Company Announcements
Preliminary Results
Related Companies
By LSE RNS
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Date: |
18 September 2017 |
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On behalf of: |
Finsbury Food Group Plc ('Finsbury', 'the Company' or 'the Group') |
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Embargoed until: 0700hrs |
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Finsbury Food Group Plc
Preliminary Results
Finsbury Food Group Plc (AIM: FIF), a leading UK speciality bakery manufacturer of cake, bread and morning goods for both the retail and foodservice channels, is pleased to announce its preliminary results for the financial year ended 1 July 2017.
The Company has delivered resilient UK sales in a deflationary market, with the impact of UK retail food market deflation in the period offset by the impact of innovation in cake and growth in speciality bakery ranges.
Financial
· Group revenue of £314.3m flat on a like for like basis, (2016: £319.7m 53 weeks, £313.5m 52 weeks).
· Adjusted operating profit of £17.4m up 4.2% on a like for like basis, (2016: £17.1m 53 weeks, £16.7m 52 weeks), with adjusted operating profit margin of 5.5% (2016: 5.3%).
· Adjusted profit before tax of £16.6m up 5.6% on a like for like basis (2016: £16.0m 53 weeks, £15.7m 52 weeks).
o Profit before tax of £13.0m (2016: £11.8m).
· Adjusted EBITDA of £24.9m up 2.7% (2016: £24.7m 53 weeks, £24.3m 52 weeks).
o EBITDA of £21.0m (2016: £20.4m).
· Record capital investment of £12.5m to drive efficiency and innovation (181% of depreciation).
· Adjusted EPS at 9.8p per share up 2% on a like for like basis, (2016: 9.6p per share 52 weeks), adjusted diluted EPS 9.5p per share (2016: 9.5p per share 52 weeks).
· Final dividend per share of 2.0p taking total dividend for the year to 3.0p up 7.1% (2016: 2.8p per share), giving a yield of 2.6% based on the year end share price of 116 pence per share.
· Net debt of £17.5m equates to 0.7 times EBITDA of the Group.
Strategic
· Capital investment including a new state of the art cake line which will be fully operational in financial year 17/18, an exciting new cupcake capability to augment the Group's licensed product range and a range of packing automation investments.
· New artisan bread facility opened, baking for retail and foodservice customers.
· Sales to continental Europe up 15% to £38.1m.
· Entered into consultation to close Grain D'Or, the loss making site in North London which manufactures premium baked goods in the UK pastry sector.
· Employee engagement programme commences following on from successful roll out of vision and values throughout the Group.
· A new multiyear licensing agreement with Thorntons and new brand licence engagements with Mary Berry and Mars, with a range of Mary Berry cakes launched in the second half of the year.
· Winner of Celebration Cake Business of the year for 2016 at the Bakery Industry Awards and multiple food quality awards: Quality food award, Café Quality food award, Grocer Own Label innovation award and International Licensing award.
Unless stated otherwise stated the figures quoted for the prior year are for 53 week period.
John Duffy, Chief Executive of Finsbury Food Group Plc, commented:
"The FY2017 results show strong resilience to the current challenges facing the industry and this strong performance, which has seen sales increase and profit margins improve, is testament to our long term focus on driving efficiency and scale across the Group.
"Investment to date has paid off and the initiatives implemented during the year will continue to ensure that we maintain our robust position as a low cost and leading speciality baker in the UK over the next 12 months and beyond.
"Our European growth has also been particularly pleasing. The positive impact that these sales have had on the overall Group performance demonstrates the advantages of having a geographically diverse portfolio.
"Our management team has proven its ability to remain competitive and nurture long term relationships with brands and customers. Although the challenging market conditions seem set to continue, we are confident that our focused and forward thinking strategy will drive us through."
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Notes to editors:
▪ Finsbury Food Group Plc (AIM: FIF) is a leading UK manufacturer of cake and bread bakery goods, supplying a broad range of blue chip customers within both the grocery retail and 'out of home eating' foodservice sectors including major multiples and leading foodservice providers.
▪ The Company is one of the largest speciality bakery groups in the UK and, with its Overseas division, has sales in the financial year ending 1 July 2017 exceeding £300m.
▪ The Company's bakery product range is comprehensive and includes:
- Large premium and celebration cakes.
- Small snacking cake formats such as cake slices and bites.
- Artisan, healthy lifestyle and organic breads through to rolls, muffins (sweet and savoury) and morning pastries, all of which are available both fresh and frozen dependent on customer channel requirements.
▪ The Company is one of the largest ambient cake manufacturers in the UK, a market valued at over £938 million (source: Symphony IRI, 52 w/e 19th August 2017). The annual retail bread and morning goods market has a value of £4.0 billion (source: Kantar Worldpanel 52 weeks to 16th July 2017). The UK foodservice bread and morning goods bakery sector is worth approximately £836 million per annum. The UK foodservice cake and sweet treat bakery sector is worth approximately £494 million per annum (UK foodservice data derived from NPD Crest 52 w/e 30th June 2017).
▪ The Company comprises a UK Bakery division and an Overseas division:
- The UK Bakery division has manufacturing sites in Cardiff, East Kilbride, Hamilton, Twechar, Salisbury, Sheffield, London and Manchester.
- The Overseas division comprises the Company's 50% owned company, Lightbody Stretz Ltd, which supplies and distributes the Group's UK-manufactured products and third party products, primarily to Europe.
These figures are for the 52 weeks ended 1 July 2017 and 53 weeks ended 2 July 2016 unless stated otherwise.
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Adjusted Operating Profit
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2017 (52 weeks) £000 |
2016 (53 weeks) £000 |
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Results from operating activities |
13,564 |
12,791 |
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|
|
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Significant non-recurring items - SNR (refer to Note 3 for detail) |
4,000 |
4,290 |
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Difference between defined benefit pension scheme charges and cash cost |
(200) |
(117) |
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Movement in the fair value of foreign exchange contracts |
71 |
134 |
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Adjustments SNR and other items |
3,871 |
4,307 |
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Adjusted results from operating activities |
17,435 |
17,098 |
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Impact of 53rd week |
- |
(371) |
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Adjusted results from operating activities for 52 weeks |
17,435 |
16,727 |
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Adjusted Profit Before Tax |
2017 (52 weeks) £000 |
2016 (53 weeks) £000 |
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Profit before tax |
13,038 |
11,804 |
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|
|
|
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Significant non-recurring items - SNR (refer to Note 3 for detail) |
4,000 |
4,290 |
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Difference between defined benefit pension scheme charges and cash cost |
4 |
31 |
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Movement in the fair value of interest rate swaps |
(555) |
(219) |
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Movement in the fair value of foreign exchange contracts |
71 |
134 |
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Adjustments SNR and other items |
3,520 |
4,236 |
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Adjusted profit before tax |
16,558 |
16,040 |
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|
|
|
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Impact of 53rd week |
- |
(358) |
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Adjusted profit before tax for 52 weeks |
16,558 |
15,682 |
Adjusted operating profit and profit before tax exclude significant 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.
Like for like growth is calculated using financial data for the prior year for a 52 week period. The 52 week period is calculated by eliminating the result for the 53rd week in the financial year ended 2 July 2016.
Adjusted diluted EPS has been calculated using earnings excluding the 53rd week in the prior year, amortisation of intangibles, significant non-recurring and other items as shown in the tables below. The adjusted diluted EPS 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.
The Financial Review section within the Strategic Report provides further details on the adjusted profits.
Chairman's Statement
A year of consolidating and investing for the future
We continue to make good progress in line with our stated aim of becoming a leading speciality bakery group in the UK. We have delivered a resilient performance despite the changing consumer and customer dynamics and the challenging economic environment for food manufacturers across the industry which, has made the journey somewhat slower and harder than expected.
The Board has reviewed the Group's strategy in the light of these external changes and has concluded that there is no need for any radical change of direction and we still firmly believe we are set on the right path to achieve our goal. We will continue to work hard to run our existing businesses as efficiently and effectively as possible whilst investing for the future and keeping a solid balance sheet that can be utilised, as and when the right opportunities present themselves.
The Board welcomed Bob Beveridge as a Non Executive Director in July and he will be joining the Audit Committee. The new Group management structure has bedded in well and is delivering the scale opportunities and benefits expected, whilst preserving our largely decentralised site system.
The Results
The Group's revenue for the 52 weeks was £314.3m, up 0.3%, on a like for like basis, compared to last year's adjusted 52 week figure. Profit before tax at £13.0m is up from £11.8m in the prior period, which on an adjusted and like for like basis is £16.6m versus £15.7m, representing a 5.6% increase. Debt is at 0.7 times EBITDA.
This result delivers on our expectations and has been achieved against a deflationary UK retail food market which is changing in terms of channel balance, as consumers shop in less traditional ways. This has led to an upswing in the discounter's market share and online gains. Specific cost issues, that relate to the current weakness of Sterling and increased costs of the new national living wage have also had to be overcome through efficiency gains and price adjustment. The European business has performed strongly this year and has demonstrated the benefit of having a diversified portfolio. A full financial review is available further on in the report.
This outcome has not been easy to achieve and has only been possible because of our Board's long-term focus on driving efficiency and managing costs, as well as the hard work of Finsbury's committed team. This was demonstrated when the Board was presented with the results of the first Group employee engagement survey. The participation was excellent and the results gratifying, with only a few areas marked for improvement.
Investing for the future
The Group's capital investment of £12.5m means we have completed, or are in the throes of completing, some very important strategic projects. A new cake line is coming on stream in Cardiff and there is a new IT system being rolled out which will give a common platform for the whole business. The benefits of these and other projects will help improve our overall productivity and offset increases in our cost base.
In light of the current environment, we maintain a strong focus on investing in our future. With this in mind we plan to invest in new plant, equipment and systems to further improve efficiency, product quality and our capability in sustainable and environmentally-responsible manufacturing. We continually assess our role within various product markets and are committed to critically reviewing our presence in those that are less successful. To this end the Company has entered into consultation with the workforce of Grain D'Or, the Group's loss making pastry factory in North London, to close the site. This consultation will conclude mid-October.
