Strategic Review


46 Finsbury Food Group Annual Report & Accounts 2019


Independent Auditors’ Report to the Members of Finsbury Food Group Plc


Corporate Governance


Financial Statements


Key audit matter


Goodwill and Company investment in subsidiaries impairment assessments – Group and Company.


At 29 June 2019, the Consolidated Statement of Financial Position includes £80.7 million of goodwill (2018: £69.2 million) and the Parent Company has fixed asset investments of £118.5 million (2018: £101.0 million).


In accordance with the requirements of IFRS, management has performed impairment reviews in relation to the goodwill held in the Group’s cash generating units (CGUs). The book values of the goodwill are supported by three year forecasts for each of the CGUs.


The impairment reviews include significant estimates and judgements in respect of future growth rates and cash flows, the discount rate employed and profitability.


These impairment reviews have also been used to consider the recoverability of the Company’s investment in its subsidiaries.


How our audit addressed the key audit matter


We obtained the Group’s cash flow forecasts supporting its assessments and challenged the appropriateness of key assumptions. We assessed the methodology used by management in performing the assessments and challenged key inputs including:


• The projected growth rates used, both over the short-term to 2022 and over the longer-term;


• The discount rate used; and • Other key inputs, including the forecast margins and capital expenditure.


We also considered 2019 financial performance compared to budget and the performance post year end. We performed a range of sensitivity analyses to assess the impact of alternative assumptions to those used by management.


We concur with management’s assertion that no impairment charge is required in respect of goodwill or the investments in subsidiaries but identified that if management is unable to achieve planned results, this could reasonably be expected to give rise to an impairment in the future. Management has disclosed the results of sensitivity analyses in Note 11.


How we Tailored the Audit Scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the Financial Statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate.


The Group has five main manufacturing sites across the UK, together with a distribution centre in France, a recent acquisition with operations in the UK and Poland and a head office location based in the UK. Each manufacturing site has its own accounting team and the financial reporting for Finsbury Food Group Plc is undertaken by a team based at the head office.


Of the Group’s five reporting components, four are considered to be financially significant components of the Group, given the significant revenue generated at these locations. All of these components were based in the UK and full scope audit procedures were led by the Group engagement team. The Group engagement team also audited the Parent Company, which was scoped in accordance with the Company materiality and focused on the investment carrying value and the revolving credit facility held by the Company.


Our audit scope also included specified audit procedures in respect of the acquisition of Ultrapharm in September 2018. This work was performed by the Group engagement team. Our audit addressed components making up 91% of the Group’s revenues for the period.


Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual Financial Statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the Financial Statements as a whole.


Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows: Group Financial Statements


Overall materiality How we determined it


Rationale for benchmark applied £1.6 million 0.5% of revenue


We determined our materiality based on revenue as this is a key metric used by management and investors and given the relative volatility of profit before tax in recent years, this was considered to be a more consistent metric.


1% of total assets


We determined our materiality based on total assets, which is more applicable than a performance-related measure as the Company is primarily an investment holding Company for the Group.


For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £0.7 million and £1.5 million. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality.


We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £79,000 (Group audit) and £44,000 (Company audit) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.


Company Financial Statements £0.9 million


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