46 Finsbury Food Group Annual Report & Accounts 2017


1. Significant Accounting Policies (continued)


Taxation Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the Consolidated Statement of Profit and Loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.


Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the period end date, and any adjustment to tax payable in respect of previous years.


Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for:


• The initial recognition of goodwill; • The initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and • The differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future.


The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the period end date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.


Research and Development Expenditure The expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in the Consolidated Statement of Profit and Loss as incurred.


2. 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 as it is 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:


• Net financing expense • Significant non-recurring items • Pension charges or credits in relation to the net pension position • Revaluation of interest rate swaps and forward foreign currency contracts


The UK bakery segment manufactures and sells bakery products to the UK’s multiple grocers and foodservice sectors. This segment primarily comprises the operations of Memory Lane Cakes Ltd, Lightbody Group Ltd, Campbells Cake Company Ltd, Johnstone’s Food Service Ltd, Fletchers Bakeries Ltd and Nicholas & Harris Ltd. These subsidiaries are aggregated into a single segment as they share similar economic characteristics. The characteristics considered are:


• The nature of the products – products are similar in nature and are classed as manufactured bakery products • The production process – the production processes have the same or similar characteristics • The economic characteristics – the average gross margins are expected to be 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.


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 loss from continuing operations of £0.2m (2016: £0.3m loss) being presented within the Group Operations segment. The Group’s finance income and expenses cannot be meaningfully allocated to the individual operating segments.


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