Strategy for continued growth
The licensing of brands is an important part of the business and we have worked hard to improve and strengthen our relationships with existing licensees and we were delighted to launch a range of Mary Berry cakes in the second half of the year.
We continue to win awards for our products and to add to our capabilities, such as in a new cupcake line and an artisan bread production facility, both meeting the needs of changing consumer demands. In the same way, our new product development is increasingly directed towards providing healthier and more convenient products.
Development of the foodservice channel is also an ongoing target for growth alongside any business acquisitions that meet our criteria.
Finally, on behalf of the Board I would like to thank everyone who works at Finsbury for delivering another successful year. Their passion, energy and contribution continues to drive the business forward.
Dividends
The final dividend per share of 2.0p will take the total dividend for the year to 3.0p per share, up 7% from last year's dividend of 2.8p per share.
Peter Baker
Non-Executive Chairman 15 September 2017
Chief Executive's Report
Solid delivery against expectations
Since joining the Company in 2009, our team has been keenly focused on creating strong foundations and a competitive cost base to ensure that we are in a solid position to weather industry-wide challenges. Driving efficiency and scale has been a long term focus for Finsbury and has represented the rationale behind a range of initiatives we have implemented over recent years.
With this in mind, having been operating within a deflationary UK grocery food market during the period under review, the effectiveness of these initiatives has been tested. Therefore I am pleased to report on the solid performance and trading resilience the Group has demonstrated against the headwinds posed by sustained Sterling devaluation and high input costs experienced during FY 2017. This performance, which includes growth in both Group sales and profit in the year on a like for like basis, follows several years of very strong organic and acquisition-led growth and demonstrates the benefits of the investment and diversification strategy implemented over recent years. Additionally, our strong cashflow and robust balance sheet allowed us to both reduce debt and increase our dividend whilst continuing to invest to strengthen our business for the future.
The Group is now one of the largest speciality bakery groups in the UK with a small but fast growing European business. The latter performed particularly strongly as it benefited from improved celebration cake and free from product ranges and was boosted by the exchange rate tailwind from a weaker Sterling.
All food manufacturers and their customers have had to navigate the transition from the deflationary food market of recent years to the inflationary environment evident throughout the second half and beyond. Sterling's structural decline amplified typically cyclical commodity input cost increases for UK manufacturers importing many of their ingredients. The National Living Wage has similarly amplified annual labour cost inflation throughout the labour intensive food and agriculture sector and indeed beyond. This trend looks set to continue for some time with high profile butter price hikes, driven by increased demand and a supply shortfall, the most significant example in recent months.
This market transition has seen us work proactively with our brand partners and customers to revise our product, pricing and promotional portfolio to strike the right sustainable balance of providing value for consumers whilst delivering on margin requirements. These are difficult customer conversations and whilst diminished promotional spend reduced sales growth in the short term, operating margin was successfully maintained in FY17 in conjunction with our internal efficiency improvement initiatives and recent capital investment.
Strategic investment underpinning the future
Finsbury's goal is to ensure that the Group is well positioned to maintain pricing for consumers and to remain a low cost producer for customers. These resilient results are testament to the importance of continually investing in our operations in order to improve overall productivity and offset increases in the Group's cost base.
FY17 saw the second consecutive year of record capital investment at £12.5m, some 181% of depreciation, as we further strengthen the Group's growth capacity, product capability, efficiency and cost competitiveness.
This has seen the installation of a new automated whole cake line in an upgraded bakery at our Cardiff site. This is currently undergoing product commissioning for full production in FY18. We have also opened a new artisan bread bakery at our Salisbury site. Both of these will enable future growth aligned to changing consumer demand for premium, healthy and authentic product ranges across different market channels.
The second major investment area is focused on redesigning our business processes to drive scale and efficiency across the Group businesses. This standardisation of process across all sites in the Group establishes agreed best practice and this is then embedded within the roll out of our new ERP IT platform across the group during the first half of FY18.
The third major investment area, largely non capital expenditure, is our 'People' strategy. Having successfully rolled out our vision and values last year, we completed our first group employee engagement survey, with an engagement score of 68%, to establish a base for future improvement. A new Group-wide talent management system and an associated management development programme were also successfully deployed during the year to nurture the development of both today's and, importantly, tomorrow's leaders.
Finally, we have entered into consultation for the closure of Grain D'Or, the Group's loss-making pastry factory. Over the two and a half year period since acquisition we have been working closely with management of this site to stem the losses it experienced. However, although improvements have been made, the ongoing pressures from commodity and labour cost increases has made it difficult to maintain customer contracts. The cost to close, if seen as an investment, will be justified by the reduction in losses. The Group will update the market following the completion of the consultation process and, depending on the outcome, will outline the financial consequences of any decision.
A consistent strategy for uncertain times
Our vision is to be a leading speciality bakery group which produces a broad range of high quality products for growing channels and market niches, delivers growth and differentiation for our major customers, and fulfils end-consumer requirements. Our focus is on the UK but increasingly we are extending our reach into Europe.
We operate in competitive sectors and markets, supplying brand partners and customers with innovative, safe and high quality bakery products which anticipate and fulfil consumer trends, are efficiently and sustainably made and offer great value. These results show that this strategy has delivered results for the Group.
Additional investment to better understand consumer needs and category growth opportunities complements the product, business process and people investment outlined previously. Our ability to leverage scale and best practice intellectual property across the group, whilst delivering for individual customers and brand partners, is central to our continued competitiveness and underpins our growth ambitions. It is rewarding to see Group businesses winning a number of externally recognised industry and customer food awards, whilst also extending and deepening our licensed brand relationships with both existing partners such as Thorntons and Mars, as well as new partners such as Mary Berry.
In line with our stated growth strategy the Group has continued to explore acquisition opportunities that fit strategically and meet our value criteria. However, none were successful in the year as valuations remained unrealistic given known market headwinds. More challenging market conditions may provide new acquisition opportunities in the year ahead and we remain patient. Meanwhile there are ample opportunities identified to further strengthen and optimise our current group businesses.
I would like to thank my board, executive teams and the thousands of colleagues across Finsbury for their continued commitment and hard work in baking great food products every day and in particular, to those individuals which drive the investment and change programmes on top of their other day job responsibilities.
The business environment isn't going to get any easier but I remain confident that Finsbury has the right people, investment approach and M&A strategy to deliver growth in the years ahead, delivering value for employees, customers and shareholders alike.
John Duffy
Chief Executive Officer 15 September 2017
STRATEGIC REPORT
Strategy
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 whilst fulfilling the needs of end consumers. Our focus is the UK but increasingly we are extending our reach into Europe, particularly for Cake products.
Our growth strategy will be delivered by a combination of organic growth and targeted acquisitions. We will invest to consolidate and grow within existing areas, such as round cake and artisan bread. We will also invest to expand our capabilities into new product formats and capability. This investment will accompany and facilitate the diversification of our product capability into new channels such as foodservice cake and Gluten Free. Further acquisitions will introduce new product, customer or channel diversification or accelerate market consolidation in our core product areas.
Our Markets
The total UK ambient cake market (including pre-packed cake and in-store bakery (ISB)) is valued at over £938 million (source: Symphony IRI, 52 w/e 19 August 2017). The annual retail bread and morning goods market has a value of £4.0 billion (source: Kantar Worldpanel 52 weeks to 16 July 2017). The UK foodservice bread and morning goods bakery sector is worth approximately £836 million per annum. The UK foodservice cake and sweet treat bakery sector is worth approximately £494 million per annum (source: UK foodservice data derived from NPD Crest w/e 30 June 2017).
Our Business
The Group consists of the UK Bakery and the Overseas sectors businesses.
UK Bakery
UK Bakery has eight factories each with its own range of products and manufacturing capabilities and employing in excess of 3,000 people across the following bakery companies.
· Lightbody of Hamilton Ltd is based in Hamilton and is the UK's largest supplier of celebration cakes.
· Memory Lane Cakes Ltd is based in Cardiff and is the leading manufacturer of the UK retailers own label sharing cake.
· Fletchers Group of Bakeries has three factories located in Sheffield, Manchester and London. It produces a wide range of fresh and frozen bread and morning good products, which are distributed to leading UK retailers and foodservice customers.
· Johnstone's Foodservice Ltd is based in East Kilbride and produces bite style cake products, including its renowned caramel shortcake. It supplies foodservice customers, particularly national coffee shop chains.
· Nicholas & Harris Ltd is based in Salisbury and produces a range of speciality bread and morning goods which are distributed to UK retailers and foodservice customers.
· Campbells Cake Company Ltd is based in Twechar near Glasgow and produces cold set products such as caramel shortbread and tiffin for retailers.
The Group's bakery product range is comprehensive and includes:
· Large premium and celebration cakes.
· Small snacking cake formats such as cake slices and bites.
· Artisan, healthy lifestyle and organic breads through to rolls, muffins (sweet and savoury) and morning pastries, all of which are available fresh and frozen dependent on customer channel requirements.
Overseas
Our Overseas business is a 50% subsidiary, Lightbody Stretz, based in France and run by Philippe and Valerie Stretz. The Company's focus is primarily France and the Benelux nations, and together, we are beginning to make in-roads into Austria, Switzerland and Germany. Lightbody Stretz procures, supplies and distributes a range of products to its customers. The product range includes licensed celebration and bite style cakes manufactured in the Group's UK Bakeries. The company has also developed an expertise in Gluten Free Bakery which it resources in both the UK and in Europe and sells under its brand 'Wiso' or as own label into retailer in-store bakery.
Brands and Licences
The Group is proud to have a well balanced portfolio of retailer own label business and a strong and evolving licensed branded portfolio, all supported by collaborative and strategic partnerships. We also have our own cake brand, Memory Lane, and the Kara foodservice brand.
- Kara
Kara is the innovative foodservice brand of the Finsbury Food Group, distributing to more than 300 wholesalers and end users such as UK pubs, hotels and restaurant chains, as well as exporting to countries including Germany, France, Denmark, Portugal, Spain and Holland. The Kara brand is 100% dedicated to Foodservice. Kara began its journey in 1985 with its famous floured baps, and today the range includes new premium additions such as artisan breads, brioche buns, traybakes and large premium cakes. Kara has successfully built an ever-growing portfolio of sweet and savoury baked goods; continuing to focus on the latest consumer trends, and developing new and innovative products that enable Foodservice customers to stay ahead.
