Preliminary results

Finsbury Food Group plc

Preliminary results

Finsbury Food Group plc (AIM: FIF), a leading manufacturer of cake, bread and gluten free bakery goods, is pleased to announce its preliminary results for the 52 weeks ended 30 June 2012.

Highlights

§ Group revenue up 9.4% to £207.4 million (2011: £189.6 million)

§ Adjusted* profit before tax up 11.6% to £6.5 million (2011: £5.8 million)

§ Cake division continues to grow, up 9.2% to £152.4 million (2011: £139.6 million) from both UK and export markets

§ Bread and Free From division sales growth of 10.0% to £54.9 million (2011: £50.0 million) driven by strong growth in the fresh gluten free market, Vogel's brand growth and fresh Free From own label in the speciality bread market.

§ Adjusted* diluted EPS 7.8p (2011: 7.1p)

§ Total net debt including deferred consideration reduced by 8.6% to £33.9 million (2011: £37.1 million)

Operational Highlights

§ Significant organic growth across all divisions, notwithstanding the impact of commodity and cost inflation

§ Continued expansion of our 50% owned subsidiary Lightbody Europe

§ Creation of fresh Free From own-branding opportunities with major supermarket retailers

§ Launch of Heston's Hot Cross buns with Waitrose, supported by Easter TV marketing campaign

\* These figures have been adjusted to eliminate the impact of certain charges required by IFRS and significant non-recurring items for the 52 weeks ended 30 June 2012 and ended 2 July 2011. Refer to the analysis in the Business Review for further details.

Commenting on the results, John Duffy, Chief Executive of Finsbury Food Group plc, said:

"I am delighted to report such a noteworthy set of results, both due to the significant revenue milestone accomplished this year and the increase in both top and bottom line growth in the period, despite continued market pressures.

"The formula we have pursued has and will continue to remain steadfast, to maintain the pattern of growth in profitability, underpinned by a commitment to meeting the needs of our customers and consumers. I am confident that the pragmatic foundations so carefully laid down in recent years are set to produce enduring benefits for both the business and our shareholders."

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 7566 6720

Jenny Bahr

Publication quality photographs are available via Redleaf Polhill on the numbers shown above

Notes to Editors:

§ Finsbury Food Group plc (AIM: FIF), is a leading manufacturer of premium and celebration cakes, low fat cake slices and artisan, organic and gluten free bread and morning goods.

§ Finsbury Food Group is the second largest manufacturer of Ambient Packaged Cake (excluding In Store Bakery) in the UK, a market valued at £914m (Source: Kantar Worldpanel Total UK Coverage, 52 we 9th June 2012).

§ The Group is also the market leader in the supply of gluten free baked goods to the UK's multiple grocers.

§ The Group's strategy is to generate returns for shareholders by building a crafted bakery group focused on premium, celebration and well being that delivers for customers and consumers. Finsbury continues to develop its licensed brand portfolio to complement its core retailer brand relationships and improve its understanding of and response to changing consumer needs.

§ Whilst the Company sees exciting organic growth opportunities in all its businesses and its short-term focus is on integrating and growing its existing businesses, the aim is to take advantage of the appropriate bolt on acquisitions to drive longer term value as opportunities and circumstance allow.

Chairman's Statement

Business has never been more of a challenge. Steering a major bakery group through the stormy seas of an economic downturn was never going to be painless. Navigating a course to safe haven demanded clarity of vision, collective resilience in the face of setbacks and a team committed to excellence and innovation.

Despite the ongoing reality of a recessionary environment, our trading performance bears witness to the fruits of hard work across the group.

I am delighted to report that Finsbury Foods has achieved an increase in top and bottom line growth in the current trading period.

For the first time in our history, group sales have surpassed £200m. Revenue from cakes across UK and Europe has grown by 9%, bread and free from registering a combined uplift of 10%.

Traditional areas of strength continue to expand while other sectors offer further encouragement. The introduction of fresh gluten free bread received a warm welcome in the marketplace while our expansion into retailers own brands continues apace. In addition, Vogels speciality breads enjoyed a successful relaunch and Nicholas & Harris other speciality bread products performed strongly.

