Lees Foods: reports eight percent increase in sales

Coatbridge / UK. (lf) In the twelve months to 31st December 2008, Lees Foods PLC two main businesses, being Lees of Scotland and Waverley Bakery, helped to deliver turnover of 16’117’010 GBP, up from the previous year by 1’209’425 GBP, an increase of eight percent. 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 GBP, compared with 720’691 GBP in 2007. The fall in profits was primarily a result of a bad debt provision of 69’000 GBP 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 in March 2009 due to the loss of its major customer which accounted for 75 percent 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 GBP, 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. Lees Foods would emphasises 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, Lees Foods PLC says.