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LEES FOODS PLC

RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008

Highlights

• 8% increase in sales from Lees of Scotland and Waverley Bakery - 2008: £16,117,010 (2007: £14,907,585)

• Underlying pre-tax profits before impairment charges of £402,025 (2007: £720,691)

• Dividend maintained at 6.7p (subject to shareholder approval) 

• Reduction in net debt and investment in new production capacity

Enquiries

Lees Foods Plc	01236 441600
Raymond Miquel - Chairman and Chief Executive
Shore Capital and Corporate - Nomad and Broker	0207 408 4090
Guy Peters
Budge PR Ltd - Public Relations	0141 553 1115
David Budge

Chairman's Statement

In the twelve months to 31st December 2008, the Group's two main businesses, being Lees of Scotland and Waverley Bakery, helped to deliver turnover of £16,117,010, up from the previous year by £1,209,425, an increase of 8%. Sales by Patisserie UK which was acquired in December 2007 and placed into administration in March 2009 have not been included in the aforementioned figures.  

The Group's underlying pre-tax profits for the year to 31st December 2008 before the impairment of goodwill were £402,025, compared with £720,691 in 2007. The fall in profits was primarily a result of a bad debt provision of £69,000 which was owed to the Company by Woolworths and a significant increase in raw materials, power and distribution costs. The Group's strong cash generation during the year helped reduce the Company's net bank debt.

During 2008, Lees continued to invest in new product development, expanding its range of cake trays, tubs and mini tubs for biscuits and meringues. The number of production lines at its Coatbridge factory was increased from six to nine to satisfy the increased demand. Export sales continue to be developed with the company securing new orders for the first time in Belgium and South Africa.

Patisserie UK was put into administration on 6 March 2009 due to the loss of its major customer which accounted for 75% of its sales and the Company is seeking a claim against the Vendors under the warranties which were given to the Company at the time of the acquisition. Counsel's opinion has been sought and Counsel has indicated that, having reviewed the documentation, there is a good basis for the claim. A notice of a claim has been served against the Vendors under the warranties contained within the acquisition agreement, however, prior to the outcome of any legal action, the Company's auditors have indicated that the Company is required to write off £1,818,286, being the amount of goodwill on the Group Balance Sheet which related to the Rock Cake acquisition. Under International Financial Reporting Standards they have advised us to write off the amount against the trading profit to the year ended 31 December 2008 rather than treat it as a loss on a discontinued operation. This is despite the fact that it would have been classified as a discontinued operation in these accounts had Patisserie UK been placed into administration in December 2008 and not in March 2009. I would emphasise that this is the write off of an intangible asset and does not affect the Company's trading results or cash position. 

The first six months of 2009 have started well and indications are that sales and profits during the period to 30th June will be ahead of the same period last year.

The Directors are recommending the same dividend as last year, which was 6.7p per share, to shareholders on the register at the close of business on 5 June 2009 and this will be paid on 26 June 2009.

The success of the Group would not be achieved without the support and positive contribution given by all its employees and I would like to take this opportunity to thank them for their endeavours. 

Raymond Miquel

Chairman

  Consolidated Income Statement

For the year ended 31 December 2008

			2008	2007
			£	£
Continuing Operations
Revenue			18,292,647	15,141,404
Cost of sales			(12,800,953)	(10,105,449)
			───────	───────
Gross profit			5,491,694	5,035,955
Selling and distribution costs			(2,443,390)	(2,040,733)
Administrative expenses			(2,604,918)	(2,313,277)
Other operating income			17,380	27,972
Impairment of goodwill - Rock Cake Group			(1,818,286)	-
			───────	───────
			(6,849,214)	(4,326,038)
			───────	───────
(Loss)/Profit from operations			(1,357,520)	709,917
Interest receivable			52,620	44,850
Finance costs			(111,361)	(34,076)
			───────	───────
(Loss)/Profit on Ordinary Activities before Taxation			(1,416,261)	720,691
Tax on (loss)/profit on ordinary activities			(124,771)	(178,511)
			───────	───────
(Loss)/Profit for the year			(1,541,032)	542,180

Earnings per Share
Basic (pence per share)		(64.23)p	23.29p
Diluted (pence per share)		(63.53)p	22.86p

Underlying Earnings per Share
Basic (pence per share)		11.56p	23.29p
Diluted (pence per share)		11.43p	22.86p

Consolidated Statement Of Recognised Income And Expense

(Loss)/Profit for the period		(1,541,032)	542,180
Attributable to :
Equity holders of the parent		(1,541,032)	542,180

