UK: Finsbury Food Group - Preliminary Results

23 September 2008 - Finsbury Food Group Plc, a leading manufacturer of premium and indulgent cakes, celebration cakes, low fat cakes, artisan and organic breads, morning goods, and a range of gluten free bakery products, today announces its preliminary results for the year ended 30 June 2008.

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Highlights of the year ended 30 June 2008:

• Strong revenue growth in all operating subsidiaries, like for like sales increase of 13%

• Adjusted* results from operating activities up 76% to £10.5m (2007: £6.0m)

• Adjusted* profit before tax up 68% to £7.7m (2007: £4.6m)

• Adjusted* fully diluted EPS of 10.5p (2007: 9.5p)

• Acquisition and integration of Anthony Alan Foods Ltd

• Acquisition of Yorkshire Farm Bakeries and A&P Foods to form Livwell Ltd

• Proposed dividend up 10% to 2.2p per share (2007: 2.0p)

*These numbers have been adjusted to eliminate the impact of significant non-recurring items and other charges associated with the adoption of IFRS.

Commenting on the results, David Marshall, Chairman of Finsbury Food Group:

"This has been a year which has seen the Group continue its development against a much more challenging market environment. Against this, all our businesses experienced significant turnover growth. We have excellent innovation skills within our Group, broad production capability and diversity in our product portfolio - all of which equip us well to deal with the challenges we face. The first ten weeks of the year to June 2009 have seen the upward sales trend continuing. The Board is confident that we have a new team which can continue the good work of recent years."

Martin Lightbody, Chief Executive Designate of Finsbury Food Group, continued:

"Challenges, such as the economic environment in which we are operating, bring opportunities. Finsbury is in great shape to seize them. We have a great team managing our newly created three distinct divisions - Cake, Bread and Free From - strong customer relationships and a market leading position in the UK cake industry.  As the newly appointed Chief Executive, I relish the opportunity of focusing on driving organic growth over the next 12 to 18 months."  

 

• Finsbury Food Group plc (AIM: FIF), a leading manufacturer of premium and celebration cakes, low fat cake slices and artisan, organic and gluten free bread and morning goods

• Finsbury Food Group is the number 2 player in the UK cake industry a market valued at £1.51bn (TNS, January 2008)

• The Group is also the market leader in the supply of baked Gluten Free goods to the UK's multiple grocers

• Its strategy is to build a significant food group in core areas, both organically and by acquisition 

• Finsbury's aim is to be "The Best at What We Do"

Chairman's Statement
It gives me great pleasure to present our Annual Report for the year to June 2008. I took over from Lord Saatchi as Chairman on 30 April 2008 and would like to start my report by thanking him for all his hard work and support over the last five years.

This has been a year which has seen the Group continue its development against a much more challenging market environment. 

The Core Business

All our businesses experienced significant turnover growth with Memory Lane Cakes Ltd up 11% year on year, Lightbody Group Ltd grew by 11% and the combined businesses of California Cakes Ltd and Campbells Cakes Ltd were up by 13%. In bread and morning goods, our Nicholas & Harris Ltd business grew by 19%, whilst our gluten free and morning goods business, United Central Bakeries Ltd, completed its successful recovery from the 2006 fire with average weekly sales for the second half of the year up 17% on the first half.

Acquisitions

I am delighted to welcome the directors, management and staff of Livwell Ltd into the Group. This new business gives us a market leading position in gluten free goods to complement our market leading positions in premium cake, celebration cake and low fat cake.

Our position in low fat cake has come from the acquisition of Anthony Alan Foods Ltd, made in October 2007. This has given us the rights to the WeightWatchers brand in cake - a brand with nearly 60% market share in the category.

Directors and Staff

Since the year end, we have announced the departure of Dave Brooks who has been Chief Executive since our creation in 2002. Dave has decided it is time to seek out new challenges and we wish him well for the future. We are pleased he is able to support an orderly handover in the next six months.

We are fortunate that Martin Lightbody will be an excellent replacement, with his strong experience of the industry and business. He will be well supported by Lisa Morgan as Group Finance Director.  John Duffy has joined the business in the newly created position of Chief Operating Officer brining with him a wealth of experience from various senior positions within the food industry.  Paul Monk will support on commercial matters. The Board is confident that we have a new team which can continue the good work of recent years.