One area of notable growth is in our 50% owned subsidiary Lightbody Europe. Over the last 18 months, the range of offerings has continued to expand, broadening beyond cakes into other UK branded products.

While the trading performance is clearly encouraging, satisfaction must be tempered with concern at events beyond our power to influence.

Input price inflation continues to impact on operating margins with prices for commodities such as sugar and eggs moving steadily upwards.

The situation for consumers shows little sign of improvement. Our customers are faced with shrinking disposable incomes and the very real dilemma of trying to make ends meet while buying good food.

We operate in a treat category. People want to come down the cake aisle and purchase our products for themselves and their families. They are willing to be engaged; they want to see something new, bakery goods that are appealing and affordable.

Our response has been to engage and innovate. Over the last 12 months, Finsbury Foods has increased spend on Category Management initiatives, conducting market research and trialling new products with the specific aim of stimulating consumer awareness.

Our major customers actively value our input. They are looking to us as a large bakery group to help them find ways of refining and improving their product range to generate growth.

The efficacy of our approach is borne out by robust levels of cash flow generation. Having renegotiated our banking facilities with HSBC during 2011, the group paid off £3.2 million of deferred consideration with £1.2 million remaining at the end of the year, an important marker in terms of how people see the business.

In today's environment, debt is hardly viewed in a positive light. Reducing our level of total debt including deferred consideration to EBITDA to 2.7 by the 30 June 2012 year end represents another major accomplishment. As long as we continue to generate cash flow at present levels, the group will break free of self imposed constraints regarding new investments.

Finsbury Foods has a successful track record of acquiring high-quality, innovative food businesses. Historically, our acquisition skills have been demonstrated to good effect, investing in business that provide a strategic fit and helping those businesses grow. As and when the time is appropriate, I feel confident we will demonstrate those skills once again.

Finsbury Foods remains a steady food business, performing well in a difficult market. The reality is, however, that the sector in which we operate will grow at a relatively modest rate in coming years.

Another testing period lies ahead but I am delighted with the progress we have made. Our focus has been, and will continue to be, on doing the right things on behalf of the shareholders. The formula we've pursued will remain steadfast, maintaining the pattern of growth in profitability alongside a significant level of debt repayment, underpinned by a commitment to meeting the needs of our customers and consumers.

Martin Lightbody

Non-Executive Chairman

Chief Executive's Report

Transformation does not happen overnight. Nor is change, as is widely believed, born of sudden shifts in direction, approach or strategy.

Meaningful change is delivered in increments. It is generated by a gradual evolution, the subtle reshaping of the key elements of a business. Patience, perseverance and commitment are the unsung heroes of corporate transformation. Real change takes time.

After three years of unstinting effort across the company, the fruits of change are beginning to emerge. It gives me great pleasure to report a significant rise in top and bottom line growth for the current financial year.

Our premium traditional bespoke products provided the engine of progress. In a particularly strong performance during first half of the year, we succeeded in growing faster than the marketplace that we serve. To achieve such a degree of growth speaks volumes for the quality and breadth of our offering.

We cannot make something for nothing. The sheer hard work and enthusiasm of our staff was primarily responsible for maintaining progress in the second half of the year. This was despite another exacting year of cost inflation and the necessity of having to conduct difficult conversations with many of our customers.

Trading conditions remain onerous but I am delighted at the manner in which our business has responded. Maintaining the pace of progress demands staying nimble on our feet, adapting our range of products in line with the modified purchasing habits of our customers. By blending commitment to value with our core strengths of craft, innovation and expertise, I feel confident that we shall continue to advance.

Trading Performance

Results for the full 52-week period ending 30th June 2012 are described in greater detail in the Business Review Section but there are a number of key areas I would like to take this opportunity to highlight:

§ Group revenue up 9.4% to £207.4 million

§ Underlying profit before tax up 11.6% to £6.5 million

§ Sales in the Cake division up 9.2% to £152.4 million

§ Sales in the Bread and Free From division up 10.0% to £54.9 million driven by strong growth in the fresh gluten free market, Vogel's brand growth and fresh Free From own brand.

