Increased Stake in European Distribution Business

Finsbury Food Group Plc

Increased Stake in European Distribution Business

Finsbury Food Group Plc (AIM: FIF), a leading UK speciality bakery manufacturer of cake, bread and morning goods for both the retail and foodservice channels, is pleased to announce that its wholly owned subsidiary Lightbody Holdings Limited has today entered into an agreement to acquire a further 35% of the issued share capital of Lightbody-Stretz Limited ("Lightbody-Stretz") from Phaste S.a.r.l. ("Phaste"), bringing its holding to 85% (the "Acquisition"), and has also entered into an option agreement to acquire the remaining 15% after two years (the "Option Agreement"). The Acquisition is expected to be completed later today. Lightbody-Stretz is the holding company of the Group's European distribution business (Lightbody Europe SAS ("Lightbody Europe")) operating primarily in the French and Benelux markets and distributing products produced by the wider Finsbury group for nearly 20 years.

The Acquisition is being undertaken on a cash free / debt free basis with the headline consideration being €7,137,000 subject to a subsequent true-up pursuant to a customary completion accounts mechanism. Under the Option Agreement, the consideration for the remaining 15% stake in Lightbody-Stretz will be fixed at the time of its acquisition based on a multiple of the EBITDA of Lightbody Europe in the 12 months leading up to the exercise of the option, again on a cash free / debt free basis (with a subsequent completion accounts true-up). Phaste has also been granted a put option to require Finsbury to acquire the remaining stake on identical terms. All consideration under the Acquisition and the Option Agreement will be settled in cash.

In the year to 26 June 2021, Lightbody Europe reported a net profit after tax of €2.3m and the business has continued to deliver strong growth through the first half of the 2022 financial year. It has gross assets of €13.5m as at 26 June 2021. The Acquisition is in line with the Company's M&A strategy and the Company considers that securing a majority stake in this business will enhance its capacity to support the business and deliver growth outside of its primary UK markets. The Acquisition will be earnings accretive.  Operationally the business will continue to be managed on a day-to-day basis by the current management team.

Lightbody-Stretz has historically been consolidated into the group accounts as a subsidiary with a corresponding non-controlling interest on the basis that Lightbody-Stretz is commercially dependant on Finsbury for supply of product into its distribution channels.

Related Party Transactions

Phaste is owned by Philippe Stretz and has the right to appoint a director of Lightbody-Stretz. Phaste is a director of Lightbody-Stretz and the Président of Lightbody Europe. As such, Philippe Stretz is deemed a related party of Finsbury for the purposes of Rule 13 of the AIM Rules for Companies (the "AIM Rules").

Lightbody Europe occupies premises leased from Coysevox 2, a company controlled by Philippe Stretz and as part of the transaction Lightbody Europe has entered into non-binding heads of terms with Coysevox 2 to extend the current lease beyond its expiry in July 2022 for a period of nine years with the option to break at six years (the "Lease"). The annual rent will be €75,500 p.a. subject to annual inflation-based increases. This will enable Lightbody Europe to continue its operations without disruption.

Lightbody Europe will continue to be run by its current management team on a day-to-day basis and the Company is pleased to have secured the services of Philippe Stretz for two years following completion with Phaste continuing in the role of President of Lightbody Europe.

The Acquisition, together with the entry into the Option Agreement and the Lease, constitute a related party transaction under Rule 13 of the AIM Rules. As such, the Directors consider, having consulted with the Company's nominated adviser, Panmure Gordon, that the terms of the Acquisition, the Option Agreement and the Lease are fair and reasonable insofar as the Company's shareholders are concerned. 

John Duffy, Chief Executive of Finsbury, commented:

"We are pleased to announce this further investment in our French subsidiary, which increases our stake to 85%, supporting the successful local management team's growth ambitions and our continued desire to invest behind our European growth. This acquisition is aligned to the Company's M&A strategy as the Board continues to grow the Group both in the UK and in Europe, including the potential for meaningful acquisition." 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 which is part of domestic UK law pursuant to the Market Abuse (Amendment) (EU Exit) Regulations (SI 2019/310) ("UK MAR"). Upon publication of this announcement, the inside information (as defined in UK MAR) is now considered to be in the public domain.

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Notes to editors:

·      Finsbury Food Group Plc (AIM: FIF) is a leading UK manufacturer of cake and bread bakery goods, supplying a broad range of blue-chip customers within both the grocery retail and 'out of home eating' foodservice sectors including major multiples and leading foodservice providers.

·      The Company is one of the largest speciality bakery groups in the UK and, with its Overseas division, has sales in the financial year ending 26 June 2021 exceeding £313m.

·      The Company's bakery product range is comprehensive and includes:

·      Large premium and celebration cakes.

·      Small snacking cake formats such as cake slices and bites.

·      Artisan, healthy lifestyle and organic breads through to rolls, muffins (sweet and savoury) and morning pastries, all of which are available both fresh and frozen dependent on customer channel requirements.

·      Gluten Free bread, morning goods and cake ranges.

·      The Company is one of the largest ambient cake manufacturers in the UK, a market valued at £1bn (source: IRI 52 w/e 4th December 2021). The retail bread and morning goods market has a value of £5.2 billion (source: Kantar Worldpanel 52 w/e 26th December 2021). The retail Free From cake market is valued at £54 million (source: Kantar Worldpanel 52 w/e 26th December 2021). The retail Free From bread & morning goods market is valued at £153 million (source: Kantar Worldpanel 52 w/e 26th December 2021).

·      The Company comprises a core UK Bakery division and an Overseas division:

·      The UK Bakery division has manufacturing sites in Cardiff, East Kilbride, Hamilton, Salisbury, Sheffield, Manchester, and Pontypool.

·      The Overseas division comprises the Company's 85% owned company, Lightbody Stretz Ltd, which supplies and distributes the Group's UK-manufactured products and third party products, primarily to Europe, and the Company's manufacturing facilities in Rybarzowice and Zywiec in Poland.