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 29 December 2018.
Summary
- Group revenue on a like for like*1 basis up 0.5 percent to 145.5 million GBP (H1-2017: 144.8 million GBP) with UK Bakery sales up 1.7 percent.
- Total group revenue down 3.5 percent to 152.3 million GBP, reflecting closed businesses partially offset by acquisition.
- Group operating profit (adjusted*2) flat at 8.7 million GBP.
- Group operating profit margin (adjusted*2) increased to 5.7 percent (H1-2017: 5.5 percent).
- Group Ebitda (adjusted) up 2.2 percent to 12.9 million GBP (H1-2017: 12.7 million GBP)
- Profit before tax of 7.5 million GBP (H1-2017: loss (1.2 million GBP)).
- Profit before tax (adjusted*2) of 8.3 million GBP broadly in line with prior year of 8.4 million GBP.
- Adjusted*3 diluted EPS (pence per share) up 2.1 percent at 4.9p (H1-2017: 4.8p), adjusted EPS, up 2.0 percent at 5.1p (H1-2017: 5.0p).
- Interim dividend per share increased 5.5 percent to 1.16p (H1-2017: 1.1p per share).
- Net debt of 36.1 million GBP increased to 1.3 times annualised Ebitda of the Group (H1-2017: 16.6 million GBP, 0.6 times).
Strategic highlights
- Completed the acquisition of Ultrapharm, a manufacturer of Gluten Free Bread and Morning Goods both in the UK and in Europe.
- Successful launch of a new range of individually wrapped cake bars for on the go consumption.
- Launch of new ‘Vegan’ brioche style burger bun into Foodservice, approved by Vegan society.
- Winner of Bakery Manufacturing company of the year in the Food Manufacturer Excellence Awards.
- Winner of Quality food awards for a number of products.
The Group uses Alternative Performance Measures (APMs) which are non-IFRS measures to monitor performance of its operations and of the Group as a whole. The reconciliation to IFRS measures is shown in the Consolidated Statement of Comprehensive Income.
(*1) Like for like revenue is the revenue from operations excluding the revenue from the closed bakeries and acquired businesses.
(*2) Profit is before significant non-recurring and other items.
(*3) 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.
Chief Executive’s Review
Commenting on the results, John Duffy, Chief Executive of Finsbury Food Group Plc, said: «In what has been a challenging period, we are pleased to report another robust set of financials, testament to the strength of our business and our position in the market place. This strength is clearly illustrated by the growth in margins achieved and the further increase in our dividend.
«This resilience comes from a number of areas, both historic and ongoing: our capital investment, the diversification of the Group into foodservice and high growth areas such as Free From, and our constant drive for efficiency. However importantly, alongside this, our relentless drive to deliver on customer trends and ensure our products are not only best in class, but also what customers are looking for. Our launch of a new ‘Vegan’ brioche style burger bun is testament to this.
«Whilst there is no doubt that the wider market pressures will continue in the period ahead, our market position is solid and we are well positioned both now and for the longer term,»
Outlook
We have continued to operate with market wide headwinds, but due to the work undertaken in previous periods, our resilient business has withstood these exceptional pressures well.
Looking forward, the Board expects stronger organic growth in the second half following new business wins and product launches. The UK grocery market continues to be challenging with seemingly no rest in cost inflation. This is a result of continued increased commodity prices alongside wider macro pressures. The Group is experienced in mitigating food industry wide challenges and input cost inflation through continued operational efficiency, investment in automation and, inevitably, price increases. Nonetheless, whilst we expect our second half to be under pressure to fully offset cost inflation, the Board is confident of achieving adjusted Ebitda not less than that achieved in the first half. The broad channel, customer and product diversification of the Group remains 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.
As one of the largest speciality bakery groups in the UK, we will continue to deliver and create innovative, high-quality bakery products in line with customer needs, and drive growth organically and through acquisition. Our balance sheet remains strong allowing us to continue to invest in our businesses and continue to deliver our stated growth strategy.
Operating Review
Revenue and Operating Profit: Group revenue, on a like for like basis excluding revenue from acquired and closed businesses increased in H1-2018 by 0.5 percent year on year to 145.5 million GBP. Including the revenue from acquired and closed businesses the revenue declined by 3.5 percent from 157.8 million GBP to 152.3 million GBP. Profit before interest, tax and significant non-recurring and other items remained flat at 8.7 million GBP.