§ Total net debt (excluding bank fees) down 8.6% to £33.9 million

§ Significant organic growth across all divisions, notwithstanding the impact of commodity and cost inflation

§ Continued expansion of our 50% owned subsidiary Lightbody Europe

§ Creation of fresh Free From own-branding opportunities with major supermarket retailers

§ Launch of Heston's Hot Cross buns with Waitrose, supported by Easter TV marketing campaign

Broader Brushstrokes

Organic growth in the current environment provides a ringing endorsement of our products. However, cost inflation continues to exert considerable pressure on margins, the prospect of further price increases casting a shadow over our efforts.

Restructuring measures in recent years have generated exceptional cost savings across the business. Over the last 12 months, with such savings primarily realised, efficiency measures moved centre stage.

We are constantly striving to reap the scale benefits of our businesses, becoming more efficient in the use of raw materials. Stringent efforts have been made to remove non value-added processes in all our factories, squaring the circle of keeping costs down to offset the rising price of raw materials.

We have also tried to do things differently, using ingredients in a more inventive fashion. One prime example was the creation of a higher value Disney Car cake, a distinctive product enjoying prime position on supermarket shelves.

In the midst of such a testing period, management teams across the business have responded with resolve and expertise. In particular, I would like to recognise the major contribution by new people coming into the business over the past few years.

The business is emerging from a period of hiatus. We have demonstrated our ability to grow in organic fashion, trading our way through difficult times in a marketplace.

Much, of course, has still to be done. As well as continuing to grow our existing businesses, The Board is resolved to pay down debt, build a balance sheet that is significantly less leveraged and create long-term value.

The day job offers more of the same over the next twelve months and our mindset is fixed accordingly. No matter what the timeline may be, I feel confident that the pragmatic foundations so carefully laid down in recent years are set to produce enduring benefits for the business.

John Duffy

Chief Executive Officer

Business Review

Strategy

Our business strategy is to generate returns for shareholders by building a crafted bakery group within the cake and bread & free from markets which is focused on premium, celebration and well being that delivers for customers and consumers. We will continue to develop our licensed brand portfolio to complement our core retailer brand relationships.

We are still a modest manufacturer in the total Bakery markets in which we operate and see exciting organic growth opportunities in all our businesses.

Whilst our short term focus is on integrating and growing our existing businesses, we aim to take advantage of the right bolt on acquisitions to drive longer term value as opportunities, financing and circumstance allow.

Our Markets

The total annual UK ambient cake market (including pre-packed cake and in-store bakery) is valued at £1.07 billion (source:Kantar Worldpanel). The past 12 months has seen value growth of 3.4% due principally to growth in average price with a decline in volume of -0.5%. We continue to be the second largest supplier of cake to the UK's multiple grocers, with an 18.2% share of the total pre-packed cake market (Source: IRI Infoscan) and have maintained our leading position in the niche areas on which we focus.

Annual bread and morning goods sales are in excess of £3 billion (source: Mintel). We are a smaller player in this market, with a focus on speciality and organic bread products and we have continued to benefit from growth in demand, despite the tough economic climate and a general decline in organic bread sales.

Moving to the free from part of this segment, the total gluten free market is around £231 million (source: Kantar), with growth of c15% in the last year. The area of this market in which we operate i.e. bread, cake and other bakery products, accounts for c£48 million of these sales, with growth of 11% year on year. The bakery sector growth significantly outstrips the total gluten free market growth due to the continued growth of branded & own label fresh bread. With the bread category growing at 20%, this growth is being driven by increased frequency of purchase and new customers coming into the market.

Our Business

The Group consists broadly of the following businesses:

Cake

Lightbody of Hamilton Ltd ('Lightbody'), based in Hamilton, employs around 1,100 people and is the UK's largest supplier of celebration cake with Disney, Nestle and Thorntons product within its portfolio. It also produces a wide range of small cakes, slices and in store bakery (ISB) bites, a number of which are under our licensed brands including Thorntons, and WeightWatchers.

