London / UK. (ffg) British Finsbury Food Group PLC, a leading UK speciality bakery manufacturer of cake, bread and morning goods for both the retail and foodservice channels, is pleased to announce its unaudited interim results for the 26 weeks ended 30 December 2017.
Summary
- Group revenue of 157.8 million GBP up 0.7 percent (H1 2016: 156.6 million GBP) like for like(*1) up 2.5 percent to 144.8 million GBP.
- Group operating profit of 8.7 million GBP up 4.7 percent (H1 2016: 8.3 million GBP).
- Group operating profit margin of 5.5 percent (H1 2016: 5.3 percent).
- Profit(*2) before tax of 8.4 million GBP up 6.3 percent (H1 2016: 7.9 million GBP)
- Adjusted(*3) diluted EPS, up 4.3 percent at 4.8p per share (H1 2016: 4.6 GBPence per share), adjusted EPS, up 6.4 percent at 5.0 GBPence per share (H1 2016: 4.7 GBPence per share)
- Interim dividend per share increased 10 percent to 1.1 GBPence (H1 2016: 1.00 GBPence per share)
- Net debt of 16.6 million GBP reduced to 0.6 times annualised Ebitda of the Group (H1 2016: 21.0 million GBP, 0.8 times).
Strategic highlights
- New state of the art cake line now fully operational.
- High level of capital spend maintained.
- Bread and morning goods Foodservice like for like(*1) revenue up 8.2 percent.
- Loss-making bakery now closed with most employees having found alternative external employment.
- Winner of Quality Food Awards for a number of products.
Post period highlights
- New five year banking facility to February 2023 of 45 million GBP RCF plus 45 million GBP accordion.
- Purchase of the freehold property at Lightbody bakery for 2.6 million GBP.
- *) like for like revenue is the revenue from operations excluding the revenue from the closed bakeries during the first half of the current year.
- *) Profit is before significant non-recurring and other items.
- *) adjusted and adjusted diluted EPS have been calculated using earnings excluding the impact of amortisation of intangibles and significant non-recurring and other items as shown on the face of the Statement of Comprehensive Income. The adjusted diluted EPS and adjusted EPS have been given, as in the opinion of the Board this will allow shareholders to gain a clearer understanding of the trading performance of the Group.
Commenting on the results, Chief Executive John Duffy said: «Our revenue and profit growth in the period illustrates the Group’s resilience to what has been a sustained period of market-wide headwinds. The investment into the business that we have implemented over this and previous years, alongside a focus on operational excellence has positioned us well and enabled us to continue to deliver robust results. This, alongside the strength of our balance sheet has underpinned our ability to increase our interim dividend.
«The headwinds will persist into the period ahead, but we are determined to deliver against our strategic objectives and continue to drive growth both organically and through acquisition. With our resilient and diversified Group, by category, channel and geography, we are confident that we will continue to deliver steady progress in the period ahead».
Strategy
Our strategic objective is to create sustainable value for our shareholders, customers and other stakeholders through our vision to build the leading speciality bakery group in the UK. We produce a broad range of high-quality bread, cake and bakery snacking products targeted at growing channels and market niches. These deliver growth and differentiation for our major customers and fulfil the needs of end consumers. Our strategy to achieve our vision is as follows:
- Invest in our people and our manufacturing sites to form a strong foundation for us to deliver our strategy.
- Create innovative, high-quality bakery products that anticipate key market trends.
- Ensure customer and consumer needs are at the heart of our decision making.
- Develop a strong licensed brand portfolio to complement our core retailer brand relationships.
- Aim to succeed in both the retail grocery and out-of-home channels.
- Grow through a combination of organic growth and targeted acquisitions.
Our growth strategy will continue to be delivered through a combination of organic growth and targeted acquisitions. Future acquisitions will typically consolidate our market share in existing product areas or introduce further diversification into additional specialist product areas, customers and channels.
Net debt of 16.6 million GBP at half year, equating to 0.6 times annualised EBITDA, results in a healthy balance sheet and considerable scope to invest further, develop site capabilities and participate in industry consolidation and appropriate M+A.
The Group has refinanced its current debt facilities. The new facility is a 45 million GBP revolving credit facility provided by a club of three banks – HSBC, Rabobank and RBS. The facility is on improved terms, is available for five years and also includes scope for the facility to be increased by up to a further 45 million GBP. The new facility and the potential for it to be increased further provides increased capacity for the Group to explore future growth opportunities and support its long-term investment strategy.
Our core strategy is centred on generating returns for shareholders. Adjusted diluted earnings per share are up 4.3 percent year on year at 4.8p per share, adjusted earnings per share is up 6.4 percent at 5.0p per share.