Current Trading

The first ten weeks of the year to June 2009 have seen the upward sales trend continuing. The cake division has seen growth of 8% across its three businesses, Nicholas & Harris is up by 12% and United Central Bakeries is up by 43% reflecting full recovery following its fire in October 2006. Whilst around 3% of that growth can be attributed to price, the balance has come from volume growth as we continue to innovate with products which have strong consumer appeal.

It has been widely reported that there have been unprecedented increases over the last year on many commodity prices as well as delivery costs and power. Once again, we are seeking recovery from our customers and are in ongoing dialogue with them.  

Outlook

This current year is extremely hard to predict given all the uncertainty in the economy. We will remain watchful of consumer trends to ensure we continue to service the changing demands of our consumers in an effective manner and we will work hard with our customers to make the most of further growth opportunities, whilst continuing to drive the operational efficiencies within our businesses.

We have excellent innovation skills within our Group, broad production capability and diversity in our product portfolio - all of which equip us well to deal with the challenges we face.  The new management team will provide, as usual, a trading update for the year at our AGM on 26 November 2008.

In my last report I referred to the year to June 2007 as a year of transformation. I was premature in that assessment as it has, in fact, been this year which has been a year of transformation with the prior period merely creating the initial impetus with the acquisition of the Lightbody Group.

Looking back on the 12 months to June 2008, I see a year of achievement and a year that was hugely challenging given the inflationary pressures the food industry has had to deal with. The results for the year are covered in more detail in the Business Review. I would like to add that I have been very pleased with the Group's performance over this difficult and challenging period. Our earnings have been robust and our management teams have worked diligently to continue to move the Group forward.

Achievements

The year to 30 June 2008 has been an important year of development which has left us in good stead to develop further in future years. The major achievements include: 

 

 

I feel that we have matured into a strong bakery group with a suitable range of diverse, yet complementary, activities. With effect from 1 July 2008, we began operating as three distinct divisions within the Group - Cake, Bread and Free From - each with its own management team.

Outlook

The future looks challenging with many macro economic conditions, such as world commodity prices, exchange rate movements (particularly the Euro), and the risk of economic downturn, all having a considerable effect on business in general. Challenging periods can also provide opportunities for businesses, particularly those which can be nimble and quick to react to the changes in consumer trends. Speed and flexibility are key attributes of the Group and we have the skills to manage this dynamic market environment. With our focus on the growing and added value sectors of our market, our strong customer relationships, clearly defined strategic goals and our excellent portfolio of brands, we have the ability to continue our growth in the year ahead under the guidance of our new management team.

After 11 years of running the business - six successful years as a 'plc' following my five years with Memory Lane pre flotation - I have decided to stand down. I feel that this time period is long enough in any business, especially one as dynamic as this. 

I would like to give my sincere thanks to Lord Saatchi, who stepped down as Chairman in April 2008. His support over the five years we worked together was invaluable. 

I have enjoyed my time with the Group and am particularly proud of the growth we achieved and the market leading position that has been established.

Strategy

Our strategy remains unchanged because it has served us well and provided excellent guidance in our acquisitive and organic development. It is important, however, to take account of the latest consumer trends and macro-economic conditions.

Our core aim remains to be "The Best at What We Do", with particular focus on the indulgence, celebration and health sectors of the market. Our primary aim over the next 12 to 18 months will be to maximise our organic growth by taking advantage of all the opportunities before us. Whilst further acquisitions are not ruled out, it is unlikely that there will be any major activity in this regard. We will remain on the look out for small bolt-on opportunities which fit our criteria.

Our Markets

As stated previously, we operate in very large markets with combined sales now approaching £5 billion per annum. So, whilst we lead our core sectors within those markets, we have the scope to continue to convert consumers to our product range.

The total cake market (pre-pack, in-store bakery and chilled) is valued at £1.52 billion and saw growth of 6.5% in the year to April 2008 (source: Mintel). Whilst there has been a small amount of price inflation and a tiny increase in volumes, a large proportion of this growth has been driven by the Group via its support in extending the premium retailer brands, the Thornton's licensed brand and by the added impetus behind the licensed WeightWatchers brand following our acquisition of Anthony Alan Foods in late 2007.

Premium and Health lead the way in the 'treating' category of cake - further evidence of the health conscious lifestyle the UK consumer likes to lead. However, we are only health conscious some of the time, as we love to treat ourselves occasionally, and, when we do, that "treat" has to taste great.

We remain the second largest supplier of cake to the UK's multiple grocers, with a 20% market share of pre-packed cake and leading positions in our core markets - we estimate over 90% for premium cake, approaching 60% for celebration cakes and in excess of 75% for low fat cake.