  Consolidated Balance Sheet

As at 31 December 2008

		2008	2007
			(restated)
		£	£
Non-Current Assets
Intangible assets		1,803,414	3,621,700
Property, plant and equipment		2,504,995	2,788,562
		───────	───────
		4,308,409	6,410,262
Current Assets
Inventories		1,438,807	1,142,014
Trade and other receivables		2,700,968	2,499,439
Cash at bank and in hand		1,295,615	955,466
		───────	───────
		5,435,390	4,596,919
Current liabilities
Trade and other payables		(5,113,815)	(4,377,524)
		───────	───────
Net Current Assets		321,575	219,395
Total Assets less Current Liabilities		4,629,984	6,629,657
Non-current liabilities
Other payables		(250,000)	(500,000)
Accruals and deferred income		(130,124)	(147,504)
Provisions for Liabilities
Deferred taxation		(296,247)	(347,138)
		───────	───────
		3,953,613	5,635,015
		═══════	═══════
Equity
Called up share capital		2,404,751	2,394,751
Share premium account		883,562	883,562
Share-based payment reserve		58,346	54,697
Retained earnings		209,967	1,905,018
Merger reserve		579,934	579,934
Employee Share Ownership Trust		(182,947)	(182,947)
		───────	───────
Total Equity Shareholders' Funds		3,953,613	5,635,015
		═══════	═══════

  Consolidated Cash Flow Statement

For the year ended 31 December 2008

		2008	2007
		£	£
Net cash from operating activities		456,671	823,113
Investing activities
Interest received		52,620	44,850
Proceeds on disposal of property, plant and equipment		13,060	1,330
Purchases of property, plant and equipment		(201,396)	(137,738)
Acquisition of subsidiary		-	(1,578,491)
		───────	───────
Net cash used in investing activities		(135,716)	(1,670,049)
		───────	───────
Financing activities
Dividends paid		(154,019)	(148,892)
Repayment of borrowings		(250,000)	(152,081)
Repayment of obligations under finance leases		(59,709)	(100,689)
Proceeds from issuance of share capital		10,000	20,000
New bank loans raised		-	750,000
		───────	───────
Net cash (used in)/from financing activities		(453,728)	368,338
		───────	───────
Net decrease in cash and cash equivalents		(132,773)	(478,598)
Cash and cash equivalents at beginning of year		177,033	655,631
		───────	───────
Cash and cash equivalents at end of year		44,260	177,033
		═══════	═══════
Cash and cash equivalents
Bank and cash in hand		1,295,615	955,466
Bank overdraft		(1,251,355)	(778,433)
		───────	───────
		44,260	177,033
		═══════	═══════

  Consolidated Cash Flow Statement (continued)

For the year ended 31 December 2008

		2008	2007
		£	£
(Loss)/Profit from operations		(1,357,520)	709,917
Adjustment for:
Impairment of goodwill		1,818,286	-
Depreciation of property, plant and equipment		477,027	430,625
(Gain)/loss on disposal of property, plant and equipment		(5,124)	25,059
Development grant release		(17,380)	(27,972)
ESOP shares vested unconditionally with employees		-	21,280
Share based payments		3,649	5,904
		───────	───────
Operating cash flows before movements in working capital		918,938	1,164,813
		═══════	═══════
(Increase) in inventories		(296,793)	(39,388)
(Increase)/decrease in receivables		(201,529)	173,654
Increase/(decrease) in payables		471,334	(232,890)
Income taxes paid		(323,918)	(209,000)
Interest paid - bank overdraft and loan		(105,175)	(14,681)
Interest paid - HP and finance lease		(6,186)	(19,395)
Net cash flow from operating activities		456,671	823,113

  Notes to the Consolidated Financial Statements

For the year ended 31 December 2008

1.      Accounting Policies

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and International Financial Reporting Interpretations Committee (IFRIC) interpretations endorsed by the European Union.

The financial statements have been prepared under the historical cost convention and in accordance with IFRSs issued by the International Accounting Standards Board.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the company and all principal subsidiaries for the year ended 31 December 2008. The results of subsidiaries acquired are included in the consolidated income statement from the effective date of acquisition.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

In accordance with the Companies Act 1985, a separate income statement for Lees Foods Plc is not presented as the results of the company are included in the consolidated income statement. 

Restatement of prior year figures

The comparative figures have been restated to recognise the adjustments required to account for a change in the consideration paid in respect of the acquisition of Rock Cake Group which took place on 3 December 2007. These adjustments have been made in accordance with the requirements of International Financial Reporting Standard 3 - Business Combinations.

2.       Earnings per share

    

Basic earnings per share

Basic earnings per share is calculated by dividing the result for the financial year by the weighted average number of ordinary shares in issue during the year. The weighted average number of ordinary shares in 2008 has been calculated based on the following assumptions;

(a)    2,394,751 ordinary shares were in issue up to 22 July 2008.

 

          (b)    A further 10,000 ordinary shares were issued on 23 July 2008, giving a total of 2,404,751 ordinary shares 
                 at 31 December 2008.