The year to 1 July 2017 was one of consolidation for the Foodservice business after several consecutive years of growth. Revenues marginally ahead of the prior year in a challenging Foodservice market. New business was secured on the new cake ranges with the two major UK Foodservice wholesalers, as well as major cafes and pub groups. Market leading Kara brioche buns continue to grow in line with demand for more premium product, traditional doughnuts continued their renaissance, and artisan bread products continued to grow in both sales and outlet penetration. There was strong growth in the top four customers, somewhat offset by reduced trading in export markets, particularly France, and also in some smaller customer business closures. The Foodservice business also continued to grow its Kara branded sales, whilst still being a key supplier of retailer own brand to core customers.
- Thorntons
The Group has recently completed the renewal of its successful, long standing partnership with Thorntons which will extend this collaboration over two decades. The agreement will see the Group continue to produce and market cakes under the much loved Thorntons brand. Thorntons is still one of the fastest growing premium brands within cakes where continued success has come through strong product innovation across both celebration and snacking cakes.
- Mary Berry
We are delighted to announce the partnership and launch of the new Mary Berry range in the Spring of this year. The full product range extends to loaf, sharing and celebration cakes which have all been developed in partnership to stay true to Mary Berry's original recipes. The range brings a new dynamic to the cake category by providing a branded solution that appeals to a broader age demographic.
- Character Licensed Portfolio
Our character licences portfolio is a key focal point to the business which allows us to develop and produce products that meet consumer trends and occasions. We have a long standing relationship within the licensed industry which we are very proud of. Every licensed partnership is dear to our business and we take pride in being able to work together to bring popular characters to life across different cake formats. Successful licences for the Group this year have included Batman v's Superman, Minions, Star Wars and Emoji which have been linked to big movie releases, together with well established evergreen properties such as Me to You, Peppa Pig and Paw Patrol.
- Disney
As a long-term partner of the Disney brand, we have taken a leading role in supporting Disney's strategy to inspire healthier choices for families and we have recently relaunched our celebration cake range with an innovative reduced sugar recipe. Our new range is the first in the UK to launch with Disney Kitchen branding and we continue to drive innovation and consumer enjoyment of the Disney brand in cake.
- Mars
Mars has a wide portfolio of confectionery brands and we have worked in collaboration to develop an innovative cake range. The Galaxy and M&M cakes are built around key elements of these classic brands which provide the consumer cakes that meets most consumer occasions.
- Vogel's
Vogel's range of 'clean label' breads are crammed to bursting with seeds and grains. Alfred Vogel was a pioneering Swiss nutritionist who created the first Vogel's recipe in the 1950's. He passionately championed natural ingredients, which is why Vogel's loaves are baked without added sugar, emulsifiers, enzymes, or artificial preservatives or flavourings. To this day we share his commitment to tasty food and healthy living inspired by nature. The unique way we bake Vogel's means it's tremendously tasty toasted.
- Village Bakery
The range of organic fresh rye bread brands are perfect, if you are looking to avoid wheat. We keep it simple, only using the best organic natural ingredients: The Loyal range of rossisky and seeded rye breads will have the addition of a new Village Bakery pumpernickel rye loaf, made with molasses and a blend of kibbled ryes to give a distinct sweet and sour flavour. Keeping to minimal ingredients of organic flours, water, a little sea salt with the benefit that they are all made with no added yeast, emulsifiers or enzymes.
- Cranks
Cranks aspires to wholesome, simple, nutritious food. Our organic wholemeal loaf with organic stoneground flour is fermented for longer. Baked using specific baking processes that produces a loaf with great flavour through its fermentation process is made without any additives such as emulsifiers and enzymes. The popular stoneground wholemeal loaf will be joined by the new Cranks organic wholemeal seeded loaf.
Consumer Trends
Differentiation for our customers whilst fulfilling the needs of the end consumers is key to the Group's success, it follows that innovation and product development is an essential part of the Group's strategy. We have worked under the four broad banners to be able to focus on the macro consumer trends. The continuing challenge for the Group is to match the consumer trends with our dynamic product portfolio. The Group's new product development team reinforces Finsbury's expertise as a leading speciality bakery and provides increased differentiation from our competitors.
Broad Consumer Trends:
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Better for you |
On the Go |
Indulgence |
Artisan |
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Ongoing work in cake to meet sugar reduction targets and also butter (fat) mitigation, evidenced by the Group's work on a reduced sugar Disney range of cakes. Low carb and protein rich bread products fall into this category. |
Portability, individually wrapped and ready made on the go solutions are all areas of focus including the Group's focus on sharing formats such as bites and tubs, in store bakery brownies and crispies and Kara brand and Johnstone's Foodservice cakes. |
Small portions of indulgent cakery treats such as Thorntons caramel shortcake, seasonal treats such as Yule log and Costa cake and the new Mary Berry range. |
Organic and premium niche bread products. |
Principal Risks and Uncertainties
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 Directors have identified the following as the principal risks and uncertainties that face the Group:
Economic Environment
The market place remains challenging and there is an uncertain macro-economic outlook following the vote to leave the EU. Currency hedging and long term contracts give the Group time to plan and formulate strategies to face future challenges. The Group will continue to focus on quality and value and will explore new channels, new products and new formats to gain competitive advantage. Forging strong customer relationships and aligning strategic business plans through innovation and category management helps create mutual growth opportunities.
The Impact of Brexit
Brexit brings uncertainty in the following areas:
Labour: The food industry employs many non-UK nationals, the sector in general could see a shortfall in workers. Increasing reliance on UK workers which may push up wage costs may prompt a change in business model.
Material: The weakening of the pound post Brexit has had an impact on ingredient prices.
Regulations: All current regulations on food safety, labelling or health and safety will continue to apply to UK businesses. Product standards will need to be observed by UK companies when trading with the EU.
The Group will respond to the challenges that Brexit brings once negotiations are advanced.
Competitive Environment and Customer Requirements
The environment remains competitive within the Bakery sector. The monitoring of key performance indicators at customer level such as service levels and customer complaints is part of the risk management process associated with this specific risk. Providing quality products, investing in innovation and competing on value helps to strengthen customer relations and support growth initiatives. The Group invests heavily in category management, new product development and marketing skills. This investment has helped create an insight into customers and consumer demands.
Product Quality
Product quality is a key strength of the Group and failure to maintain a high standard of safety and food quality would have a severe impact on service levels and customer relationships. The Group's technical function is responsible for the implementation and maintenance of high standards for food safety striving for best practice. Quality assurance procedures are managed at site level and are reviewed continuously with improvements made as appropriate. The operating subsidiaries are subject to regular internal and independent food safety and quality control audits including those carried out by, or on behalf of, our customers. The Group maintains product recall insurance cover to mitigate the potential impact of such an occurrence.
Commodity and labour pressures
Bakery entails the use of commodities whose price is determined by worldwide demand and macro-economic factors. Commodity pressures have increased as a consequence of a number of factors; 1) A step change in the value of Sterling against both the Euro and Dollar following the Brexit vote. 2) The commodity cycle which, in the recent past, has been relatively low. The cycle has seen significant increases in the price of a number of commodities which are over and above any exchange rate deterioration. Finally, 3) European policies particularly in the areas of butter and sugar.
The Group maintains a high level of expertise in its buying team and will consider long term contracts where appropriate to reduce uncertainty in input prices. The team also cultivates strong relationships with major suppliers to ensure continuity of supply at competitive prices. Regular renovation and innovation in our product range can help to manage margin pressures in an effective manner as far as the competitive environment allows. The Group also purchases forward foreign currency in order to minimise the fluctuation of input costs linked to future currency conversion rates.
The National Living Wage is driving forward the cost of labour ahead of 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 reduce the impacts of both labour availability and cost as well as material inflation.
Pension fund deficit
The Group has one defined benefit pension scheme within its Memory Lane Cakes Limited business in Cardiff. The Scheme was closed to new members in 2010 to reduce the funding risk to Memory Lane Cakes. The valuation of the Scheme on a technical provision basis as well as the underlying performance of the invested assets can cause large fluctuations in valuations. There is an agreed deficit recovery plan fixed until September 2023 or until a new schedule is agreed based on the next valuation which will be at 31 December 2018.
Cyber security
The Group is exposed to random and malicious attacks from Cyber criminals. The maintenance of protections software is one tool in the fight to protect our data. In addition, the Group is investing to implement common Information systems across all companies with standardised protection, operating requirements and security protection. Finally, real time back-up, training and regular communication pulls the Group's defences together.
Group systems
The Group will during the next financial year complete the upgrade of its business systems across UK Bakery. The ERP system is the latest version of the existing system within the Fletchers business acquired in 2014. Recognising the inherent risks to a systems upgrade, an appropriate Corporate Governance structure has been put in place, a Steering Committee comprising senior operational management from both businesses and chaired by an independent implementation specialist with KPMG engaged to independently assess and advise the Board on progress and risks to the business associated with the program. The fact that the new ERP system is the latest version of the existing system in operation within the Fletcher's business is also a significant risk reduction factor.
Dividend
Subject to shareholder approval at the Company's AGM on 22nd November 2017, the final dividend of 2.0 pence per share will be paid on 22 December 2017 to all shareholders on the register at 24 November 2017 and will be recognised in the financial year ending 30 June 2018.
Financial review
Continuing Group revenue for the 52 week period to 1 July 2017 was up 0.3% to £314.3 million (2016: £313.5 million 52 weeks, £319.7 million 53 weeks). Operating Profit margins were 5.5% (2016: 5.3%). Capital investment, improvement in operational efficiency and product mix are the main drivers for the improvement in margin. Administrative expenses have decreased despite inflationary pressures. This decrease is driven by continued focus on overhead control, operational improvements and efficiencies from record levels of capital investment. The prior year also included a charge of £2.8 million for the cancellation of legacy share options.