Annual bread sales are in excess of £3 billion (source: Mintel). Whilst being a smaller player in this market, our 'leadership' comes through innovation. Even with white bread sales back in growth, there is no indication that consumers are less inclined to treat themselves with new artisan breads.

Moving to Free From, the latest market report (source: Mintel, October 2007) estimated a total market worth in excess of £125 million per annum at retail prices with almost 50% of that total being gluten free - the sector in which we operate. With the Free From market expected to expand to £200 million by 2012, our current market share of around 30% should stand us in good stead to lead this category's growth over that period.

 Our Businesses

Memory Lane Cakes

Based in Cardiff, our founding subsidiary employs nearly 1,200 people and is the hub of our premium cake development. With growth approaching 70% since August 2002, this business demonstrates our strong organic growth achievement.  It is the Welsh capital's largest manufacturing employer.

The sales growth of previous years has continued in the year to June 2008. With tougher comparables following the major relaunch activity during the year to June 2007, the annual growth has, as predicted, slowed a little although remains at a healthy 11% year on year. Sales for the 12 months to June 2008 were £62 million.

As the premium cake market grows, our main challenge is to ensure that we remain ahead of the chasing pack. Our innovation consistently delivers excellent quality against an ever more demanding set of brand guidelines, with all the retailers moving towards more natural recipes. In June 2008, we re-launched the 'Tesco Finest*' range of cake products and, in September 2008, we re-launched the Sainsbury 'Taste The Difference' range. Work is on-going with other customers to renovate their product offering and we will continue to develop product ranges over the next 12 months.  

We must also be aware of the changing economic environment and any impact it might have on the premium cake sector. At this stage we have seen no reduction in volume as a result of either the price increases that have been implemented over the last 12 months or the change in the economic climate. We continue to monitor this closely, although it is our view that sales of small treats such as a sub-£2 cake will not be materially affected.

Lightbody Group

Based in Hamilton, with over 1,200 employees, the Lightbody business is the UK's largest supplier of celebration cakes and has a growing business in the popular sector of cake bites.

The Lightbody business has had a successful first full year in the Group with sales up 11% to £59 million. The majority of the growth has been driven by the expansion of its small cake business with strong progress being made in the in-store bakery category and via the Thorntons brand. 

The celebration cake market continues to be relatively flat and there are some early (and surprising) signs of 'trading down' in this segment. Sales of our sub-£5 range of cakes has grown significantly in recent months with a corresponding fall in the £8 - £10 range. Given our strength at both price points, this does not concern us at this stage and we have a strong portfolio of licences for the coming year which will give us ample chance to entice consumers to trade up again.

Our joint venture in France, Lightbody-Stretz, continues to perform well and we look forward to selling a wider range of products in the coming 12 months, with opportunities in Free From as well as from the Memory Lane Cakes portfolio. Breaking into the Central European market proved tougher because of the lower levels of disposable income. As a result we closed our Czech sales and marketing operation in early 2008 incurring a significant non-recurring charge of £0.3 million.

 California Cakes

The UK's largest supplier of low fat cake slice, this business has been relocated from Coatbridge to the Lightbody site in Hamilton.

The main event of the year was the transfer of operations to the Lightbody site which was completed in July 2007. All equipment and staff moved to Hamilton and the business is now settled into its new environment. This relocation has created a significant non-recurring charge of £1.2 million in the year including £0.6 million provision for an onerous lease of premises on part of the California site. A further £0.4 million of this charge relates to additional labour costs associated with the 'learning curve' of moving to the new site with different equipment and systems.

The business has continued to grow during this time, with sales of £16 million. 

Campbells Cakes 

This is our smallest subsidiary with 60 employees and is based in the village of Twechar, near Glasgow. The business makes cold-set products, mainly focused around caramel shortcake.

When we bought the business in November 2005, sales were around £30,000 per week. We quickly moved into more premium products to complement the Memory Lane Cakes range of whole cakes. By following this strategy, sales increased by 44% during the year to £5 million and are now trending towards £6 million per annum - a 400% growth rate in the three years since its acquisition. 

Nicholas & Harris

Acquired in 2003, this bread business based in Salisbury employs 180 people. It has created clear leadership in the supply of 'clean-label' breads to the UK's multiple grocers.

Our artisan bread business has enjoyed significant growth in the last 12 months to June 2008 with sales up 19% to £13 million. This growth has been fuelled by the strong product offering and quality that we provide.  