Diluted earnings per share

In accordance with IAS 33 'Earnings Per Share', diluted earnings per share takes into account the dilutive effect of outstanding share options. The following assumptions have been made:

(a)    The weighted average number of shares under option is 60,000 (2007: 92,000).

 

         (b)    The weighted average number of shares that would have been issued at the average market 
                 value is 33,520 (2007: 47,574).

 

          (c)   The average market value of £1.79 during 2008 (2007:£2.35) per ordinary share has been used in the 
                 calculation.

	Basic  Earnings	Basic Shares	EPS
	£	Number	Pence
2008
Loss attributable to ordinary equity holders	(1,541,032)
Weighted average shares during year		2,399,177
Basic EPS			(64.23)
Weighted average number of shares under option		60,000
Weighted average number of shares that would have been issued at the market value		(33,520)
Diluted EPS			(63.53)
2007
Profit attributable to ordinary equity holders	542,180
Weighted average shares during year		2,327,573
Basic EPS			23.29
Weighted average number of shares under option		92,000
Weighted average number of shares that would have been issued at the market value		(47,574)
Diluted EPS			22.86

The underlying Basic and Weighted EPS disclosed under the Consolidated Income Statement illustrate the Earnings per Share excluding the effect of the impairment of goodwill from the year's trading results.

3.    Dividend

		2008	2007
		£	£
	Dividend paid in the year on 2,404,751 ordinary shares at 6.7p per share (2007 - 2,329,751 ordinary shares at 6.7p)	160,470	156,094
	Less proportion of dividend due to Lees Group Holdings
	Limited Employee Share Ownership Trust	(6,451)	(7,202)
		154,019	148,892

  4.    Intangible Assets

		Brands	Goodwill	Total
		£	£	£
			(restated)
	Cost
	At 1 January 2007	1,039,191	1,261,045	2,300,236
	Additions in year	-	2,046,257	2,046,257
	Goodwill acquired on acquisition of
	Rock Cake Group	-	222,029	222,029
	Prior year adjustment	-	(450,000)	(450,000)
	At 31 December 2007 and 1 January 2008	1,039,191	3,079,331	4,118,522
	Impairment	-	(1,818,286)	(1,818,286)
	At 31 December 2008	1,039,191	1,261,045	2,300,236
	Amortisation
	At 1 January 2007 and 1 January 2008	-	496,822	496,822
	Charge for year	-	-	-
	At 1 January 2008 and 31 December 2008	-	496,822	496,822
	Net book value
	At 31 December 2008	1,039,191	764,223	1,803,414
	Net book value
	At 31 December 2007	1,039,191	2,582,509	3,621,700

No deferred consideration became payable under the terms of the acquisition agreement due to specified profit targets not being achieved by the subsidiary, Patisserie UK Limited. The amount involved, £450,000, is no longer a liability and in accordance with International Financial Reporting Standard 3 - Business Combinations a prior year adjustment has been made to adjust the goodwill arising on the acquisition.

Patisserie UK Limited discontinued its operations and was placed into administration in March 2009 following the loss of all the business from its major customer. The outcome of the administration is not yet known. The goodwill associated with the Rock Cake Group acquisition is therefore considered to be impaired, resulting in an adjustment to cost of £1,818,286. 

Under the warranties contained in the acquisition agreement, Lees Foods Plc has served notice of a claim against the vendors of Rock Cake Limited, which was the holding company of Patisserie UK Limited prior to the acquisition.

 

5.       Prior year adjustment

 

On 3 December 2007, the Group acquired 100% of the share capital of Rock Cake Limited in exchange for an initial cash consideration of £1,850,000, 65,000 £1 ordinary shares in Lees Foods Plc, a deferred consideration of £450,000 relating to profit targets over 2 years, and associated costs of £55,575. 

No deferred consideration became payable under the terms of the acquisition agreement due to specified profit targets not being achieved by the subsidiary, Patisserie UK Limited. The amount involved, £450,000, is no longer a liability and in accordance with International Financial Reporting Standard 3 - Business Combinations a prior year adjustment has been made to adjust the goodwill arising on the acquisition and the corresponding liability.

The impact of this restatement is as follows:-

	Balance sheet impact
	Intangible assets - cost
	At 31 December 2007		4,118,522
	Adjustment in respect of IFRS 3		(450,000)
	As restated		3,668,522
	Trade and other payables within one year
	At 31 December 2007		4,627,524
	Adjustment in respect of IFRS 3		(250,000)
	As restated		4,377,524
	Other payables, more than one year
	At 31 December 2007		700,000
	Adjustment in respect of IFRS 3		(200,000)
	As restated		500,000

6.       Despatch of Documents

Copies of the Group's audited statutory accounts for the year ended 31 December 2008 will be despatched to shareholders shortly. Copies will also be available to the public at the Company's office at Lees Food Plc, North Caldeen Road, Coatbridge, North Lanarkshire, ML5 4EF.

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