18th Sep 2007 07:02
Finsbury Food Group PLC18 September 2007 Date: 18 September 2007On behalf of: Finsbury Food Group plc ("Finsbury" or "the Company")Embargoed: 0700hrs Finsbury Food Group PlcPreliminary Results 2007 Finsbury Food Group Plc (AIM: FIF), a leading manufacturer of premium andcelebration cakes, low fat slices and speciality, organic and gluten freebreads, today announces its preliminary results for the year ended 30 June 2007. Highlights of the year ended 30 June 2007 O Turnover up 50% to £109.8m (2006 : £73.3m) O Operating profit up 95% to £5.4m (2006 : £2.8m) O Profit before tax and exceptional items up 89% to £4.4m (2006 : £2.3m) O Normalised earnings per share up 39% to 9.8p (2006 : 7.1p) O Proposed dividend up 33% to 2p per share (2006 : 1.5p) O £37.3m acquisition of the Lightbody Group Ltd completed in February 2007 O Major debt funding facility of over £40m agreed with HSBC Bank plc O Successful placing of 12.5m new ordinary shares raising £10.6m O Integration of California Cakes Ltd into the Lightbody business Commenting on the results, Dave Brooks, Chief Executive of Finsbury, said: "I am delighted to be delivering a record set of results for the Group. Theyear to June 2007 has been a year of major transformation. We opened the yearwith annualised sales of around £90 million and our annualised sales for theyear to June 2008 are now forecast to exceed £150 million, which makes us thenumber two player in the UK cake industry. "One of the key factors in our success over the last few years has been ourclear strategy to focus on the premium end of our markets. This is where ourinnovation, consistent quality and service levels can add the most value to ourcustomers. As we continue to develop into a more significant Group, our passionand commitment to those premium objectives will not diminish. "I look forward to the coming twelve months with as much excitement as I lookedforward to the twelve months we have just closed." A briefing for analysts will be held at 0930hrs today at Panmure Gordon'soffices, Moorgate Hall, 155 Moorgate, London EC2M 6XB. Chairman's Statement It gives me great pleasure to present our Annual Report for the year to June2007 - a year which has seen the Group develop strongly, both organically andalso by acquisition . . . though never losing sight of its mission to be "TheBest at What We Do". The Group has had a very successful year and I am pleasedto report record results. Financial Results O Turnover up 50% to £109.8m (2006 : £73.3m) O Operating profit up 95% to £5.4m (2006 : £2.8m) O Profit before tax and exceptional items up 89% to £4.4m (2006 : £2.3m) O Normalised earnings per share up 39% to 9.8p (2006 : 7.1p) O Proposed dividend up 33% to 2p per share (2006 : 1.5p) The Core Business Each of our cake businesses has experienced significant turnover growth with ourfounding subsidiary, Memory Lane Cakes Ltd, up 11% year on year and our Scottishcake businesses, California Cakes Ltd and Campbells Cake Ltd, up a combined 31%over the comparable 32 weeks to June 2007. In bread and morning goods, our Nicholas and Harris Ltd business has grown by17% during the course of the year, whilst our gluten free and morning goodsbusiness, United Central Bakeries Ltd, has been working hard to recover from amajor fire in October 2006 . . . which it has now successfully achieved. Acquisitions I am delighted to welcome the directors, management and staff of the LightbodyGroup Ltd into the Group. This new business extends our capability in the cakemarket and gives us a market leading position in celebration cakes and cakebites, as well as moving us into the number two position in the UK cake industryas a whole. In the four months since acquisition, Lightbody contributed £18.8 million toGroup sales and performed ahead of our initial expectations. Directors and Staff I was pleased to welcome Lisa Morgan to the Board in October 2006 as our newFinance Director and it has also been a pleasure to welcome Martin Lightbody andCrawford Currie to the Board following the Lightbody acquisition in February2007. These additions strengthen our Board and provide a wider base of industryknowledge. I would also like to reiterate my praise for the UCB team in their determinationto recover from that devastating fire last year and thank the California Cakesteam for their co-operation during the transfer of the business to the LightbodyGroup's Hamilton site in July 2007. Both teams can be proud of theirachievements. Current Trading The first ten weeks of the year to June 2008 have seen the upward sales trendcontinuing. Year on year growth in Memory Lane Cakes has been 28%, withCalifornia Cakes and Campbells Cakes up a combined 35% and Nicholas and Harrisgrowing by 18%. Whilst these rates of growth are expected to reduce over thecourse of the year as we reach harder comparable periods, we believe that givenour focus on the premium and health-conscious segments of our markets we willcontinue to grow our business ahead of the market. As has been widely reported, there is currently significant turbulence in thedairy and flour markets, which has driven some strong input cost pressures intothe Group. We have had a constructive dialogue with our customers to pass onthese costs via higher selling prices and I am pleased to confirm that the vastmajority of our requests have been accepted. The commodity raw material markets remain unstable and we will continue to workwith our customers to adjust selling prices as those markets move. In addition,we will be using our excellent innovation skills to mitigate further upwardpressures. Outlook Our focus on the premium sectors of our markets is serving us well, both indeveloping the businesses we have owned for some time and in defining ouracquisition strategy. We will continue to remain focussed on these added-valuesectors and as a consequence I am confident that we can look forward to anothergood year. Lord SaatchiChairman Chief Executive's Report In my review in the 2006 Annual Report, I referred to the year we had justcompleted as being "very active and successful" and in my closing outlook Istated my belief that we had "positioned ourselves in the growing sectors of theUK cake, bread and morning goods market . . . with strong well run businessesthat are well set to cope with the growth I expect them to achieve over thecoming twelve months". I now look back on the twelve months to June 2007 and I see a year when weexceeded those expectations. In addition, the acquisition of the LightbodyGroup propelled us into the leading position in the added value sectors (i.e.premium, and celebration) of the cake market. The results for the year to June 2007 are covered in more detail within theFinancial Review. That said, I am delighted by the performance of ourmanagement teams during the last twelve months in delivering a record set ofresults for the Group. I believe that one of the key factors in our success over the last few years hasbeen our clear strategy to focus on the premium end of our markets. This iswhere our innovation, consistent quality and service levels can add the mostvalue to our customers. As we continue to develop into a more substantialGroup, our passion and commitment to those premium objectives will not diminish. For now, let us turn our minds to a little more detail as to how Finsbury FoodGroup operates and what we are all about. Achievements The year to June 2007 has been one of transformation. As a Group, we should beproud of our key achievements during the course of this twelve month period.Let us just pause for a moment and consider some of those. • The acquisition of the Lightbody business for £37.5 million in February 2007. This was funded by increasing our debt facility to £40 million and by placing 12.5 million shares with institutional investors at a price of 85p to raise £10.6 million (gross) • The significant organic sales growth in all our core businesses with an 11% increase in Memory Lane Cakes Ltd, a 17% increase in Nicholas & Harris Ltd and a combined 28% across the California Cake Ltd and Campbells Cake Ltd subsidiaries • The management of the after effects of the fire at United Central Bakeries in October, maintaining supply into all of our customers and carrying out a £2.6 million rebuild project in just seven months Due to the strength of our core team within the Group, we have been able tothrive in a challenging environment and continue to drive all our businessesforward, at the same time as growing with a sizeable acquisition. Strategy The aim remains the same and that is to be "The Best at What We Do". We areclear that we will not operate in market segments where we cannot achieve thisaim and we know that this has been a key contributor to our recent success. Our innovation in the premium cake market and our skill in developing premium,artisan and organic breads has been market leading over the last twelve monthsand our ability to deliver consistently excellent quality against demandingcriteria continues to offer us a competitive advantage. The intention remains to grow our business organically, where we havesignificant opportunity, and to continue to seek out suitable acquisitionopportunities that meet our strict criteria. Our Markets One of the great things about Finsbury Food Group is that we operate in largemarkets with a combined value (according to the latest TNS reports) exceeding £4billion. Whilst these markets are not growing in terms of volume, they aregrowing in value as consumers continue to trade up into better quality productsin both the cake and bread sectors. Our aim has always been to ensure that 'the product is king' and, at the premiumend of the market, consumers continually tell us that the most important factoris that "the product tastes fantastic". As consumers, we like to eat in ahealth conscious manner and it is our responsibility as a supplier to ensure wedo all we can to support this. To this end, we have removed hydrogenated fatsfrom the vast majority of our product range and will continue to work towardstheir total elimination within the next twelve months. We have also removedartificial flavours and colours wherever practicable, particularly in productsaimed at children. In addition, we have been working hard to 'clean up' ourrecipes by removing as many preservatives and additives as we possibly can. All this is of course very worthy, but let us remember that the majority ofconsumers continually tell us that, whilst they support all of these initiativeswhole-heartedly, should any of them result in the product tasting less appealingand appetising, then we should put those ingredients back in. At Finsbury FoodGroup, great tasting product will remain the most important consideration! Our Businesses Memory Lane Cakes Ltd 2007 has been an excellent year for Memory Lane, with year on year sales growthof 11%. In a mature business it is an outstanding performance to raise sales by£5.6 million to £56.2 million and is the culmination of the businessre-engineering which we carried out over the previous 18 months. There have been a number of factors which