Memory Lane Cakes Ltd ('Memory Lane'), based in Cardiff, employs around 800 people and is the leading manufacturer of the UK retailers' premium own label cake ranges. It also produces under a number of brands notably Nestlé, WeightWatchers and Thorntons. The last financial year has been one of continued new product development and launches, factory efficiency improvements, and some inevitable price rises to mitigate the relentless rise in commodity price inflation seen over recent years.

Sales within the integrated cake businesses were up 9.2% compared with the prior year to £152.4 million. Growth came from both the UK and export markets through Lightbody Europe our 50% owned business, with half of the cake growth coming from Lightbody Europe.

Bread & Free From

United Central Bakeries Ltd ('UCB'), based in Bathgate near Edinburgh, employs around 180 people and manufactures a range of gluten free bakery products and morning goods. The year saw significant growth from the branded free from fresh bread brand including new lines to enhance the range.

Livwell Ltd ('Livwell'), based in Hull, employs around 90 people. It continues to deliver new products into the free from market. This business operates under a combined commercial team with UCB.

Nicholas & Harris Ltd ('N&H'), based in Salisbury, employs around 270 people and produces a range of speciality bread products to UK retailers. Its focus is on 'clean label' breads, rolls and buns. This position has been strengthened following its acquisition of Goswell Enterprises Ltd ('Goswells') in June 2009 and with it a number of licensed brands including Vogels and Cranks. These were relaunched in October 2010 and sales on each have grown in excess of 30%.

Brands and Licences

The Group remains primarily a retailer branded business with sales of retailer own label products accounting for around 58% of our total revenue compared to 56% a year ago. The balance represents the strength of the licensed brands under our control.

WeightWatchers

WeightWatchers is one of the largest food brands in the UK and we hold the licence to manufacture and distribute low fat cake to the UK and Ireland's multiple grocers under this brand. Since the acquisition of Anthony Alan in 2007, the brand has been developed through utilisation of the broad production capability within the Group and our skills in developing new products that adhere to brand guidelines. WeightWatchers now accounts for 83% of the low fat cake market in terms of value up from 81%. The brand continues to perform better than the total Low Fat category which declined by -10.8% in value terms in the latest year (Source: IRI Infoscan).

Thorntons

The Group continues to develop its branded offering within the premium cake sector via its licensing arrangement with the Thorntons confectionery business. Through a combination of new product development, pack formats and targeted promotional activity, we continue to invest in the Thorntons brand to increase awareness and drive further profitable growth for both us and our customers. Our best selling Thorntons product, caramel shortcake, continues to dominate the pre-packed Bites market with a 44% value share of this market (source: IRI Infoscan).

Nestlé Confectionery

We continue to benefit from the rights to manufacture and distribute cake products under Nestlé confectionery brands such as Smarties and Jelly Tots.

Disney

Our successful range of Disney Celebration cakes continues to evolve. Properties within the portfolio include Toy Story, Disney Princess, Cars, Winnie The Pooh, Fairies and Avengers. The Disney portfolio is a key part of our overall Celebration cake business and plays an important role in retaining our position as the largest supplier of Celebration cake to the UK's multiple grocers.

Other Celebration Cake Licences

These four major brands are complemented by a range of other licences which are particularly focused on driving celebration cake sales. Properties such as Peppa Pig, Hello Kitty and Spiderman have their own target market and offer excellent additions to the range. Moshi Monsters has proved a very successful recent addition to this portfolio registering sales in excess of £1m since its launch in late 2011. In the niche adult premium celebration sector Little Venice Cake Company has performed particularly well recording 25% value sales growth in the last year (Source IRI Infoscan).Principal Operating Risks

The Group operates in an environment which is continually changing and as a result the risks it faces will also change over time. The assessment of risks and the development of strategies for dealing with these risks are achieved on an ongoing basis through the way in which the Group is controlled and managed internally. A formal review of these risks is carried out by the Group on an annual basis. The review process involves the identification of risks, assessment to determine the relative likelihood of them impacting the business and the potential severity of the impact, and determination of what needs to be done to manage them effectively.