A final dividend for the year to 1 July 2017 of 2.00p per share was paid on 22 December 2017 to shareholders on the register at the close of business on 24 November 2017. This brought the total dividend for the year to 1 July 2017 to 3.00p per share.
The Board of Directors is announcing an interim dividend for the year ending 30 June 2018 of 1.1p per share (H1 2016: 1.00p per share), an increase of 10.0 percent. The interim dividend will be paid on 27 April 2018 to shareholders on the register at the close of business on 3 April 2018. The election deadline for participants in the Company’s Dividend Re-investment Plan will be 3 April 2018.
Outlook
The first half year results have been delivered despite a backdrop of commodity and exchange rate driven inflationary headwinds and consequentially challenging grocery environment. The results delivered demonstrate the benefits of our strategy and the investment implemented over prior years. Our balance sheet remains strong allowing us to continue to invest in our businesses and therefore maintain the delivery of our stated growth strategy. The broader channel, customer and product diversification achieved has created a solid platform for the business and will continue to benefit us given our access to higher growth opportunities such as the faster growing foodservice channel.
The UK grocery market continues to be challenging with food inflation becoming entrenched. As previously noted, this is a result of increased commodity prices, the adverse impact of USD and Euro exchange rates and the annual above inflation increase in the National Living wage. The Group is working hard to mitigate this input cost inflation through continued operational efficiency, investment in automation and, inevitably, price increases.
Whilst we are cognisant of the price recovery process, we expect the Group’s steady performance to continue into the second half of the financial year and are confident that we have created a resilient business that can not only withstand the current headwinds but will continue to progress.
Operating Review
UK Bakery
| H1 2017 million GBP | H1 2016 million GBP | Movement | |
| Revenue | 140.5 | 139.0 | +1.1 percent |
| Operating profit | 7.3 | 7.4 | -0.7 percent |
| Operating margin | 5.2 percent | 5.3 percent |
.
UK Bakery comprises the supply of cake, bread and morning goods in the Grocery and Foodservice channels. Revenue in the period has increased by 1.1 percent to 140.5 million GBP. Operating profit has decreased by 0.7 percent to 7.3 million GBP.
The grocery ambient cake and the bread and morning goods markets are both large mature markets. The grocery ambient cake market sees year on year volume decline of -2.1 percent and value growth of +1.3 percent (Source: IRI 26 weeks ending 6th January 2018) and the bread and morning goods grocery market sees year on year volume decline of -1.3 percent and value growth of +2.2 percent (source: Kantar Worldpanel 24 weeks ending 31st December 2017).
UK Bakery Operating profit margin has decreased to 5.2 percent due to commodity price pressure, particularly the spike in butter prices.
The UK Bakery figures includes 13.0 million GBP (H1 2016: 15.4 million GBP) of turnover form bakeries closed during the first half of the year. Note 2 provides details on the Grain D’Or bakery closure where trading activities ceased partway through the 26 weeks to 30 December 2017.
Overseas
| H1 2017 million GBP | H1 2016 million GBP | Growth | |
| Revenue | 17.3 | 17.6 | -2.1 percent |
| Operating profit | 1.2 | 1.0 | 24.2 percent |
| Operating margin | 7.0 percent | 5.5 percent |
.
The Overseas business comprises Lightbody Europe which trades primarily in France. The business specialises in the import and sale of premium UK manufactured food products. It is an important channel into Europe for Group UK manufactured licensed celebration cake and bite style products.
The business is heavily exposed to the Euro which has had a favourable impact on translation of Euro denominated sales and profit. In Euro terms the business has performed well too and we are pleased with the operating profit performance of Overseas business.
Revenue and Operating Profit
Group revenue increased in H1 2017 by 0.7 percent year on year to 157.8 million GBP. Profit before interest, tax and significant non-recurring and other items was up 4.7 percent to 8.7 million GBP.
Interest Payable
Interest payable and charges on related interest rate swaps on the Group’s bank debt in H1 2017 was 331’000 GBP (H1 2016: 433’000 GBP), a decrease of 102’000 GBP. The decrease in charges is a consequence of the lower average debt balance over the period.
Taxation
The Group’s effective tax rate in H1 2017 was 21.2 percent, which compares to 21.2 percent in H1 2016. The effective rates represent a blend of the UK and French corporation tax rates. There was a decrease in the UK tax rate offset by a higher proportion of profits charged at the higher French corporation tax rate.
Earnings per share
The Group considers both adjusted and adjusted diluted earnings per share to be the most appropriate EPS measure. The adjusted earnings per share were up 6.4 percent to 5.0 GBPence, (H1 2016: 4.7 GBPence) and adjusted diluted earnings per share were up 4.3 percent to 4.8 GBPence, (H1 2016: 4.6 GBPence).
