key Audit Matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the Financial Statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors,
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. These matters, and any comments we make on the results of our procedures thereon, were 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 these matters. This is not
a complete list of all risks identified by our audit.
46 Finsbury Food Group
Annual Report & Accounts 2019
Independent Auditors’ Report to the
Members of Finsbury Food Group Plc
Key audit matter
How our audit addressed the key audit matter
Goodwill and Company investment in subsidiaries impairment
assessments – Group and Company.
At 29 June 2019, the Consolidated Statement of Financial Position includes
£80.7 million of goodwill (2018: £69.2 million) and the Parent Company
has fixed asset investments of £118.5 million (2018: £101.0 million).
In accordance with the requirements of IFRS, management has performed
impairment reviews in relation to the goodwill held in the Group’s cash
generating units (CGUs). The book values of the goodwill are supported
by three year forecasts for each of the CGUs.
The impairment reviews include significant estimates and judgements
in respect of future growth rates and cash flows, the discount rate
employed and profitability.
These impairment reviews have also been used to consider the
recoverability of the Company’s investment in its subsidiaries.
We obtained the Group’s cash flow forecasts supporting its assessments
and challenged the appropriateness of key assumptions. We assessed
the methodology used by management in performing the assessments
and challenged key inputs including:
• The projected growth rates used, both over the short-term to 2022
and over the longer-term;
• The discount rate used; and
• Other key inputs, including the forecast margins and capital expenditure.
We also considered 2019 financial performance compared to budget and
the performance post year end. We performed a range of sensitivity
analyses to assess the impact of alternative assumptions to those used
by management.
We concur with management’s assertion that no impairment charge
is required in respect of goodwill or the investments in subsidiaries but
identified that if management is unable to achieve planned results, this could
reasonably be expected to give rise to an impairment in the future.
Management has disclosed the results of sensitivity analyses in Note 11.
How we Tailored the Audit Scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the Financial Statements as a whole,
taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.
The Group has five main manufacturing sites across the UK, together with a distribution centre in France, a recent acquisition with operations in the UK
and Poland and a head office location based in the UK. Each manufacturing site has its own accounting team and the financial reporting for Finsbury
Food Group Plc is undertaken by a team based at the head office.
Of the Group’s five reporting components, four are considered to be financially significant components of the Group, given the significant revenue
generated at these locations. All of these components were based in the UK and full scope audit procedures were led by the Group engagement team.
The Group engagement team also audited the Parent Company, which was scoped in accordance with the Company materiality and focused on the
investment carrying value and the revolving credit facility held by the Company.
Our audit scope also included specified audit procedures in respect of the acquisition of Ultrapharm in September 2018. This work was performed
by the Group engagement team. Our audit addressed components making up 91% of the Group’s revenues for the period.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual
Financial Statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the Financial
Statements as a whole.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Overall materiality
£1.6 million
£0.9 million
Group Financial Statements
Company Financial Statements
How we determined it
Rationale for benchmark applied
0.5% of revenue
We determined our materiality based on revenue
as this is a key metric used by management and
investors and given the relative volatility of profit
before tax in recent years, this was considered
to be a more consistent metric.
1% of total assets
We determined our materiality based on
total assets, which is more applicable than a
performance-related measure as the Company
is primarily an investment holding Company
for the Group.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality
allocated across components was between £0.7 million and £1.5 million. Certain components were audited to a local statutory audit materiality
that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £79,000 (Group audit)
and £44,000 (Company audit) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Corporate GovernanceFinancial StatementsStrategic Review
47 Finsbury Food Group
Annual Report & Accounts 2019
Independent Auditors’ Report to the
Members of Finsbury Food Group Plc
Conclusions Relating to Going Concern
ISAs (UK) require us to report to you when:
• The Directors’ use of the going concern basis of accounting in the preparation of the Financial Statements is not appropriate; or
• The Directors have not disclosed in the Financial Statements any identified material uncertainties that may cast significant doubt about
the Group’s and Company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from
the date when the Financial Statements are authorised for issue.
We have nothing to report in respect of the above matters.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and Company’s ability
to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and
it is difficult to evaluate all of the potential implications on the Group’s trade, customers, suppliers and the wider economy.
Reporting on Other Information
The other information comprises all of the information in the Annual Report other than the Financial Statements and our auditors’ report thereon.
The Directors are responsible for the other information. Our opinion on the Financial Statements does not cover the other information and, accordingly,
we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether
there is a material misstatement of the Financial Statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to
report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to report certain opinions
and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the
period ended 29 June 2019 is consistent with the Financial Statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic Report and Directors’ Report.
Responsibilities for the Financial Statements and the Audit
Responsibilities of the Directors for the Financial Statements
As explained more fully in the Statement of Directors’ Responsibilities in Respect of the Annual Report and the Financial Statements set out on
page 49, the Directors are responsible for the preparation of the Financial Statements in accordance with the applicable framework and for being
satisfied that they give a true and fair view. The Directors are also 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.
In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the 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 the Directors either
intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ Responsibilities for the Audit of the Financial Statements
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 an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a 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 the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these Financial Statements.
A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditors’ Report.
Use of this Report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16
of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
48 Finsbury Food Group
Annual Report & Accounts 2019
Independent Auditors’ Report to the
Members of Finsbury Food Group Plc
Other Required Reporting
Companies Act 2006 Exception Reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• We have not received all the information and explanations we require for our audit; or
• Adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches
not visited by us; or
• Certain disclosures of Directors’ remuneration specified by law are not made; or
• The Company Financial Statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Jason Clarke (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Cardiff
13 September 2019
Corporate GovernanceFinancial StatementsStrategic Review 49 Finsbury Food Group
Annual Report & Accounts 2019
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 Company Financial Statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare Group and 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 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 Company and of their profit or loss for that period. In preparing each of the Group and 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 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 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 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 Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the 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.
On behalf of the Board
Stephen Boyd
Director
13 September 2019
50 Finsbury Food Group
Annual Report & Accounts 2019
Financial Statements
Consolidated Statement of Comprehensive Income
for the 52 weeks ended 29 June 2019 and 52 weeks ended 30 June 2018
Revenue
Cost of sales
Gross profit
Administrative expenses – underlying
Administrative expenses – significant and non-recurring
Operating profit
Finance income
Finance cost
Net finance cost
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 54 to 81 form an integral part of these Financial Statements.
Note
2019
£000
2018
£000
3
4
5
8
8
9
14
22
10
10
315,281
(219,849)
95,432
(78,939)
(1,200)
15,293
77
(1,794)
(1,717)
13,576
(3,283)
10,293
(332)
56
(276)
10,017
9,287
1,006
10,293
9,011
1,006
10,017
7.3
7.0
303,600
(211,511)
92,089
(73,785)
(13,067)
5,237
167
(929)
(762)
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
Corporate GovernanceFinancial StatementsStrategic Review
51 Finsbury Food Group
Annual Report & Accounts 2019
Consolidated Statement of Financial Position
at 29 June 2019 and 30 June 2018
Note
2019
£000
Non-current assets
Intangibles
Property, plant and equipment
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
Deferred consideration
Current tax liabilities
Non-current liabilities
Other interest-bearing loans and borrowings
Provisions
Deferred consideration
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
11
12
13
22
15
16
17
13
18
20
21
13
21
18
21
21
22
14
25
24
24
24
24
24
Restated
2018
£000
83,313
49,922
28
3,890
137,153
13,456
44,575
9,363
558
67,952
205,105
-
(55,598)
(3,798)
(40)
-
-
(59,436)
(24,685)
(4,623)
-
(1,243)
(10,536)
(41,087)
(100,523)
97,664
57,009
28
3,655
158,356
14,805
49,724
12,358
176
77,063
235,419
(335)
(55,543)
(2,640)
(218)
(1,000)
(306)
(60,042)
(47,390)
(3,434)
(1,824)
(1,800)
(11,312)
(65,760)
(125,802)
109,617
104,582
1,304
64,956
578
(3,616)
44,207
107,429
2,188
109,617
1,304
64,956
578
(3,282)
38,954
102,510
2,072
104,582
In the prior year accounts, £24,685,000 was presented as “Current liability – other interest-bearing loans and borrowings”. This has been restated
to “Non-current liabilities – other interest-bearing loans and borrowings”. Refer also to “Basis of preparation” Note.
These Financial Statements were approved by the Board of Directors on 13 September 2019 and were signed on its behalf by:
Stephen Boyd
Director
Registered Number 00204368
The Notes on pages 54 to 81 form an integral part of these Financial Statements.
52 Finsbury Food Group
Annual Report & Accounts 2019
Consolidated Statement of Changes in Equity
for the 52 weeks ended 29 June 2019 and 30 June 2018
Share
capital
£000
Share
premium
£000
Note
Capital
redemption
reserve
£000
Employee
share
reserve
£000
Retained
earnings
£000
Non-
controlling
interest
£000
Total
equity
£000
Balance at 1 July 2017
1,304
64,956
578
(3,585)
39,862
1,887
105,002
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
Balance at 30 June 2018
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 purchased through the EBT
Shares issued by the EBT
Impact of share based payments
Deferred tax on share options
Foreign exchange translation differences
Dividend paid
Balance at 29 June 2019
14
22
25
25
26
14
22
25
25
25
26
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,304
-
-
-
-
-
64,956
-
-
-
-
-
578
303
-
-
-
-
(3,282)
2,180
984
3,164
(172)
29
(143)
2,037
(217)
1,138
58
34
(3,958)
38,954
-
-
-
984
-
-
-
-
(799)
2,072
(172)
29
(143)
3,021
86
1,138
58
34
(4,757)
104,582
1,304
64,956
578
(3,282)
38,954
2,072
104,582
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,304
-
-
-
-
-
-
64,956
-
-
-
-
-
-
-
-
-
-
-
578
-
-
-
-
-
(499)
165
-
-
-
-
(3,616)
9,287
1,006
10,293
(332)
56
(276)
9,011
-
(165)
696
(256)
250
(4,283)
44,207
-
-
-
1,006
-
-
-
-
-
(890)
2,188
(332)
56
(276)
10,017
(499)
-
696
(256)
250
(5,173)
109,617
The Notes on pages 54 to 81 form an integral part of these Financial Statements.