UK Bakery
| in million GBP | H1-2018 | H1-2017 | Movement |
| Revenue | 133.4 | 140.5 | -5.0 percent |
| Operating profit | 7.4 | 7.3 | +0.6 percent |
| Operating margin | 5.5 percent | 5.2 percent |
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UK Bakery comprises the supply of cake, bread and morning goods in the Grocery and Foodservice channels. Revenue in the period decreased by 5.0 percent to 133.4 million GBP driven by the loss of the revenues from the closure of loss-making bakeries in the previous year of 13.0 million GBP, like for like revenue growth was 1.7 percent. The closure of the bakeries has however underpinned the operating profit which at 7.4 million GBP has remained broadly flat year on year.
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 growth of +0.8 percent and value growth of +1.4 percent (Source: IRI 26 weeks ending 5th January 2019) and the bread and morning goods grocery market sees year on year volume growth of +1.0 percent and value growth of +2.7 percent (source: Kantar Worldpanel 24 weeks ending 30th December 2018).
The growth in UK Bakery operating profit margin from 5.2 percent to 5.5 percent is a consequence of the closure of loss-making bakeries. The Bakery sector continues to face commodity head winds, now led by flour, continuing labour inflation ahead of CPI driven by National Living Wage, significant utility inflation as a consequence of Government green levies and general inflation all of which has necessitated and will continue to necessitate price recovery from customers.
Overseas
| in million GBP | H1-2018 | H1-2017 | Movement |
| Revenue | 18.9 | 17.3 | +9.3 percent |
| Operating profit | 1.3 | 1.2 | +8.0 percent |
| Operating margin | 6.9 percent | 7.0 percent |
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The Overseas business comprises Lightbody Europe which trades primarily in France, specialising in the import and sale of premium UK manufactured food products and is an important channel into Europe for Group UK manufactured licensed celebration cake and bite style products and the newly acquired Ultraeuropa business which manufactures and supplies gluten free products to Europe.
The business is exposed to the Euro but the consistency of the Euro over the two reporting periods means that there is little impact on sales and profit. When excluding the revenue from the acquisition, like for like sales are down 1.4 million GBP primarily driven by biscuits. The operating margin is steady despite being driven by the same headwinds facing the UK Bakery sector.
Interest Payable: Interest payable and credits (H1-2017: charges) on related interest rate swaps on the Group’s bank debt in H1-2018 was GBP 392,000 (H1-2017: GBP 331,000), an increase of GBP 61,000. The increase in charges is a consequence of the higher average debt balance over the period following the acquisition of Ultrapharm Limited in September 2018.
Taxation: The Group’s effective tax rate in H1-2018 was 19.9 percent, which compares to 21.2 percent in H1-2017. The effective rates represent a blend of the UK and French corporation tax rates. There was a decrease in the blended rate driven by a lower proportion of profits charged at the higher French corporation tax rate in the current year.
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 2.0 percent to 5.1p, (H1-2017: 5.0p) and adjusted diluted earnings per share were up 2.1 percent to 4.9p, (H1-2017: 4.8p). Further earnings per share information is given in Note 7.
Financial Review
Cash flow and net debt: Cash inflow from operating profit before changes in working capital was 12.9 million GBP, which compares with 12.7 million GBP in H1-2017. Net debt at 29 December 2018 was 36.1 million GBP which compares to 16.6 million GBP at H1-2017 an increase of 19.5 million GBP following the acquisition of Ultrapharm Limited during September 2018 for an initial consideration, including the settlement of debt acquired of 16.9 million GBP. Working capital increased in H1-2018 by 5.3 million GBP. Growth in working capital is driven largely by an uplift in seasonal Christmas volume in H1-2018. Capital expenditure of 5.2 million GBP is 0.3 million GBP higher than H1-2017 driven by the investment in additional capacity in the Free From sector. The cash out-flow relating to restructuring and reorganisation costs was 2.5 million GBP in H1-2018 (H1-2017: 2.4 million GBP).
Pensions: The Group has one defined benefit pension scheme within its Memory Lane Cake business in Cardiff. All remaining group companies have defined contribution schemes. The Memory Lane Cake pension scheme has been closed to future accruals and new members since 31 May 2010. The net pension deficit (before related deferred tax) was GBP 10,536,000 at 30 June 2018, the next accounting valuation update will be carried out at 29 June 2019. Cash contributions (including the PPF levy) were GBP 185,000 in the six months to 29 December 2018 (H1-2017: GBP 199,000).
Principal risks and uncertainties: A number of risks and uncertainties have been identified that could potentially have a material impact on the financial position of the Group. These are set out in the Risk Report Section of the Annual Report for the year to 30 June 2018 and the Board considers these remain applicable.
Commodity price inflation and the National Living Wage legislation presents a challenge that the Group is preparing for through a number of initiatives. Adjusting and mitigating the impact will take time and will require ever-greater focus on efficiency improvements and cost reduction programmes and, ultimately, price recovery.