As a result of our innovation, the customer base has grown significantly and now includes Sainsbury, Tesco and Asda. Waitrose remain the largest customer and we have seen good growth with them during the period. The extension of our customer base has generated a whole new momentum to our innovation which has benefited all our customers.

The success of the business is such that it is approaching maximum capacity on the current site. As announced in March 2008, we are investing £2 million in extending our artisan bread capacity. This investment will fund the development of the spare bay at our UCB site in Scotland and the upgrading of the building and equipment at Nicholas & Harris. We expect this project to be complete by Christmas 2008 and that it will provide scope to double our business size in the next few years.

United Central Bakeries 

This is a three bay bakery in Bathgate, near Edinburgh, that supplies gluten free products, a range of morning goods and, from 2009, artisan breads and rolls, following the planned investment program.

The fire in October 2006 was a traumatic time for the business. Over the last 12 months, however, UCB has seen a remarkable resurgence. With two thirds of the bakery rebuilt and nearly £3 million of new equipment installed, we entered the year hopeful of a full recovery and our progress since then has exceeded our expectations.

By July 2007 all the new equipment had been installed and by August 2007 the business was back in full operation - just 8 months after the fire. With new products such as jam doughnuts and crumpets introduced to the UK Free From market, plus the growing demand for our yum yums and potato scones, the average weekly sales for the second half of the year were 17% up on those of the first half. Full year sales totalled £8 million.

Anthony Alan Foods

This is a sales and marketing business which has the rights to distribute WeightWatchers branded cakes to the UK and Ireland.

The acquisition of Anthony Alan Foods in October 2007 gave the Group control of one of the power brands in the UK food industry for the cake sector. WeightWatchers is the UK's 14th largest food brand and the opportunity to help build on this and make it 'Top 10' is very exciting.

Over the last few years, Finsbury had grown with Anthony Alan Foods to such a level that it was supplying nearly two thirds of the products. Vertical integration was, therefore, a logical step for the Group.

Since purchasing the business, we have transferred the administration to the Memory Lane Cakes site in Cardiff. This business is now fully integrated into the Group. Its results for the year to June 2008 include a significant non-recurring charge of £0.2 million relating to this integration. In April 2008 we successfully launched a wider range of products and completely redesigned the packaging to make it much more contemporary and appealing.  

Livwell Ltd

This is now the UK's leading supplier of gluten free breads, morning goods and cakes to the UK's multiple grocers. Based in Hull with nearly 100 employees, this bakery will deliver innovative products into the Free From market place.

The Livwell business was formed following the purchase of the trade and assets of Yorkshire Farm Bakeries and A&P Foods from the Arnett family in April 2008 for a consideration of £9.5 million. The Hull site is now a dedicated gluten free facility with the capability and capacity to manufacture a wide range of bakery products. The integration process has been successful and the year's results include a related significant non-recurring charge of £0.3 million. 

With medical diagnosis of coeliacs improving, new consumers are entering the gluten free market because of dietary requirements, and the growth in this market is apparent. Our aim is to accelerate growth through innovation to provide gluten free versions of standard products.

We have a strong position in the UK retail market and believe that our product range has excellent export potential into Europe, Australasia, and the United States. It is also our aim to break into the prescription market - coeliacs are entitled to get speciality food produce from their doctor free of charge. We already have a small range of products approved and will now focus on encouraging consumer selection.

 Brands

Whilst the Group remains primarily a retailer branded business, comprising around 75% of our sales, we have access to a strong portfolio of other brands to complement this activity. Within the cake division, we have the ambition to significantly grow our £40 million of branded sales over the next three years.

Our brands are carefully focused on our core areas and we have a dedicated team managing this part of the business.

We recognise that there is value in the brands in our portfolio and our rights to use a number of these brands have come about as a result the acquisitions we have made over the past two years.  The directors have considered whether the rights to use these brands should be recognised as intangible assets acquired on acquisition, separate from goodwill, in accordance with IFRS3 Business combinations. Following due consideration, we do not believe it is possible to reliably assign a fair value to these rights as separate intangible assets as their value is intrinsically linked to the synergistic benefits that arise from them becoming part of the Group. 

WeightWatchers

As previously stated, WeightWatchers is the 14th largest food brand in the UK. The license to manufacture and distribute low fat cake to the UK and Ireland's multiple grocers will lead the development within our 'Health' sector in cake. Our mission is to convince consumers that lower fat does not mean lower quality.