Corporate GovernanceFinancial StatementsStrategic Review
53 Finsbury Food Group
Annual Report & Accounts 2019
Consolidated Cash Flow Statement
for the 52 weeks ended 29 June 2019 and 30 June 2018
Cash flows from operating activities
Profit for the financial year
Adjustments for:
Taxation
Net finance costs
Depreciation
Amortisation of intangibles
Significant non-recurring items
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
(Increase)/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 generated from operating activities
Cash flows from investing/divesting activities
Purchase of property, plant and equipment and intangibles
Disposal of property, plant and equipment
Purchase of companies
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
Drawdown/(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 generated from/(used in) financing activities
Net increase 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 54 to 81 form an integral part of these Financial Statements.
Note
2019
£000
2018
£000
10,293
3,164
9
8
12
11
5
14
13
2
19
19
19
19
26
26
17
3,283
1,717
7,366
1,328
1,200
162
178
25,527
(62)
(3,321)
(2,199)
19,945
(3,534)
(856)
(2,040)
13,515
(11,016)
-
(16,915)
(27,931)
-
22,144
-
828
(499)
(890)
(4,283)
17,300
2,884
9,363
111
12,358
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
54 Finsbury Food Group
Annual Report & Accounts 2019
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 29 June 2019 (prior financial year is the 52-week period ended 30 June 2018). 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 England and Wales.
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”), IFRS IC interpretations and the Companies Act 2006: The Company Financial Statements have been prepared
and approved by the Directors in accordance with International Financial Reporting Standards as adopted by the European Union (“Adopted IFRSs”),
IFRS IC interpretations and the Companies Act 2006 applicable to companies reporting under IFRS, these are presented on pages 82 to 90.
The prior year comparatives in the Financial Statements have been restated to reflect the following prior year adjustments.
The other interest-bearing loans and borrowings within current liabilities has been reduced by £24.7 million and the other interest-bearing loans
and borrowings within non-current liabilities has been increased by £24.7 million to reflect the appropriate classification of the Group’s Revolving Credit
Facility which has a maturity date of February 2023. This adjustment does not impact any other primary Financial Statement.
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 £55.0 million with a further accordion of £35.0 million, of which £47.1 million was drawn at the year end. 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 comfortably 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 during the next 12 months. 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
Judgements
In the course of preparing the Financial Statements, judgements which do not involve estimation have been applied. The key accounting judgements,
without estimation are as follows:
• Basis of consolidation
Lightbody Stretz Limited, which is 50% owned by the Group is 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%.
• Classification of items as significant non-recurring
The Group presents certain items as non-recurring and significant. These relate to items which, in management’s judgement, need to be disclosed
by virtue of their size or incidence in order to obtain a more meaningful understanding of the financial information. They reflect costs that will not
be repeated and therefore do not reflect ongoing trading of business which is more meaningful to users. Group management exercises judgement
in assessing each exceptional item and analysing whether the treatment of exceptional items is consistent with accounting policies and practice.
Exceptional costs are analysed fully each period and audited annually.
No other significant judgements have been made in the process of applying the Group’s accounting policies, other than those involving estimations.
Corporate GovernanceFinancial StatementsStrategic Review
55 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
Estimates
The Group is required to make estimates and assumptions concerning the future. These 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 have been required for the production of these Financial Statements.
The following are those that are deemed to require the most complex assumptions about matters that have the most significant risk of resulting
in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
• Defined Benefit Pension Scheme valuation
The Group has one legacy Defined Pension Scheme that was closed to future accrual in May 2010. 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 assumptions.
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 valuation is sensitive to changes in actuarial assumptions, whereby modest changes can have a material impact on the valuation.
The risks include economic risks (such as interest rate risk and inflation risk) and demographic risks (for example members living longer than
expected). The Group accounts for defined benefit pension based on advice provided by the Scheme’s actuary in accordance with IAS 19 (revised)
‘Employee Benefits’, with independent actuaries being used to calculate the costs, assets and liabilities to be recognised in relation to the Scheme.
The present value of the defined benefit obligation, the current service cost and past service costs are calculated by these actuaries using the
projected unit credit method, further detail can be found in Note 14. The valuation is prepared on a consistent basis and the assumptions are
compared to prior periods and market conditions. The assumptions are audited annually by a team of technical experts to assess whether the
assumptions used are within an acceptable range.
• Acquisition
A team of independent advisers are used throughout the acquisition process. External advisers are appointed to carry out specific extensive
financial modelling work, legal and tax due diligence. An extensive valuation model provided by professional advisers is used in the calculation
of the fair value of intangible asset. The assumptions are audited to assess whether the assumptions used are reasonable.
• Investments (including goodwill and intangibles)
The Group holds goodwill and intangibles and the Parent Company holds investments in the respective balance sheets. On an annual basis
(more frequently if there are indications of impairment due to changes in market environment or changes that may affect the carrying value),
the carrying values are tested for impairment, there is a risk that an impairment may not be correctly identified.
• Impairment
Detailed impairment models are prepared for each cash generating unit, detailed budgets and strategic forecasts are used as a basis for the
modelling. Budgets and forecasts are sense checked during various rounds of internal management reviews. Sensitivities are applied to the discount
rates used and the assumptions and results are reviewed by the Audit Committee and audited annually by external auditors. Impairment testing
involves significant judgement as to whether the carrying value of each asset can be supported by the net present value of estimated future cash
flows derived from such asset using cash flow projections which have been discounted at an appropriate rate. The key areas are:
– Discount rates
– Future revenue and costs
– Long term growth rates
Further detail can be found under the significant accounting policy for intangible assets and goodwill and in Note 11.
• Provisions
The Group recognises provisions where an obligation exists at the period end date and a reliable estimate can be made. Provisions relating to the
exit of the Grain D’Or leased site have been recognised in these Financial Statements. The provision relates mainly to lease costs and dilapidations.
External advisers are working with a team of internal individuals during lease negotiations with the landlord, dilapidation work is progressing and
the marketing of the newly refurbished properties has commenced. There are many areas of estimation, specifically around ongoing lease costs,
occupancy rates and timing of occupancy. The level of provision has been based on the latest information available regarding the current state
of property condition and progress on lease cost negotiations. A smaller provision exists for pension augmentation and relates to a contractual
liability for pension augmentation that has been valued by the pension Scheme actuaries. See Note 14 for further details.
• Taxation
Significant judgement is exercised by management in determining the amounts to be provided for both current and deferred tax. The final tax
determination of certain transactions is often uncertain and may not be known for some time in the future. The appointment of external tax advisers
to calculate the provisions during the year end process will focus expertise in this area and provide an independent technical interface with the
auditors. The tax position is reviewed and assumptions are challenged by the external auditors and the actual tax charge is clearly reconciled to the
theoretical tax charge in the Annual Report disclosures to ensure that variances are visible and understood. 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 2 years.
56 Finsbury Food Group
Annual Report & Accounts 2019
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%.
New and Upcoming Standards
The following new standards, new interpretations and amendments to standards and interpretations are applicable for the first time for the
financial year ended 29 June 2019.
• IFRS 9 “Financial Instruments” (effective 1 January 2018);
• IFRS 15 “Revenue from Contracts with Customers” (effective 1 January 2018);
• Clarifications to IFRS 15 “Revenue from Contracts with Customers” (effective 1 January 2018);
• Annual improvements to IFRS Standards 2014-2016 Cycle (effective 1 January 2018);
• Amendments to IFRS 2 “Classification and Measurement of Share Based Payment Transactions” (effective 1 January 2018); and
• IFRIC Interpretation 22 “Foreign Currency Translation and Advance Consideration” (effective 1 January 2018).
None of the amendments to the above standards had a material impact on the Financial Statements.
IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities,
derecognition of financial instruments, impairment of financial assets and hedge accounting. In the current year, the Group has applied IFRS 9
Financial Instruments (as revised in July 2014) and the related consequential amendments to other IFRS Standards that are effective for an annual
period that begins on or after 1 January 2018. The transition provisions of IFRS 9 allow an entity not to restate comparatives. The Group has not
restated comparatives.
IFRS 9 introduced new requirements for:
• The classification and measurement of financial assets and financial liabilities,
• Impairment of financial assets, and
• General hedge accounting
Applying the new requirements has not had a material impact on the Group’s consolidated Financial Statements.
The application of IFRS 9 has had no impact on the consolidated cash flows of the Group.
Applying the revised Expected Credit Losses (ECL) methodology did not result in any material change to the loss allowance recorded under IAS 39
because of the Group’s limited credit risk.
Except for the changes to impairment methodology as noted above, the remainder of the differences as a result of adoption of IFRS 9 are limited
to immaterial presentational and disclosure changes.
IFRS 15 “Revenue from Contracts with Customers” was issued on 28 May 2014 and provides a unified five step model for determining the timing,
measurement and recognition of revenue. The focus of the new standard is to recognise revenue as performance obligations are met rather than
based on the transfer of risks and rewards. IFRS 15 includes a comprehensive set of disclosure requirements including qualitative and quantitative
information about contracts with customers to understand the nature, amount, timing and uncertainty of revenue. The standard supersedes IAS 18
“Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations. On 12 April 2016, the IASB issued amendments
to IFRS 15 which clarify how to identify a performance obligation and determine whether a company is a principal or an agent.
The Group’s revenue is predominantly derived from the single performance obligations in which the transfer of risks and rewards of ownership
and the fulfilment of the Group’s performance obligation occur at the same time. As part of the adoption process, the Group assessed its performance
obligations underlying the revenue recognition and assessed variable considerations including rebates. The adoption of this standard did not
have a material impact on the consolidated Financial Statements of the Group.
