Strategic Review


78 Finsbury Food Group Annual Report & Accounts 2019


Notes to the Consolidated Financial Statements


Corporate Governance


Financial Statements


23. Financial Risk Management (continued) d) Market Risk


i) Interest Rate Risk The Group’s interest rate risk exposure is primarily to changes in variable interest rates. The Group has entered into two interest rate swap arrangements in order to hedge its risks associated with any fluctuations. Details of swaps are given in Note 13.


The profile of the Group’s loans and overdraft at the period end date were split as follows:


2019 £000


Variable rate liabilities (47,972)


2018 £000


(25,000)


Swaps amounting to £25.0 million (2018: £20.0 million) limit the risk associated with the variable rate liabilities. The interest rates for the forward dated swaps are fixed at 0.455% for £20.0 million and 1.002% for £5.0 million (2018: £20.0 million fixed at 0.455%).


Sensitivity A 1% increase in the base rate or LIBOR would have the following impact on interest charges and associated net assets for the Group, this sensitivity relates to interest-bearing bank borrowings and interest rate swaps only and excludes possible changes in pension financing costs.


2019 £000


Profit decrease Decrease in net assets


589 589


A 1% decrease in the base rate or LIBOR would have an equal and opposite impact of £388,000 (2018: £250,000) to those listed above. The above movement is not equal to 1% of interest-bearing loans because of interest rate swap cover that is in place.


ii) Commodity Prices Any rises in commodity prices can adversely impact the core profitability of the business. The Group will aim to pass on its increased costs to its customers as far as is reasonable in the circumstances whilst maintaining its tight control over overhead costs to mitigate the impact on consumers. The Group maintains a high expertise in its buying team and will consider long-term contracts where appropriate to reduce uncertainty in commodity prices. Further information on input prices and risks is contained in the Strategic Report.


iii) Foreign Exchange Risk We acquired manufacturing facilities in Poland through the Ultrapharm acquisition. The sites supply to mainland Europe with income in Euros and local costs denominated in Polish złoty. We supply UK-manufactured products to Lightbody Stretz Ltd, our 50%-owned selling and distribution business which trades in mainland Europe. We also buy a small number of commodities and capital equipment in foreign currency. As a consequence, we are exposed to fluctuations in foreign currency rates. We manage this risk by continually monitoring our exposure to foreign currency transactions. We use forward currency contracts when required and our procurement team works hard to ensure we get the best prices for commodities and equipment giving special consideration to the benefits of contracts denominated in foreign currency.


e) Debt and Capital Management The Group’s objective is to maximise the return on net invested capital while maintaining its ongoing ability to operate and guaranteeing adequate returns for shareholders and benefits for other stakeholders within a sustainable financial structure. An interim dividend for the six months to 29 December 2018 of 1.16p per share was paid on 26 April 2019 to shareholders on the register at the close of business on 5 April 2019. 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. It is the Company’s intention to pay dividends at an affordable rate so that the Company can continue to invest in the business in order to grow profits.


The Group manages its capital by monitoring its gearing ratio on a regular basis, there are also covenant tests which are monitored regularly and presented to the Group’s banks every six months. There have been no breaches of covenant tests during the year and the gearing ratio stands at 0.4 (2018: 0.1). The gearing ratio is calculated taking the total net debt including deferred consideration over net assets.


The Group considers its capital to include share capital, share premium and capital redemption reserve. The Group does not have any externally imposed capital requirements.


2018 £000


250 250


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