have driven this growth. The leadingtwo have been:- • the excellent innovation work that our product development team have put in creating new premium ranges for our customers; and • the ability of the team to service seven major multiple grocers, day in day out, and to continually offer each of these customers differentiated products which reflect their individual consumer base. Six of our customers have tiered product ranges with "standard", "better" and "best" being their generic names. The focus of Memory Lane is on the "best"category and over the course of the last twelve months we successfullyre-launched and expanded the premium cake ranges of Tesco and Sainsbury(September 2006), Asda and The Co-Operative Group (April 2007), and continued towork with Morrison and Somerfield on extending their ranges. It is thisactivity which has driven the growth in 2007 and will continue to drive ouradvance in 2008 and beyond. The one area where the business has been static is the Nestle branded categorywhere sales remain at £8 million. However, we have converted the complete rangeof children's products (i.e. Smarties, Rowntrees, Milky Bar) to remove allartificial flavours and artificial colours. Our research with consumersindicates that this is an important "permission to buy" signal and we arehopeful that we will continue to develop this range further over the comingmonths, particularly given the additional capability we now have within theGroup. Nicholas and Harris Ltd Our bread and morning goods business based in Salisbury focuses on premium,artisan and organic products and as a result has excelled in the year to June2007. Following the business re-modelling exercise in the year to June 2006, Iam delighted to report that we have experienced 17% sales growth from £9.1million to £10.6 million in the year just completed. Whilst Waitrose remains the largest customer, a key element in the growth hasbeen the development of ranges with other UK multiple grocers. A lot of timehas been invested in developing business with Asda, Sainsbury and Tesco over thelast twelve months and we are now starting to see some significant gains comingthrough with further opportunity to develop in those three accounts. In our view a portfolio of customers helps a business develop a thriving,energetic ideas base and this additional diversity benefits our largestcustomer, Waitrose, in achieving its strategic aim of dominating on product. California Cakes Ltd and Campbells Cakes Ltd Our two Scottish cake businesses, which were acquired in November 2005, havecontinued to grow strongly since then. In the comparable 32 weeks to June 2007sales were up a combined 28% year on year, with total sales for the full twelvemonths of £18.4 million. Although the low-fat cake market in the UK has been in slight decline, ourrelationship with Anthony Alan Foods Ltd on the Weight Watchers brand and witheach of our individual retail customers on their low-fat cake ranges, hasenabled us to significantly increase our market share. We estimate thatCalifornia supplies over 90% of the low-fat cake slice market in the UK . . .with slices being the most popular format in this sector. Campbells' growth has come through partnering the Memory Lane business todevelop a complete range of premium cakes. The heritage of Campbells is incold-set products such as caramel shortcake and tiffin and we have been able todevelop products which fit into the premium cake ranges as part of the rangeextension program noted previously. This move towards premium has enabled us to almost treble the size of thisbusiness since it was purchased. At that time weekly sales were running ataround £30,000 per week and we now have a business with annualised turnover of£4 million. United Central Bakeries Ltd An eventful year! UCB started the year with strong growth in its gluten freebusiness as we rolled out our successful range of ethnic breads and morninggoods into a wider range of UK multiple grocers. On 31 October 2006 it all came to a halt as a major fire wiped out two thirds ofthe bakery and left the remaining third (which housed the gluten free area) outof action for six weeks. However, with the support of our insurers and our customers, we have been ableto maintain the supply of the vast majority of our product range by sourcingfrom a range of alternate suppliers. This allowed us to still achieve sales of£5.8 million in a year of major disruption. The UCB team has worked tirelessly to invest £2.6 million in re-building thebakery and installing new, state-of-the-art equipment for the manufacture ofpotato cakes and yum-yums. I am delighted to report that the business is fullyoperational and supplying its complete product range to its multiple grocercustomer base. We continued to grow our gluten free business whilst the rest of the bakery wasunder re-construction, and we have a continued investment programme in thismarket with new products due for launch over the course of the next few months. Lightbody Group Limited The most recent addition to our Group is the Lightbody Group. I am delighted toreport that in the four months under Group ownership this business has performedover 10% ahead of the initial plan with sales of £18.8 million. The business iswell invested with two state-of-the-art small cake lines and it is the marketleader in the strategically important celebration cake sector of the UK cakemarket. Combined with Memory Lane, the Group now has over 50% market share inthis area and we will seek to continue to lead this part of the market. It is of great importance that the Lightbody business has brought us someextremely talented senior managers. Dee Scott (previously Lightbody OperationsDirector) is now our Managing Director at Lightbody and Mark Bruce (who wasSales Director at Lightbody) is now our Group Business Development Director,responsible for all our marketing activities plus the further development of twoof our major accounts. I am also pleased to welcome Martin Lightbody to the Group Board as StrategicBusiness Development Director and Crawford Currie, who joins in his role asFinance Director of the Lightbody Group Ltd. With Martin's passion forinnovation and Crawford's sound common sense approach to financial control, Iknow they will add a huge amount to the skill base of our Board. In July 2007, the Group successfully completed its re-location of the CaliforniaCakes business into the Hamilton site of Lightbody, generating operationalsynergies in excess of £1 million per annum. This was one of the key postacquisition deliverables and I am pleased to report the successful completion ofthis project. People On St David's Day 2007, Finsbury Food Group Plc moved its registered office toCardiff. This recognised Memory Lane Cakes contribution to the Group (being ourfounding subsidiary) and is also where the majority of our Executive team arebased. Including the employees from within Lightbody, our total headcount hasrisen to in excess of 2,500 people, which makes Finsbury the second largestWelsh registered employer outside of the public sector. I am delighted to welcome the 1,000 employees of the Lightbody Group into ourbusiness. This number includes those at the Hamilton Bakery as well as thosebased in the Czech Republic, where we have a sales and marketing function, andthose who work in our joint venture (Lightbody Stretz sro), which operatesacross France, the Benelux countries, Spain and Italy. We have always been avery cosmopolitan business with over 50 nationalities represented within ourworkforce and this has now increased even further. Joining the Group Board this year was Lisa Morgan who became our new GroupFinance Director. Having previously been Finance Director of our Memory LaneCakes subsidiary, Lisa took on this wider role in October 2006 and played a keyrole in negotiating the debt funding facility and equity fund raising. This wasan interesting start to her new role, but Lisa took it all in her stride andcontinued to work with the businesses to help them deliver profitable commercialarrangements and drive our continued growth. I should make a special mention of our UCB workforce whish has been extremelysupportive during the very difficult time after the fire. Many of the staffwere displaced to work at alternate Group sites, sometimes up to an hour awayfrom their homes, and still managed to work a 12 hour shift . . . such is theirdedication to the business. Without their support we would not be in theposition we are today of being back in full supply and I thank them for theirpatience, co-operation and understanding. I would also like to go on record as thanking the team at California Cakes.Once we had completed the acquisition of the Lightbody Group in February 2007,we immediately started a consultation process to consider the opportunity ofmoving the California operation seven miles down the road to Hamilton. TheCalifornia Staff Consultation Committee very quickly understood the commercialbenefits of this move and worked closely with us to come to a quick resolutionon how this transfer should be implemented. In addition the performance of theCalifornia business during the four month closure programme has remained goodwith no reduction in output, quality or efficiency and this is something ofwhich the whole team can be proud. We have a very diverse workforce and we are committed to providing equalopportunities for all of our people and to catering for the different ethnicrequirements of our staff by providing such things as prayer rooms and flexibleholiday arrangements so that the appropriate festivals can be observed. BothMemory Lane and Lightbody have won awards for their appreciation of thisdiversity and we will continue to seek additional ways to recognise thecontribution of all our staff and enable their greater involvement. One such way is the introduction of a Share-Save scheme, for which we will beseeking approval at our Annual General Meeting in November 2007. This willenable employee to purchase shares in the Group. We firmly believe this willbenefit our entire shareholder base and we will be seeking their support. I know we have an excellent team within the Group . . . and I have been sayingthis for quite some time. I was, therefore, particularly pleased to be able toannounce, as part of our trading update at the end of June 2007, that our salesgrowth in the final six months of the year had accelerated. This adds to ourconfidence that we have excellent strength in depth in our core subsidiaries. As we enter another exciting growth phase for the Group, this continues to standus in good stead and will enable us to take advantage of those growthopportunities and to turn them into profitable sales. Market Environment It has not been the easiest of years for the bakery sector with rising inputcosts and the challenge of passing these costs on to customers. In the bakerymarkets in which we operate, we have seen a number of business failures and itcan be expected that there may be more. Those businesses in the sector which seem to be struggling tend to operate inthe 'every-day' part of the market