Strategic Report
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 £14.0 million (2014: £14.0 million) equivalent to 66% (2014: 159%) of year end net bank debt at a weighted average rate of 2.5% (2014: 2.5%).
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 0.58%, was 4.04% (2014: 4.27%).
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 27 June 2015 was 17.8 (2014: 8.6). Net bank debt to EBITDA (based on adjusted EBITDA) for the year to 27 June 2015 was 1.0 (2014: 0.8).
Taxation The Group taxation charge for the year was £1.9 million (2014: £1.7 million). This represents an effective rate of 22.0% (2014: 25.1%).
Further details on the tax charge can be found in Note 9 to the Group’s Financial Statements.
Environmental Matters The Group continues to reduce packaging through innovation and has delivered further reductions across the business. The Group takes the key learning and successes from the Cake Category and applies them across other areas of the business to deliver category leading innovative solutions. Installation of LED lighting, more efficient gas boilers and improved effluent systems are reducing our impact on the environment. New production capability, which has recently been commissioned in Hamilton, further reduces the consumption of cardboard and reduces food waste. Work continues with local universities on shelf life of product, the outcome of which will lead to waste reduction over the coming years. We are also presently formulating our Environmental Sustainability Strategy across the Group. N&H remains a ‘landfill-free’ site and all waste materials are recycled.
Employee Social and Community Issues All manufacturing sites are active within their local communities, supporting local community initiatives. We donate regularly to local and national charities in terms of both product and fund raising activities at all sites.
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We work closely with local universities through business projects and placements and plan to continue this partnership work further in several areas of training, development and project work. We continue to invest in training and development of the workforce supporting a programme of vocational qualifications.
Eight bakers have qualified from the N&H bakers’ apprenticeship scheme this year, with City and Guilds’ qualifications, adding to the 21 that have qualified in the last two years.
Technical Matters The technical integration of the Fletchers businesses has been smooth and it has enabled Finsbury to start having a more senior dialogue with customers. Customer relationships remain robust and after a period of re-structuring across several retailers they are coming back with a renewed focus on compliance. Restructuring and strengthening of our teams during the past year has put us in a good position to be able to respond to these new challenges.
One of the biggest changes to date in the British Retail Consortium (BRC) Food Standard will go live later in 2015. This requires a focus on vulnerability assessments throughout the supply chain. This is being documented in a consistent manner across the Group and assessments are being conducted by multidisciplinary teams. All sites have maintained BRC A or A* grades in the year. BRC are anticipating fewer suppliers achieving the higher A and new AA scores.
As part of our ongoing commitment to health we are continually working with suppliers to investigate novel ingredients, processes and recipes to reduce sugar, saturated fat and salt in our products where possible.
The Food Standards Agency has published new salt targets for 2017, requiring work to be carried out on recipes to meet these targets. Further reductions will become significantly more technically challenging on certain types of product. The Group currently sits at around 70% compliance against the new targets.
A robust sustainability strategy is being developed for the Group covering People, Supply Chain and Factories. This focus will deliver real benefits for the business in these core areas.
The Strategic Report was approved by the Board of Directors on 18 September 2015 and was signed on its behalf by:
Stephen Boyd Director
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