Interim Results

Date:

23 March 2011

On behalf of:

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

Embargoed for release at 0700hrs

For further information:

Finsbury Food Group plc

www.finsburyfoods.co.uk

John Duffy (Chief Executive)

07901 514 390

Stephen Boyd (Finance Director)

07768 600 842

Panmure Gordon

020 7459 3600

Katherine Roe

Callum Stewart

Redleaf Communications

[email protected]

Emma Kane/Rebecca Sanders-Hewett/

020 7566 6700

Lucy Salaman

26 weeks ended

 1 January 2011

26 weeks ended

 2 January 2010

52 weeks

ended

 3 July

2010

Unaudited

Unaudited

Audited

£'000

£'000

£'000

Notes

Revenue

87,822

82,866

168,338

Cost of sales

(63,917)

(60,281)

(121,278)

Gross profit

23,905

22,585

47,060 

Administrative expenses

(20,745)

(19,570)

(39,057)

Results from operating activities

3,160

3,015

8,003

Financial expenses

6

(1,298)

(1,201)

(2,612)

Profit before taxation

1,862

1,814

5,391

Taxation

(521)

(508)

(1,376)

Profit after tax before significant non-recurring and other items

1,341

1,306

4,015

Significant non-recurring and other items:

Significant non-recurring items

4

(32)

(96)

154

Share option charge

(69)

(87)

(131)

Defined benefit pension scheme -administration costs

-

-

(14)

Defined benefit pension scheme - financial income

6

-

-

1,240

Defined benefit pension scheme - financial expenses

6

-

-

(1,071)

Movement in fair value swaps

6

570

(177)

(1,097)

Movement in fair value foreign exchange contracts

(111)

-

199

Fair value adjustments relating to acquisitions

6

(146)

(66)

199

Taxation relating to above items

(80)

95

(204)

Total significant non-recurring and other items

132

(331)

(725)

Profit after taxation

1,473

975

3,290

Other comprehensive income

Actuarial loss on defined benefit pension scheme

-

-

(3,046)

Movement in deferred taxation on pension scheme liability

-

-

853

Foreign exchange translation differences

-

-

(24)

Other comprehensive income, net of income tax

-

-

(2,217)

Total comprehensive income

1,473

975

1,073

Profit attributable to:

Equity holders of the parent

1,190

850

2,975

Non-controlling interest

283

125

315

Profit for the financial period

1,473

975

3,290

Total comprehensive income attributable to:

Equity holders of the parent

1,190

850

758

Non-controlling interest

283

125

315

Profit for the financial period

1,473

975

1,073

Unaudited

Unaudited

Audited

1 January

2 January

3 July

2011

2010

2010

Notes

£000

£000

£000

Non-current assets

Goodwill

62,057

62,221

62,057

Property, plant & equipment

25,743

26,792

25,978

Other financial assets

25

25

25

Deferred tax assets

1,593

879

1,752

89,418

89,917

89,812

Current assets

Inventories

5,334

4,649

4,531

Trade and other receivables

26,786

23,095

23,881

Cash and cash equivalents

8

1,265

-

2,803

Other financial assets - fair value of foreign exchange contracts

88

-

199

33,473

27,744

31,414

Total assets

122,891

117,661

121,226

Current liabilities

Bank overdraft

8

-

(77)

-

Other interest bearing loans and borrowings

8

(16,992)

(14,666)

(16,089)

Trade and other payables

(31,353)

(26,369)

(27,600)

Provisions

(436)

(502)

(424)

Deferred purchase consideration

9

(1,693)

(5,644)

(2,418)

Other financial liabilities - interest rate swaps

(2,027)

(1,678)

(2,598)

Current tax liabilities

(910)

(348)

(1,069)

(53,411)

(49,284)

(50,198)

Non-current liabilities

Other interest-bearing loans and borrowings

8

(20,364)

(24,920)

(22,454)

Provisions and other liabilities

(491)

(612)

(553)

Deferred purchase consideration

9

(2,742)

(1,125)

(3,611)

Deferred tax liabilities

(1,606)

(1,320)

(1,676)

Pension fund liability

(3,629)

(1,291)

(3,629)

(28,832)

(29,268)

(31,923)

Total liabilities

(82,243)

(78,552)

(82,121)

Net assets

40,648

39,109

39,105

Equity attributable to equity holders of the parent

Share capital

10

528

527

527

Share premium account

26,918

26,918

26,918

Capital redemption reserve

578

578

578

Retained earnings

11,849

10,639

10,590

Total shareholders' equity

39,873

38,662

38,613

Minority interest

775

447

492

Total equity

40,648

39,109

39,105

Note

Share

Capital

Share

premium

Capital redemption reserve

Retained

earnings

Non-controlling

interest

Total

equity

£000

£000

£000

£000

£000

£000

Balance at 5 July 2009

514

26,680

578

9,701

329

37,802

Profit for the 26 weeks to 2 Jan 2010

-

-

-

850

125

975

Total other comprehensive expense

-

-

-

-

-

-

Total comprehensive income for the period

-

-

-

850

125

975

Transactions with owners, recorded directly in equity:

Shares issued during the period

13

238

-

-

-

251

Impact of share based payments

-

-

-

87

-

87

Dividend paid

-

-

-

-

(7)

(7)

Balance at 2 January 2010

527

26,918

578

10,639

447

39,109

Balance at 3 January 2010

527

26,918

578

10,639

447

39,109

Profit for the 26 weeks to 3 July 2010

-

-

-

2,125

190

2,315

Other comprehensive income/(expense):

Actuarial loss on defined benefit pension plan

-

-

-

(3,046)

-

(3,046)

Deferred tax movement on pension scheme actuarial loss

-

-

-

853

-

853

Foreign exchange translation differences

-

-

-

(24)

-

(24)

Total other comprehensive expense

-

-

-

(2,217)

-

(2,217)

Total comprehensive income for the period

-

-

-

(92)`

190

98

Transactions with owners, recorded directly in equity:

Impact of share based payments

-

-

-

44

-

44

Dividend paid

-

-

-

-

(145)

(145)

Balance at 3 July 2010

527

26,918

578

10,590

492

39,105

Balance at 4 July 2010

527

26,918

578

10,590

492

39,105

Profit for the year

-

-

-

1,190

283

1,473

Total other comprehensive expense

-

-

-

-

-

-

Total comprehensive income for the period

-

-

-

1,190

283

1,473

Transactions with owners, recorded directly in equity:

Shares issued during the period

1

-

-

-

-

1

Impact of share based payments

-

-

-

69

-

69

Balance at 1 January 2011

528

26,918

578

11,849

775

40,648

Unaudited 26 weeks ended

Unaudited 26 weeks ended

Audited

53 weeks

ended

2 January

2010

2 January

2010

3 July

2010

£000

£000

£'000

Cash flows from operating activities

Profit for the period

1,473

975

3,290

Adjustments for:

Taxation

601

413

1,580

Net finance expenses

874

1,444

3,341

Depreciation

1,447

1,401

2,804

Amortisation of intangibles

-

-

164

Movement in fair value foreign exchange contracts

111

-

(199)

Share options charge

69

87

131

Current service cost element of pension scheme

104

146

286

Contributions by employer to pension scheme

(104)

(146)

(272)

Curtailment of defined benefit pension scheme liabilities

-

-

(553)

Operating profit before changes in working capital

4,575

4,320

10,572

Changes in working capital

Increase in inventories

(803)

(263)

(145)

(Increase)/decrease in trade and other receivables

(2,799)

1,774

987

Increase/(decrease) in trade and other payables

3,740

(686)

382

Cash generated from operations

4,713

5,145

11,796

Interest paid

(1,338)

(1,197)

(2,365)

Income taxes paid

(671)

(504)

(614)

Net cash generated from operating activities

2,704

3,444

8,817

Cash flows from investing activities

Purchase of property, plant & equipment

(1,209)

(2,956)

(3,546)

Purchase of subsidiary companies

(1,740)

(375)

(850)

Net cash used in investing activities

(2,949)

(3,331)

(4,396)

Cash flows from financing activities

Drawdown/(repayment) of invoice discounting

1,050

(1,392)

(1,065)

Repayment of current bank loans

(1,874)

(1,077)

(2,366)

Repayment of loan notes

-

(8)

(49)

(Repayment)/drawdown of asset finance facilities

(470)

769

514

Issue of ordinary share capital

1

252

251

Minority interest dividend paid

-

(7)

(152)

Net cash used by financing activities

(1,293)

(1,463)

(2,867)

Net (decrease)/increase in cash and cash equivalents

(1,538)

(1,350)

1,554

Opening cash and cash equivalents

2,803

1,273

1,273

Effect of exchange rate fluctuation

-

-

(24)

Cash and cash equivalents at end of the period

1,265

(77)

2,803

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 3 July 2010 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 auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors 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

IFRS 8 'Operating Segments' requires that operating segments be identified on the basis of internal reporting and decision making. The Group's Chief Operating Decision Maker is considered to be the 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 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 non-recurring significant 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.

The Group's operating segments remain unchanged from the financial year ended 3 July 2010 and consist of Cake, Bread & Free From and Group Operations.

Group Operation costs 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, (1% charge in the first half of the previous year ending 3 July 2010) and is calculated on materials and packaging spend at segmental level. This charge is based on the rationale that Group Operations, through its Group buyers, optimises the Group's procurement spend through leveraging its purchasing power.

