Strategic Report
26 Finsbury Food Group Annual Report & Accounts 2019
Financial Review
Corporate Governance
Financial Statements
Like for like Group revenue (excluding the revenue from the closed bakeries and acquired businesses) is, at £301.8 million, up 4.0% or £11.6 million. Growth in continuing revenue is within markets that are seeing value growth with a slight volume decline.
We have stripped significant and non-recurring costs of £1.2 million, which primarily relate to acquisition and restructuring costs, out of operating profit, to give adjusted operating profit, which provides a clearer presentation of the underlying trading performance of the Group. Adjusted operating profit at £16.8 million is down 5.7% on last year. Adjusted operating profit margins are 5.3% (2018: 5.9%), a consequence of a challenging global environment. We saw a second half year growth through a combination of organic growth, new business wins, price recovery and the acquisition of Ultrapharm. The Group’s performance is seen as resilient attributable to our capital investment, the diversification of the Group into foodservice and high growth areas such as Free From, our constant drive for efficiency and our relentless drive to deliver on customer trends.
Dividend
Subject to shareholder approval at the Company’s AGM on 20 November 2019, the final dividend of 2.34 pence per share will be paid on 23 December 2019 to all shareholders on the register at 22 November 2019, and will be recognised in the year ending 27 June 2020.
Earnings Per Share (EPS) EPS comparatives to the prior year can be distorted by significant non-recurring items and other items highlighted in the tables. The Board is focused on growing adjusted diluted EPS which is calculated by eliminating the impact of the items highlighted in the tables as well as amortisation of intangibles and incorporates the dilutive effect of share options. Adjusted diluted EPS is 9.0p (2018: 9.8p).
52 week 2019
Basic EPS Adjusted basic EPS Diluted** basic EPS Adjusted* diluted** EPS
* Further details on adjustments can be found in Note 10. ** Diluted EPS takes basic EPS and incorporates the dilutive effect of share options.
7.3p 9.3p 7.0p 9.0p
52 week 2018
1.7p
10.2p 1.6p 9.8p
Cash Flow
There was an increase in our working capital of £5.6 million (2018: £1.3 million decrease) in the financial year. Corporation Tax payments made in the financial year totalled £2.0 million (2018: £3.3 million). The payments in the current and prior year took account of the research and development tax relief due to the Group, tax losses being utilised, and a higher tax rate charged on overseas profits. Capital expenditure in the year amounted to £11.0 million (2018: £12.6 million).
Debt and Bank Facilities
The Group’s total net debt is £35.6 million (2018: £15.6 million), up £20.0 million from the prior year. During the year, the Group acquired Ultrapharm for an initial consideration of £16.9 million. The Group has a revolving credit facility available until February 2023 of £55.0 million provided by a club of three banks – HSBC, Rabobank and RBS – with scope for it to be increased by up to a further £35.0 million.
The Group is able to offer strong asset backing to secure its borrowings. The Group owns freehold sites in Cardiff, Sheffield and Scotland. In addition, the Group has a strong trade debtor book made up primarily of the UK’s major multiple retailers. This debtor book stood at £45.2 million (2018: £40.0 million) at the period-end date.
The Group recognises the inherent risk from interest rate rises, and uses interest rate swaps to mitigate these risks. The Group has two swaps, one for £20.0 million for five years from 3 July 2017 (fixed) at 0.455% and one for £5.0 million for three years from 28 March 2019 (fixed) at 1.002%. The total balance of swaps at 29 June 2019 is £25.0 million (2018: £20.0 million). The counterparty to these transactions is HSBC Bank Plc.
The effective interest rate for the Group at the year end, taking account of the interest rate swap in place with base rate at 0.750% and LIBOR at 0.715%, was 2.047% (2018: base rate 0.500% and LIBOR 0.501% effective interest rate 1.66%).
Financial Covenants
The Board reviews the Group’s cash flow forecasts and key covenants regularly, to ensure 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 and the Board do not expect any in the forecast periods.
Interest cover (based on adjusted earnings before interest, tax, depreciation and amortisation – EBITDA) for the 52 weeks to 29 June 2019 was 28.0 (2018: 40.7). Net bank debt to EBITDA (based on adjusted EBITDA) for the year to 29 June 2019 was 1.4 (2018: 0.6).
Taxation
The Group taxation charge for the year was £3.3 million (2018: £1.3 million). This represents an effective rate of 22.6% on profits before significant and non-recurring and other items (2018: 21.5%). You can find further details on the tax charge in Note 9 to the Group’s Financial Statements.
Financial and Non-Financial Key Performance Indicators
We monitor a range of financial and non- financial KPIs at site level covering, amongst others, productivity, quality and health and safety.
The Group Board receives a regular overview of all KPIs. We discuss these KPIs in further detail on pages 18 and 19.
The Strategic Report was approved by the Board of Directors on 13 September 2019 and was signed on its behalf by:
Stephen Boyd Director
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