rather than at the premium end. Pricesensitivity is at its lowest in the added value sector and consumers areprepared to pay for quality when they are buying indulgent products. Our challenge as a Group is to develop our market sectors efficiently so that wecan mitigate the impact of rising costs within our business. There has beenmuch public discussion over the turbulence in the dairy and flour markets and wecontinue to work with our customers to pass these increases on where appropriateand to use our innovation skills to minimise their impact. Summary and Outlook The year to June 2007 has, as I stated before, been a year of majortransformation. We have completed the major acquisition of Lightbody andachieved significant organic growth in all of our other business. Followingthis growth, we are now the number two player in the UK cake industry. Whilstwe have never set out to be number two, we have always felt that by being "TheBest at What We Do" customers will, over time, naturally gravitate towards usand encourage growth. Our challenge is to retain our leading place in the premium end of our markets.As the premium segment of the market grows, other competing businesses will lookto enter it. However, we would far rather be leaders in a market place with apack chasing us than part of that chasing pack. I am confident that the Finsbury Food Group team will not be complacent and thatwe will continue to drive our innovation, quality standards and service levelsto ensure that we give our customers no reason to diversify their premium supplybase. I therefore look forward to the coming twelve months with as much excitement asI looked forward to the twelve months we have just completed successfully. Dave BrooksChief Executive Financial Review Trading Results Group sales for the twelve months to 30 June 2007 were £109.8 million (2006:£73.3 million), an increase of £36.5 million year on year. Sales fromcontinuing operations, excluding the sales from the Lightbody Group Limited forthe four months during which they have been part of the Group, were £91.0million. This represents an increase of £17.7 million. Sound operational performance together with controlled new product developmentallowed the business to achieve a strong overall gross margin of 39% (2006:40%). The slight decline in gross margin year on year is attributable to theincrease in the proportion of sales from the cake manufacturing subsidiarieswhich tend to have lower gross margins compared to the bread and morning goodsbusinesses. Profit before tax and exceptional charges was ahead of last year by 91% at £4.4million (2006 restated: £2.3 million). This was achieved after interest costs of£1.4 million (2006: £0.6 million). Exceptional revenue in the period was £1.1 million. This relates to the neteffect of the £2.3 million income arising out of the difference between the costof replacement assets following the fire at United Central Bakeries in October2006 and the net book value of the assets replaced and the £1.2 million costsassociated with the relocation of California Cake Company following theacquisition of the Lightbody Group (2006: £0.3 million related to the disruptionand reorganisation costs associated with major projects following the Scottishacquisitions in November 2005). Earnings per Share Basic earnings per share (EPS), calculated on the weighted average number ofshares in issue during the year, was 11.9p (2006 restated: 6.3p). NormalisedEPS is calculated by adjusting for the effect of exceptional items and is 9.8pfor the year (2006 restated: 7.1p). Taking into account the dilution effect ofwarrants and options, diluted basic EPS is 10.9p (2006 restated: 5.4p) anddiluted normalised EPS is 9.0p (2006 restated: 6.1p). Key Performance Indicators KPI 2007 2006 2005 2004Turnover £109.8m £73.3m £59.3m £59.9mEBITDA £8.9m £4.0m £4.5m £1.2mNet debt/(Cash) £25.8m £13.6m (£1.3m) £3.1mShareholders' funds £36.7m £11.8m £9.4m £6.3m EBITDA in 2005 includes an exceptional profit on disposal of surplus land of£1.8m EBITDA in 2006 includes exceptional costs associated with reorganisation of£0.3m EBITDA in 2007 includes exceptional profit as detailed above of £1.1m EBITDA is calculated as earnings before interest, taxation, depreciation andamortisation. Net debt in this instance is calculated as the cash balances lessbank loans, overdrafts and mortgages. The Group owns its freehold sites at Memory Lane, UCB, Campbells and Lightbodyand these assets, along with its blue-chip debtors, provide the Group's bankwith significant asset backing with which to secure debt facilities. A key feature of all of the businesses is their ability to deliver stronginnovation, consistent quality and excellent service levels on a regular basis.In terms of innovation, 373 new products have been launched across the Group inthe twelve months to June 2007. The Group employs around 2,500 people across its subsidiaries. Within what arerelatively labour-intensive manufacturing businesses, staff retention can have asignificant impact on the efficiency and, therefore, the profitability of thosebusinesses. The Group has seen downward trends in staff turnover in all itssubsidiaries over the last year - the average turnover for the Group has fallenfrom 38% to 28% between 2006 and 2007. Acquisitions In February 2007, the Group completed the acquisition of Lightbody Group Ltd fora consideration of £37.3 million, of which £9.5 million was deferred,conditional on business performance for the period to April 2007. This deferredconsideration was paid in full during September 2007. The transaction wasfinanced by a package of debt facilities provided by the Company's bankerstogether with the issue of 22.5 million new shares. Fire at United Central Bakeries On the 31 October 2006, United Central Bakeries suffered a major fire. Twothirds of the bakery facility was completely destroyed and the remaining third(the gluten free area) was out of use for six weeks whilst it was cleaned downfollowing smoke damage. The loss was fully insured and, with the support of ourinsurers, the business was able to service all customers via alternative supplyarrangements and thereby protect the business going forward. By the end of June2007, one production bay had been rebuilt and two new production lines forpotato scones and yum yums had been installed in time for full production tocommence in July 2007. The remaining part of the production facility is 'workin progress', due for completion in September 2007. This will create 20,000square feet of new production space for future expansion, rather than to servicecurrent requirements. The monies received to date in respect of the insurance claim relating to thefire total £5.5 million. £2.6 million of this figure covers the cost ofreplacing the assets destroyed in the fire. The remaining £2.9 million coversloss of profit and other costs incurred as a result of the fire. Cash-Flow and Debt The Group achieved a cash-flow from operations of £5.4 million (2006: £3.6million) and ended the year with an overdraft of £3.2 million (2006: cashbalance £0.5 million). These cash-flows were achieved after taking into account the effect of theincreased working capital requirement of £2.4 million associated with theLightbody acquisition. The Group is able to offer strong asset backing to secure its borrowings. TheGroup owns the eight acre site at Memory Lane in Cardiff, which is held atoriginal cost in the balance sheet. The Group also owns freehold sites atLightbody, UCB and Campbells in Scotland. Additionally, the Group has ablue-chip trade debtor book, which stood at £20.0 million (2006: £9.9 million)at the balance sheet date. The Group has a suite of borrowing facilities provided by HSBC Bank plc andthese are at a blended average cost of 1.60% over base. These facilities total£44.5 million and have been used to finance the Lightbody acquisition and settlethe acquired debt of £7.8 million. Included in these facilities is an overdraftfacility of £10 million of which £3.2 million was being utilised at the balancesheet date. Also included but not drawn as at 30 June 2007 is a term loanfacility of £7.7 million together with asset finance of £2.0 million - theseamounts have since been drawn to fund the deferred consideration of £9.5 millionpayable in respect of the Lightbody acquisition. Share Issue During the year to 30 June 2007, the Group issued 22.5 million new ordinaryshares. 10.0 million shares were issued to Martin Lightbody and his family aspart consideration for the acquisition of the Lightbody Group Limited. Theremaining 12.5 million were issued to a range of institutional investors by wayof a placing at 85p per share. This resulted in proceeds of £10.6 million gross(£9.8m net of placing costs) and these monies were also used to part fund theLightbody acquisition. Also during the year, 5.1 million warrants were exercised generating a cashin-flow of £1.5 million. As at 30 June 2007, 0.4 million warrants remainedoutstanding. The last exercise date for these is 29 October 2007. Financial Covenants In addition to the key performance indicators discussed above, the Group alsomonitors a range of measures to continually assess its financial stability. Interest cover (based on EBITDA before exceptional revenue and costs) for theyear to 30 June 2007 was 5.6 (2006: 7.4) and net debt to EBITDA (based on EBITDAbefore exceptional revenue and costs) for the year to 30 June 2007 was 3.6(2006: 3.3). Trade debtors to overdraft as at 30 June 2007 was 6.3 (2006: n/a). The decline in the interest and debt covenants is due to the additional debttaken on to fund the Lightbody Group acquisition. These measures remain wellwithin the Group's banking covenants. Taxation The Group corporation tax charge for the year was £1.5 million (2006: £0.6million). This represents an effective rate of 28% (2006 restated: 31%). Thechange in the rate applied for deferred tax has reduced from 30% to 28%. Theeffect of this change was to reduce the charge for the year by £92,000(equivalent to 1.7% of profits). Capital Spending The Group continued its program of targeted capital spending. Total expenditureduring the year was £4.1 million including £2.6 million funded by an insuranceclaim following the fire at the United Central Bakeries Limited site (2006: £2.0million). At the Lightbody bakery, £0.5 million has been spent fitting out an area notpreviously used for production ready to take the California business followingits relocation in July 2007. Risks and Uncertainties Any business faces a number of risks and these are reviewed thoroughly andregularly by the Board as part of its ongoing corporate governance procedures.This review considers only the principal risks and uncertainties - the mostsignificant of these are expanded upon below. All Group companies supply the UK multiple retailers. These customers havesubstantial purchasing power and this creates a risk of margin pressure. TheGroup's stance on this issue is to be "The Best at What We Do". Our customersrequire constant innovation, high levels of service and consistently goodquality. By providing these and utilising the flexibility within our productioncapability, we place ourselves in a stronger position to work with our customersand lead the move towards more premium products. Another major risk area for the Group is exposure to supply side pressures.Whilst energy costs have eased in the last year, there has been an upward trendin raw material costs, particularly in recent months. Raw material prices areconstantly monitored by the Group's buying team and forward contracts areentered into to reduce uncertainty where this is deemed appropriate. In someinstances the Group is able to pass cost increases onto our customers. Regularrenovation and innovation within our product ranges allows us to manage thesepressures in an effective manner. During the year, the Group completed the acquisition of the Lightbody Group andthis was part funded by debt via a total facility of over £40m with theCompany's bankers. The Group recognises the inherent risk from interest raterises and the requirement to service the debt. To mitigate these risks, theGroup has entered into a third interest rate hedging transaction of £11 millionfixed at 5.755% (in addition to two existing interest rate swaps of £5 millionat capped rates of 4.755% and 4.7425%) to protect against interest rate rises. Share-Based Payments The Group operates both approved and unapproved share option schemes. TheCompany has adopted FRS 20 'Share-based payment' for the first time in the yearto 30 June 2007 with an accompanying restatement of prior year results. Theimpact for this year has been to reduce profit before tax by £298,000 (2006:£70,000). Prior Year Adjustments The implementation of FRS 20 for share-based payments, as mentioned above, leadsto a restatement of year ended June 2006 reducing profit before tax for the yearby £70,000 (see note 31 to the accounts). Staff The existing range of share option schemes expired during 2007. The newstandard form approved and unapproved plans have been adopted following theAnnual General Meeting in November 2006 and allow the continuation of thecurrent remuneration policies, as proposed by the Remuneration Committee andapproved by the Board. The Board is recommending the introduction of a Group SAYE Share-Save Schemewhich will be open to all employees. A resolution will be proposed at the AnnualGeneral Meeting in November 2007. Lisa MorganGroup Finance Director Consolidated Profit and Loss Account As restated Year ended Year ended 30 June 30 June 2007 2006 Notes £000 £000 Turnover 4 - Continuing 90,976 73,347 - Acquisitions 18,808 - 109,784 73,347Cost of sales 2 (66,847) (44,159) Gross profit 42,937 29,188 Distribution expenses 2 (6,056) (3,871)Administration expenses 2 (31,868) (22,567)Exceptional administration expenses 2 (2,545) -Other income 2 2,897 - Operating profit - Continuing 4,036 2,750 - Acquisitions 1,329 - 3 5,365 2,750 Exceptional items 5 1,122 (267) Profit on ordinary activities 6,487 2,483 before interest and taxationInterest receivable 6 13 8Interest payable 6 (1,371) (572)Other finance income 22b iv 394 143 Profit on ordinary activities beforetaxationPre exceptional profit 4,401 2,329Exceptional profit/(loss) 1,122 (267) 5,523 2,062 Tax on profit on ordinary activities (1,089) (711)Tax on (profit)/loss on exceptional items (438) 76 9 (1,527) (635) Profit on ordinary activities after taxationPre exceptional profit 3,312 1,618Exceptional profit/(loss) 684 (191) 3,996 1,427Equity minority interest (36) - Profit for financial year 3,960 1,427 Basic earnings per share 10 11.9p 6.3pDiluted basic earnings per share 10.9p 5.4pNormalised earnings per share 10 9.8p 7.1pDiluted normalised earnings per share 10 9.0p 6.1pDividend per share 1.5p 1.2p Consolidated Balance Sheet As restated Year Year ended ended 30 June 30 June 2007 2006 Notes £000 £000Fixed assets Intangible assetsGoodwill 11(a) 50,052 14,031Negative goodwill 11(b) (462) (493) Total net goodwill 49,590 13,538 Tangible assets 12 23,160 13,899Investments 13 25 - 72,775 27,437 Current assetsStock 14 3,986 1,714Debtors 15 23,615 11,341Cash at bank and in hand - 527 27,601 13,582 Creditors: amounts falling due within one year 16 (41,759) (16,970) Net current liabilities (14,158) (3,388) Total assets less current liabilities 58,617 24,049 Creditors: amounts falling due after more than one year 17 (22,370) (12,484) Provision for liabilitiesDeferred Tax 26 (1,282) (327)Total net assets excluding pension scheme asset 34,965 11,238 Defined benefit pension scheme asset 22 1,765 548 Total net assets including pension scheme asset 36,730 11,786 Capital and reservesCalled up share capital 18 511 231Share premium account 19 26,579 6,902Capital redemption reserve 19 578 578Profit and loss account 19 9,025 4,075Equity shareholders' funds 20 36,693 11,786Minority interest 19 37 -Total capital employed 36,730 11,786 These financial statements were approved by the Board of Directors on 17September 2007 and were signed and authorised for issue on its behalf by: D G BrooksGroup Chief Executive L M W MorganFinance Director Consolidated Cash Flow Statement Year ended Year ended Year ended Year 30 June 30 June 30 June ended 30 2007 2007 2006 June 2006 £000 £000 £000 £000 Notes Net cash inflow from operating activities 23 5,421 3,587 Returns on investments and servicing of financeInterest received 13 8Interest paid on bank loans, overdrafts and (1,335) (474)loan stock Net cash outflow from returns on investmentsand servicing of finance (1,322) (466) Taxation paid (692) (420) Capital expenditurePurchase of tangible fixed assets (4,095) (2,032)Proceeds of insurance claim on tangible fixed 2,565 -assetsProceeds on disposal of tangible fixed assets - 40 Net cash outflow from capital expenditure (1,530) (1,992) Acquisitions and disposalsPurchase of subsidiary companies (20,032) (10,110)Settlement of acquired debt (6,495) (5,380)Cash received with acquisition 879 40 Net cash outflow from acquisitions and (25,648) (15,450)disposals Equity dividend paid (394) (275) Net cash outflow before use of liquid resourcesand Financing (24,165) (15,016) FinancingDrawdown of bank loans 21,700 14,600Repayment of current bank loans (393) (476)Repayment of former bank facility (12,774) (2,850)Drawdown/(repayment) of hire purchase 472 (128)liabilitiesIssue of ordinary share capital 11,457 252 Net cash inflow from financing 20,462 11,398 Decrease in cash in the period (3,703) (3,618) Consolidated Statement of Total Recognised Gains and Losses Restated Year Year ended ended 30 June 30 June 2007 2006 £000 £000 Profit for the financial period 3,960 1,427Actuarial gain related to the pension scheme asset 1,551 1,361Deferred tax movement attributable to the actuarial gain (465) (413)Total recognised gains and losses relating to the period 5,046 2,375 Notes to the Accounts 1 Accounting Policies The following accounting policies have been applied consistently in dealing withitems which are considered material in relation to the Group's financialstatements. Basis of Preparation The financial statements have been prepared in accordance with applicableaccounting standards and under the historical cost accounting rules. Basis of Consolidation The Group financial statements consolidate the accounts of the Company and itssubsidiaries. Unless otherwise stated, the acquisition method of accounting hasbeen adopted. Under this method the results of subsidiary undertakings acquiredor disposed of in the period are included in the consolidated profit and lossaccount from the date of acquisition or up to the date of disposal. Under Section 230(4) of the Companies Act 1985 the Company is exempt from therequirement to present its own profit and loss account. The loss for thefinancial period, before dividends payable and receivable, dealt with in thefinancial statements of the Holding Company, which have been approved by theBoard, was £3.1 million (2006: £2.3 million restated). Goodwill Purchased goodwill (both positive and negative, representing the excess ordiscount of the fair value of the consideration given over the fair value of theseparable net assets acquired) arising on consolidation in respect ofacquisitions is capitalised. The goodwill relating to each acquisition isassessed separately based upon each individual acquisition. Goodwill isamortised as follows: Memory Lane Cakes Ltd and Nicholas and Harris Ltd amortise their goodwill overits estimated useful life. The estimated useful life is calculated separatelyfor each acquisition and for each of these acquisitions has been calculated at20 years. United Central Bakeries Ltd, California Cake Company Ltd, Campbells Cake CompanyLtd and the Lightbody Group Limited are not amortised and are all subject toannual impairment reviews, as the directors believe the goodwill relating tothese individual acquisitions has an indefinite useful economic life. On the subsequent disposal or termination of a business, the profit or loss ondisposal or termination is calculated after charging / (crediting) theunamortised amount of any related goodwill. Turnover Turnover represents the amounts (excluding value added tax and trade discounts)derived from sales of premium and indulgent products in the cake sector andspeciality, premium and artisan products within the bread and morning goodssector. Turnover is the value of sales, excluding transactions with or betweenwholly-owned subsidiaries, after deduction of off-invoice price promotions andvalue added tax. Sales are recognised upon despatch. Finance Leasing and Hire Purchase Assets obtained under hire purchase contracts and finance leases are capitalisedas tangible fixed assets. Assets acquired by finance lease are depreciated overthe shorter of the lease term and their useful lives. Assets acquired by hirepurchase are depreciated over their useful lives. Finance leases are those wheresubstantially all of the benefits and risks of ownership are assumed by thecompany. Obligations under such agreements are included in creditors net of thefinance charge allocated to future periods. The finance element of the rentalpayment is charged to the profit and loss account so as to produce a constantperiodic rate of charge on the net obligation outstanding in each period. Taxation The charge for taxation is based on the results for the year and takes intoaccount taxation deferred because of timing differences between the treatment ofcertain items for taxation and accounting purposes. Provision is made in full and not discounted for all taxation deferred inrespect of timing differences that have originated but have not been reversed bythe balance sheet date, except for gains on disposal of fixed assets which willbe rolled over into replacement assets. No provision is made for taxation onpermanent differences. Deferred tax assets are recognised to the extent that itis more likely than not that they will be recovered. Notes to the Accounts continued 1 Accounting Policies (continued) Pension Costs Memory Lane Cakes Ltd operates a defined benefit pension scheme and the pensioncosts are charged to the profit and loss account in accordance with FRS 17. Inaddition the group