This has resulted in a profit of £0.8m (2010: £0.4m) being presented within Group Operations segment.

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

NOTES TO THE FINANCIAL STATEMENTS continued

2) SEGMENT INFORMATION continued

Analysis of unallocated assets and liabilities:

There are no inter-segmental sales. Certain operating costs have been incurred centrally, these costs have been allocated to the reporting segments on an appropriate basis.

Group Operations profit comprises the central costs premium and a purchasing premium charged to the manufacturing operations.

NOTES TO THE FINANCIAL STATEMENTS continued

2) SEGMENT INFORMATION continued

Analysis of unallocated assets and liabilities:

There are no inter-segmental sales. Certain operating costs have been incurred centrally, these costs have been allocated to the reporting segments on an appropriate basis.

Group Operations profit comprises the central costs premium and a purchasing premium charged to the manufacturing operations.

NOTES TO THE FINANCIAL STATEMENTS continued

2) SEGMENT INFORMATION continued

Analysis of unallocated assets and liabilities:

There are no inter-segmental sales. Certain operating costs have been incurred centrally, these costs have been allocated to the reporting segments on an appropriate basis.

Four customers with sales of £37m, £36m, £26m and £18m account for 70% of revenue, which is attributable to the cake and bread & free from segments above.

Group Operations profit comprises the central costs premium and a purchasing premium charged to the manufacturing operations.

NOTES TO THE FINANCIAL STATEMENTS continued

3) SHARE BASED PAYMENTS

The Company 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 1 January 2011 2,245,900 options were granted. The fair value of options granted during the period was £316,000. The comparative estimated fair values of options granted for the 26 weeks to 2 January 2010 and for the year ended 3 July 2010 were £251,000 and £245,000.

Significant non-recurring and other items include a charge of £69,000 in relation to the fair value of share options for the 26 weeks ended 1 January 2011. The comparative charges for the 26 weeks to 2 January 2010 and for the year ended 3 July 2010 were £87,000 and £131,000 respectively.

.

4) SIGNIFICANT NON-RECURRING ITEMS

The Group presents certain items as 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.

Reorganisation costs (including redundancies) are associated with the restructuring of the cake business.

Following a consultation period, the Memory Lane Cakes defined benefit scheme closed to future accrual on 31 May 2010. This closure has resulted in a curtailment of pension scheme liabilities, this credit of £553,000 has been treated as a significant non-recurring item.

5) PENSION SCHEME

Memory Lane Cakes Limited is close to agreeing a valuation of its defined benefit pension scheme as at the closure to future accrual date of 31 May 2010. The valuation is subject to agreement by the Pensions Regulator however, the Company is not expecting any material payments as a result of this valuation.

6) FINANCE INCOME AND EXPENSES

NOTES TO THE FINANCIAL STATEMENTS continued

6) FINANCE INCOME AND EXPENSES continued

The Group has entered into three interest rate swap arrangements and one forward starting swap arrangement to hedge its risks associated with interest rate fluctuations:

£11.0m over five years from 23 February 2007 (reducing to £3.5m over 5 years) at 5.8%

£5.0m for five years from 1 May 2008 (fixed) at 5.5%

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

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

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 £570,000 (2010: charge £177,000).

In October 2007, the Group acquired Anthony Alan Foods Limited and the deferred element of the consideration of £1.7m has been discounted accordingly. The discount charge to the income statement for the 26 weeks to 1 January 2011 was £60,000 (26 weeks to 2 January 2010: £15,000 and 52 weeks to 3 July 2010: £14,000).

In April 2008, the Group acquired the assets of Yorkshire Farm Bakery and A&P Foods and the deferred element of the consideration of £1.7m has been discounted accordingly. The discounting results in a charge to the income statement for the 26 weeks to 1 January 2011 of £64,000 (26 weeks to 2 January 2010: £22,000 and 52 weeks to 3 July 2010: £45,000).

In June 2009, the Group acquired Goswell Enterprises Ltd and the deferred element of the consideration of £1.2m has been discounted accordingly. The discounting results in a charge to the income statement for the 26 weeks to 1 January 2011 of £22,000 (26 weeks to 2 January 2010: £29,000 and 53 weeks to 3 July 2010: £58,000).

7) 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 52,704,400 (2 January 2010: 52,075,279 and 3 July 2010: 52,378,466).

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 reorganisation and other exceptional costs, IAS 39 "Financial Instruments: Recognition and Measurement" fair value adjustment relating to the Group's interest rate swaps and IFRS 3 "Business Combinations" discount charge relating to the deferred consideration payable for Livwell Ltd, Anthony Alan Foods Ltd and Yorkshire Farm Bakery and A&P Foods. The effect of taxation at the appropriate rate is shown as a separate adjustment.