Grain D'Or Business
The Group's Grain D'Or business was acquired as part of the Fletchers acquisition in October 2014, it is a producer of premium baked products for the UK pastry sector and based in London. The business has been historically loss making and despite the implementation of a range of initiatives to improve the business including strict cost control and new working practices the site remained loss making in the year to 1 July 2017. The Company now proposes to close the site. A formal consultation with representatives of the workforce commenced on 1 September 2017. The consultation is expected to conclude mid October 2017. Until this consultation period concludes uncertainty remains over the use of the assets. In light of this, a decision has been taken to impair the assets used in the business by £4.0 million in the year to 1 July 2017.
The tables below show what the Directors consider to be the underlying performance of the Group, the adjustments eliminate the impact of significant non-recurring items and other accounting items.
52 week period ended 1 July 2017
|
|
Operating performance |
|
Significant non-recurring items |
|
|
Defined benefit pension scheme |
|
Fair value of interest rate swaps/ foreign exchange contracts |
As per Consolidated Statement of Comp-rehensive Income |
|
|
£000 |
|
£000 |
|
|
£000 |
|
£000 |
£000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
314,296 |
|
- |
|
|
- |
|
- |
314,296 |
|
Cost of sales |
(216,493) |
|
- |
|
|
- |
|
- |
(216,493) |
|
Gross profit |
97,803 |
|
- |
|
|
- |
|
- |
97,803 |
|
Other costs excluding depreciation & amortisation |
(72,883) |
|
(4,000) |
|
|
200 |
|
(71) |
(76,754) |
|
EBITDA |
24,920 |
|
(4,000) |
|
|
200 |
|
(71) |
21,049 |
|
Depreciation & amortisation |
(7,485) |
|
- |
|
|
- |
|
- |
(7,485) |
|
Results from operating activities |
17,435 |
|
(4,000) |
|
|
200 |
|
(71) |
13,564 |
|
Finance income |
- |
|
- |
|
|
- |
|
555 |
555 |
|
Finance costs |
(877) |
|
- |
|
|
(204) |
|
- |
(1,081) |
|
Profit before tax |
16,558 |
|
(4,000) |
|
|
(4) |
|
484 |
13,038 |
|
Share of losses of equity accounted investees after tax |
(22) |
|
- |
|
|
- |
|
- |
(22) |
|
|
|
|
|
|
|
|
|
|
|
|
Taxation |
(3,578) |
|
680 |
|
|
1 |
|
(62) |
(2,959) |
|
Profit for the year |
12,958 |
|
(3,320) |
|
|
(3) |
|
422 |
10,057 |
53 week period ended 2 July 2016
|
|
Operating performance |
|
Significant non-recurring items |
|
|
Defined benefit pension scheme |
|
Fair value of interest rate swaps/ foreign exchange contracts |
As per Consolidated Statement of Comp-rehensive Income |
|
|
£000 |
|
£000 |
|
|
£000 |
|
£000 |
£000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
319,680 |
|
- |
|
|
- |
|
- |
319,680 |
|
Cost of sales |
(217,092) |
|
- |
|
|
- |
|
- |
(217,092) |
|
Gross profit |
102,588 |
|
- |
|
|
- |
|
- |
102,588 |
|
Other costs excluding depreciation & amortisation |
(77,861) |
|
(4,290) |
|
|
117 |
|
(134) |
(82,168) |
|
EBITDA |
24,727 |
|
(4,290) |
|
|
117 |
|
(134) |
20,420 |
|
Depreciation & amortisation |
(7,629) |
|
- |
|
|
- |
|
- |
(7,629) |
|
Results from operating activities |
17,098 |
|
(4,290) |
|
|
117 |
|
(134) |
12,791 |
|
Finance income |
2 |
|
- |
|
|
- |
|
219 |
221 |
|
Finance costs |
(1,060) |
|
- |
|
|
(148) |
|
- |
(1,208) |
|
Profit before tax |
16,040 |
|
(4,290) |
|
|
(31) |
|
85 |
11,804 |
|
Share of losses of equity accounted investees after tax |
(14) |
|
- |
|
|
- |
|
- |
(14) |
|
|
|
|
|
|
|
|
|
|
|
|
Taxation |
(3,272) |
|
- |
|
|
6 |
|
(20) |
(3,286) |
|
Profit for the year |
12,754 |
|
(4,290) |
|
|
(25) |
|
65 |
8,504 |
Details of significant non-recurring items are detailed in Note 3.
Earnings per Share (EPS)
EPS comparatives to the prior year can be distorted by significant non-recurring items and other items highlighted above, as well as the impact of the 53rd week for the previous financial year. The Board is focused on growing adjusted diluted EPS, which is calculated by eliminating the impact of the items highlighted above as well as amortisation of intangibles and incorporates the dilutive effect of share options. Adjusted diluted EPS is 9.5p (2016: 9.5p for the 52 week period).
|
|
52 week 2017 |
52 week 2016 |
52 week 2015 |
|
Basic EPS |
7.1p |
5.9p |
5.8p |
|
Adjusted basic EPS |
9.8p |
9.6p |
8.3p |
|
Diluted basic EPS |
6.9p |
5.8p |
5.6p |
|
Adjusted* diluted** EPS |
9.5p |
9.5p |
8.0p |
Further details can be found in Note 6.
Diluted EPS takes basic EPS and incorporates the dilutive effect of share options.
The prior year to 2 July 2016 was a 53 week period. Like for like figures have been calculated using financial data by excluding the 53rd week.
Cash Flow
There was an increase in our working capital requirement of £2.5 million (2016: £1.6 million) in the financial year, corporation tax payments made in the financial year totalled £2.7 million (2016: £1.6 million), the payments in the current and prior year took account of the research and development tax relief due to the Group and tax losses being utilised. Capital expenditure in the year amounted to £12.5 million (2016: £12.1 million).
Debt and Bank Facilities
The Group's total net debt is £17.5 million (2016: £19.7 million) down £2.2 million from the prior year. Within this total, £11.6 million is due within one year, including cash at bank and invoice finance (2016: £10.9 million).
The Group's debt facility is a bilateral facility with HSBC Bank Plc and Lloyds Bank Plc totalling £50.9m, the key features of the facility are as follows:
§ Overdraft (£2.0m)
§ Term loan (£13.4m)
§ Confidential invoice discounting facility (£22.0m)
§ Mortgage facility (£3.5m)
§ Rolling asset finance facility (£2.0m)
§ Revolving credit facility (£8.0m)
Note 8 gives details of the amounts drawn on these facilities and maturity dates.
The Group is able to offer strong asset backing to secure its borrowings. The Group owns freehold sites at Memory Lane in Cardiff, Fletchers' site at Sheffield and Lightbody and Campbells in Scotland. In addition, the Group has a strong trade debtor book to support the invoice discounting facility, made up primarily of the UK's major multiple retailers. This debtor book stood at £45.2 million (2016: £44.9 million) at the period end date.
The Group recognises the inherent risk from interest rate rises, to mitigate these risks the Group uses interest rate swaps. There was no interest rate swap coverage in place at the year end, (2016: coverage of £9.0 million, equivalent to 46% of total net bank debt). The Group has one forward dated interest rate swap for five years from 3 July 2017 with a coverage of £20 million (2016: £9 million), the forward dated swap has a rate of 0.455% (2016: weighted average rate 1.8%).
The effective interest rate for the Group at the year end, taking account of the interest rate swap in place with base rate at 0.25% and LIBOR at 0.42%, was 2.15% (2016: 3.0%). A £3.0 million swap fixed at 1.65% expired on 22 May 2017 and a £6.0 million swap fixed at 1.89% expired on 2 June 2017.
Financial Covenants
The Board reviews the Group's cash flow forecasts and key covenants on a regular basis to ensure that it has adequate facilities to cover its trading and banking requirements with an appropriate level of headroom. The forecasts are based on management's best estimates of future trading. There has been no breach of covenants during the year.
Interest cover (based on adjusted earnings before interest, tax, depreciation and amortisation - EBITDA) for the 52 weeks to 1 July 2017 was 28.4 (2016: 23.4). Net bank debt to EBITDA (based on adjusted EBITDA) for the year to 1 July 2017 was 0.7 (2016: 0.8).
Taxation
The Group taxation charge for the year was £3.0 million (2016: £3.3 million). This represents an effective rate of 21.4% on profits before significant non-recurring items (2016: 20.4%). Further details on the tax charge can be found in Note 5 to the Group's Financial Statements.
Non-Financial Key Performance Indicators
A range of non-financial key performance indicators are monitored at site level covering, amongst others, customer service, quality and health and safety. The Group board receives an overview of these on a regular basis.
Environmental Matters
As part of the environmental activities, site wide LED replacement programs are ongoing along with continued focus on energy usage such as oven burner efficiencies and insulated traywash facilities. Trade effluent reduction initiatives are ongoing with investment in a new effluent treatment plant completed at one of our larger bakeries.
Employee Social and Community Issues
With the successful roll out of the Groups vision and values the Group holds various family fun days as part of the employee engagement program. We have links with employment agencies and continue to participate in employability work placements that help provide work placements for individuals who find it difficult to get back to full time employment. Various charities are supported and in some instances the site's employee forum decides on the local charity. In an attempt to promote health and wellbeing fitness and running clubs have been established at a local basis.
Technical Matters
All sites hold grade A, or the highest AA rating under the British Retail Consortium version 7 standard. As a Group, all technical functions have come together to establish a Group Technical Strategy which is a dynamic three year plan covering all aspects of people, food safety, legal compliance and the establishment of a quality culture underpinned by consistent process control. Major investment has also taken place in the form of upgrading team member facilities to a best in standard and we have continued to invest in a strong visual good manufacturing programme on site.
Health continues to be a major focus for the business. Dedicated resource continues to work on sugar and salt reduction targets as part of the Government Obesity Strategy and Public Health England recommendations. In conjunction with a major brand owner the Group were first to market providing a range of licensed products which were 18 months in development and which exceed these requirements.