The Directors have identified the following principal risks and uncertainties that could have the most significant impact on the Group's value generation:

Competitive Environment and Customer Requirements

There is strong competition between manufacturers in the Bakery sector. The monitoring of key performance indicators at customer level such as service levels and customer complaints is part of the risk management process associated with this specific risk. Strong customer service, quality products, low costs and innovative new product development are areas of focus to satisfy customer needs and remain strong in a competitive environment.

The Group has invested heavily in category management, new product development and marketing skills. This investment has helped create an insight into customers and consumer demands.

Continual monitoring of customer KPI's and production quality measures take place to ensure customer requirements are being met and issues are identified in a timely manner to limit their impact.

Product quality

 Product quality is a key strength of the Group and failure to maintain a high standard of food quality and safety would have a severe impact on service levels and customer relationships.

The Group's quality assurance procedures, managed at site level, are reviewed continuously with improvements made as appropriate. The Group's Technical Director helps provide focus to ensure there is continuous improvement across all sites to meet the increasingly high expectations of our customers. The operating subsidiaries are subject to regular internal and independent food safety and quality control audits including those carried out by, or on behalf of, their customers. The Group maintains product recall insurance cover to mitigate the potential impact of such an occurrence.

Raw Materials - Prices and Supply

Increases in the price of raw materials can adversely impact the core profitability of the business and any related shortage in supply will impact the business' ability to maintain its service levels to customers - another of its key performance indicators. The prices of certain key commodities (e.g. sugar) are tied to the Euro - the relative strength of sterling and future volatility within the Eurozone will, therefore, have an impact on the cost of these commodities.

Affordability for consumers is essential and the Group will focus on internal efficiencies and productivity initiatives to lessen the rising commodity price impact on consumers. The Group maintains a high level of expertise in its buying team and will consider long term contracts where appropriate to reduce uncertainty in input prices. The team also cultivates strong relationships with its major suppliers to ensure continuity of supply at competitive prices. Regular renovation and innovation in our product range can help to manage margin pressures in an effective manner as far as the competitive environment allows. The Group also purchases forward foreign currency in order to minimise the fluctuation of input costs linked to future currency conversion rates.

Economic Environment

Whilst the price sensitivity of our products is relatively low, there have been some particular trends in the premium and health sectors of the cake market that have impacted the demand for products within these sectors. The value-focused recessionary environment has resulted in demand from customers for increased levels of support via promotional activity as they compete with each other to offer consumers greater value for money. The Group will continue to focus on quality and value for money in periods of reduced spending.

Interest Rates

Group funding is linked to either base rate or LIBOR, any increase in interest rate will increase the funding costs. The Group has interest rate swap arrangements in place to hedge its risks associated with interest rate fluctuations.

Bank Covenants

There is potential for the bank to withdraw funding should there be a breach of covenants. Bank covenants are reviewed monthly for. There are regular and open communications with the bank to ensure they are fully aware of the Group's position.

Trading Results

Group revenue for the 52 week period to 30 June 2012 was £207.4 million (52 week period to 2 July 2011: £189.6 million), an increase of £17.8 million (9.4%) year on year.

Gross margin for the financial year was 26.5% representing a decrease of 0.5% year on year. Key core ingredient inflation on items such as sugar and egg has inevitably impacted on operating margins.

Administrative expenses have increased year on year. A significant proportion of administration costs is directly linked to activity levels. In addition there has been an ongoing investment in marketing and range support activities. Wage costs and new product development have increased year on year. The Group continues to invest heavily in category management, new product development personnel and marketing skills.

The following analysis is included to show what the Directors consider to be the underlying performance of the Group and eliminates the impact of significant non-recurring items and certain charges required by IFRS

The taxation on IFRS charges include an element of rate change on opening balances from 26% to 24%.

The significant non-recurring items in 2011 referred to above relate to £42,000 interest on a prior year tax inquiry liability, £200,000 under taxation relates to the release of overprovision on the prior year tax inquiry.

The taxation on IFRS charges include an element of rate change on opening balances from 28% to 26%.

Earnings per Share

EPS comparatives to the prior year can be distorted by significant non-recurring items and IFRS adjustments. The Board is focused on growing adjusted diluted EPS, which is calculated by eliminating the impact of the items highlighted above and incorporates the dilutive effect of share options. Adjusted diluted EPS is 7.8p for the 52 week period (2011: 7.1p).