contributes towards the personal pension schemes of certainemployees. The costs of contributing to personal pension schemes and defined contributionschemes are charged against profits of the period for which they are payable. Fixed Assets, Depreciation and Impairment Fixed assets are stated at historical cost, or fair value at the date ofacquisition, less accumulated depreciation and impairment provisions. Depreciation is provided to write off the cost, less the estimated residualvalue, of fixed assets by equal instalments over their estimated useful economiclives as follows: Freehold buildings 2%-20% Plant and equipment 5% - 33%Leasehold property Up to the remaining life Assets in the course of construction Nil of lease Motor vehicles 15%-40%Fixtures and fittings 5% - 33% Freehold land Nil Impairment reviews of fixed assets are undertaken if there are indications thatthe carrying values may not be recoverable or that the carrying values may beless than the asset's recoverable amount. Operating Leases Rentals applicable to operating leases where substantially all of the benefitsand risk of ownership remain with the lessor are charged to the profit and lossaccount on the straight line basis over the lease term. Investments Investments are stated at cost less provision for any permanent diminution invalue. Stocks Stocks and work in progress are stated at the lower of cost and net realisablevalue. Cost is determined on a first in first out basis, and includes all directcosts incurred and attributable production overheads. Net realisable value isbased upon estimated selling price allowing for all further costs of completionand disposal. Classification of Financial Liabilities and Equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that evidences a residual interest in the assets of the group afterdeducting all of its liabilities. Bank Borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anaccrual basis in the profit and loss account using the effective interest methodand are added to the carrying amount of the instrument to the extent that theyare not settled in the period in which they arise. Notes to the Accounts continued 1 Accounting Policies (continued) Foreign Currencies Transaction in foreign currencies are recorded at the rate of exchange at thedate of the transaction or, if hedged, at the forward contract rate. Monetaryassets and liabilities denominated in foreign currencies at the balance sheetdate are reported at the rates of exchange prevailing at that date or, ifappropriate, at the forward contract rate. The results of overseas operations are translated at the closing rates ofexchange during the period and their balance sheets at the rates ruling at thebalance sheet date. Exchange differences arising on translation of the openingnet assets and on foreign currency borrowings, to the extent that they hedge thegroup's investment in such operations, are reported in the statement of totalrecognised gains and losses. All other exchange differences are included in theprofit and loss account. Cash and Liquid Resources Cash, for the purposes of the cash flow statement, is defined as cash in handand deposits repayable on demand. Liquid resources are defined as current assetinvestments which are disposable without curtailing or disrupting the businessand are either readily convertible into known amounts of cash at or close totheir carrying values or are traded in an active market. Liquid resourcescomprise term deposits of less than one year other than cash. Notes to the Accounts continued 2 Cost of Sales, gross profit and other operating expenses Year ended 30 Year ended 30 June Year ended 30 Year ended 30 June 2007 2007 June 2007 June 2006 £000 £000 £000 £000 Continuing Acquisition Total ContinuingSales 90,976 18,808 109,784 73,347Cost of sales (55,759) (11,088) (66,847) (44,159)Gross margin 35,217 7,720 42,937 29,188Distribution expenses (4,796) (1,260) (6,056) (3,871)Administration expenses (26,737) (5,131) (31,868) (22,567)Exceptional administration expenses (2,545) - (2,545) -Other operating income 2,897 - 2,897 -Operating Profit 4,036 1,329 5,365 2,750 During the year there was a fire at United Central Bakeries, as detailed withinthe Financial Review. The total costs incurred as at the balance sheet date were£5,462,000 and these were covered by an insurance contract. £2,897,000 as shown under other operating income relates to the claim for lossof profit and other costs incurred as a result of the fire. The remaining £2,565,000 of the total claim to date covers the cost of replacingassets destroyed in the fire. This cost less the net book value of the destroyedassets of £258,000 is included within exceptional items. 3 Operating Profit Operating profit is stated after charging/(crediting) the following: As restated Year Year ended ended 30 June 30 June 2007 2006 £000 £000 Auditors' remuneration for audit 117 62Other fees paid to the auditor by the Group Taxation compliance 35 27Depreciation of owned tangible fixed assets 1,857 1,164Depreciation on assets under finance leases and hire purchase contracts 37 92Government grant release (28) -Amortisation of goodwill 115 116Amortisation of negative goodwill (31) (30)Difference on foreign exchange (12) -Hire of plant and machinery - operating leases 249 438Hire of other assets - operating leases 464 142Licence fee charges 2,902 2,180Impact of share-based payments 298 70 In addition to the above fees paid to the auditors by the group, an amount of£166,000 (2006: £75,000) relating to corporate finance fees has been capitalisedduring the year. £68,000 of the £166,000 is attributable to the placing of 12.5million shares as part of the funding for the Lightbody Group Limitedacquisition, £75,000 relates to Lightbody due diligence work and £23,000 inrespect of Lightbody deferred consideration work. The previous year's feerelated wholly to due diligence work. Notes to the Accounts continued 4 Segmental Analysis The Group's operations activities arise from the sales of celebration, premiumand indulgent products in the bakery sector. Restated Year Year ended ended 30 June 30 June 2007 2006 £000 £000An analysis of turnover by geographical destination is as follows:United Kingdom 104,915 72,547Europe 4,869 800 109,784 73,347 A geographical analysis of results and assets is not presented because the Groupoperates from within the United Kingdom. 5 Exceptional Items Year Year ended ended 30 June 30 June 2007 2006 £000 £000 Reorganisation and restructuring costs (1,213) (267)Profit on sale of trademark 28 -Profit on replacement of assets 2,307 - 1,122 (267) Reorganisation costs relate to the relocation of the California Cake Companybusiness from their existing site to the Lightbody site in Hamilton. The profit on replacement of assets represents the difference between the costof the replacement assets and the net book value of the assets destroyed by thefire at United Central Bakeries in October 2006. The cost of replacing theassets was covered by an insurance claim. 6 Interest Year Year ended ended(a) Interest receivable and similar income 30 June 30 June 2007 2006 £000 £000 Bank 13 8 (b) Interest payable and similar charges Bank loans and overdrafts 1,103 543 Finance leases 227 26 Loan notes 16 3 Tax 25 - 1,371 572 Notes to the Accounts continued 7 Directors' Remuneration Year ended Year ended 30 June 30 June 2007 2006 £000 £000 Fees 143 126Executive salaries and benefits 346 308Executive bonuses 120 50 609 484 The emoluments of the Directors for the year were as follows: Year Year ended ended 30 June 30 June Fees Salary Benefits Pension Bonuses 2007 2006 £000 £000 £000 £000 £000 £000 £000Lord Saatchi 43 - - - - 43 43D G Brooks - 150 10 11 44 215 190J A Lomer - 24 3 2 - 29 168L M W Morgan - 52 7 3 44 106 -D C Currie - 33 - 1 7 41 -M Lightbody - 50 - - 25 75 -D C Marshall 15 - - - - 15 15E J Beale * 20 - - - - 20 15I R Farnsworth * 25 - - - - 25 23P J Monk * 40 - - - - 40 30 143 309 20 17 120 609 484 The bonuses paid to M Lightbody and D C Currie relate to the Lightbody Group Ltdbonus scheme in place prior to the acquisition. The scheme terminated on 30April 2007 and the amounts above represent the post acquisition element of thepayment under that scheme. There are 3 directors (2006: 2) accruing pension benefits under money purchasepersonal pension schemes, none (2006: nil) under defined benefit schemes. * In addition to the above emoluments, the following amounts have been paid inrespect of services relating to the Lightbody Group Limited acquisition andplacing of shares as part of the funding for that acquisition to Mr I Farnsworth(£15,000), Mr P Monk (£33,750) and to City Group Plc for the work partly carriedout by Mr E Beale (£35,000). Directors' interests in share options Number of Number of options at options at 30 June 30 June Exercise Earliest Exercise 2007 2006 Price Exercise date Expiry dateD G Brooks 500,000 500,000 29.0p 19/12/2005 19/12/2009D G Brooks 52,848 52,848 34.0p 06/10/2009 06/10/2014D G Brooks 40,000 40,000 52.5p 14/07/2010 14/07/2015D G Brooks 17,500 Nil 88.0p 28/09/2011 28/09/2013J A Lomer Nil 75,000 39.0p 25/03/2007 25/03/2014 J A Lomer Nil 125,000 39.0p 25/03/2007 25/03/2011J A Lomer Nil 52,848 34.0p 06/10/2009 06/10/2014J A Lomer Nil 50,000 52.5p 14/07/2010 14/07/2015L M W Morgan 165,000 Nil 85.6p 19/09/2009 19/09/2013L M W Morgan 35,000 Nil 85.6p 19/09/2009 19/09/2016L M W Morgan 25,000 Nil 88.0p 28/09/2011 28/09/2013D C Currie 27,000 Nil 111.0p 18/04/2010 18/04/2017D C Currie 173,000 Nil 100.0p 18/04/2010 18/04/2017 Options over 442,500 shares (2006: 90,000) were granted to Directors during theyear. Options over 102,848 shares previously granted to John Lomer lapsed on hisresignation from the Group on 30 September 2006. Options have been granted toExecutive Directors, whose performances and potential contribution were judgedto be important to the operations of the Group, as incentives to maximise theirperformance and contribution. The mid-market price of the ordinary shares on 29 June 2007 was 117p and therange during the twelve months period to 30 June 2007 was 64.0p to 120.0p. The aggregate of the amount of the difference between the value of sharesacquired on the exercise of share options by directors and the exercise pricewas £149,600. Notes to the Accounts continued Directors' interests in share options (continued) Included within Social Security and Other Taxes is an amount of £29,000 inrespect of income tax due relating to the personal tax liability arising fromthe exercise of options of a former director. 8 Staff Numbers and Costs The average number of persons employed by the Group (including Directors) duringthe year, analysed by category, was as follows: Year Year ended ended 30 June 30 June 2007 2006 £000 £000Production staff 1,668 1,075Selling and distribution staff 81 61Directors and administrative staff 122 99 1,871 1,235The aggregate payroll costs were as follows:Wages, salaries and fees 29,670 20,825Social security costs 2,662 1,869Redundancy costs - 30Other pension costs 393 323 32,725 23,047 9 Taxation Year Year ended ended 30 June 30 June 2007 2006 £000 £000UK taxation Corporation tax at 30% (2006:30%) 939 522 ACT previously written off now recovered - (9) Adjustment in respect of prior years 117 (77)Tax on profit on ordinary activities 1,056 436 Deferred taxation Origination and reversal of timing differences 501 257 Retirement benefit deferred tax charge 56 Adjustment in respect of prior periods (86) (58)Total deferred tax charge 471 199Tax on profit on ordinary activities 1,527 635Factors affecting tax charge for the yearThe tax assessed for the period is lower than the standard rate ofcorporation tax in the UK (30%). The differences are explainedbelow:Profit on ordinary activities before tax 5,523 2,132Profit on ordinary activities multiplied by the standard rate ofcorporation tax in the UK of 30% (2006: 30%) 1,657 640Effects of:Expenses not deductible for tax purposes 114 56Income not taxable for tax purposes (25) -Retirement benefit income not chargeable for corporation tax (118) (43)purposesACT written off now recovered - (9)Cost of employee share options 89Relief on exercise of employee share options (67) (15)Capital allowances for period in excess of depreciation (742) (124)Utilisation of tax losses in year (19) (63)Ineligible depreciation and losses on disposal 27 44Other adjustments arising in the period 23 27Adjustments to tax charge in respect of prior periods 117 (77)Current tax charge for year 1,056 436 The Company has a deferred tax asset of £720,112 (2006: £720,112). This asset has not been recognised in thesefinancial statements as suitable profits are not expected to arise in the very near future. If the entity wasto make a taxable profit in its own right the deferred tax asset would be recoverable, but as the entity doesnot trade this is not expected to occur. Notes to the Accounts continued 10 Earnings per Share The calculation of the normalised earnings per share is based on the result ofordinary activities before exceptional items and after taxation and minorityinterest of £3,276,000 (2006 restated: £1,618,000) and on the weighted averagenumber of ordinary shares in issue during the period of 33,286,620 (2006:22,765,188). The calculation of the basic earnings per share is based on the result ofordinary activities after taxation and minority interest of £3,960,000 (2006restated: £1,427,000) and on the weighted average number of ordinary shares inissue during the period of 33,286,620 (2006: 22,765,188). Diluted normalised earnings per share are based on the result of ordinaryactivities before exceptional items and after taxation and minority interest of£3,276,000 (2006 restated : £1,618,000). The dilution effect is calculated onthe full exercise of options and warrants compared with the average mid-marketprice over the period for which they were outstanding. The resulting number ofshares on which diluted earnings have been calculated is 36,395,174 (2006:26,585,774). Diluted basic earnings per share are based on the result of ordinary activitiesafter taxation and minority interest of £3,960,000 (2006 restated: £1,427,000).The dilution effect is calculated on the full exercise of options and warrantscompared with the average mid-market price over the period for which they wereoutstanding. The resulting number of shares on which diluted earnings have beencalculated is 36,395,174 (2006: 26,585,774). 11 Intangible Fixed Assets Non-amortised Non-amortised Goodwill 30 Goodwill 30 Amortised June 2007 Total Amortised June 2006 Total Goodwill £000 Goodwill Goodwill £000 Goodwill 30 June 2007 30June 30 June 2006 30June £000 2007 £000 2006 £000 £000 11 a) Goodwill Cost brought forward 2,311 12,106 14,417 2,311 - 2,311 Acquired during the year - 36,276 36,276 - 12,106 12,106 Adjustments to previously acquired goodwill** - (140) (140) - - - Cost carried forward 2,311 48,242 50,553 2,311 12,106 14,417 Amortisation brought forward (386) - (386) (270) - (270) Amortisation for the year (115) - (115) (116) - (116) Amortisation carried (501) - (501) (386) - (386) forward Net book value brought forward 1,925 12,106 14,031 2,041 - 2,041Net book value carried forward 1,810 48,242 50,052 1,925 12,106 14,031 ** A retrospective adjustment in accordance with FRS 7 'Fair Values inAcquisition Accounting' was made in relation to the fair value of assets andliabilities acquired in the previous years acquisitions. There has been noadjustment to amortisation as this goodwill is not amortised and is subject toannual impairment reviews. Amortised Amortised Goodwill 30 Goodwill 30 June 2007 June 2006 £000 £00011 b) Negative goodwillCost brought forward (608) (608)Acquired during the year - -Cost carried forward (608) (608)Amortisation brought forward 115 85Amortisation for the year 31 30Amortisation carried forward 146 115Net book value brought forward (493) (523)Net book value carried forward (462) (493) Notes to the Accounts continued 12 Tangible Fixed Assets Group Furniture Assets in 30 June Land and Plant and Fittings & course of 2007 Buildings Machinery Equipment Vehicles construction Total £000 £000 £000 £000 £000 £000 Cost brought forward 8,511 19,429 1,026 69 142 29,177Assets acquired withsubsidiary 3,035 8,812 880 92 - 12,819Additions 11 2,858 19 13 1,083 3,984Transfers 22 511 2 - (535) -Disposal - (2,292) (9) (15) - (2,316) Cost carried forward 11,579 29,318 1,918 159 690 43,664 Depreciation brought (2,337) (12,191) (696) (54) - (15,278)forwardAssets acquired withsubsidiary (42) (4,763) (505) (36) - (5,346)Charge for period (192) (1,559) (131) (12) - (1,894)Disposal - 2,006 5 3 - 2,014Depreciation carriedforward (2,571) (16,507) (1,327) (99) - (20,504) Net book valuecarried forward 9,008 12,811 591 60 690 23,160Net book value brought forward 6,174 7,238 330 15 142 13,899 The net book value of assets held under finance leases or hire purchasecontracts, included in plant and machinery above at 30 June 2007 is £3,529,797,(30 June 2006 £589,827). 13 Investments Group 30 June 30 June 2007 2006 £000 £000Non-listed investmentsBrought forward - -Acquired with subsidiary 25 -Carried forward 25 - Company 30 June 30 June 2007 2006 £000 £000Investments in shares of subsidiary undertakingsBrought forward 22,743 10,450Additions 38,486 12,293Carried forward 61,229 22,743 Notes to the Accounts continued 13 Investments (continued) The following have been included in the consolidated financial statements of theGroup: Country of Principal activities Classes of sharesWholly owned registration in issue Memory Lane Cakes Limited England & Wales Food production and distribution Ordinary 1p Nicholas and Harris Limited England & Wales Food production and distribution Ordinary £1 United Central Bakeries Ltd Scotland Food production and distribution Ordinary £1 California Cake Company Ltd Scotland Food production and distribution Ordinary £1 Campbells Cake Company Ltd Scotland Food production and distribution Ordinary £1 Lightbody Group Limited Scotland Food production and distribution Ordinary £1 Country of Classes of shares registration50% owned Principal activities in issue Lightbody-Stretz Limited Scotland Sales, marketing and distribution Ordinary £1 Unlisted investments The unlisted investments acquired as part of the Lightbody Group Limited acquisition on 23 February 2007 andheld at 30 June 2007 consist of preference shares in Murray Traders Limited (10.5% of the issued capital ofthat company). 14 Stocks 30 June 30 June 2007 2006 £000 £000Raw materials 2,403 1,104Finished goods and goods for resale 1,583 610 3,986 1,714 Notes to the Accounts continued 15 Debtors Group Company 30 June 30 June 30 June 30 June 2007 2006 2007 2006 £000 £000 £000 £000Trade debtors 19,956 9,904 - -Amounts owed by Group undertakings - - 10,204 3,872Other taxation 1,618 594 32 12Deferred taxation - - 119 20Other debtors 521 32 24 22Prepayments and accrued income 1,520 811 655 249 23,615 11,341 11,034 4,175 Included within prepayments are prepaid pension costs of £23,000 (2006:£22,000), and an amount of £60,000 (2006: £180,000) which is not due within oneyear. 16 Creditors - Amounts falling due within one year Group Company 30 June 30 June 30 June 30 June 2007 2006 2007 2006 £000 £000 £000 £000Loan notes 954 30 954 30Bank overdraft 3,176 - 11,723 727Bank loan 1,970 1,867 1,970 1,867Trade creditors 13,675 7,641 17 63Hire Purchase 838 215 - -Deferred Consideration 9,530 500 9,530 500Amounts due to Group undertaking - - 20 1,421Corporation tax 1,033 586 - -Other taxes and social security 1,084 481 48 16Other creditors 680 986 - 65Accruals and deferred income 8,819 4,664 483 319 41,759 16,970 24,745 5,008 £29,000 of the loan notes, bearing interest at 5%, were issued at par as part ofthe consideration for the acquisition of Framestore in 1996. They are unsecuredand are redeemable at the option of the holders. £925,000 of the loan notes wereissued as part of the consideration for the acquisition of the Lightbody Groupon 23 February 2007. They are guaranteed loan notes bearing interest at 1% belowbase. They are redeemable on the interest payment dates of 30 April and 31October with a minimum 28 days notice or, if not redeemed earlier, on thematurity date of 22 February 2012. Included within creditors is an amount of£37,000 in respect of unpaid pension contributions (2006: £39,000). Notes to the Accounts continued 17 Creditors - Amounts falling due after more than one year Company and Group 30 June 30 Junea) Bank loans and mortgages 2007 2006 £000 £000 Between one and two years 3,044 2,033Between two and five years 8,588 5,902Between five and ten years 6,484 2,555Between ten and fifteen years 2,571 1,767Total bank loan and mortgages 20,687 12,257 Company and Group b) Net obligations under finance leases 30 June 30 Juneand hire purchase contracts 2007 2006 £000 £000 Between one and five years 1,359 167 Company and Group 30 June 30 Junec) Government grants 2007 2006 £000 £000 Between one and five years 65 60 Company and Group 30 June 30 Juned) Exceptional accrual 2007 2006 £000 £000 Between one and five years 259 - Total creditors - Amounts falling due after more than one year 22,370 12,484 HSBC Bank plc, HSBC Asset Finance (UK) Limited and HSBC Equipment Finance (UK)limited have debentures incorporating fixed and floating charges over theundertaking and all property and assets including goodwill, book debts, uncalledcapital, buildings, fixtures, fixed plant and machinery. A breakdown of thefinancial liabilities is shown in note 25. Hire purchase obligations are secured on the underlying assets. The exceptional accrual of £259,000 relates to future costs associated with therelocation of California Cakes to the Lightbody site. 18 Called up Share Capital Company and Group 30 June 30 June 2007 2006 £000 £000 Authorised equity share capital: 100,000,000 shares of 1p each 1,000 1,000 Allotted, called up and fully paid equity share capital:Number23,084,193 At beginning of year 231 222 5,116,095 Warrants exercised 51 8 400,000 Options exercised 4 122,500,000 New shares issued 225 - 51,100,288 At end of year 511 231 Notes to the Accounts continued 18 Called up Share Capital (continued) Since the year end 400,000 options have been exercised. 5,707,894 Warrants were issued following shareholder approval on 27 May 2002 onthe basis of 1 warrant for every three shares held and 859,410 were issued onthe acquisition of Memory Lane Cakes. Warrant holders can subscribe forordinary shares, at 30p per share, 28 days after despatch of all interim andannual reports in each of the years up to and including 2007. 5,116,095 warrantswere exercised during the year (2006: 750,042). 433,155 warrants remained outstanding at 30 June 2007 and at the date of thisreport. The last exercise date for these warrants is 29 October 2007. At 30 June 2007 there were options outstanding over 2,460,196 shares (2006:1,823,544). 1,172,500 options were granted during the year. Options over400,000 shares were exercised during the year and options over 135,848 lapsedduring the year. At 30 June 2007 there were 235,000 approved options and 459,696 EnterpriseManagement Incentive options outstanding, both of which have a ten year life.There were 1,765,500 unapproved options outstanding at 30 June 2007, which havea seven year life. Exercise 1 July At 30 JunePrice Expiry date 2006 Granted Exercised Cancelled 2007111.0p Apr 2017 - 81,000 - - 81,000100.0p Apr 2017 - 519,000 - - 519,000 93.0p Nov 2013 - 68,000 - (33,000) 35,000 93.0p Nov 2016 - 32,000 - - 32,000 88.0p Sep 2013 - 172,500 - - 172,500 85.6p Sep 2016 - 35,000 - - 35,000 85.6p Sep 2013 - 165,000 - - 165,000 74.5p Jan 2016 40,000 - - - 40,000 74.5p Jan 2013 160,000 - - - 160,000 67.5p Nov 2015 139,000 - - - 139,000 63.0p Nov 2015 47,000 - - - 47,000 63.0p Nov 2012 114,000 - - - 114,000 52.5p July 2015 165,000 - - (50,000) 115,000 39.0p Mar 2014 200,000 - (200,000) - - 34.0p Oct 2014 158,544 - - (52,848) 105,696 29.0p Dec 2012 500,000 - - - 500,000 29.0p Mar 2013 300,000 - (200,000) - 100,000 1.0p Apr 2017 - 100,000 - - 100,000 Total outstanding 1,823,544 1,172,500 (400,000) (135,848) 2,460,196 Notes to the Accounts continued 19 (a) Share Premium and Reserves Movements on reserves As restated Share Capital Profit &Group Premium Redemption Loss Account Reserve Account £000 £000 £000At 1 July 2006 as previously stated 6,902 578 4,075Premium on warrants exercised 1,484 - -Premium on options exercised 132 - -Impact of share based payments for the year - - 298New issue 18,900 - -Placing costs of new share issue (839) - -Actuarial gain on pension scheme asset - - 1,551Deferred tax movement on pension scheme gain - - (465)Retained profit for the year - - 3,960Dividend paid - - (394) Balance at 30 June 2007 26,579 578 9,025 CompanyAt 1 July 2006 6,902 578 1,942Premium on warrants exercised 1,484 - -Premium on options exercised 132 - -Impact of share based payments for the year - - 298New issue 18,900 - -Placing costs of new share issue (839) - -Retained (loss) for the year - - (2,683)Dividend paid - - (394) Balance at 30 June 2007 26,579 578 (837) 19 (b) Minority Interests £000At 1 July 2006 -Profit on ordinary activities after taxation 36Acquisition of subsidiary undertaking 1At 30 June 2007 37 Notes on the Accounts continued 20 Reconciliation of Movement in Shareholders' Funds Group Company 2007 2006 2007 2006 £000 £000 £000 £000Opening shareholders' funds 11,786 9,364 9,653 7,245 Retained profit / (loss) for the year 3,960 1,427 (2,683) 2,361Dividends (394) (275) (394) (275) 3,566 1,152 (3,077) 2,086Subscriptions received for new sharesissued during the year 19,957 252 19,957 252Impact of share based payments for the year 298 70 298 70Actuarial gains less deferred tax 1,086 948 - -Closing shareholders' funds 36,693 11,786 26,831 9,653 21 Commitments and Contingent Liabilities At the balance sheet date: (a) The Group had capital expenditure commitments of £125,000 (2006:£85,000). (b) The Group had a maximum contingent liability of £695,000 (2006:£500,000) in respect of excesses under employer's liability claims, notprovided. (c) At 30 June 2007 the Group had annual commitments undernon-cancellable operating leases and licences of: Land and Buildings Other 2007 2006 2007 2006 £000 £000 £000 £000Expiry date Within one year - 114 77 198 Between two and five years 204 566 2,294 2,390 After five years 751 - - -Total 955 680 2,371 2,588 Notes to the Accounts continued 22 Pensions a) Pension arrangements A number of companies within the Group operate defined contribution pensionschemes with one business also operating a defined benefit scheme. The Companypaid contributions of £393,000 (2006 - £323,000), being £215,000 (2006 -£211,000) in respect of its defined benefit pension arrangements and £178,000(2006 - £112,000) in respect of its defined contribution pension arrangements.The assets of the schemes are held separately from those of the company. The amounts in the financial statements for the period ended 30 June 2007,relating to defined benefit pension are based on a full actuarial valuationdated 31 December 2004, which was updated to 30 June 2007 for FRS 17 purposes. Memory Lane Cakes Limited (MLC) has a funded defined benefits scheme called theMemory Lane Cakes Pension Scheme, which is a separately administered plan. Thescheme is closed to new members, and the accrual rate decreased, from 1 July2003. As the age of the active membership increases, the closure to new entrantsmay cause the current service cost to increase under the projected unit method(although this may be offset to some extent by a reducing salary roll as membersleave active service). At 30 June 2007, the scheme had 149 active membersaccruing benefits (2006 - 161), 167 deferred pensioner members (2006 - 166) and117 pensioner members (2006 - 107). The MLC contribution paid for the year to 30 June 2007 was £215,000 (2006 -£211,000). The agreed contribution rate for future years is 6.2% of pensionablepay by MLC and 6% by the employees. The full actuarial valuation of the Scheme carried out as at 31 December 2004 onan equity/bond basis and projected unit method, showed that there was a surplusof assets of 5% over liabilities. The valuation was conducted by a qualifiedindependent actuary. The trustees of the Memory Lane Cakes Pension Scheme have transferred themajority of the assets to a Black Rock Target Return Fund, which aims for areturn of 5% per annum above the increase in the retail price index. Thetransfer took place on the 27 April 2006. b) FRS17 Retirement Benefits (i) The major assumptions used by the actuary for FRS 17 purposes were: 30 June 30 June 30 June 2007 2006 2005 £000 £000 £000Inflation assumption 3.0% 3.0% 2.5%Rate of pensionable salary increases 3.5% 3.5% 3.0%Increases to pensions in payment 3.0% 3.0% 2.5%Discount rate for liabilities 5.9% 5.4% 5.1% Inflation is assumed to be 3.0% per annum in line with the Bank of Englandtarget rate. (ii) The assets in the Scheme and the expected rates of return were: 30 June Expected 30 June Expected 30 June Expected 30 June Expected 2007 Return 2006 Return 2005 Return 2004 Return £000 p.a. £000 p.a. £000 p.a. £000 p.a.Equities/targetreturn fund 14,507 8.0% 13,599 8.0% 9,585 7.0% 8,308 7.0%Property 1,515 7.0% 814 7.0% 653 7.0% 557 7.0%Bonds - n/a - n/a 1,031 5.0% 1,036 5.0%Cash 44 4.0% 620 4.0% 1,395 4.0% 657 4.0%Total assets 16,066 15,033 12,664 10,558Total liabilities (13,544) (14,250) (13,258) (10,694) Scheme asset /(deficit) 2,522 783 (594) (136) Deferred tax(liability )/asset (757) (235) 178 41 Net pensionsurplus /(deficit) 1,765 548 (416) (95) The differential between the assumed rate of inflation and the discount rate forliabilities has increased to 2.9% (2006: 2.4%). Increasing the assumed rate ofinflation from 3.0% to 3.4% per annum would reduce the surplus by approximately£1.2 million (£0.8 million net of tax) from £2.5 million (£1.7million net oftax) to £1.3 million (£0.9 million net of tax). Notes to the Accounts continued 22 Pensions continued (iii) Analysis of the amounts which are charged to Operating Profitunder the requirements of FRS 17: Year ended Year ended 30 June 2007 30 June 2006 £000 £000Current service cost 386 338Past service cost 35 -Total operating charge 421 338 (iv) Analysis of amounts which are credited to Other Finance Income Year ended Year ended 30 June 2007 30 June 2006 £000 £000Expected return on assets 1,170 825Interest on scheme liabilities (776) (682)Net return 394 143 (v) Analysis of amounts which are recognised in the ConsolidatedStatement of Total Recognised Gains and Losses (STRGL) Year ended Year ended 30 June 2007 30 June 2006 £000 £000Actual return less expected return on scheme assets (218) 1,448Experienced gains and losses arising on the scheme liabilities - (16)Changes in assumptions underlying the present value of the scheme liabilities 1,769 (71)Actuarial gain recognised in STRGL 1,551 1,361 (vi) Movement in surplus during the year Year ended Year ended 30 June 2007 30 June 2006 £000 £000Surplus / (deficit) in scheme at 1 July 783 (594)Current service cost (386) (338)Company contributions 215 211Past service cost (35) -Other finance income 394 143Actuarial gain 1,551 1,361Surplus in scheme at 30 June 2007 2,522 783 The full actuarial valuation at 30 June 2007 showed an increase in the surplusfrom £783,000 to £2,522,000. Improvements in the costing of the benefits weremade in 2007 and contributions increased to £215,000. It has been agreed withthe trustees that contributions for the next three years will remain at thatlevel. (vii) History of experience gains and losses Year ended Year ended 30 June 2007 30 June 2006 £000 £000Difference between expected and actual return (218) 1,448 As a percentage of scheme assets (1.4)% 9.6% Experienced gains and losses on scheme liabilities - (16) As a percentage of the value of the liabilities 0.0% 0.1% Total actuarial (loss) / gain 1,551 1,361 As a percentage of the value of the liabilities 11.5% 9.6% Notes to the Accounts continued 23 Note to Cash Flow Statement (a) Reconciliation of operating profit to net cash flow from operating activities Year ended Year ended 30 June 30 June 2007 2006 £000 £000Operating profit 6,487 2,553Other finance income 394 143Exceptional profit on disposal (2,335) -Exceptional expenditure 1,213 267Amortisation of goodwill 84 86Depreciation 1,894 1,256Release of Government grant (28) -Retirement benefits - net income (188) (16)Impact of share based payments 298 -Movement in working capital: Decrease in stocks 17 595 Increase in debtors and prepayments (3,532) (164) Increase / (decrease) in creditors and accruals 1,117 (1,133) Net cash inflow from operating activities 5,421 3,587 (b) Reconciliation of net cash flow to net debt Year ended Year ended 30 June 30 June 2007 2006 £000 £000Decrease in cash during the year and change in net funds arising (3,703) (3,618)from cash flowCash inflow from increase in debt and lease finance (9,005) (11,146)Change in net debt resulting from cash flows (12,708) (14,764)Finance lease acquired with subsidiary (1,345) (509)Movement in net debt in the year (14,053) (15,273) Net (debt) / funds brought forward (14,007) 1,266 Net debt carried forward (28,060) (14,007) (c) Analysis of net debt 2007 As at As at Year ended Acquisitions Year ended 30 June and 30 June 2006 Cash flow disposals 2007 £000 £000 £000 £000 Cash at bank and on call 527 (4,582) 879 (3,176)Loan notes repayable on demand (29) - - (29)Cash / (debt) 498 (4,582) 879 (3,205)Debt due within one year (1,867) (103) - (1,970)Debt due after one year (12,257) (8,430) - (20,687)Hire purchase obligations due within one year (214) (161) (463) (838)Hire purchase obligations due after one year (167) (311) (882) (1,360)Total Net Debt (14,007) (13,587) (466) (28,060) The total debt acquired upon acquisition of the Lightbody Group Limited was £7.8million, £6.5 million of which was settled immediately and the remaining amountof £1.3 million, relating to hire purchase obligations, was retained. Notes to the Accounts continued 23 Note to Cash Flow Statement continued (d) Purchase of subsidiary Within the 'Purchase of subsidiary companies' amount of £20,032,000 is £500,000representing the deferred consideration paid in July 2006 in respect of theUnited Central Bakeries acquisition in November 2005. (e) Material non-cash transaction As part of the consideration for the purchase of the Lightbody Group Limited tenmillion ordinary shares were issued to the sellers and in addition to theseshares, £924,850 of guaranteed variable rate loan notes were issued with amaturity date of 22 February 2012. 24 Related Party Transactions and Directors' Material Interests in Transactions Mr D C Marshall and Mr E J Beale are Directors of City Group Plc, which receivedfees for the year of £79,000 (2006: £44,000), £38,000 for the provision of headoffice and company secretarial services and £41,000 for acquisition review andadvice to Finsbury Food Group Plc £17,189 was due to City Group Plc at 30 June2007 (2006: £15,600). The services of Mr Marshall are supplied by an overseascompany in which none of the Directors has an interest. Directors' fees for MrBeale are surrendered to his primary employer. 25 Financial Assets and Liabilities The Group's policies on the management of interest rate, liquidity and currencyexposure risks are set out in the Report of the Directors. The financial liabilities of the Group consist of : • £8.0m mortgage over 15 years at 1% above base (drawn) • £12.3m Term Loan, over 7 years at 1.5% over base for the first £2.5m, 2.0% above for amounts between £2.5m and £7.5m and 2.125% above for borrowings over £7.5m (drawn) • £7.7m Term Loan, over 5 years and 6 months at 2.25% over base (undrawn) • £5.6m equipment finance facility, over 5 years, at 1.275% over base (£3.6m drawn) • £10.0m overdraft facility at 1.375% over base (£3.2m drawn) • £925,000 loan notes over 5 years at 1% below base • £29,000 5% loan notes All are denominated in pounds sterling and are repayable by quarterlyinstalments, with the exception of £2.5m of equipment finance and the loannotes. £29,000 of the loan notes are repayable at the note holders' demand. £925,000 ofthe loan notes are repayable after a minimum 28 day notice period and arepayable on the interest payment dates of 30 April and 31 October or on thematurity date 22 February 2012. Floating Floating Fixed rate rate loans rate loan loan notes notes Total £000 £000 £000 £000 Financial liabilities 22,657 925 29 23,611 Repayment terms:Within one year 1,970 - - 1,970Between one and two years 3,044 - - 3,044Between two and five years 8,588 - - 8,588After more than five years 9,055 - - 9,055No fixed repayment date - 925 29 954 22,657 925 29 23,611 The carrying amounts of the loan and the loan notes are deemed to approximateto their fair values. The Group has three Interest rate swaps, £5m fixed for 5 years from 18November 2005, £5m amortising over 5 years from 18 November 2005 and £11mamortising over 5 years from 23 February 2007. Notes to the Accounts continued 26 Deferred Tax (Group) As restated Year ended Year ended 30 June 30 June 2007 2006 £000 £000Provision at start of period as restated 327 280Deferred tax provision acquired with subsidiary 540 246Deferred tax credit / (charge) for year 501 (199)Adjustment in respect of prior periods (86) -Closing provision 1,282 327The deferred tax provision is made up as followsAccelerated capital allowances 1,670 538Short term timing differences (388) (193)Tax losses carried forward - (18) 1,282 327 27. Post Balance Sheet events The Directors propose a dividend for the year to 30 June 2007 of 2.0p per share(2006: 1.5p). 28. Dividends The company paid dividends during the year of £394,000 (2006: £275,000). 29. Prior Year Adjustment In accordance with Financial Reporting Standard 3 'Reporting FinancialPerformance' the following prior year adjustments have been made: The group has adopted Financial Reporting Standard 20 'Share based payments'(FRS 20) in the current year which represents a change in accounting policy. Inaccordance with Financial Reporting Standard 3 'Reporting Financial Performance'the comparative figures have been restated. Administration costs include acharge of £298,000 for the year to 30 June 2007. The comparative figure for theyear ended 30 June 2006 has been adjusted by £70,000. The cumulative prior yearadjustment at the close of the year ended 30 June 2006 was £112,000. The companyhas applied the Black-Scholes option pricing model to value the options. Fulldetails relating to FRS20 are shown in note 31. Notes to the Accounts continued 30. Acquisition of subsidiary undertaking On 23 February 2007 the company acquired 100% of the share capital of theLightbody Group Limited for a consideration comprising the issue of 10 millionordinary shares of 85p each in the company, cash of £18,375,150, the issue ofguaranteed loan notes with a nominal value of £924,850, costs amounting to£1,155,527 and deferred consideration of £9,530,280. The fair value of netassets acquired was £2,185,288. The following table sets out the book values ofthe identifiable assets and liabilities acquired and their fair value to thegroup: Fair value Fair value to Book value adjustment group £000 £000 £000Fixed assetsTangible 7,319 156 7,475Investments 25 - 25 Current assetsStocks 2,144 145 2,289Debtors 8,910 (169) 8,741Cash 879 - 879 Total assets 19,277 132 19,409 CreditorsTrade creditors (5,510) 37 (5,473)Other creditors & accruals (9,845) (536) (10,381)Finance Leases (1,345) - (1,345) Total Liabilities (16,700) (499) (17,199) Net liabilities 2,577 (367) 2,210 Minority interest (1)Goodwill 36,277 38,486Satisfied byCash 18,375Share issue 8,500Loan note issue 925Deferred consideration 9,350Net debt deferred consideration 180Acquisition costs 1,156 38,486 The total deferred consideration of £9.5 million was paid in full duringSeptember. Net cash outflows in respect of the acquisition comprised: £'000 Cash consideration 19,531Cash at bank and in hand acquired (879) 18,652 Lightbody Group Ltd earned a profit after taxation of £1,891,081 in the 14months ended 1 July 2007, (12 months ended 1 May 2006 loss of £136,165), ofwhich £1,105,087 arose in the period from 1 May 2006 to 23 February 2007, shownon the basis of the accounting policies of Lightbody Group Ltd prior to theacquisition results are as follows:- Notes to the Accounts continued 30. Acquisition of subsidiary undertaking (continued) Profit and loss account £000 Turnover 42,242Cost of sales (26,021)Gross Profit 16,221Net other operating expenses (14,258)Operating Profit 1,963Net finance charges (496)Profit on ordinary activities before taxation 1,467Tax on profit on ordinary activities (296)Profit on ordinary activities after taxation 1,171Minority interest (66)Profit for the financial period 1,105 Statement of recognised gains and losses £000Profit for the financial period 1,105Total recognised gains and losses relating to the period 1,105 31. Share based payments The Company operates both approved and unapproved share options schemes. Theapproved and unapproved schemes in place at the start of this financial yearexpired during the year and were replaced by the Long Term Incentive Plan 2006.This Plan is made up of 2 parts - one part is an approved share options schemeand the other is an unapproved share option scheme. This Plan was adopted bythe Company on 29 November 2006. Details of the share options outstanding during the year are as follows: Number of share Weighted average options exercise price (p) Outstanding as at 1 July 2006 1,823,544 43.6Granted during the year 1,172,500 87.5Forfeited during the year (102,848) 43.0Exercised during the year (400,000) 34.0Lapsed during the year (33,000) 93.0Outstanding as at 30 June 2007 2,460,196 65.4 Exercisable at the end of the period 600,000 29.0 The weighted average share price at the date of exercise for share optionsexercised during the year was 99.7p. The options outstanding at 30 June 2007 hada weighted average exercise price of 65.4p and a weighted average remainingcontractual life of 6.7 years. Notes to the Accounts continued 31. Share based payments (continued) The Company has adopted FRS 20 'Share-based payments' for the year ended 30 June2007. As a result of this, a charge has been made to the profit and lossaccount to reflect the calculated fair value of employee share options. Thecharge is calculated at the date of the grant of the options and is chargedequally over the vesting period. The corresponding adjustment is made toreserves . In 2006, options were granted on 14 July 2005, 21 November 2005 and 20 January2006. The aggregate of the estimated fair values of the options granted on thosedates is £127,000. In 2007, options were granted on 19 September 2006, 28September 2006, 1 November 2006 and 18 April 2007. The aggregate of theestimated fair values of the options granted on those dates is £364,000. The charge calculated up to 30 June 2005 is £112,000 with a correspondingdeferred tax asset at that date of £31,000. The charge for the year ended 30 June 2006 is £70,000 with a correspondingdeferred tax asset of £20,000 recognised in the year. The charge calculated for the year ended 30 June 2007 is £298,000 with adeferred tax asset of £83,000 recognised in the year. £16,000 is also releasedduring the year on the £55,000 relating to the exercise of options in the yeargiving a closing deferred tax asset in relation to FRS 20 of £118,000. The Company has used the QCA-IRS option valuerTM based on theBlack-Scholes-Merton based option pricing model, to calculate the fair value ofoutstanding options. This model was developed by the QCA partnered withIndependent Remuneration Solutions (IRS) and City Group Plc. The development wasled by Mr Edward Beale, a director of the Group and chief executive of CityGroup Plc. Individual calculations have been performed for groups of shareoptions with differing exercise prices and dates. The inputs into theBlack-Scholes option pricing model were as follows:- 2007 2006Expected life of options 3 - 5 years 1 - 5 yearsVolatility of share price 30.0% - 52.5% 45.2% - 51.8%Dividend yield 1.4% - 1.7% 1.5% - 1.9%Risk-free interest rate 4.69% - 5.41% 4.19% - 4.24%Share price at date of grant 88.5p - 111.0p 63.4p - 77.5pExercise price 1.0p - 111.0p 52.5p - 74.5pFair value per option 20.3p - 95.1p 10.6p - 23.3pBid price discount 10% 10%Estimated conversion rate 100% 100% This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
FIF.L