The Strategic Report was approved by the Board of Directors on 15 September 2017 and was signed on its behalf by:
Stephen Boyd (Director)
Financial Statements
Consolidated Statement of Profit and Loss and Other Comprehensive Income
for the 52 weeks ended 1 July 2017 and 53 weeks ended 2 July 2016
|
|
|
|
2017 |
|
2016 |
|
|
|
Note |
£000 |
|
£000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
1 |
314,296 |
|
319,680 |
|
Cost of sales |
|
|
(216,493) |
|
(217,092) |
|
Gross profit |
|
|
97,803 |
|
102,588 |
|
Administrative expenses |
|
2 |
(84,239) |
|
(89,797) |
|
Results from operating activities |
|
|
13,564 |
|
12,791 |
|
Finance income |
|
4 |
555 |
|
221 |
|
Finance cost |
|
4 |
(1,081) |
|
(1,208) |
|
Net finance cost |
|
|
(526) |
|
(987) |
|
Profit before tax and share of losses of equity-accounted investees |
|
|
13,038 |
|
11,804 |
|
Share of losses of equity accounted investees |
|
|
(22) |
|
(14) |
|
Profit before tax |
|
|
13,016 |
|
11,790 |
|
Taxation |
|
5 |
(2,959) |
|
(3,286) |
|
Profit for the financial year |
|
|
10,057 |
|
8,504 |
|
|
|
|
|
|
|
|
Other comprehensive (expense)/income |
|
|
|
|
|
|
Items that will not be reclassified to profit and loss |
|
|
|
|
|
|
Remeasurement on defined benefit pension scheme |
|
|
(4,031) |
|
(2,595) |
|
Movement in deferred taxation on pension scheme liability |
|
|
621 |
|
390 |
|
Other comprehensive expense for the financial year, net of tax |
|
|
(3,410) |
|
(2,205) |
|
Total comprehensive income for the financial year |
|
|
6,647 |
|
6,299 |
|
|
|
|
|
|
|
|
Profit attributable to: |
|
|
|
|
|
|
Equity holders of the parent |
|
|
9,048 |
|
7,791 |
|
Non-controlling interest |
|
|
1,009 |
|
713 |
|
Profit for the financial year |
|
|
10,057 |
|
8,504 |
|
|
|
|
|
|
|
|
Total comprehensive income attributable to: |
|
|
|
|
|
|
Equity holders of the parent |
|
|
5,638 |
|
5,586 |
|
Non-controlling interest |
|
|
1,009 |
|
713 |
|
Total comprehensive income for the financial year |
|
|
6,647 |
|
6,299 |
|
|
|
|
|
|
|
|
Earnings per ordinary shares |
|
|
|
|
|
|
Basic |
|
6 |
7.1 |
|
6.1 |
|
Diluted |
|
6 |
6.9 |
|
6.0 |
|
The Notes on pages 22 to 32 form an integral part of these Financial Statements |
|||||
Consolidated Statement of Financial Position
at 1 July 2017 and 2 July 2016
|
|
Note |
|
2017 |
2016 |
|
|
|
|
£000 |
£000 |
|
Non-current assets |
|
|
|
|
|
Intangibles |
7 |
|
80,302 |
77,596 |
|
Property, plant and equipment |
|
|
48,857 |
50,501 |
|
Investments in equity accounted investees |
|
|
269 |
211 |
|
Other financial assets |
|
|
28 |
28 |
|
Deferred tax assets |
|
|
4,063 |
3,492 |
|
|
|
|
133,519 |
131,828 |
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
Inventories |
|
|
12,684 |
12,577 |
|
Trade and other receivables |
|
|
50,018 |
50,332 |
|
Cash and cash equivalents |
|
|
3,024 |
3,024 |
|
Other financial assets - fair value of derivatives |
|
|
560 |
- |
|
|
|
|
66,286 |
65,933 |
|
Total assets |
|
|
199,805 |
197,761 |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Other interest-bearing loans and borrowings |
8 |
|
(14,586) |
(13,829) |
|
Trade and other payables |
|
|
(60,461) |
(64,357) |
|
Provisions |
|
|
(18) |
(247) |
|
Other financial liabilities - fair value of derivatives |
|
|
(234) |
(157) |
|
Current tax liabilities |
|
|
(1,650) |
(1,210) |
|
|
|
|
(76,949) |
(79,800) |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Other interest-bearing loans and borrowings |
8 |
|
(5,800) |
(8,740) |
|
Provisions and other liabilities |
|
|
(221) |
(141) |
|
Deferred tax liabilities |
|
|
(1,335) |
(1,547) |
|
Pension fund liability |
|
|
(10,498) |
(6,463) |
|
|
|
|
(17,854) |
(16,891) |
|
Total liabilities |
|
|
(94,803) |
(96,691) |
|
|
|
|
|
|
|
Net assets |
|
|
105,002 |
101,070 |
|
|
|
|
|
|
|
Equity attributable to equity holders of the parent |
|
|
|
|
|
Share capital |
|
|
1,304 |
1,304 |
|
Share premium account |
|
|
64,956 |
64,956 |
|
Capital redemption reserve |
|
|
578 |
578 |
|
Employee share reserve |
|
|
(3,585) |
(3,920) |
|
Retained earnings |
|
|
39,862 |
36,569 |
|
|
|
|
103,115 |
99,487 |
|
Non-controlling interest |
|
|
1,887 |
1,583 |
|
Total equity |
|
|
105,002 |
101,070 |
|
|
|
|
|
|
These Financial Statements were approved by the Board of Directors on 15 September 2017 and were signed on its behalf by:
Stephen Boyd (Director)
Registered Number 00204368
The Notes on pages 22 to 32 form an integral part of these Financial Statements
Consolidated Statement of Changes in Equity
for the 52 weeks ended 1 July 2017 and 53 weeks ended 2 July 2016
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
Share Capital |
Share premium |
Capital redemption reserve |
Employee share reserve |
Retained Earnings |
Non-controlling interest |
Total equity |
|
|||||||||
|
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance at 28 June 2015 |
|
1,280 |
64,952 |
578 |
- |
34,580 |
1,206 |
102,596 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Profit for the financial year |
|
- |
- |
- |
- |
7,791 |
713 |
8,504 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Other comprehensive (expense)/ income: |
|
|
|
|
|
|
|
|
|
|||||||||
|
Remeasurement on defined benefit pension |
|
- |
- |
- |
- |
(2,595) |
- |
(2,595) |
|
|||||||||
|
Deferred tax movement on pension scheme remeasurement |
|
- |
- |
- |
- |
390 |
- |
390 |
|
|||||||||
|
Total other comprehensive expense |
|
- |
- |
- |
- |
(2,205) |
- |
(2,205) |
|
|||||||||
|
Total comprehensive income for the period |
|
- |
- |
- |
- |
5,586 |
713 |
6,299 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Transactions with owners, recorded directly in equity: |
|
|
|
|
|
|
|
|
|
|||||||||
|
Own shares acquired |
|
- |
- |
- |
(3,920) |
- |
- |
(3,920) |
|
|||||||||
|
Shares issued during the year |
|
24 |
4 |
- |
- |
(23) |
- |
5 |
|
|||||||||
|
Impact of share based payments |
|
- |
- |
- |
- |
306 |
- |
306 |
|
|||||||||
|
Deferred tax on share options |
|
- |
- |
- |
- |
(575) |
- |
(575) |
|
|||||||||
|
Dividend paid |
|
- |
- |
- |
- |
(3,305) |
(336) |
(3,641) |
|
|||||||||
|
Balance at 2 July 2016 |
|
1,304 |
64,956 |
578 |
(3,920) |
36,569 |
1,583 |
101,070 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Balance at 2 July 2016 |
|
1,304 |
64,956 |
578 |
(3,920) |
36,569 |
1,583 |
101,070 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Profit for the financial year |
|
- |
- |
- |
- |
9,048 |
1,009 |
10,057 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Other comprehensive (expense)/ income: |
|
|
|
|
|
|
|
|
|
|||||||||
|
Remeasurement on defined benefit pension |
|
- |
- |
- |
- |
(4,031) |
- |
(4,031) |
|
|||||||||
|
Deferred tax movement on pension scheme remeasurement |
|
- |
- |
- |
- |
621 |
- |
621 |
|
|||||||||
|
Total other comprehensive expense |
|
- |
- |
- |
- |
(3,410) |
- |
(3,410) |
|
|||||||||
|
Total comprehensive income for the period |
|
- |
- |
- |
- |
5,638 |
1,009 |
6,647 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Transactions with owners, recorded directly in equity: |
|
|
|
|
|
|
|
|
|
|||||||||
|
Own shares acquired |
|
- |
- |
- |
335 |
(158) |
- |
177 |
|
|||||||||
|
Shares issued during the year |
|
- |
- |
- |
- |
- |
- |
- |
|
|||||||||
|
Impact of share based payments |
|
- |
- |
- |
- |
1,240 |
- |
1,240 |
|
|||||||||
|
Deferred tax on share options |
|
- |
- |
- |
- |
47 |
- |
47 |
|
|||||||||
|
Foreign exchange translation differences |
|
- |
- |
- |
- |
171 |
- |
- 171 |
|
|||||||||
|
Dividend paid |
|
- |
- |
- |
- |
(3,645) |
(705) |
(4,350) |
|
|||||||||
|
Balance at 1 July 2017 |
|
1,304 |
64,956 |
578 |
(3,585) |
39,862 |
1,887 |
105,002 |
|
|||||||||
|
|
|
|||||||||||||||||
|
The notes on pages 22 to 32 form an integral part of these Financial Statements. |
||||||||||||||||||
Consolidated Cash Flow Statement
for the 52 weeks ended 1 July 2017 and 53 weeks ended 2 July 2016
|
|
|
|
|
|
|
Note |
2017 |
2016 |
|
|
|
£000 |
£000 |
|
Cash flows from operating activities |
|
|
|
|
Profit for the financial year |
|
10,057 |
8,504 |
|
Adjustments for: |
|
|
|
|
Taxation |
5 |
2,959 |
3,286 |
|
Net finance costs |
4 |
526 |
987 |
|
Depreciation |
|
6,948 |
7,090 |
|
Amortisation of intangibles |
7 |
537 |
539 |
|
Non-cash Impairment of assets & goodwill |
7 |
4,000 |
4,290 |
|
Share of losses of equity accounted investees after tax |
|
22 |
14 |
|
Contributions by employer to pension scheme |
|
(200) |
(117) |
|
Change in fair value of foreign exchange contracts |
|
71 |
134 |
|
Operating profit before changes in working capital |
|
24,920 |
24,727 |
|
|
|
|
|
|
Changes in working capital: |
|
|
|
|
Decrease/(increase) in inventories |
|
(39) |
(1,091) |
|
Decrease/(increase) in trade and other receivables |
|
153 |
(2,253) |
|
(Decrease)/Increase in trade and other payables |
|
(2,566) |
1,711 |
|
Cash generated from operations |
|
22,468 |
23,094 |
|
|
|
|
|
|
Interest paid |
|
(892) |
(1,180) |
|
Tax paid |
|
(2,650) |
(1,603) |
|
Net cash from operating activities |
|
18,926 |
20,311 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Purchase of property, plant and equipment |
|
(12,542) |
(12,141) |
|
Purchase of companies/investments |
|
(80) |
- |
|
Deferred consideration paid |
|
- |
(50) |
|
Net cash used in investing activities |
|
(12,622) |
(12,191) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Net drawdown of invoice discounting |
9 |
822 |
7,427 |
|
Repayment of revolving credit |
9 |
- |
(2,000) |
|
Repayment of mortgage and bank loans |
9 |
(2,937) |
(3,672) |
|
Repayment of asset finance liabilities |
9 |
(133) |
(284) |
|
Issue of ordinary share capital |
|
- |
5 |
|
Options exercised/(purchase) of shares by employee benefit trust |
|
177 |
(2,835) |
|
Dividend paid to non-controlling interest |
|
(705) |
(336) |
|
Dividend paid to shareholders |
|
(3,645) |
(3,305) |
|
Net cash from financing activities |
|
(6,421) |
(5,000) |
|
|
|
|
|
|
Net (decrease)/increase in cash and cash equivalents |
|
(117) |
3,120 |
|
Opening cash and cash equivalents |
|
3,024 |
61 |
|
Effect of exchange rate fluctuations on cash held |
|
117 |
(157) |
|
Cash and cash equivalents at end of period |
|
3,024 |
3,024 |
|
The Notes on pages 22 to 32 form an integral part of these Financial Statements. |
|||
|
|
|||
Notes to the Consolidated Financial Statements
(forming part of the Financial Statements)
Presentation of Financial Statements
Basis of Preparation
The financial information set out above does not constitute the company's statutory accounts for the 52 week period ended 1 July 2017 or the 53 week period ended 2 July 2016, but is derived from those accounts. Statutory accounts for 2016 have been delivered to the registrar of companies, and those for 2017 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
1. Revenue and Segment Information
Operating segments are identified on the basis of internal reporting and decision making. The Group's Chief Operating Decision Maker is considered to be the Board as it is primarily responsible for the allocation of resources to segments and the assessment of performance by segment.