* Adjusted EPS measures are calculated by eliminating the impact of significant non-recurring items and IFRS adjustments. Further details can be found in Note 5

** Diluted EPS incorporates the dilution effect of share options.

Financial Key Performance Indicators

EBITDA is calculated as earnings before interest, taxation, depreciation and amortisation

Net bank debt is calculated as overdrafts, bank loans, asset finance and mortgages less cash balances and before unamortised bank fees.

Non-Financial Key Performance Indicators

A range of non-financial key performance indicators are monitored at site level covering, amongst others, customer service, quality and health and safety. The Group board receives an overview of these on a regular basis.

Acquisitions

There were no acquisitions in the period.

Cash Flow

Operating profit of £12.4 million before changes in working capital was £0.9 million up on the prior year. There was an increase in our working capital requirement of £0.9 million compared to the last financial year reflecting the organic growth over the past 12 months. Corporation tax payments made in the financial year totalled £2.2 million (2011: £1.0 million), the payments in the prior year took account of the research and development tax relief due to the Group. Capital expenditure in the year amounted to £3.2 million (2011: £2.2 million).

Debt & Bank Facilities

The Group's total net debt including deferred consideration is £33.9 million down £3.2 million from prior year.

The Group's total net bank debt excluding deferred consideration after deducting cash balances and including guaranteed loan notes as at 30 June 2012 was £32.6 million (2 July 2011: £32.7 million). Within this total net bank debt, £13.9 million is due within one year, including cash at bank, invoice finance and loan notes payable on demand (2011: £11.3 million).

The Group's debt facility with HSBC Bank Plc totals £47.1m, the key features of the facility are as follows:

§ overdraft (£2.75m)

§ confidential invoice discounting facility (£17.5m flexible)

§ term loan repayable over six years (£14.2m)

§ mortgage facility (£8.2m)

§ rolling asset finance facility (£4.4m)

Discounted deferred consideration of £1.2m is outstanding at the year end and is payable over the next two years (2011: £4.3m). Of this £1.2m (2011: £3.1m) attracts an interest of 5.2% pa and £nil (2011: £1.2m) is interest free.

The Group is able to offer strong asset backing to secure its borrowings. The Group owns freehold sites at Memory Lane in Cardiff, at Lightbody, UCB and Campbells in Scotland, and at Livwell in Hull. In addition, the Group has a strong trade debtor book to support the invoice discounting facility, made up primarily of UK's major multiple retailers. This debtor book stood at £27.2 million (2011: £25.5 million) at the period end date.

The Group recognises the inherent risk from interest rate rises. To mitigate these risks, the Group has three interest rate swaps in place with a total coverage of £20.0 million (equivalent to 61% of total net bank debt) at a weighted average rate of 4.7%.

The effective interest rate for the Group at the year end, taking account of the interest rate swaps in place and deferred consideration with base rate at 0.5% and LIBOR at 1.0%, was 5.21% (2011: 5.61%).

Financial Covenants

The Board reviews the Group's cash flow forecasts and key covenants on a regular basis to ensure that it has adequate facilities to cover its trading and banking requirements with an appropriate level of headroom. The forecasts are based on management's best estimates of future trading. There has been no breach of covenants during the year.

Interest cover (based on adjusted EBITDA) for the 52 weeks to 30 June 2012 was 4.7 (2011: 4.3). Net bank debt to EBITDA (based on adjusted EBITDA) for the year to 30 June 2012 was 2.6 (2011: 2.8).

It should be noted that current liabilities exceed current assets. Having reviewed the Group's plans and available financial facilities, the Board has reasonable expectations that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has stayed within its banking facilities during the year, meeting covenant requirements. The Group has the continued support from its bank with renegotiated facilities of £47.1m extending term loans to 2017, In addition, the Group has a strong asset backing and strong trade debtor book. Accordingly, the Board continues to adopt the going concern basis in preparing the Financial Statements for both the Group and the parent company.

Taxation

The Group taxation charge for the year was £1.7 million (2011: £1.4 million). This represents an effective rate of 25.7% (2011: 23.8%, 27.2% after eliminating the prior year tax inquiry credit).