With the WeightWatchers market share approaching 60% in the health cake sector we have a very strong platform from which to grow. The extended product range launched in April 2008, with new more colourful packaging, is the first step. We plan to develop the range further over the next 12 months.

Thorntons

The Group is delighted to be the beneficiary of a licensing arrangement with the Thorntons confectionery business. Having acquired the rights with the acquisition of the Lightbody business, the Group quickly set about developing the brand within the cake sector and in the spring of 2008 launched a wider range of products in renovated and more 'up-market' packaging.

Sales have continued to grow and we remain excited about the prospects for this range of products in the coming years and firmly believe it will act as a perfect accompaniment to the retailers' own premium brands.

Nestlé Confectionery

In September 2003, the Group signed a five year agreement with Nestlé (UK) Ltd to make use of their confectionery brands in the cake sector. Whilst progress has been slower than envisaged at the time, we have still developed annual sales of £8 million.

As we come to the end of that five year term, I am delighted to confirm that we have agreed a five year extension to that arrangement. The new arrangement is on more flexible terms than the previous contract giving us additional opportunities to invest in the brand for the benefit of consumers, retailers, ourselves and the brand owner.

With many of the Nestlé brands, and particularly the power brand of Smarties, being free of all artificial colours and flavours, we will be able to deliver great products which are particularly appropriate for the children's market. Such products will form part of our 'health' focus given the clean credentials offering clear permission for parents to purchase these treats.

Disney

The rights to use the Disney brand were also acquired with the Lightbody Group in 2007. With this brand including the Pixar movies, we see it as a pillar in our celebration cake range over the coming years. The newer brands within the portfolio, such as High School Musical and Hannah Montana, are growing significantly in popularity.

Licences

These four major brands are complemented by a range of other licences which are particularly focused on driving celebration cake sales. Properties such as Dr Who, In The Night Garden, Bubblegum (a range of greetings cards), Ben 10 and Bratz have their own target market and offer excellent additions to the range.

Bread and Free From

We are pleased to have branded offerings in our other divisions. The Village Bakery is an organic brand which Nicholas & Harris have been working with for nearly 10 years, generating sales of around £2 million per annum. The range is based primarily around clean label rye breads and lines are stocked by all our bread customers.

Within Free From, we have the Livwell brand which offers scope for further development over the next couple of years, particularly outside the 'Big Four' major supermarkets.

Principal Operating Risks

In the course of its normal business the Group is exposed to a number of risks and uncertainties which could impact on the results of the Group. A formal review of these risks is carried out by the Group on an annual basis. The review process involves the identification of current risks, assessment to determine the relative likelihood of them impacting the business and the potential severity of the impact, and determination of what needs to be done to manage them effectively.

The directors have identified the following principal risks and uncertainties that could have the most significant impact on the Group's value generation:

            Product Quality

Product quality is a key strength of the Group and failure to maintain a high standard of food quality and safety would have a severe impact on service levels and customer relationships.

The Group's quality assurance procedures, managed at site level, are reviewed continuously with improvements made as appropriate. The operating subsidiaries are subject to regular internal and independent food safety and quality control audits including those carried out by, or on behalf of, their customers. The Group maintains product recall insurance cover to mitigate the potential impact of such an occurrence.

Raw Materials - Prices and Supply

Increases in the price of raw materials can adversely impact the core profitability of the business and any related shortage in supply will impact the business' ability to maintain its' service levels to customers - another of its key performance indicators.

The Group will aim to pass on 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 level of expertise in its buying team and will consider long term contracts where appropriate to reduce uncertainty in input prices. The team also cultivates strong relationships with its major suppliers to ensure continuity of supply at competitive prices. Regular renovation and innovation in our product range allows us to manage margin pressures in an effective manner.

Economic Environment

Whilst we believe the that the price sensitivity of our products is relatively low, the Group remains vigilant for any signs that the current economic climate is leading to a reduction in the demand for its' products. The Group is well placed to deal with changes in consumer buying patterns due to its' broad production capability and operational structure which allows it to move quickly to redevelop its' product range as appropriate. The breadth of our capability and our flexibility also means that we are able to exploit opportunities for increased promotional activity.

Input Costs

Over the last 12 months, the level of input price inflation in the food industry has created unforeseen challenges for food producers. The level of price increases during the summer and autumn of 2007 on dairy products, egg, chocolate and flour was significant and it created a whole series of challenges not just for suppliers but also for retailers. In general, this would have been the first period of true inflation that many of the personnel involved in both sales and buying had experienced.