The Board uses adjusted operating profit, reviewed on a regular basis, as the key measure of the segments' performance. Operating profit in this instance is defined as profit before the following:
Ø Net financing expense
Ø Significant non-recurring items
Ø Pension charges or credits in relation to the net pension position
Ø Revaluation of interest rate swaps and forward foreign currency contracts.
The UK Bakery segment manufactures and sells bakery products to the UK's multiple grocers and foodservice sectors. This segment primarily comprises the operations of Memory Lane Cakes Ltd, Lightbody Group Ltd, Campbells Cake Company Ltd, Johnstone's Food Service Ltd, Fletchers Bakeries Ltd and Nicholas & Harris Ltd. These subsidiaries are aggregated into a single segment as they share similar economic characteristics. The characteristics considered are:
Ø The nature of the products - products are similar in nature and are classed as manufactured bakery products
Ø The production process - the production processes have the same or similar characteristics
Ø The economic characteristics - the average gross margins are expected to be similar
Costs of Group operations plus a 10% premium have been allocated across the segments on the basis of their operating profit. The premium has been charged to reflect the synergies achieved from obtaining resources centrally giving benefits across the operating segments
A purchasing premium of 2% is charged from Group operations, and is calculated on materials and packaging spend at segmental level. This charge is based on the rationale that Group operations, through its Group buyers, optimises the Group's procurement spend through leveraging its purchasing power.
This has resulted in a loss from continuing operations of £0.2m (2016: £0.3m loss) being presented within the Group Operations segment.
The Group's finance income and expenses cannot be meaningfully allocated to the individual operating segments.
1 Revenue and Segment Information (continued)
|
52 week period ended 1 July 2017 |
UK Bakery
£000 |
Overseas
£000 |
Group Operations £000 |
Total Group
£000 |
|
External revenue continuing |
281,580 |
32,716 |
- |
314,296 |
|
Adjusted operating profit |
15,369 |
2,219 |
(153) |
17,435 |
|
Fair value foreign exchange contracts |
|
|
|
(71) |
|
Defined benefit pension scheme |
|
|
|
200 |
|
Significant non-recurring items |
|
|
|
(4,000) |
|
Results from operating activities |
|
|
|
13,564 |
|
Finance income |
|
|
|
555 |
|
Finance cost |
|
|
|
(1,081) |
|
Net finance cost |
|
|
|
(526) |
|
Share of losses of equity accounted investees after tax |
|
|
|
(22) |
|
Profit before taxation |
|
|
|
13,016 |
|
Taxation |
|
|
|
(2,959) |
|
Profit for the financial year |
|
|
|
10,057 |
|
|
|
|
|
|
|
At 1 July 2017 |
|
|
|
|
|
Segment assets |
188,628 |
6,543 |
712 |
195,883 |
|
Unallocated assets |
|
|
|
3,922 |
|
Consolidated total assets |
|
|
|
199,805 |
|
Segment liabilities |
(62,483) |
(5,041) |
(6,564) |
(74,088) |
|
Unallocated liabilities |
|
|
|
(20,715) |
|
Consolidated total liabilities |
|
|
|
(94,803) |
|
|
|
|
|
|
|
Other segment information |
|
|
|
|
|
Capital expenditure |
12,430 |
112 |
- |
12,542 |
|
Depreciation included in segment profit |
6,906 |
42 |
- |
6,948 |
|
Amortisation |
537 |
- |
- |
537 |
|
Impairment of assets |
4,000 |
- |
- |
4,000 |
|
Inter-segmental sale / (purchases) |
8,710 |
(8,710) |
- |
- |
Analysis of unallocated assets and liabilities:
|
|
Assets |
|
Liabilities |
|
|
£000 |
|
£000 |
|
Investments |
297 |
Loans and borrowings |
(20,386) |
|
Financial instruments |
560 |
Financial instruments |
(234) |
|
Cash and cash equivalents |
3,024 |
Cash and cash equivalents |
- |
|
Taxation balances |
41 |
Taxation balances |
(95) |
|
Unallocated assets |
3,922 |
Unallocated liabilities |
(20,715) |
With regard to revenue, five customers with sales of £64m, £39m, £31m, £22m and £22m account for 57% of revenue, which is attributable to the UK Bakery and Overseas segments above.
Impairment relates to the assets held in Grain D'Or, which fall under the UK Bakery segment.
1. Revenue and Segment Information (continued)
|
53 week period ended 2 July 2016 |
UK Bakery
£000 |
Overseas
£000 |
Group Operations £000 |
Total Group
£000 |
|
External revenue continuing |
291,196 |
28,484 |
- |
319,680 |
|
Adjusted operating profit |
15,887 |
1,511 |
(300) |
17,098 |
|
Fair value foreign exchange contracts |
|
|
|
(134) |
|
Defined benefit pension scheme |
|
|
|
117 |
|
Significant non-recurring items |
|
|
|
(4,290) |
|
Results from operating activities |
|
|
|
12,791 |
|
Finance income |
|
|
|
221 |
|
Finance cost |
|
|
|
(1,208) |
|
Net finance cost |
|
|
|
(987) |
|
Share of losses of equity accounted investees after tax |
|
|
|
(14) |
|
Profit before taxation |
|
|
|
11,790 |
|
Taxation |
|
|
|
(3,286) |
|
Profit for the financial year |
|
|
|
8,504 |
|
|
|
|
|
|
|
At 2 July 2016 |
|
|
|
|
|
Segment assets |
187,827 |
6,337 |
292 |
194,456 |
|
Unallocated assets |
|
|
|
3,305 |
|
Consolidated total assets |
|
|
|
197,761 |
|
Segment liabilities |
(61,557) |
(5,355) |
(7,052) |
(73,964) |
|
Unallocated liabilities |
|
|
|
(22,727) |
|
Consolidated total liabilities |
|
|
|
(96,691) |
|
|
|
|
|
|
|
Other segment information |
|
|
|
|
|
Capital expenditure |
12,115 |
26 |
- |
12,141 |
|
Depreciation included in segment profit |
7,063 |
27 |
- |
7,090 |
|
Amortisation |
539 |
- |
- |
539 |
|
Impairment of goodwill |
4,290 |
- |
- |
4,290 |
|
Inter-segmental sale / (purchases) |
8,488 |
(8,488) |
- |
- |
Analysis of unallocated assets and liabilities:
|
|
Assets |
|
Liabilities |
|
|
£000 |
|
£000 |
|
Investments |
253 |
Loans and borrowings |
(22,570) |
|
Financial instruments |
- |
Financial instruments |
(157) |
|
Cash and cash equivalents |
3,024 |
Cash and cash equivalents |
- |
|
Taxation balances |
28 |
Taxation balances |
- |
|
Unallocated assets |
3,305 |
Unallocated liabilities |
(22,727) |
With regard to revenue, five customers with sales of £66m, £39m, £29m, £24m and £23m account for 57% of revenue, which is attributable to the UK Bakery and Overseas segments above.
Impairment loss relates to the Anthony Alan Foods Ltd acquisition in 2007 which falls under the UK Bakery segment.
1. Revenue and Segment Information (continued)
An analysis by geographical segment is shown below:
|
|
|
|
|
|
|||
|
Geographical split of revenue by destination |
|
2017 |
2016 |
||||
|
|
|
£000 |
£000 |
||||
|
Continuing: |
|
|
|
|
|
||
|
United Kingdom |
|
|
|
276,177 |
286,562 |
||
|
Europe |
|
|
|
38,119 |
33,118 |
||
|
Rest of World |
|
|
|
- |
- |
||
|
Total continuing |
|
|
|
314,296 |
319,680 |
||
|
|
|||||||
|
Capital expenditure on segment assets is detailed in Note 1. |
|||||||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|||
|
Geographical split by country of origin |
|
United Kingdom |
Europe |
Total |
|||
|
|
|
|
£000 |
£000 |
£000 |
||
|
2017 |
|
|
|
|
|
||
|
Continuing Revenue |
|
|
281,580 |
32,716 |
314,296 |
||
|
Operating profit |
|
|
15,216 |
2,219 |
17,435 |
||
|
|
|
|
|
|
|
||
|
Total assets |
|
|
193,262 |
6,543 |
199,805 |
||
|
Total liabilities |
|
|
(89,762) |
(5,041) |
(94,803) |
||
|
Net assets |
|
|
103,500 |
1,502 |
105,002 |
||
|
|
|
|
|
|
|
||
|
|
|
|
United Kingdom |
Europe |
Total |
||
|
|
|
|
£000 |
£000 |
£000 |
||
|
2016 |
|
|
|
|
|
||
|
Continuing Revenue |
|
|
291,196 |
28,484 |
319,680 |
||
|
Operating profit |
|
|
15,587 |
1,511 |
17,098 |
||
|
|
|
|
|
|
|
||
|
Total assets |
|
|
191,424 |
6,337 |
197,761 |
||
|
Total liabilities |
|
|
(91,336) |
(5,355) |
(96,691) |
||
|
Net assets |
|
|
100,088 |
982 |
101,070 |
||
|
|
|
|
|
|
|
||
|
The net assets shown under Europe comprises Lightbody Stretz Ltd, being the 50% owned parent company of Lightbody Europe SAS, the French based selling and distribution business. |
|||||||
2. Expenses and Auditor's Remuneration
Included in profit are the following:
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Amortisation of intangibles |
537 |
539 |
|
Depreciation of owned tangible assets |
6,715 |
6,770 |
|
Depreciation on assets under finance leases and hire purchase contracts |
233 |
320 |
|
Impairment of assets & goodwill (note 3) |
4,000 |
4,290 |
|
Loss on foreign exchange |
1,360 |
326 |
|
Hire of plant and machinery - operating leases |
1,006 |
810 |
|
Hire of other assets - operating leases |
1,833 |
1,877 |
|
Movement on fair value of foreign exchange contracts |
71 |
134 |
|
Research and development |
2,328 |
2,287 |
|
Share option charges |
1,240 |
739 |
|
|
|
|
Amortisation of intangibles for the year was £537,000 (2016: £539,000) relating to the Fletchers acquisition in October 2014.
Auditor's remuneration:
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Audit of these Financial Statements |
50 |
47 |
|
|
|
|
|
Amounts receivable by the auditor and its associates in respect of: |
|
|
|
Audit of the Financial Statements of subsidiaries of the Company |
123 |
122 |
|
Taxation compliance services |
35 |
22 |
|
Other tax advisory |
7 |
- |
|
Other services |
100 |
104 |
|
|
|
|
|
The auditor's remuneration is in respect of KPMG LLP. Fees for other services relates to pension advisory services and services relating to information technology. |
||
3. Significant Non-Recurring Items
The Group presents certain items as significant and non-recurring. These relates to items which, in management's judgement, need to be disclosed by virtue of their size or incidence in order to obtain a more meaningful understanding of the financial information.
The Grain D'Or business has been historically loss making and despite the implementation of a range of initiatives to improve the business including strict cost control and new working practices the site remained loss making in the year to 1 July 2017. The Company now proposes to close the site. A formal consultation with representatives of the workforce commenced on 1 September 2017. The consultation is expected to conclude mid October 2017. Until this consultation period concludes uncertainty remains over the use of the assets. In light of this, a decision has been taken to impair the assets used in the business by £4.0 million in the year to 1 July 2017.
A charge of £4.3 million in the previous year relates to impairment of goodwill acquired in 2007. This is included in administrative expenses in the Consolidated Statement of Profit and Loss and Other Comprehensive Income.
4. Finance Income and Cost
Recognised in the Consolidated Statement of Profit and Loss
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
Finance income |
|
|
|
Change in fair value of interest rate swaps |
555 |
219 |
|
Bank interest receivable |
- |
2 |
|
Total finance income |
555 |
221 |
|
|
|
|
|
Finance cost |
|
|
|
Interest on net pension position |
(204) |
(148) |
|
Bank interest payable |
(752) |
(787) |
|
Interest on interest rate swap agreements |
(125) |
(273) |
|
Total finance cost |
(1,081) |
(1,208) |
5. Taxation
Recognised in the Consolidated Statement of Profit and Loss
|
|
|
2017 £000 |
2016 £000 |
|
Current tax |
|
|
|
|
Current year |
|
3,270 |
2,745 |
|
Adjustments for prior years |
|
(196) |
82 |
|
Total current tax |
|
3,074 |
2,827 |
|
|
|
|
|
|
Deferred tax |
|
|
|
|
Origination and reversal of temporary differences |
|
(222) |
928 |
|
Retirement benefit deferred tax charge |
|
1 |
(6) |
|
Adjustments for prior years |
|
106 |
(463) |
|
Total deferred tax |
|
(115) |
459 |
|
Total tax expense |
|
2,959 |
3,286 |
Reconciliation of effective tax rate
The weighted average hybrid rate of UK and French tax is 22.2% (2016: 21.8%). The tax assessed for the period is lower (2016: lower) than the hybrid rate of UK and French tax. The UK corporation tax rate for the period is 20% reducing to 19% from 1 April 2017, (2016: 20.00 %). The differences are explained below:
|
|
2017 |
2016 |
|
|
£000 |
£000 |
|
|
|
|
|
Profit before taxation before losses from equity accounted investees |
13,038 |
11,804 |
|
|
|
|
|
Tax using the UK corporation tax rate of 19.76%, (2016: 20.00%) |
2,577 |
2,361 |
|
Overseas profits charged at different taxation rate |
344 |
207 |
|
Non-deductible expenses |
160 |
99 |
|
Temporary differences |
- |
7 |
|
Restatement of opening net deferred tax due to rate change and differences in rates |
68 |
275 |
|
R&D uplift current year |
(100) |
(140) |
|
Adjustments to tax charge in respect of prior periods |
(90) |
(381) |
|
Tax expense (excluding prior year disallowable impairment) |
2,959 |
2,428 |
|
Tax rate for the period (excluding prior year disallowable impairment) |
21.4% |
20.6% |
|
Disallowable intangible impairment |
- |
858 |
|
Total tax expense |
2,959 |
3,286 |
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 1 July 2017 have been calculated based on these rates.
The adjustment of £90,000 for prior year includes, ineligible capital spends offset partially by additional tax relief on qualifying R&D expenditure for prior periods.
The Company has an unrecognised deferred tax asset of £162,605 (2016: £172,170) 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.
6. Earnings Per Ordinary Share
Basic earnings per share for the period is calculated on the basis of profit for the year after tax, divided by the weighted average number of shares in issue being 126,979,000 (2016: 126,938,000).
Basic diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potential dilutive ordinary shares. At 1 July 2017, the diluted weighted average number of shares in issue was 130,992,000, (2016: 129,206,000).
An adjusted earnings per share and an adjusted diluted earnings per share have also been calculated for a 52 week period as in the opinion of the Board this will allow shareholders to gain a clearer understanding of the trading performance of the Group and year on year comparisons. 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
|
|
52 weeks to 1 Jul 2017 |
53 weeks to 2 Jul 2016 |
52 weeks to 2 Jul 2016 |
|||
|
Profit |
£000 |
£000 |
£000 |
|||
|
Profit attributable to equity holders of Company (basic) |
9,048 |
7,791 |
7,528 |
|||
|
Significant non-recurring and other items as per strategic Report |
2,901 |
4,250 |
4,250 |
|||
|
Intangible amortisation net of deferred tax |
446 |
442 |
442 |
|||
|
Numerator for adjusted earnings per share calculation (adjusted basic) |
12,395 |
12,483 |
12,220 |
|||
|
|
|
|
|
|
|
|
|
Shares |
Basic |
Diluted |
Basic |
Diluted |
Basic |
Diluted |
|
Weighted average number of ordinary shares in issue during the period |
'000 126,979 |
'000 126,979 |
'000 126,938 |
'000 126,938 |
'000 126,938 |
'000 126,938 |
|
Dilutive effect of share options |
- |
4,013 |
- |
2,268 |
- |
2,268 |
|
|
126,979 |
130,992 |
126,938 |
129,206 |
126,938 |
129,206 |
|
|
|
|
|
|
|
|
|
Earnings per share (pence per share) |
|
|
|
|
|
|
|
Basic and diluted |
7.1 |
6.9 |
6.1 |
6.0 |
5.9 |
5.8 |
|
Adjusted basic and adjusted diluted |
9.8 |
9.5 |
9.8 |
9.7 |
9.6 |
9.5 |
Significant non-recurring and other items are tabled in the Strategic Report on page 14 and comprise: significant non recurring items (£3,320,000), Defined benefit pension scheme (£3,000) and fair value of interest rate swaps and foreign exchange contracts £422,000.
7. Intangibles
Intangible assets comprise customer relationships, brands and goodwill.
|
|
Goodwill |
Business systems |
Brands and licences |
Customer relationships |
Total |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
Cost at 27 June 2015 |
71,704 |
- |
3,683 |
5,909 |
81,296 |
|
Adjustment in respect of prior year acquisition |
1,754 |
- |
- |
- |
1,754 |
|
Additions |
- |
600 |
- |
- |
600 |
|
Cost at 2 July 2016 |
73,458 |
600 |
3,683 |
5,909 |
83,650 |
|
Transfer from tangible assets |
- |
548 |
- |
- |
548 |
|
Additions |
- |
2,695 |
- |
- |
2,695 |
|
Cost at 1 July 2017 |
73,458 |
3,843 |
3,683 |
5,909 |
86,893 |
|
|
|
|
|
|
|
|
Amortisation at 27 June 2015 |
- |
- |
(929) |
(296) |
(1,225) |
|
Charge for the year 2 July 2016 |
(4,290) |
- |
(144) |
(395) |
(4,829) |
|
Amortisation/impairment at 2 July 2016 |
(4,290) |
- |
(1,073) |
(691) |
(6,054) |
|
Charge for the year 1 July 2017 |
- |
- |
(143) |
(394) |
(537) |
|
Amortisation/impairment at 1 July 2017 |
(4,290) |
- |
(1,216) |
(1,085) |
(6,591) |
|
|
|
|
|
|
|
|
Net book value at 27 June 2015 |
71,704 |
- |
2,754 |
5,613 |
80,071 |
|
Net book value at 2 July 2016 |
69,168 |
600 |
2,610 |
5,218 |
77,596 |
|
Net book value at 1 July 2017 |
69,168 |
3,843 |
2,467 |
4,824 |
80,302 |
|
|
|
|
|
|
|
The brand and customer relationships recognised were purchased as part of the acquisition of Fletchers Group of Bakeries in October 2014. They are considered to have finite useful lives and are amortised on a straight line basis over their estimated useful lives of twenty years for brands 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. There is no amortisation on business systems during the year as the systems are yet to be brought into use.
Goodwill has arisen on acquisitions and reflects the future economic benefits arising from assets that are not capable of being identified individually and recognised as separate assets. The goodwill reflects the anticipated profitability and synergistic benefits arising from the enlarged Group structure. The goodwill is the balance of the total consideration less fair value of assets acquired and identified. The carrying value of the goodwill is reviewed annually for impairment. The carrying value of all goodwill has been assessed during the year. A non-cash impairment of goodwill arising from an acquisition in 2007 was made during the previous year.
The Group tests goodwill for impairment on an annual basis, or more frequently if there are indications that the goodwill may be impaired. The recoverable amounts of the cash generating units are determined from value in use calculations. The key assumptions for the value in use calculations are the discount rate used for future cash flows and the anticipated future changes in revenue, direct costs and indirect costs. The assumptions used reflect the past experience of management and future expectations.
The Group prepares cash flow forecasts covering a five year period based on the detailed financial forecasts approved by management for the next three years with estimated growth and inflation of 3% (2016: 3%) and 3% (2016: 3%) respectively thereafter. The cashflows beyond this forecast are extrapolated to perpetuity using a nil growth rate on a prudent basis, to reflect the uncertainties of forecasting further than five years. Changes in revenue and direct costs are based on past experience and expectations of future changes in the market.
The revenue growth rate combines volume, mix and price of products. An inflation factor has been applied to costs of sales, variable costs and indirect costs and takes into consideration the general rate of inflation, movements in commodities, improvement in efficiencies from capital investment and operations and purchasing initiatives.
A pre-tax discount rate of 10% (2016: 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.
A non-cash impairment of the goodwill arising from the acquisition of Anthony Alan Foods Ltd in 2007 was made during the previous year. The impairment reflects the challenging market and changing dynamics of the 'healthier' grocery market. The related goodwill has been fully impaired and reflected in both the Lightbody of Hamilton and Memory Lane Cakes cash generating units accordingly. The impairment is shown as a significant non-recurring item within administrative expenses.
Sensitivity analyses have been carried out by the Directors on the carrying value of all remaining goodwill using discount rates ranging between 3.5% and 15.0% which would not result in an impairment of any cash generating units. Management believe any increase in discount rates above 15% to be remote.
The carrying amount of goodwill has been allocated to cash generating units or groups of cash generating units as follows:
|
|
2017 £000 |
|
2016 £000 |
|
Nicholas & Harris |
2,980 |
|
2,980 |
|
Lightbody of Hamilton |
45,698 |
|
45,698 |
|
Memory Lane Cakes |
- |
|
- |
|
Fletchers Bakery |
20,118 |
|
20,118 |
|
Johnstone's Food Service |
372 |
|
372 |
|
|
69,168 |
|
69,168 |
8. 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.
|
2017 |
Margin |
Frequency of Repayments |
Year of maturity |
Facility £000 |
Drawn £000 |
Current £000 |
Non-Current £000 |
|
|
|
|
|
|
|
|
|
|
Invoice Discounting |
1.50%/base |
On demand |
Revolving* |
22,000 |
11,646 |
11,646 |
- |
|
Term loan |
2.00%/LIBOR |
Quarterly |
2019 |
13,400 |
6,337 |
2,568 |
3,769 |
|
Revolving credit |
2.00%/LIBOR |
Varies |
2019 |
8,000 |
- |
- |
- |
|
Mortgage |
1.75%/LIBOR |
Quarterly |
2022 |
3,470 |
2,457 |
369 |
2,088 |
|
Finance lease liabilities |
1.76%/base |
Monthly |
various |
2,000 |
57 |
57 |
- |
|
Overdraft |
2.00%/base |
On demand |
- |
2,000 |
- |
- |
- |
|
|
|
|
|
50,870 |
20,497 |
14,640 |
5,857 |
|
Unamortised transaction costs |
|
|
|
(111) |
(54) |
(57) |
|
|
|
|
|
|
|
20,386 |
14,586 |
5,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Secured bank loans and mortgages over one year |
|
|
|
5,857 |
|||
|
Unamortised transaction costs |
|
|
|
|
|
(57) |
|
|
|
|
|
|
|
|
|
5,800 |
|
|
|
|
|
|
|
|
|
|
Repayments are as follows: |
|
|
|
|
|
|
|
|
Between one and two years |
|
|
|
|
|
2,894 |
|
|
Between two and five years |
|
|
|
|
|
|
2,292 |
|
Between five and ten years |
|
|
|
|
|
|
614 |
|
|
|
|
|
|
|
|
5,800 |
|
|
|
|
|
|
|
|
|
|
2016 |
Margin |
Frequency of Repayments |
Year of maturity |
Facility £000 |
Drawn £000 |
Current £000 |
Non-Current £000 |
|
|
|
|
|
|
|
|
|
|
Invoice Discounting |
1.50%/base |
On demand |
Revolving* |
22,000 |
10,824 |
10,824 |
- |
|
Term loan |
2.00%/LIBOR |
Quarterly |
2019 |
13,400 |
8,905 |
2,568 |
6,337 |
|
Revolving credit |
2.00%/LIBOR |
Varies |
2019 |
8,000 |
- |
- |
- |
|
Mortgage |
1.75%/LIBOR |
Quarterly |
2022 |
3,470 |
2,826 |
369 |
2,457 |
|
Finance lease liabilities |
1.76%/base |
Monthly |
various |
2,000 |
190 |
133 |
57 |
|
Overdraft |
2.00%/base |
On demand |
- |
2,000 |
- |
- |
- |
|
|
|
|
|
50,870 |
22,745 |
13,894 |
8,851 |
|
Unamortised transaction costs |
|
|
|
(176) |
(65) |
(111) |
|
|
|
|
|
|
|
22,569 |
13,829 |
8,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Secured bank loans and mortgages over one year |
|
|
|
8,851 |
|||
|
Unamortised transaction costs |
|
|
|
|
|
(111) |
|
|
|
|
|
|
|
|
|
8,740 |
|
|
|
|
|
|
|
|
|
|
Repayments are as follows: |
|
|
|
|
|
|
|
|
Between one and two years |
|
|
|
|
|
2,940 |
|
|
Between two and five years |
|
|
|
|
|
|
4,817 |
|
Between five and ten years |
|
|
|
|
|
|
983 |
|
|
|
|
|
|
|
|
8,740 |
|
|
|
|
|
|
|
|
|
* Revolving maturity above relates to the payment terms on the invoice discounting which is up to 90 days from the date of invoice. The invoice discounting facility renewal date is October 2019.
8. Other Interest-Bearing Loans and Borrowings
Finance lease liabilities are payable as follows:
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
2016 |
|
|
|
Minimum lease payments |
Interest |
Principal |
Minimum lease payments |
Interest |
Principal |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
|
Less than one year |
58 |
1 |
57 |
136 |
3 |
133 |
|
Between one and five years |
- |
- |
- |
58 |
1 |
57 |
|
|
58 |
1 |
57 |
194 |
4 |
190 |
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.
As part of the bank borrowing facility the Group needs to meet certain covenants every six months. There were no breaches of covenants during the year. The covenant tests required are Net bank debt: EBITDA, Interest cover, debt service cover and capital expenditure.
The bank facilities (excluding overdraft) available for drawdown are £48.9 million (2016: £48.9 million). At the period end date, the facility utilised was £20.5 million (2016: £22.7 million), giving £28.4 million (2016: £26.2 million) headroom.
9. Analysis of Net Debt
|
|
Note |
At year ended 2 July 2016 £000 |
|
Cash flow £000 |
|
At year ended 1 July 2017 £000 |
|
Cash at bank |
|
3,024 |
|
- |
|
3,024 |
|
Debt due within one year |
|
(2,937) |
|
- |
|
(2,937) |
|
Debt due after one year |
|
(8,794) |
|
2,937 |
|
(5,857) |
|
Invoice discounting due within one year |
|
(10,824) |
|
(822) |
|
(11,646) |
|
Hire purchase obligations due within one year |
|
(133) |
|
76 |
|
(57) |
|
Hire purchase obligations due after one year |
|
(57) |
|
57 |
|
- |
|
Total net bank debt |
|
(19,721) |
|
2,248 |
|
(17,473) |
|
|
|
|
|
|
|
|
|
Debt |
8 |
(22,569) |
|
2,183 |
|
(20,386) |
|
Cash at bank |
|
3,024 |
|
- |
|
3,024 |
|
Unamortised transaction costs |
|
(176) |
|
65 |
|
(111) |
|
Total net bank debt |
|
(19,721) |
|
2,248 |
|
(17,473) |
|
Cash at bank |
|
3,024 |
|
- |
|
3,024 |
|
Total debt payable excluding cash |
|
(22,745) |
|
2,248 |
|
(20,497) |
|
|
|
|
|
|
|
|
This information is provided by RNS
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