Further details on the tax charge can be found in Note 4 to the Group's financial statements.

Environmental matters

The Group continues to focus on packaging reduction through innovation and has delivered a further cardboard reduction of 17% at the Cardiff site. The Group are now taking the key learning and successes from the Cake Category and applying them across other areas of the business to deliver category leading innovative solutions.

Mandatory participation in the CRC Energy Efficiency Scheme (formerly known as the Carbon Reduction Commitment) focuses the Group to reduce its carbon emissions.

Employee Social and Community Issues

All manufacturing sites are active within their local community supporting local community initiatives. The Group also supports local and national government initiatives such as the New Work programme.

The Cake Category in particular have been working closely with local universities on business projects and placements and plan to continue this partnership work further in several areas of training, development and project work. They continue to invest in training and development of the workforce supporting a programme of vocational qualifications.

The Bread Category has established an accredited baker apprenticeship scheme to continue their lead in traditional baking skills and also sponsors the Salisbury Young Local Hero Award and sponsors a number of local events.

Technical Matters

The company continues to drive technical and quality standards across the business. All sites have achieved British Retail Consortium A grade standard. Key technical processes have been standardised across the business and further work is planned to gain additional benefits.

The Group is taking significant steps in the area of data capture with a centralised supplier approval system across the Group using a web based IT system and a common system for complaints management and quality measurement data. These improved systems provides a real focus on driving quality standards and consistency across the Group.

Strategic partnerships are being developed with bakery innovation experts enabling the Group to focus on strategic product improvements.Consolidated Statement of Comprehensive Income

for the 52 weeks ended 30 June 2012 and 2 July 2011

Consolidated Statement of Comprehensive Income (continued)

for the 52 weeks ended 30 June 2012 and 2 July 2011

Consolidated Statement of Financial Position

 at 30 June 2012 and 2 July 2011

These financial statements were approved by the Board of Directors on 21 September 2012 and were signed on its behalf by:

Stephen Boyd (Director)

Registered Number 204368

Consolidated Statement of Changes in Equity

for the 52 weeks ended 30 June 2012 and 2 July 2011

Consolidated Cash Flow Statement

for the 52 weeks ended 30 June 2012 and 2 July 2011

Notes

(forming part of the Financial Statementt

Accounting Policies

1 Revenue and segment information

Operating segments are identified on the basis of internal reporting and decision making. The Group's Chief Operating Decision Maker is considered to be the Board 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 are "cake" and "bread & free from". The primary driver of this segmental structure is the commonality of the product categories operated in.

The Cake segment sells ambient cakes to the UK's multiple grocers. This segment primarily comprises the operations of Memory Lane Cakes Ltd, Lightbody Group Ltd and Campbells Cake Company Ltd, and also includes Yum Yum's which are produced at United Central Bakeries.

The bread & free from segment sells speciality bread & morning goods into the bakery sectors of the UK's multiple grocers. This segment is primarily made up of the operations of United Central Bakeries Ltd, Livwell Ltd and Nicholas & Harris Ltd. In addition to these operations, the 'In Store Bakery' range manufactured at Lightbody of Hamilton and Memory Lane Cakes Ltd is also included in the bread & free from segment as the nature of the product and their location in the multiple grocers' product range is similar.

Costs of Group operations plus a 10% premium have been allocated across the segments on the basis of their operating profit. The premium has been charged to reflect the synergies achieved from obtaining resources centrally giving benefits across the operating segments. 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 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 £1.9m (2011: £1.9m) being presented within the Group operations segment.

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

Notes (continued)

1 Revenue and 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.

Five customers with sales of £46m, £41m, £26m, £23m and £19m account for 75% of revenue, which is attributable to the Cake and Bread & Free From segments above.

Notes (continued)

1 Revenue and 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.

Five customers with sales of £43m, £41m, £25m, £20m and £20m account for 79% of revenue, which is attributable to the Cake and Bread & Free From segments above.

Notes (continued)

1 Revenue and segment information (continued) 

An analysis by geographical segment is shown below: