Interim Results

Date:

24 March 2014

On behalf of:

Finsbury Food Group plc ('Finsbury', 'the Company' or 'the Group')

Embargoed until: 0700hrs

For further information:

Finsbury Food Group plc

www.finsburyfoods.co.uk

John Duffy (Chief Executive)

029 20 357 500

Stephen Boyd (Finance Director)

Cenkos Securities plc

Bobbie Hilliam (Corporate Finance)

 020 7397 8900

Alex Aylen (Sales)

Redleaf Polhill

[email protected]

Rebecca Sanders-Hewett/

020 7382 4730

Jenny Bahr/ Rachael Brown

Note

Unaudited

26 weeks ended

 28 December 2013

Unaudited

26 weeks

ended

29 December 2012

Audited

52 weeks

ended

 29 June

2013

£'000

£'000

£'000

Continuing operations

Revenue

86,643

88,223

176,595

Cost of sales

(64,426)

(66,511)

(130,150)

Gross profit

22,217

21,712

46,445 

Administrative expenses

(19,621)

(19,240)

(39,006)

Results from operating activities

2,596

2,472

7,439

Net financing expense

5

(512)

(1,088)

(1,979)

Profit before taxation

2,084

1,384

5,460

Taxation

(553)

(382)

(1,110)

Profit from continuing operations after tax before significant non-recurring and other items

1,531

1,002

4,350

Profit from discontinued operations net of tax

-

1,196

1,850

Profit for the period

1,531

2,198

6,200

Significant non-recurring and other items:

Profit from the sale of the business

3

-

-

1,184

Administrative expenses

3

(297)

(260)

(718)

Share option charge

4

(11)

(68)

(134)

Defined benefit pension scheme -administration costs

-

-

915

Defined benefit pension scheme - financial income net of expenses

5

-

-

435

Movement in fair value swaps

5

396

292

855

Movement in fair value foreign exchange contracts

75

89

(179)

Fair value adjustments relating to acquisitions

5

70

(23)

16

Taxation relating to above items

(77)

(7)

(322)

Total significant non-recurring and other items

156

23

2,052

Profit after taxation

1,687

2,221

8,252

Other comprehensive income

Actuarial loss on defined benefit pension scheme net of deferred taxation

-

-

(861)

Foreign exchange translation differences

(40)

27

69

Other comprehensive income, net of income tax

(40)

27

(792)

Total comprehensive income

1,647

2,248

7,460

Profit attributable to:

Equity holders of the parent

1,454

2,028

7,788

Non-controlling interest

233

193

464

Profit for the financial period

1,687

2,221

8,252

Total comprehensive income attributable to:

Equity holders of the parent

1,414

2,055

6,996

Non-controlling interest

233

193

464

Total comprehensive income for the financial period

1,647

2,248

7,460

Unaudited

Unaudited

Audited

28 December

29 December

29 June

2013

2012

2013

Note

£000

£000

£000

Non-current assets

Goodwill

53,133

61,728

53,133

Property, plant and equipment

20,602

24,987

18,209

Other financial assets

28

28

28

Deferred tax assets

1,774

1,198

1,917

Deferred consideration receivable

2,819

-

2,745

78,356

87,941

76,032

Current assets

Inventories

5,692

6,694

4,400

Trade and other receivables

28,567

33,467

25,337

Cash and cash equivalents

7

700

1,930

1,310

Other financial assets - fair value of foreign exchange contracts

-

124

-

34,959

42,215

31,047

Total assets

113,315

130,156

107,079

Current liabilities

Trade and other payables

(34,791)

(39,308)

(33,054)

Deferred purchase consideration

(20)

(388)

(216)

Other interest bearing loans and borrowings

7

(8,334)

(11,767)

(3,921)

Other financial liabilities - interest rate swaps

(769)

(1,658)

(1,240)

Current tax liabilities

(113)

(569)

(456)

Provisions

(238)

(399)

(501)

(44,265)

(54,089)

(39,388)

Non-current liabilities

Deferred purchase consideration

-

(19)

-

Other interest-bearing loans and borrowings

7

(3,975)

(16,804)

(4,342)

Deferred tax liabilities

(405)

(1,397)

(405)

Provisions and other liabilities

(209)

(227)

(218)

Pension fund liability

(2,843)

(3,075)

(2,843)

(7,432)

(21,522)

(7,808)

Total liabilities

(51,697)

(75,611)

(47,196)

Net assets

61,618

54,545

59,883

Equity attributable to equity holders of the parent

Share capital

8

656

639

642

Share premium account

31,170

30,737

30,779

Capital redemption reserve

578

578

578

Retained earnings

27,962

21,512

26,865

Total shareholders' equity

60,366

53,466

58,864

Non-controlling interest

1,252

1,079

1,019

Total equity

61,618

54,545

59,883

Note

Share

Capital

Share

premium

Capital redemption reserve

Retained

earnings

Non-controlling

interest

Total

equity

£000

£000

£000

£000

£000

£000

Balance at 1 July 2012

535

27,052

578

19,389

886

48,440

Profit for the 26 weeks ended 29 December 2012

-

-

-

2,028

193

2,221

Foreign exchange translation differences

-

-

-

27

-

27

Total other comprehensive expense

-

-

-

27

-

27

Total comprehensive income for the period

-

-

-

2,055

193

2,248

Transactions with owners, recorded directly in equity:

Shares issued during the period

8

104

3,685

-

-

-

3,789

Impact of share based payments

4

-

-

-

68

-

68

Balance at 29 December 2012

639

30,737

578

21,512

1,079

54,545

Balance at 30 December 2012

639

30,737

578

21,512

1,079

54,545

Profit for the 26 weeks ended 29 June 2013

-

-

-

5,760

271

6,031

Other comprehensive income/(expense):

Actuarial loss on defined benefit pension plan

-

-

-

(1,118)

-

(1,118)

Deferred tax movement on pension scheme actuarial loss

-

-

-

257

-

257

Foreign exchange translation differences

-

-

-

42

-

42

Total other comprehensive expense

-

-

-

(819)

-

(819)

Total comprehensive income for the period

-

-

-

4,941

271

5,212

Transactions with owners, recorded directly in equity:

Shares issued during the period

3

42

-

-

-

45

Impact of share based payments

-

-

-

66

-

66

Deferred tax on share options

-

-

-

506

-

506

Dividend paid

-

-

-

(160)

(331)

(491)

Balance at 29 June 2013

642

30,779

578

26,865

1,019

59,883

Balance at 30 June 2013

642

30,779

578

26,865

1,019

59,883

Profit for the 26 weeks ended 28 December 2013

-

-

-

1,454

233

1,687

Foreign exchange translation differences

-

-

-

(40)

-

(40)

Total other comprehensive expense

-

-

-

(40)

-

(40)

Total comprehensive income for the period

-

-

-

1,414

233

1,647

Transactions with owners, recorded directly in equity:

Shares issued during the period

8

14

391

-

-

-

405

Impact of share based payments

4

-

-

-

11

-

11

Dividend paid

-

-

-

(328)

-

(328)

Balance at 28 December 2013

656

31,170

578

27,962

1,252

61,618

Unaudited

26 weeks

ended

Unaudited

26 weeks

ended

Audited

52 weeks

ended

28 December

2013

29 December

2012

29 June

2013

Note

£000

£000

£'000

Cash flows from operating activities

Profit for the period

1,687

2,221

8,252

Adjustments for:

Taxation

630

761

1,655

Finance expenses

5

46

819

673

Depreciation

1,347

1,602

2,888

Amortisation of intangibles

-

-

164

Movement in fair value foreign exchange contracts

(75)

(89)

179

Share options charge

4

11

68

134

Pension scheme past service costs

-

-

(850)

Contributions by employer to pension scheme

-

-

(65)

Profit on disposal of business

-

-

(1,184)

Operating profit before changes in working capital

3,646

5,382

11,846

Changes in working capital

(Increase)/decrease in inventories

(1,319)

(1,298)

51

(Increase)/decrease in trade and other receivables

(3,476)

(2,518)

1,243

Increase in trade and other payables

1,795

3,937

884

Cash generated from operations

646

5,503

14,024

Interest paid

(492)

(941)

(2,022)

Corporation taxes paid

(826)

(845)

(1,776)

Net cash generated from operating activities

(672)

3,717

10,226

Cash flows from investing activities

Purchase of property, plant & equipment

(3,740)

(1,050)

(4,204)

Purchase of subsidiary companies

(200)

(855)

(1,055)

Disposal of operation

-

-

17,072

Net cash used in investing activities

(3,940)

(1,905)

11,813

Cash flows from financing activities

Drawdown/(repayment) of invoice discounting

370

(6,061)

(10,828)

Drawdown/(repayment) of loans

3,846

(751)

(15,503)

Repayment of loan notes

-

(3)

(3)

Repayment of asset finance facilities

(274)

(664)

(1,602)

Issue of ordinary share capital

405

3,789

3,834

Non-controlling interest dividend paid

-

-

(331)

Dividend paid to shareholder

(328)

-

(160)

Net cash from/(used by) financing activities

4,019

(3,690)

(24,593)

Net decrease in cash and cash equivalents

(593)

(1,878)

(2,554)

Opening cash and cash equivalents

1,310

3,793

3.793

Effect of exchange rate fluctuation

(17)

15

71

Cash and cash equivalents at end of the period

700

1,930

1,310

1) BASIS OF PREPARATION

The interim report, which is unaudited, does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006. The comparative figures for the financial year ended 29 June 2013 have been extracted from the statutory accounts for that year. Those accounts, which were prepared in accordance with International Financial Reporting Standards as adopted by the EU ("adopted IFRSs"), have been reported on by the company's auditor and delivered to the registrar of companies. The report of the auditor was (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.

It should be noted that current liabilities continue to exceed current assets. Having reviewed the Group's plans the Board has reasonable expectations that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has strong asset backing and strong debtor book. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements.

2) 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 Group Finance Director and Group Chief Executive Officer who have been delegated decision making responsibility from the PLC Board of Directors as they are 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 share option charges

Ø significant non-recurring items

Ø fair value adjustments relating to acquisitions

Ø pension charges or credits in relation to the difference between the expected return on pension assets and interest cost on pension liabilities and

Ø revaluation of interest rate swaps and forward foreign currency contracts.

On 27 February 2013 the Group sold its Free From business. This sale has created a shift in the way in which the business is reviewed. The UK cake and bread business is viewed as one segment - UK Bakery, whilst the 50% owned business Lightbody Stretz Limited is viewed as a separate segment - Overseas. Prior year comparatives have been restated accordingly.

The UK Bakery segment manufactures and sells bakery products to the UK's multiple grocers. This segment primarily comprises the operations of Memory Lane Cakes Ltd, Lightbody Group Ltd, Campbells Cake Company Ltd and Nicholas & Harris Ltd. These subsidiaries are aggregated into a single segment after considering the following criteria:

Ø the nature of the products - products are similar in nature and are classed as manufactured bakery products, the products sit side by side in the retailers' bakery aisles

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

Ø the customers - five customers account for approximately 70-75% of total revenue, these customers are common throughout the subsidiaries

Ø the distribution methods - the same methods of distribution apply to all subsidiaries.

The core operation of the Overseas segment is the distribution of the Group's UK manufactured product along with the sale of third party products primarily to Europe.

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. Operating profit levels have been chosen as the basis, as this reflects the underlying performance of the segment and is also the return the Group expects from those segments.

A purchasing premium of 2% is charged from Group operations, and is calculated on materials and packaging spends 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 profit from continuing operations of £0.2m (2012: £0.3m) being presented within the Group operations segment.

The Group's finance income and costs cannot be meaningfully allocated to the individual operating segments.

2) SEGMENT INFORMATION continued

Analysis of unallocated assets and liabilities:

Certain operating costs have been incurred centrally, these costs have been allocated to the reporting segments on an appropriate basis.

2) SEGMENT INFORMATION continued

Analysis of unallocated assets and liabilities:

Certain operating costs have been incurred centrally, these costs have been allocated to the reporting segments on an appropriate basis.

2) SEGMENT INFORMATION continued

Analysis of unallocated assets and liabilities:

Five customers with sales of £36m, £34m, £24m, £18m and £16m account for 73% of revenue, which is attributable to the 'UK Bakery' and 'Overseas' segments above.

3) SIGNIFICANT NON-RECURRING ITEMS

The Group presents certain items as non-recurring and significant. These relate to items which, in management's judgement, need to be disclosed by virtue of their size or incidence in order to obtain a more meaningful understanding of the financial information.

Costs of £297,000 relate to restructuring and reorganisation costs during the period. In the 26 weeks to 29 December 2012

£260,000 relates to due diligence and consultancy expenses associated with an aborted acquisition.

In the 52 weeks to 29 June 2013 £247,000 relates to due diligence and consultancy expenses and £471,000 relates to the costs associated with the cancellation of unapproved share options and the issue of ordinary shares in exchange for this cancellation. A pre-tax gain of £1,184,000 was recorded as significant non-recurring income, this gain relates to the sale of the Free From business on 27 February 2013.

4) SHARE BASED PAYMENTS

The Group operates both approved and unapproved share option schemes. Following the adoption of IFRS2 'Share-based payments' charges have been made to the Income Statement to reflect the calculated fair value of employee share options. The cost is calculated at the date of grant and is charged equally over the vesting period. The corresponding adjustment is made to reserves.

During the 26 weeks to 28 December 2013 no options were granted (2012: 250,000). The estimated fair values of options granted for the 26 weeks to 29 December 2012 and for the year ended 29 June 2013 was £14,000.

Significant non-recurring and other items include a charge of £11,000 in relation to the fair value of share options for the 26 weeks ended 28 December 2013. The comparative charges for the 26 weeks to 29 December 2012 and for the year ended 29 June 2013 were £68,000 and £134,000 respectively.

.

5) FINANCE INCOME AND EXPENSES

The Group has entered into three interest rate swap arrangements to hedge its risks associated with interest rate fluctuations:

£10.0m for four years from 1 June 2010 (fixed) at 4.9% maturing 31 May 2014

£5.0m for five years from 1 July 2011 (fixed) at 3.6% maturing 30 June 2016

£3.0m for four years from 22 May 2013 at 1.7% maturing 24 May 2017

On 21 February 2012 the Group entered into a forward dated swap:

£6.0m for three years from 2 June 2014 at 1.9% maturing 1 June 2017

These arrangements do not meet the conditions necessary for hedge accounting to be applied and, therefore, changes in their fair value are recognised immediately in the income statement resulting in a credit of £396,000 (2012: credit £292,000).

6) EARNINGS PER ORDINARY SHARE

Basic earnings per share for the period is calculated on the basis of profit for the period after tax, divided by the weighted average number of shares in issue 64,967,000 (29 December 2012: 55,747,000 and 29 June 2013: 59,904,000).

An adjusted earnings per share has also been calculated as, in the opinion of the Board, this will allow shareholders to gain a clearer understanding of the trading performance of the Group. These adjusted earnings per share exclude amounts shown under significant and non-recurring items in the Consolidated Statement of Comprehensive Income.

26 weeks ended

28 December 2013

26 weeks ended

29 December 2012

52 weeks ended

29 June 2013

Earnings

Weighted average number of shares

Per share amount

Earnings

Weighted average number of shares

Per share amount

Earnings

Weighted average number of shares

Per share amount

£'000

000's

Pence

£'000

000's

Pence

£'000

000's

Pence

Adjusted

1,298

64,967

2.0

2,005

55,747

3.6

5,736

59,904

9.6

Discontinued

-

-

1,196

2.1

1,850

-

3.1

Continuing

1,298

2.0

809

1.5

3,886

6.5

Significant non-recurring and other items

156

-

0.2

23

-

-

2,052

3.4

Basic non adjusted

1,454

64,967

2.2

2,028

55,747

3.6

7,788

59,904

13.0

Discontinued

-

-

1,196

2.1

3,034

5.1

Continued

1,454

2.2

832

1.5

4,754

7.9