We estimate the increased costs incurred by the Group on an annualised basis were in excess of £6 million. After a long but constructive dialogue with our customers, we secured two rounds of price increases in the autumn of 2007 and early part of 2008 to recover these costs as far as possible whilst balancing the need for consumer value for money. The time lag between incurring the cost increases and increasing customer prices, resulted in our gross margins being adversely impacted by over £1.5 million in the year to June 2008. However, the Group has been able to manage the overhead expenditure within the business to protect our earnings.

Upward pressure remains in the market, occasionally fuelled by speculation. We have to remain vigilant and in dialogue with our customers to ensure prompt recovery of increased costs. It is important that we continue to have their support in achieving this.

People                                    

The last 12 months has proved a challenging year for our employees, now totalling almost 3,000. For many external parties, integration can often seem about the more obvious targets of achieving synergy. Internally, however, we know that the bigger challenge is to work with that increasing number of people to ensure they truly feel part of the growing Finsbury family.

As a Group, we have worked extremely hard to make sure that the integration of Lightbody, the transfer of California Cakes to the Lightbody site and the more recent acquisitions of Anthony Alan Foods and Livwell Ltd all ran as smoothly as possible. 

Our acquisitions have brought new staff and we are delighted to welcome the Arnett family into the Group with the creation of Livwell as well as all their staff in Hull. We also welcome Lisa Reynolds, who is now our Brands Technical Manager, as the only transferring employee from Anthony Alan Foods.

Share Option Schemes

To build a successful Group, the Board recognises the need to attract and retain talented people. A key element in the remuneration package should be the opportunity to share in the benefits of improving shareholder wealth. To this end, in October 2007 the Group issued to 31 of its key senior managers £30,000 of Approved Options, with an exercise price of 106p.

In order to ensure we retain our core team, the Board propose cancelling those options and replacing them with a new tranche at the market value at that time. The number of options issued will remain unchanged and the three year vesting period will start again. No other option grants will be affected.

Whilst the Board recognises that this is a little unusual, the particular circumstances and our desire to continue to drive the Group forward in challenging and volatile times justifies such a move and will create significant shareholder value when markets turn.

Under applicable accounting standards, this cancellation will result in a charge of £138,000 in the accounts for the year to June 2009. This will be in addition to the charge applicable to the replacement options.

ShareSave                        

In January 2008, the Group launched its ShareSave Scheme which gives all employees the opportunity to save money over three years with a view to buying shares with that money (plus interest) at the end of the term. Whilst quite common in service, professional and blue collar industries, such schemes are rare in food manufacturing businesses. We felt it was important to give all our employees the opportunity to share in the growth of the Group, and we, therefore, allocated one million shares (just under 2% of our issued share capital) to the Scheme.

On application, we ended up over subscribed and had to scale back by 20%. We now have over 250 staff (which equates to 11% of the eligible workforce) as option holders in the business.

It is intended that the Scheme opens annually in October. For the October 2008 Scheme, a maximum of 500,000 shares have been allocated as open for subscription.

Awards

In May 2008, Finsbury Food Group Plc was named Welsh Business of the Year in the Western Mail Business Awards. This award was recognition of the great strides the Group has made in the last 12 months and the contributions of all our employees.

Trading Results

Group revenue for the year to 30 June 2008 was £169.0 million (2007: £109.8 million), an increase of £59.2 million (53.9%) year on year. Like for like sales from continuing operations, excluding the incremental sales from businesses acquired during the year (namely Anthony Alan Foods Ltd and Livwell Ltd) and the full year effect of Lightbody, were £124.2 million. This represents an increase of £14.4 million (13.2%) year on year.

Gross margin for the year was 35.9% (2007: 38.9%) representing a reduction of 3% year on year which can be explained by the following:-

• 'lost' margin resulting from the time lag between incurring increases in raw material costs and passing them on to our customers by way of increased selling prices (equivalent to c1%);

• margin 'dilution' resulting from only passing on the cash impact of the cost increases to customers and not charging a margin on these increases (equivalent to c1%); and

• change in sales mix with higher proportion of cake sales which, generally speaking, have a lower gross margin than bread products (equivalent to c1%).

Profit before tax was £5.1 million (2007: £5.4 million). This was achieved after net finance expenses of £2.9 million (2007: £0.9 million). Net interest payable in the year was £2.9 million (2007: £1.4 million).

 The following analysis is included to show what the directors consider to be the underlying performance of the Group and eliminates the impact of significant non-recurring items and other charges associated with the adoption of IFRS.