Corporate GovernanceFinancial StatementsStrategic Review 57 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
1. Significant Accounting Policies (continued)
There are a number of new standards, interpretations and amendments to existing standards that are not yet effective and have not been adopted
early by the Group. The future introduction of these standards is not expected to have a material impact on the Financial Statements of the Group.
• Amendments to IFRS 9 – Prepayment Features with Negative Compensation (effective 1 January 2019);
• IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (effective 1 January 2019);
• Annual Improvements to IFRS 2015-17 cycle (effective 1 January 2019).
IFRS 16 “Leases” is effective for accounting periods commencing on or after 1 January 2019. The Group will apply the standard for the first time
for the year ending 27 June 2020. IFRS 16 represents a fundamental change in lease accounting for lessees, because, with the exception of leases
of less than 12 months duration and leases of low value assets, all leases are brought on balance sheet. The impact of this, had the Group applied
IFRS 16 for the year ended 29 June 2019, is considered to have an immaterial impact on profit before tax whilst increasing EBITDA by approximately
£3-£4.0 million for the year ending 29 June 2019 (the comparative year). Both Assets and Liabilities are expected to increase by £11-£12.0 million
on adoption as at 29 June 2019 with an immaterial impact to Total Net Assets.
Work will continue in the new financial year to assess the impact of the new standards and interpretations on the Group’s Financial Statements.
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 affected 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 Comprehensive Income 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 Comprehensive Income as
finance income or cost. Changes in the market value of foreign exchange hedges have been recognised through the Consolidated Statement
of Comprehensive Income 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.
58 Finsbury Food Group
Annual Report & Accounts 2019
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 Comprehensive Income. 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
Motor vehicles
10%-33%
nil
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 Comprehensive Income 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 Comprehensive Income on a straight-line basis over the term
of the lease.
Finance Lease Payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated
to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
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.
Corporate GovernanceFinancial StatementsStrategic Review 59 Finsbury Food Group
Annual Report & Accounts 2019
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 Comprehensive Income.
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 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 Comprehensive Income. 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 Comprehensive
Income 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, transactions with or between subsidiaries and less the cost of price promotions and sales related rebates
known as overriders. 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. As the business evolves, the Group will continue to review transactions with customers to ensure compliance with IFRS 15: Revenue
from Contracts with 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 Comprehensive Income in the period
to which they relate. Any charges relating to future years are deferred and recognised in the Consolidated Statement of Comprehensive Income
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 the Consolidated Statement of Comprehensive Income as it accrues, using the effective interest method.
60 Finsbury Food Group
Annual Report & Accounts 2019
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 Comprehensive Income
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 Comprehensive Income as incurred.
2. Acquisition
On 3 September 2018 the Group acquired the entire share capital of Ultrapharm Limited (Ultrapharm) for £16.9 million plus up to £3.0 million payable
in annual instalments to the period to 30 June 2021 and a final incentive payment subject to performance criteria over the period to 30 June 2021.
No provision has been made for an incentive payment as the criteria are not currently expected to be met. As a specialist ‘Free From’ bakery, the business
has an extensive product range including bread, buns and rolls and other morning goods. Ultrapharm has a diverse customer base with long-term
blue-chip customers, including Finsbury itself, where it supplies Free From products to Lightbody Europe.
The cash outflow under ‘purchase of companies’ of £16,915,000 on the face of the Consolidated Cash Flow Statement in the 52 weeks ended
29 June 2019 relates to the following:
Initial consideration
Debt settled
Cash acquired
Cash consideration (excluding acquisition costs)
Working capital adjustment
Discounted deferred consideration net of deferred taxation
Total consideration including working capital adjustment
The acquisition had the following effect on the Group’s assets and liabilities:
Acquiree’s net assets at acquisition date:
Property, plant and equipment
Stock
Trade and other receivables
Deferred tax liability
Trade and other payables
Net identifiable assets
Intangible
Goodwill
£000
14,869
2,792
(746)
16,915
(60)
2,737
19,592
Fair value and
book value
£000
5,766
1,200
2,392
(381)
(2,652)
6,325
1,721
11,546
19,592
The post-acquisition revenue included within these financial results amounts to £15,690,000 (including £2,584,000 of inter-company sales)
and an operating profit of £295,000.
Corporate GovernanceFinancial StatementsStrategic Review
61 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
3. Revenue and Segment Information
Operating segments are identified on the basis of the internal reporting and decision making. The Group’s Chief Operating Decision Maker is deemed
to be the Board as it is primarily responsible for the allocation of resources to segments and the assessment of performance by segment. The Board
assesses profit performance principally through adjusted profit measures consistent with those disclosed in the Annual Report and Accounts.
The UK bakery segment manufactures and sells bakery products to UK grocery and foodservice sectors. It comprises six subsidiaries all of which
manufacture and supply food products through the channels described above. These subsidiaries have been aggregated into one reportable segment
as they share similar economic characteristics. The economic indicators considered are the nature of the products and production process, the type
and class of customer, the method of distribution and the regulatory environment.
The Overseas segment procures and sells bakery products to European grocery and foodservice sectors. It comprises Lightbody Europe and Ultraeuropa.
Ultraeuropa has manufacturing facilities in Poland where it manufactures and sells Free From bakery products into the European markets.
The Company acquired Ultrapharm on 3 September 2018, the prior year financial results include those relating to the closed bakeries, the table
below shows the acquired revenue net of inter-company sales and the like for like revenue.
Revenue
UK bakery
Overseas
Total Group
52 weeks to 29 June 2019 and 52 weeks to 30 June 2018
Total
From acquired business
From closed business
Like for like
Reportable Segments
Revenue UK bakery
Revenue Overseas
Total revenue
Adjusted operating profit UK bakery
Adjusted operating profit Overseas
Total adjusted operating profit
Significant non-recurring and other items
Defined Benefit Pension Scheme
Fair value foreign exchange contracts
Operating profit
Finance income
Finance expense
Net finance cost
Profit before taxation
Taxation
Profit for the financial year
2019
£000
278,533
8,239
336
269,958
2018
£000
271,127
-
13,354
257,773
2019
£000
36,748
4,867
-
31,881
2018
£000
32,473
-
-
32,473
2019
£000
315,281
13,106
336
301,839
2018
£000
303,600
-
13,354
290,246
52 weeks to
29 June 2019
£000
278,533
36,748
315,281
14,180
2,653
16,833
(1,200)
(162)
(178)
15,293
77
(1,794)
(1,717)
13,576
(3,283)
10,293
52 weeks to
30 June 2018
£000
271,127
32,473
303,600
15,496
2,348
17,844
(13,067)
411
49
5,237
167
(929)
(762)
4,475
(1,311)
3,164
The Group has three customers (2018: three) which individually account for 10 percent or more of the Group’s total revenue. These customers
individually account for 19 percent, 12 percent and 10 percent. In the prior year these same three customers accounted for 20 percent, 13 percent
and 10 percent of the revenue in the 52 weeks to 30 June 2018. In addition to the Europe sales disclosed in Reportable Segments, the Group also
made sales to European markets through UK-based organisations.
62 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
4. Administrative Expenses and Auditors’ 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
Auditors’ remuneration:
Audit of these Financial Statements
Amounts receivable by the auditors and its associates in respect of:
Audit of the Financial Statements of subsidiaries of the Company
Taxation compliance services
Other tax advisory
Other services
2019
£000
1,328
7,072
294
-
166
765
806
178
1,987
697
-
2019
£000
60
133
-
-
-
2018
£000
715
6,859
182
987
260
797
1,302
(49)
1,567
1,138
25
2018
£000
60
120
24
10
173
The auditors’ remuneration for the current year is in respect of PricewaterhouseCoopers LLP and is in respect of KPMG LLP in the prior year with
fees for other services relates to pension advisory services and services relating to information technology.
5. Significant Non-recurring Items
The Group presents certain items as significant and non-recurring. These relate to items which, in management’s judgement, need to be disclosed
by virtue of their size or incidence in order to obtain a more meaningful understanding of the financial information. They reflect costs that will not
be repeated and therefore do not reflect ongoing trading of business which is most meaningful to users.
Included within significant non-recurring items shown in the table on page 25 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
Other reorganisation people costs
Impairment of assets and investments
Acquisition related costs
The site closure provision relates primarily to the closure of the Grain D’Or site during the prior year.
2019
£000
-
(152)
-
823
-
529
1,200
2018
£000
2,266
9,604
121
-
373
703
13,067
Corporate GovernanceFinancial StatementsStrategic Review
63 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
6. Staff Numbers and Costs
The monthly 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
7. Remuneration of Directors
Fees
Executive salaries
Bonuses and benefits
Number of employees
2019
2018
2,541
145
376
3,062
2,513
173
302
2,988
2019
£000
2018
£000
72,937
697
6,828
200
1,681
82,343
2019
£000
310
738
-
1,048
68,330
1,138
6,469
200
1,372
77,509
2018
£000
306
711
523
1,540
The aggregate of emoluments and amounts receivable under long-term incentive Schemes of the highest paid Director was £432,000 (2018: £718,000),
there were no Company pension contributions made to a defined contribution Scheme during the current or prior year. Bonuses include cash bonus
of £nil (2018: £223,000) and shares issued with a total cost of £nil (2018: £80,000). 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
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
Z Morgan
Fees
£000
85
56
-
-
-
-
57
53
59
310
Salary
£000
Benefits
£000
Annual bonus
£000
Year ended
29 June 2019
£000
Year ended
30 June 2018
£000
-
-
294
-
420
-
-
-
-
714
-
-
12
-
12
-
-
-
-
24
-
-
-
-
-
-
-
-
-
-
85
56
306
-
432
-
57
53
59
1,048
85
54
458
58
638
80
58
53
56
1,540
No shares were issued during the year to J G Duffy (2018: 74,441) or to S A Boyd (2018: 54,088). During the year awards over 585,409 shares
under the long-term incentive plan (LTIP) were granted to Directors in the form of nil cost options (2018: 753,469). The vesting of the awards is
conditional upon performance conditions over a three-year period commencing 1 July 2018 and are subject to a further two-year holding period.
64 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
7. Remuneration of Directors (continued)
Directors’ rights to subscribe for shares in the Company are listed below:
S A Boyd
S A Boyd
S A Boyd
S A Boyd
S A Boyd
J G Duffy
J G Duffy
J G Duffy
J G Duffy
J G Duffy
Number of
options at
29 June 2019
Number of
options at
30 June 2018
Exercise
price
Earliest
exercise
date
Exercise
expiry
date
702,825
476,364
-
315,269
241,147
1,108,881
655,614
-
438,200
344,262
4,282,562
702,825
505,051
374,532
315,269
-
1,108,881
695,095
515,464
438,200
-
4,655,317
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
01/07/2019
01/07/2020
30/06/2021
02/07/2022
07/07/2023
01/07/2019
01/07/2020
02/07/2022
30/06/2021
07/07/2023
26/06/2025
04/12/2025
29/09/2026
26/10/2027
21/01/2029
26/06/2025
04/12/2025
26/10/2027
29/09/2026
21/01/2029
The mid-market price of the ordinary shares on 29 June 2019 was 67.0p (2018: 117.5p) and the range during the 52-week period to 29 June 2019
was 60.0p to 127.5p (2018: 99.0p to 131.0p).
8. Finance Income and Cost
Recognised in the Consolidated Statement of Comprehensive Income
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
Change in fair value of interest rate swaps
Bank interest payable
Interest on interest rate swap agreements
Total finance cost
2019
£000
-
60
17
77
(282)
(382)
(1,130)
-
(1,794)
2018
£000
143
18
6
167
(277)
-
(638)
(14)
(929)
Corporate GovernanceFinancial StatementsStrategic Review
65 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
9. Taxation
Recognised in the Consolidated Statement of Comprehensive Income
Current tax
Current year
Adjustments for prior years
Total current tax
Deferred tax
Origination and reversal of temporary differences
Adjustments for prior years
Total deferred tax
Total tax expense
2019
£000
2018
£000
2,969
194
3,163
136
(16)
120
3,283
1,236
(93)
1,143
328
(160)
168
1,311
Reconciliation of Effective Tax Rate
The weighted average hybrid rate of UK, Polish and French tax is 21.4% (2018: 22.5%). The tax assessed for the period is higher (2018: higher)
than the hybrid rate of UK and French tax. The UK corporation tax rate for the period is 19.0% (2018: 19.0 %). The differences are explained below:
Profit before taxation before losses from equity accounted investees
Tax using the UK corporation tax rate of 19.00%, (2018: 19.00%)
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
2019
£000
13,576
2,579
481
195
(60)
(90)
178
3,283
2018
£000
4,475
850
277
586
(49)
(100)
(253)
1,311
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 29 June 2019
have been calculated based on these rates.
The adjustment of £178,000 for prior year includes ineligible capital spends offset 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 (2018: £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.
10. 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 127,511,000 (2018: 127,611,000).
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 29 June 2019, the diluted weighted average number of shares in issue was 131,889,000, (2018: 132,162,000).
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
66 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
10. Earnings Per Ordinary Share (continued)
Profit
Profit attributable to equity holders of Company (basic)
Significant non-recurring and other items
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
29 June 2019
£000
9,287
2,021
564
11,872
Diluted
‘000
Basic
‘000
127,511
4,378
131,889
127,611
-
127,611
Basic
‘000
127,511
-
127,511
Basic
pence
Diluted
pence
7.3
9.3
7.0
9.0
Basic
pence
1.7
10.2
52 weeks to
30 June 2018
£000
2,180
10,344
446
12,970
Diluted
‘000
127,611
4,551
132,162
Diluted
pence
1.6
9.8
Significant non-recurring and other items net of taxation are tabled in the Strategic Report on page 25 and comprise: significant non-recurring
charges £1,072,000 (2018: £10,615,000), Defined Benefit Pension Scheme charge £369,000 (2018: income £111,000) and fair value of interest
rate swaps, foreign exchange contracts charge £465,000 (2018: £160,000 income) and the unwinding of deferred consideration discounting
charge £115,000 (2018: nil).
11. Intangibles
Intangible assets comprise customer relationships, brands and goodwill.
Cost at 1 July 2017
Additions
Cost at 30 June 2018
Acquired
Additions
Cost at 29 June 2019
Accumulated amortisation at 1 July 2017
Charge for the year
Accumulated amortisation at 30 June 2018
Charge for the year
Accumulated amortisation at 29 June 2019
Net book value at 1 July 2017
Net book value at 30 June 2018
Net book value at 29 June 2019
Goodwill
£000
73,458
-
73,458
11,546
-
85,004
(4,290)
-
(4,290)
-
(4,290)
69,168
69,168
80,714
Business
systems
£000
Brands and
licences
£000
Customer
relationships
£000
3,843
3,726
7,569
-
2,412
9,981
-
(178)
(178)
(648)
(826)
3,843
7,391
9,155
3,683
-
3,683
-
-
3,683
(1,216)
(143)
(1,359)
(143)
(1,502)
2,467
2,324
2,181
5,909
-
5,909
1,721
-
7,630
(1,085)
(394)
(1,479)
(537)
(2,016)
4,824
4,430
5,614
Total
£000
86,893
3,726
90,619
13,267
2,412
106,298
(6,591)
(715)
(7,306)
(1,328)
(8,634)
80,302
83,313
97,664
The customer relationships acquired during the year were purchased as part of the Ultrapharm acquisition, those recognised in the opening costs
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 brands and between ten and fifteen years for customer relationships.
The intangibles were valued using an income approach, using multi-period excess earnings method for customer relationships and Relief from Royalty
Method for brand valuation. The amortisation of intangibles has been charged to administrative expenses in the Income Statement. The business
systems are considered to have finite useful lives and are amortised on a straight-line basis over their estimated useful lives of ten years.
Goodwill has arisen on acquisitions and reflects the future economic benefits arising from assets that are not capable of being identified individually
and recognised as separate assets. The goodwill reflects the anticipated profitability and synergistic benefits arising from the enlarged Group structure.
The goodwill is the balance of the total consideration less fair value of assets acquired and identified. The carrying value of the goodwill is reviewed
annually for impairment. The carrying value of all goodwill has been assessed during the year.
Corporate GovernanceFinancial StatementsStrategic Review
67 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
11. Intangibles (continued)
The Group tests goodwill for impairment on an annual basis, or more frequently if there are indications that the goodwill may be impaired.
The recoverable amounts of the cash generating units are determined from value in use calculations. The key assumptions for the value in use
calculations are the discount and growth rates used for future cash flows and the anticipated future changes in revenue, direct costs and indirect
costs. The assumptions used reflect the past experience of management and future expectations.
The Group prepares cash flow forecasts covering a three-year period based on the detailed financial forecasts approved by management for the
next three years. The cash flows beyond this forecast are extrapolated to perpetuity using a 0.5% (2018: nil) growth rate on a prudent, when compared
to long term UK GDP, basis, to reflect the uncertainties of forecasting further than three years. Changes in revenue and direct costs in the detailed
three year plan are based on past experience and expectations of future changes in the market.
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, improvement in efficiencies from capital
investment and operations and purchasing initiatives.
A pre-tax discount rate of 11% (2018: 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.
The carrying amount of goodwill has been allocated to cash generating units or groups of cash generating units as follows:
Lightbody of Hamilton
Fletchers Bakery
Ultrapharm
Nicholas & Harris
Johnstone’s Food Service
2019
£000
2018
£000
45,698
20,118
11,546
2,980
372
80,714
45,698
20,118
-
2,980
372
69,168
Sensitivity analyses have been carried out by the Directors on the carrying value of all remaining goodwill using pre-tax discount rates ranging between
8.0% and 12.5% which would not result in an impairment of any cash generating units. The table below illustrates the discount rate that would
need to be applied for there to be zero headroom when comparing discounted cash flows against carrying amount of goodwill.
Lightbody of Hamilton
Fletchers Bakery
Nicholas & Harris
Johnstone’s Food Service
Discount rate
18.8%
15.0%
45.9%
83.5%
Further sensitivity analysis has been carried out using a range of factors such as growth rate and cost increases. These include:
• If future growth rate assumption of 0.5% was replaced with zero growth rate
• If future growth rate assumption of 0.5% was replaced with a decline of 2%
In addition, the Group has a cross-functional team which has prepared a number of strategies to minimise the impact of Brexit. We buy some commodities
from Europe. Any tariffs on trade will therefore have a bearing on the Group. We have contingency planning in place, looking at alternative UK sources
of products. Higher logistics and administration costs may result from border delays and could necessitate higher stock levels. 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 program. We believe we have strategies that would minimise the impact and the Directors are satisfied with the carrying value of the
cash generating units.
During the year the Group acquired a specialist Free From bakery, Ultrapharm. As part of the due diligence process a comprehensive multi-function
assessment was completed, utilising expert resource from across the Group as well as the existing management team against Finsbury Group standards
and best practice before creating a prioritised integration action plan. Additional expert resources from across the Group have complemented
management to implement the year one plan which is largely complete. Ultrapharm has been tested for impairment during the reporting period
and the Directors are satisfied with the carrying value of the cash generating units.
68 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
12. Property, Plant and Equipment
Cost
Balance at 1 July 2017
Additions
Transfers
Disposals
Balance at 30 June 2018
Balance at 30 June 2018
Exchange adjustments
Additions
Acquisitions
Transfers
Disposals
Balance at 29 June 2019
Accumulated depreciation and impairment
Balance at 1 July 2017
Impairment
Depreciation charge for the financial period
Transfers
Disposals
Balance at 30 June 2018
Balance at 30 June 2018
Exchange adjustments
Depreciation charge for the financial period
Transfers
Disposals
Balance at 29 June 2019
Net book value
At 1 July 2017
At 30 June 2018
At 29 June 2019
Land and
buildings
£000
Plant and
equipment
£000
Fixtures and
fittings
£000
Assets under
construction
£000
Total
£000
15,324
2,655
1,917
(570)
19,326
19,326
-
122
3,289
-
(157)
22,580
(5,526)
-
(461)
(153)
570
(5,570)
(5,570)
-
(782)
-
157
(6,195)
9,798
13,756
16,385
84,339
3,234
4,099
(17,805)
73,867
73,867
-
6,056
2,188
264
(30)
82,345
(51,109)
(718)
(5,785)
149
17,743
(39,720)
(39,720)
-
(6,120)
-
190
(45,650)
33,230
34,147
36,695
4,744
337
39
(57)
5,063
5,063
(23)
225
289
73
(96)
5,531
(3,011)
-
(795)
4
63
(3,739)
(3,739)
(42)
(464)
-
84
(4,161)
1,733
1,324
1,370
4,096
2,654
(6,055)
-
695
695
-
2,201
-
(337)
-
2,559
-
-
-
-
-
-
-
-
-
-
-
-
4,096
695
2,559
108,503
8,880
-
(18,432)
98,951
98,951
(23)
8,604
5,766
-
(283)
113,015
(59,646)
(718)
(7,041)
-
18,376
(49,029)
(49,029)
(42)
(7,366)
-
431
(56,006)
48,857
49,922
57,009
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
2019
£000
1,373
2018
£000
-
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. Hire purchase obligations are secured on the underlying assets.
The lease obligations are secured on leased equipment (see Note 18).
Corporate GovernanceFinancial StatementsStrategic Review
69 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
13. Other Financial Assets and Liabilities
Non-current
Investments in equity accounted investees
At the beginning of the financial year
Impairment
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
2019
£000
-
-
-
28
176
-
176
-
(218)
(218)
2018
£000
269
(269)
-
28
558
-
558
-
(40)
(40)
Investment in Associates
During the prior 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 two forward dated interest rate swap arrangements to hedge its risks associated with interest rate fluctuations:
• £20.0 million for five years from 3 July 2017 (fixed) at 0.455%
• £5.0 million for three years from 28 March 2019 (fixed) at 1.002%
There was £25.0 million coverage in place at the year end (2018: £20.0 million).
A charge of £382,000 (2018: credit £143,000) is shown in finance income for the period 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 charge
of £178,000 (2018: credit £49,000) is shown in administrative expenses for the period reflecting changes in their fair value.
14. 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 £1,681,000 (2018: £1,372,000).
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 (2018: nil), 175 deferred pensioner members (2018: 186) and 227 pensioner members (2018: 218).
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 29 June 2019 relating to Defined Benefit Pension are based on a full actuarial valuation dated
31 December 2015, alongside the initial results from the 31 December 2018.
A £200,000 contribution was paid during the financial year by Memory Lane Cakes Limited (2018: £393,000). 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 will be prepared as at 31 December 2018 and will be an opportunity to challenge
the appropriateness of this recovery plan taking into consideration the deficit recovery contributions and actual returns realised on the pension
Scheme assets. The Group has until 31 March 2020 to agree a valuation and a contribution schedule.
70 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
14. Pension Schemes (continued)
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.
In the prior year approximately 90% of the assets were held in two diversified growth funds which targeted 6 month LIBOR +5% and CPI + 5% respectively.
During the year, the Trustees looked to change the investment advisory role to a fiduciary investment management role. Following an in-depth review
of investment advisers, the Trustees with the full support of the sponsoring company changed its approach to appoint a fiduciary investment manager
with the introduction of hedging strategies to its investment portfolio. River and Mercantile was appointed as fiduciary investment manager
in December 2018 and a new Statement of Investment Principles (SIP) in compliance with the Pensions Act 1995, the Pensions Act 2004 and the
Occupational Pension Schemes (Investment) Regulations 2005 was agreed in January 2019. All of the Scheme’s investments meet the criteria detailed
in the SIP relevant for the Scheme year to 31 December 2018. A change of investments has taken place during 2019 aligning to the new SIP. 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 £11,312,000 (2018: £10,536,000). 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:
Multi-asset growth fund
Liability hedging portfolio (gilts/swaps)
Other
Equities/target return fund
Property
Cash
Fair value of plan assets
Actual return on plan assets
2019
£000
2018
£000
19,238
(30,550)
(11,312)
2019
£000
14,405
2,256
1,580
-
753
244
19,238
886
18,834
(29,370)
(10,536)
2018
£000
-
-
-
16,608
2,145
81
18,834
(251)
None of the fair values of the assets shown above includes any of the Company’s own financial instruments or any property occupied by,
or any other assets used by, the Company.
Movements in present value of defined benefit obligation
At beginning of financial year
Past service costs
Interest on plan obligations
Benefits paid
Remeasurement – experience gain on liabilities
Remeasurement – settlement or curtailment
Remeasurement – (loss)/gain from changes to financial assumptions
Remeasurement – gain from changes to demographic 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
2019
£000
2018
£000
(29,370)
(362)
(784)
682
1,614
-
(2,631)
301
(30,550)
18,834
502
384
(682)
200
19,238
(30,483)
-
(805)
1,293
-
18
607
-
(29,370)
19,985
528
(779)
(1,293)
393
18,834
Corporate GovernanceFinancial StatementsStrategic Review
71 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
14. Pension Schemes (continued)
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 Comprehensive Income
Past service costs
Interest on plan assets/finance income
Interest on plan obligations/finance expense
Total expense
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 – experience gains on liabilities
Recognised in the financial year – (loss)/gain from changes to financial assumptions
Recognised in the financial year – gains from changes to demographic 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
2019
£000
(362)
502
(784)
(644)
(12,803)
384
1,614
(2,631)
301
(13,135)
2019
%
2.4
2.4
2.3
2.3
2018
£000
-
528
(805)
(277)
(12,631)
(779)
-
607
-
(12,803)
2018
%
2.3
2.3
2.7
2.7
The differential between the assumed rate of inflation and the discount rate for liabilities is 0.1% (2018: 0.4%).
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.
The financial assumptions are based on market conditions as at the review date of 29 June 2019 with discount rates based on the yields on long-dated
high-quality corporate bonds. The discount rate is lower than the discount rate used last year reflecting the change in bond yields over this period.
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 5% (2018: -1.3%), the negative
return that occurred in the previous year was impacted by the uncertainty and volatility in equity markets.
Changing the year end 2019 assumptions to those of 2018 year end listed above, the deficit would have been £8,982,000 compared to the
reported deficit of £11,312,000.
2019
Post-retirement mortality assumption S3NA year of birth tables with CMI 2017 projections
and 1.25% pa long-term rate of improvement
2018
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
Allowance for GMP equalisation (increase liabilities at the review date by):
2019
24.0
26.3
22.6
24.9
1.2%
2018
24.3
26.6
22.6
24.7
-
72 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
14. Pension Schemes (continued)
Sensitivity Analysis
The calculation of the defined benefit obligation is sensitive to the assumptions set out on the previous page. 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
2019
(£2.6 million)
£2.9 million
£2.6 million
(£2.6 million)
£1.1 million
(£1.2 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 19 years.
Risk Mitigation Strategies
During the year, the Trustees changed the investment advisory role to a fiduciary investment management role, this brought about a change with the
introduction of hedging strategies to its investment portfolio. River and Mercantile was appointed as fiduciary investment manager in December 2018
and a new Statement of Investment Principles (SIP) was agreed in January 2019. All of the Scheme’s investments meet the criteria detailed in the SIP
relevant for the Scheme year to 31 December 2018. A change of investments has taken place during 2019 aligning to the new SIP.
Effect of the Scheme on the Company’s Future Cash Flows
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 will be prepared 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 £402,000 (2018: £454,000) this includes deficit recovery contributions, pension protection fund levy fees and cost of advisers. The Company expects
to pay deficit recovery contributions of £200,000 in the year to 29 June 2020. The projected net interest charge to the Consolidated Statement
of Comprehensive Income for the year to 27 June 2020 is £260,000. This projection assumes cash flows 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.
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
2019
£000
2018
£000
2017
£000
2016
£000
2015
£000
19,238
(30,550)
(11,312)
384
2.0%
1,614
5.3%
(332)
1.1%
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)
10.1%
20,587
(24,424)
(3,837)
656
3.2%
-
0.0%
(153)
0.6%
Corporate GovernanceFinancial StatementsStrategic Review
73 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
15. Inventories
Raw materials and consumables
Finished goods
Inventories Recognised as an Expense
Opening inventories
Acquired
Purchases
Increase/(decrease) in stock provisions
Closing inventories
Expensed during the period
16. Trade and Other Receivables
Trade receivables due from third parties
Other debtors
Prepayments and accrued income
Current tax asset
There was no impact as a result of applying the ECL (expected credit loss) methodology under IFRS 9.
17. Cash and Cash Equivalents Including Bank Overdrafts
Cash at bank and on hand
Bank overdraft
2019
£000
6,302
8,503
14,805
2018
£000
5,555
7,901
13,456
2019
£000
2018
£000
13,456
1,200
135,153
292
(14,805)
135,296
2019
£000
45,207
2,577
1,940
-
49,724
12,684
-
138,570
16
(13,456)
137,814
2018
£000
39,967
1,807
2,282
519
44,575
2019
£000
2018
£000
29,462
(17,104)
12,358
22,610
(13,247)
9,363
18. 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.
2019
Margin
Frequency of
repayments
Year of
maturity
Facility
£000
Drawn
£000
Current
£000
Non-current
£000
Revolving credit
Finance Lease
Unamortised transaction costs
1.50%/LIBOR
Various
Varies
Monthly
2023
2023
55,000
828
Restated 2018
Revolving credit
Unamortised transaction costs
Margin
1.30%/LIBOR
Frequency of
repayments
Varies
Year of
maturity
2023
Facility
£000
45,000
47,144
828
(247)
47,725
Drawn
£000
25,000
(315)
24,685
-
335
-
335
Current
£000
-
-
-
47,144
493
(247)
47,390
Non-current
£000
25,000
(315)
24,685
In the prior year accounts, the Revolving Credit facility and unamortised transaction costs of £24,685,000 were disclosed as “Current”.
Refer to “Presentation of Financial Statements – Basis of Preparation” on page 54 for more detail.
74 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
18. Other Interest-Bearing Loans and Borrowings (continued)
Finance lease liabilities are payable as follows:
2018
Less than one year
Between one and five years
2019
2018
Minimum lease
payments
£000
Interest
£000
Principal
£000
Minimum lease
payments
£000
Interest
£000
Principal
£000
380
548
928
45
55
100
335
493
828
-
-
-
-
-
-
-
-
-
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 23.
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 revolving credit bank facility available for drawdown is £55.0 million plus a further £35.0 million accordion facility (2018: £45.0 million plus a further
£45.0 million accordion). At the period end date, the facility utilised was £47.1 million (2018: £25.0 million), giving £7.9 million (2018: £20.0 million)
headroom plus a further £35.0 million (2018: £45.0 million) accordion.
19. Analysis of Net Debt
Cash and cash equivalents
Debt due within one year
Debt due after one year
Hire purchase obligations due within one year
Hire purchase obligations due after one year
Total net bank debt
Debt
Cash and cash equivalents
Unamortised transaction costs
Total net bank debt
Cash and cash equivalents
Total debt payable excluding cash
Restated
at year ended
30 June
2018
£000
Note
9,363
-
(25,000)
-
-
(15,637)
(24,685)
9,363
(315)
(15,637)
9,363
(25,000)
18
Cash flow
£000
2,995
-
(22,144)
(335)
(493)
(19,977)
(23,040)
2,995
68
(19,977)
2,995
(22,972)
At year ended
29 June
2019
£000
12,358
-
(47,144)
(335)
(493)
(35,614)
(47,725)
12,358
(247)
(35,614)
12,358
(47,972)
In the prior year accounts, the debt and transaction costs of £24,685,000 and £315,000 respectively were disclosed as “Debt due within one year”.
Refer to “Presentation of Financial Statements – Basis of Preparation” on page 54 for more detail.
20. Trade and Other Payables
Current
Trade creditors
Other creditors including taxes and social security
Accruals and deferred income
2019
£000
2018
£000
37,162
3,781
14,600
55,543
37,210
2,088
16,300
55,598
Corporate GovernanceFinancial StatementsStrategic Review
75 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
21. Provisions and Deferred Consideration
Provisions
Balance at the beginning of the financial year
Utilised during the financial year
Balance at the end of the financial year
Current provisions
Non-current provisions
Site closure
£000
Pension
£000
8,204
(2,329)
5,875
2,622
3,253
217
(18)
199
18
181
Total
£000
8,421
(2,347)
6,074
2,640
3,434
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.
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.
Deferred Consideration
The deferred consideration relates to the acquisition of Ultrapharm Limited (Ultrapharm) for £16.9 million plus up to £3.0 million payable in annual
instalments to the period to 30 June 2021.
22. 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
Discounting of deferred consideration
Pension Scheme charges
Employee share Scheme charges
Losses acquired
Tax assets/(liabilities)
Net tax assets/(liabilities)
Assets
Liabilities
2019
£000
-
-
37
40
-
-
1,923
574
1,081
3,655
1,855
2018
£000
2019
£000
2018
£000
-
111
7
-
-
-
1,791
711
1,280
3,900
2,647
(1,325)
(415)
-
-
(30)
(30)
-
-
-
(1,800)
-
(1,148)
-
-
(10)
(95)
-
-
-
-
(1,253)
-
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 two years.
76 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
22. Deferred Tax Assets and Liabilities (continued)
Movement in Deferred Tax during the Year
Intangibles
Property, plant and equipment
Foreign exchange contracts
Short-term temporary differences
Interest rate swaps
Discounting of deferred consideration
Pension Scheme
Employee share Scheme
Losses acquired
Intangibles
Property, plant and equipment
Foreign exchange contracts
Short-term temporary differences
Interest rate swaps
Pension Scheme
Employee share Scheme
Losses acquired
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
Acquired
£000
Recognised
in income
£000
Recognised
in equity
£000
(291)
(127)
-
-
-
(54)
-
-
-
(472)
114
(399)
30
50
65
24
76
119
(199)
(120)
-
-
-
-
-
-
56
(256)
-
(200)
Acquired
£000
Recognised
in income
£000
Recognised
in equity
£000
-
-
-
-
-
-
-
-
-
91
(540)
(8)
(83)
(24)
(23)
193
226
(168)
-
-
-
-
-
29
58
-
87
29 June
2019
£000
(1,325)
(415)
37
40
(30)
(30)
1,923
574
1,081
1,855
30 June
2018
£000
(1,148)
111
7
(10)
(95)
1,791
711
1,280
2,647
The deferred tax liability in respect of intangible assets will unwind in line with the amortisation of intangible assets.
23. Financial Risk Management
The main purpose of the Group’s financial instruments is to finance the Group’s operations. The financial instruments comprise a revolving credit
facility, hire purchase, finance leases, 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 21 and 22.
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 Comprehensive Income. 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.
Corporate GovernanceFinancial StatementsStrategic Review
77 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
23. Financial Risk Management (continued)
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 29 June 2019.
At year ended 29 June 2019
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 cash flows including estimated interest
Non-derivative financial liabilities
Revolving credit
Finance lease liabilities
Trade creditors
At year ended 30 June 2018
Restated
Non-derivative financial liabilities
Revolving credit
Trade creditors
(47,144)
(828)
(37,162)
(85,134)
(47,394)
(928)
(37,162)
(85,484)
-
(380)
(37,162)
(37,542)
-
(272)
-
(272)
(47,394)
(276)
-
(47,670)
-
-
-
-
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 cash flows including estimated interest
(25,000)
(37,210)
(62,210)
(25,037)
(37,210)
(62,247)
-
(37,210)
(37,210)
-
-
-
(25,037)
-
(25,037)
-
-
-
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.
In the prior year accounts, the secured bank loans of £25,000,000 were disclosed as “1 year or less”. Refer to “Presentation of Financial
Statements – Basis of Preparation” on page 54 for more detail.
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 controlled by assessing the credit quality of the
customer, taking into account its financial position, past experience and other factors and 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 more than 50%
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 £45.2 million
(2018: £40.0 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
2019
£000
39,666
4,407
626
508
45,207
2018
£000
35,806
3,248
869
44
39,967
The above numbers are net of impairment provisions. There was no impact recorded as a result of applying the ECL (expected credit loss)
methodology under IFRS 9. 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 £1.1 million past due
by more than 30 days is equivalent to less than two days sales (2018: £0.9 million, equivalent to less than 2 days). Details of the Company’s credit
risk are not disclosed because the Financial Statements of the Group disclose such details on a consolidated basis.
78 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
23. Financial Risk Management (continued)
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 two interest rate swap
arrangements in order to hedge its risks associated with any fluctuations. Details of swaps are given in Note 13.
The profile of the Group’s loans and overdraft at the period end date were split as follows:
Variable rate liabilities
2019
£000
2018
£000
(47,972)
(25,000)
Swaps amounting to £25.0 million (2018: £20.0 million) limit the risk associated with the variable rate liabilities. The interest rates for the forward
dated swaps are fixed at 0.455% for £20.0 million and 1.002% for £5.0 million (2018: £20.0 million fixed at 0.455%).
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
2019
£000
589
589
2018
£000
250
250
A 1% decrease in the base rate or LIBOR would have an equal and opposite impact of £388,000 (2018: £250,000) 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
We acquired manufacturing facilities in Poland through the Ultrapharm acquisition. The sites supply to mainland Europe with income in Euros
and local costs denominated in Polish złoty. 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 number 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.
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 29 December
2018 of 1.16p per share was paid on 26 April 2019 to shareholders on the register at the close of business on 5 April 2019. Subject to shareholder
approval at the Company’s AGM on 20 November 2019, the final dividend of 2.34 pence per share will be paid on 23 December 2019 to all shareholders
on the register at 22 November 2019. 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 0.4 (2018: 0.1). 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.
Corporate GovernanceFinancial StatementsStrategic Review
79 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
24. 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 52.
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.
25. 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
2019
000’s
2018
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 (EBT), 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. During the year the EBT purchased 700,717 ordinary shares of 1p each
in the capital of the Company (“Ordinary Shares”) at a price of £0.71213 per Ordinary Share.
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 Comprehensive Income 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 29 June 2019 with further details given below.
Date of grant
Number of
options granted
Number of
options expected
to vest
Exercise
price
Fair value
£000
21 January 2019
21 January 2019
Charge relating to options granted in the current year
Charge relating to options granted in prior years
Charge included in Administrative expenses
596,757
585,409
596,757
585,409
nil
nil
211
241
Amount
expensed in
year to
29 June 2019
£000
34
39
73
623
696
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
Number of
options granted
Number of
options expected
to vest
Exercise
price
Fair value
£000
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
858,659
753,469
503,260
697,195
nil
nil
364
448
Amount
expensed in
year to
30 June 2018
£000
83
102
185
953
1,138
Period of
expense
2.4 years
4.4 years
Period of
expense
2.7 years
4.7 years
80 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
25. Share Capital (continued)
Details of share options outstanding at 29 June 2019 and movements during the year by exercise price is shown below:
Exercise
price
First
exercise
date
Last
exercise
date
At 30 June
2018
Granted
Forfeited
Cancelled/
lapsed
Exercised
At 29 June
2019
nil
nil
nil
nil
nil
nil
nil
nil
nil
Sep 2018
Jul 2019
Jul 2020
Jun 2021
Sep 2019
Jul 2022
Sep 2020
Jul 2023
Sep 2021
Dec 2025
Jun 2025
Dec 2025
Sep 2026
Sep 2026
Oct 2027
Oct 2027
Jan 2029
Jan 2029
361,960
1,811,706
1,200,146
889,996
506,968
753,469
858,659
-
-
6,382,904
-
-
-
-
-
-
-
585,409
596,757
1,182,166
-
-
-
-
(19,101)
-
(32,935)
-
-
(52,036)
(4,682)
-
(68,168)
(889,996)
(487,867)
-
-
-
-
(1,450,713)
(279,535)
-
-
-
-
-
-
-
-
(279,535)
77,743
1,811,706
1,131,978
-
-
753,469
825,724
585,409
596,757
5,782,786
A summary of share options outstanding and movements for the year to 30 June 2018 is shown below:
Number of options
At 1 July
2017
5,042,894
Granted
1,612,128
Forfeited
-
Cancelled/
lapsed
(116,946)
Exercised
(155,172)
At 30 June
2018
6,382,904
There were 77,743 options exercisable at the period end date (2018: nil). There were 279,535 options exercised during the year (2018: 155,172).
There were 1,450,713 options that lapsed during the year where performance conditions have not been met in full. The average share price at dates
of exercise was 68 pence per share (2018: 115 pence per share).
The options outstanding at the year end have weighted average exercise price of nil (2018: nil) and a weighted average remaining contractual life
of 1.4 years (2018: 2.0 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
2019
2018
3.0 years
23%
4.0%
0.8%
82.5p
nil
3.0 years
23%
2.8%
0.6%
108.0p
nil
26. Dividends
An interim dividend for the six months to 29 December 2018 of 1.16p per share was paid on 25 April 2019 to shareholders on the register at the close
of business on 6 April 2019. The amount paid was £1,474,474. A final dividend of 2.34p per share has been proposed taking the total dividend for the year
to 3.5p per share. Subject to shareholder approval at the Company’s AGM on 20 November 2019, the final dividend will be paid on 23 December 2019
to shareholders on the register at 22 November 2019.
During the year a dividend of £890,000 (2018: £799,000) was paid to the holders of the non-controlling interest in Lightbody Stretz Ltd.
Corporate GovernanceFinancial StatementsStrategic Review
81 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Consolidated Financial Statements
27. 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, Fletchers’ sites in London and Manchester and Johnstone’s site in East Kilbride.
During the year £1,571,000 was recognised as an expense in the Consolidated Statement of Comprehensive Income in respect of operating leases
(2018: £2,099,000).
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
2019
£000
2018
£000
2019
£000
2,531
6,741
5,045
14,317
2,066
6,604
6,809
15,479
676
593
-
1,269
2018
£000
956
1,023
29
2,008
28. Capital Commitments
At the financial year ended 29 June 2019, the Group had capital expenditure commitments of £105,000 (2018: £259,000).
29. 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, £67,000 (2018: £73,000) in respect
of rent for offices. No balances were outstanding at either year end.
The Group paid £nil (2018: £33,000) for the supply of finished products from and received £27,000 (2018: £32,000) 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 (2018: £nil) and £3,000 (2018: £2,000)
respectively.
Transactions with the Memory Lane Pension Scheme are detailed in Note 14.
Mr P Baker is a Director of Crosta & Mollica Limited. The Group sold finished product to Crosta & Mollica for a value of £nil (2018: £154,000),
the amount receivable at the year end was £nil (2018: £nil).
Transactions with Key Management Personnel
Directors of the Company and their immediate relatives control 3% (2018: 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
2019
£000
56
1,708
-
1,764
2018
£000
55
1,702
562
2,319
Share options held by Group Directors are set out in Note 7. Details of share options outstanding at 29 June 2019 for other key management
personnel by exercise price is shown in the table below:
Exercise price
nil
nil
nil
nil
30. Post Consolidated Statement of Financial Position Events
There were no post consolidated Statement of Financial Position events.
31. Ultimate Parent Company
Finsbury Food Group Plc is the ultimate Parent Company.
Number of
options at
29 June 2019
Number of
options at
30 June 2018
Earliest
exercise date
Exercise
expiry date
259,929
304,068
-
61,737
625,734
-
304,068
338,951
279,596
922,615
30/09/2023
02/07/2022
30/09/2019
30/09/2018
21/01/2029
26/10/2027
29/09/2026
04/12/2025
82 Finsbury Food Group
Annual Report & Accounts 2019
Company Balance Sheet
at 29 June 2019 and 30 June 2018
Non-current assets
Investments
Deferred taxation
Current assets
Debtors
Other financial assets – fair value contracts
Cash and cash equivalents
Note
39
40
41
42, 43
2019
£000
Restated
2018
£000
118,529
579
119,108
45,893
176
18,075
64,144
101,009
712
101,721
43,046
558
8,305
51,909
Creditors: amounts falling due within one year
43
(6,404)
(6,786)
Net current assets
Total assets less current liabilities
Non-current liabilities
Other interest-bearing loans and borrowings
Other payables
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Employee share reserve
Profit and loss account
Shareholders’ funds
57,740
45,123
176,848
146,844
(46,896)
(1,884)
(48,780)
(24,685)
(95)
(24,780)
128,068
122,064
1,304
64,956
578
(3,616)
64,846
128,068
1,304
64,956
578
(3,282)
58,508
122,064
44
45
46
46
46
47
The Company has elected to take the exemption under section 408 of the Companies Act 2006 not to present the Company statement of profit
and loss. The loss for the Company for the financial year was £646,000 (2018: £1,566,000).
These Financial Statements were approved by the Board of Directors on 13 September 2019 and were signed on its behalf by:
Stephen Boyd
Director
Registration number: 00204368
The Notes on pages 84 to 90 form an integral part of these Financial Statements.
Corporate GovernanceFinancial StatementsStrategic Review
83 Finsbury Food Group
Annual Report & Accounts 2019
Company Statement of Changes in Equity
for the 52 weeks ended 29 June 2019 and 52 weeks ended 30 June 2018
Balance at 1 July 2017
Profit/(loss) for the financial year
Total comprehensive income for the period
Transactions with owners, recorded directly in equity:
Shares issued from EBT
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
Balance at 30 June 2018
Profit/(loss) for the financial year
Total comprehensive loss for the period
Transactions with owners, recorded directly in equity:
Shares purchased through the EBT
Shares issued from EBT
Impact of share based payments charge to subsidiaries
Impact of share based payments
Deferred tax on share options
Dividend received
Dividend paid
Balance at 29 June 2019
Share
capital
£000
Share
premium
£000
Capital
redemption
reserve
£000
Employee
share
reserve
£000
Retained
earnings
£000
Total
equity
£000
Note
1,304
-
-
-
-
-
-
-
-
1,304
1,304
-
-
-
-
-
-
-
-
-
1,304
64,956
-
-
-
-
-
-
-
-
64,956
64,956
-
-
-
-
-
-
-
-
-
64,956
25
26
25
26
578
-
-
-
-
-
-
-
-
578
578
-
-
-
-
-
-
-
-
-
578
(3,585)
-
-
54,747
(646)
(646)
118,000
(646)
(646)
303
-
-
-
-
-
(3,282)
(3,282)
-
-
(499)
165
-
-
-
-
-
(3,616)
(217)
(13)
1,138
58
7,399
(3,958)
58,508
86
(13)
1,138
58
7,399
(3,958)
122,064
58,508
(1,566)
(1,566)
122,064
(1,566)
(1,566)
-
(165)
(177)
696
(256)
12,980
(5,174)
64,846
(499)
-
(177)
696
(256)
12,980
(5,174)
128,068
The Notes on pages 84 to 90 form an integral part of these Financial Statements.
84 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Company’s Financial Statements
(forming part of the Financial Statements)
32. 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 29 June 2019 (prior financial year 52 weeks ended 30 June 2018).
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
the 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
The prior year comparatives in the Financial Statements have been restated to reflect the following prior year adjustments:
The other interest-bearing loans and borrowings within current liabilities has been reduced by £24.7 million and the other interest-bearing loans
and borrowings within non-current liabilities has been increased by £24.7 million to reflect the appropriate classification of the Group’s Revolving
Credit Facility which has a maturity date of February 2023. This adjustment does not impact any other primary Financial Statement.
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 Comprehensive Income 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 Comprehensive Income as finance
income or cost. Changes in the market value of foreign exchange hedges have been recognised through the Consolidated Statement of Comprehensive
Income within administrative costs.
Corporate GovernanceFinancial StatementsStrategic Review 85 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Company’s Financial Statements
32. 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
The Group has prepared a budget for the year ended 27 June 2020 and financial projections for the following two years. The Group has a five-year
debt facility to February 2023 of £55.0 million with scope for the facility to be increased by up to a further £35.0 million, providing increased capacity
for the Group to explore future growth opportunities and support its long-term investment strategy. The Group has a relatively conservative level
of debt to earnings. Having due consideration of the financial projections, the level of debt, and available facilities, it is the opinion of the Directors
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.
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.
33. Remuneration of Directors
Details of Directors’ remuneration are set out in Note 7 of the Group’s Financial Statements.
34. 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
2019
53
2019
£000
4,467
500
306
5,273
2018
44
2018
£000
4,354
465
249
5,068
86 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Company’s Financial Statements
35. Share Based Payments
Details of Directors share options are set out in Note 7 of the Group’s Financial Statements and details of all share options issued are set out in Note 25
to the Group Financial Statements. During the year 887,208 (2018: 496,429) of the total 1,182,166 (2018: 858,659) 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
£545,000 (2018: £944,000). Credits relating to options exercised, cancelled or lapsed after vesting have also been passed to the subsidiaries during
the year. The credit totalled £26,000 (2018: charge £194,000) and has resulted in a decrease (2018: increase) in the total cost of investments
in the Company balance sheet. Details of Directors’ share options are set out in Note 7 of the Group’s Financial Statements.
36. Finance Income and Cost
Recognised in the Company Statement of Comprehensive Income
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
Change in fair value of interest rate swaps
Bank interest payable
Unwinding of discount on deferred consideration
Total finance cost
Net finance cost
2019
£000
-
426
16
60
502
(382)
(965)
(139)
(1,486)
(984)
2018
£000
143
182
1
2
328
-
(406)
-
(406)
(78)
37. Dividends
On 21 December 2018, a final dividend of 2.2p per share was paid to shareholders on the register at the close of business on 23 November 2018,
the amount paid was £2,808,945. An interim dividend for the six months to 30 December 2018 of 1.16p per share was paid on 26 April 2019
to shareholders on the register at the close of business on 5 April 2019. The amount paid was £1,474,474.
A final dividend of 2.34p per share has been proposed taking the total dividend to 3.5p per share. Subject to shareholder approval at the Company’s
AGM on 20 November 2019, the final dividend will be paid on 23 December 2019 to all shareholders on the register at 22 November 2019.
Corporate GovernanceFinancial StatementsStrategic Review
87 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Company’s Financial Statements
38. 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
29 June 2019.
Subsidiary
Registered address
Direct/
Indirect
ownership
Country of
incorporation
Class of
shares held
2019
2018
Anthony Alan Foods Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Direct
England and
Wales
Ordinary £1 100% 100%
California Cake Company Ltd
73 Bothwell Rd, Hamilton, ML3 0DW Indirect
Scotland
Ordinary £1 100% 100%
California Cake Company (Holdings) Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Direct
Scotland
Ordinary £1 100% 100%
Campbells Cake Company Ltd
73 Bothwell Rd, Hamilton, ML3 0DW Indirect
Scotland
Ordinary £1 100% 100%
Campbells Cake (Holdings) Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Direct
Scotland
Ordinary £1 100% 100%
Dr Zak’s Ltd
Unit 3 Stirling Court, Stirling Way,
Borehamwood, WD6 2BT
Indirect
Fennel Acquisition Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Direct
Fletchers Bakeries Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Indirect
Fletchers Bakeries Investment Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Indirect
Goswell Enterprises Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Indirect
Goswell Marketing Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Indirect
England and
Wales
England and
Wales
England and
Wales
England and
Wales
England and
Wales
England and
Wales
Ordinary £1
31%
31%
Ordinary £1 100% 100%
Ordinary £1 100% 100%
Ordinary £1 100% 100%
Ordinary £1 100% 100%
Ordinary £1 100% 100%
Johnstone’s Food Service Ltd
73 Bothwell Rd, Hamilton, ML3 0DW Indirect
Scotland
Ordinary £1 100% 100%
Lifestyle Healthcare Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Direct
Lifestyle Healthcare Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Indirect
England and
Wales
England and
Wales
Ordinary £1
50%
Ordinary £1
50%
-
-
Lightbody Celebration Cakes Ltd
73 Bothwell Rd, Hamilton, ML3 0DW Indirect
Scotland
Ordinary £1 100% 100%
Lightbody Group Ltd
Lightbody Holdings Ltd
73 Bothwell Rd, Hamilton, ML3 0DW
Direct
Scotland
Ordinary £1 100% 100%
73 Bothwell Rd, Hamilton, ML3 0DW Indirect
Scotland
Ordinary £1 100% 100%
Lightbody of Hamilton Ltd
73 Bothwell Rd, Hamilton, ML3 0DW Indirect
Scotland
Ordinary £1 100% 100%
Lightbody-Stretz Ltd
Lightbody Europe SAS
73 Bothwell Rd, Hamilton, ML3 0DW Indirect
Scotland
Ordinary £1 100% 100%
14 Allée Coysevox, CS 56939, 35069
Rennes Cedex France
Indirect
France
Ordinary £1
50% 50%
Memory Lane Cakes Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Direct
England and
Wales
Ordinary 1p 100% 100%
Murray Traders Ltd
3 Inch Marnock, St Leonards, East
Kilbride, South Lanarkshire, G74 2JQ
Indirect
Scotland Preference £1 10.5% 10.5%
Nicholas & Harris Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Indirect
Storesurvey Ltd
Ultrapharm Ltd
Maes-y-coed Rd, Cardiff, CF14 4XR
Direct
Maes-y-coed Rd, Cardiff, CF14 4XR
Direct
England and
Wales
England and
Wales
England and
Wales
Ordinary £1 100% 100%
Ordinary £1 100% 100%
Ordinary £1 100% 100%
Ultraeuropa SP. z o.o.
Maes-y-coed Rd, Cardiff, CF14 4XR
Indirect
Poland
Ordinary £1 100% 100%
88 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Company’s Financial Statements
39. Investments
Cost
At beginning of financial year
Additions
Acquisition
At end of financial year
Net book value
At 29 June 2019
At 30 June 2018
£000
101,009
(26)
17,546
118,529
118,529
101,009
The additions relate to share option credit of £26,000 (2018: £182,000 charge) passed down to individual subsidiaries. The acquisition amount
relates to the initial consideration paid and deferred consideration payable for the acquisition of Ultrapharm Limited.
40. Deferred Tax
Recognised deferred tax assets and liabilities:
Employee share Scheme charges
Interest rate swaps
Discounting of deferred consideration
Short-term temporary differences
Tax assets/(liabilities)
Net tax assets
Assets
Liabilities
2019
£000
574
-
-
5
579
519
2018
£000
712
-
-
-
712
617
2019
£000
-
(30)
(30)
-
(60)
The deferred tax asset at 29 June 2019 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
Discounting of deferred consideration
Foreign exchange contracts
Movement in Deferred Tax during the Prior Year
Employee share Scheme
Interest rate swaps
Foreign exchange contracts
30 June
2018
£000
712
(95)
-
-
617
Acquired
£000
Recognised
in income
£000
Recognised
in equity
£000
-
-
(54)
-
(54)
1 July
2017
£000
460
(71)
(25)
364
118
65
24
5
212
(256)
-
-
-
(256)
Recognised
in income
£000
Recognised
in equity
£000
194
(24)
25
195
58
-
-
58
2018
£000
-
(95)
-
-
(95)
29 June
2019
£000
574
(30)
(30)
5
519
30 June
2018
£000
712
(95)
-
617
Corporate GovernanceFinancial StatementsStrategic Review
89 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Company’s Financial Statements
41. Debtors
Amounts owed by Group undertakings
Other taxation
Prepayments and accrued income
2019
£000
45,533
95
265
45,893
2018
£000
42,907
63
76
43,046
Amounts due from Group undertakings are classified as current as they are repayable on demand.
42. Forward Foreign Exchange Contracts at Fair Value
There were no forward currency contracts in place in the Company at the year end. At the year ended 30 June 2018 the Company had entered
into a number of forward foreign exchange contracts to minimise the impact of fluctuations in exchange rates. A credit of £49,000 was included
in administrative expenses for the prior year period reflecting changes in their fair value.
43. Creditors: Amounts Falling Due Within One Year
Trade creditors
Amounts due to Group undertakings
Corporation tax
Other taxes and social security
Accruals and deferred income
Deferred consideration1
2019
£000
146
20
62
156
5,020
1,000
6,404
Restated
2018
£000
111
20
106
151
6,398
-
6,786
1. Deferred consideration is the consideration payable for the Ultrapharm acquisition payable in annual instalments to 30 June 2021.
Amounts due to Group undertakings are classified as current as they are repayable on demand.
In the prior year accounts, the combined Revolving Credit facility and transaction costs of £24,685,000 were disclosed within the above table
as “Amounts Falling Due Within One Year”. Refer to “Presentation of Financial Statements – Basis of Preparation” on page 54 for more detail.
Other Financial Liabilities – Fair Value Interest Rate Swaps
The Company has two interest rate swaps. A five-year swap from 3 July 2017 with a coverage of £20.0 million fixed at a rate of 0.455% and a three-year
swap from 28 March 2019 with a coverage of £5.0 million fixed at a rate of 1.002%. There was 53% coverage at year end (2018: 80%).
A charge of £382,000 (2018: £143,000 credit) is shown in finance expenses (2018: income) for the 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.
44. 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 23.
2019
Currency
Margin
Frequency of
repayments
Year of
maturity
Facility
£000
Total
£000
Current
£000
Non-current
£000
Revolving credit
Unamortised transaction costs
GBP 1.5%/LIBOR
Varies
2023
£55,000
47,144
(248)
46,896
-
-
-
47,144
(248)
46,896
Restated 2018
Currency
Margin
Frequency of
repayments
Year of
maturity
Facility
£000
Total
£000
Current
£000
Non-current
£000
Revolving credit
Unamortised transaction costs
GBP 1.3%/LIBOR
Varies
2023
£45,000
25,000
(315)
24,685
-
-
-
25,000
(315)
24,685
90 Finsbury Food Group
Annual Report & Accounts 2019
Notes to the Company’s Financial Statements
44. Interest-bearing Loans and Borrowings (continued)
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.
In the prior year accounts, the combined Revolving Credit facility and transaction costs of £24,685,000 were disclosed as “Current”.
Refer to “Presentation of Financial Statements – Basis of Preparation” on page 54 for more detail.
45. Creditors: Amounts Falling Due After More Than One Year
Deferred consideration
Deferred tax liability
2019
£000
1,824
60
1,884
2018
£000
-
95
95
Deferred consideration is the consideration payable for the Ultrapharm acquisition payable in annual instalments to 30 June 2021.
46. Called Up Share Capital
Note 25 in the Group Financial Statements gives details of called up share capital.
47. 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 52 with definition details in Note 24 to the consolidated Financial Statements.
48. Contingent Liabilities
The Company has guaranteed the overdrafts of its subsidiaries; there was a net cash position at the year end of £12,358,000 (2018: £9,363,000).
49. Related Party Disclosures
Note 29 in the Group’s Financial Statements gives details of related party transactions.
50. 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 23
in the Group’s Financial Statements and also referred to in the Strategic Report.
Corporate GovernanceFinancial StatementsStrategic Review
91 Finsbury Food Group
Annual Report & Accounts 2019
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
ONE Advisory Limited
201 Temple Chambers
3-7 Temple Avenue
London
EC4Y 0DT
Tel: 020 7583 8304
Independent Auditors
PricewaterhouseCoopers LLP
Chartered Accountants
One Kingsway
Cardiff
CF10 3PW
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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