Finsbury Food: Announces FY Preliminary Results

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 preliminary results for the financial year ended 27 June 2015.

Financial Highlights

  • Group revenue of 256.2 million GBP up 45.8 percent (2014: 175.7 million GBP) and up 6.1 percent on a like-for-like basis.
  • Adjusted* operating profit of 12.4 million GBP up 61 percent (2014: 7.7 million GBP) and up 20 percent on a like-for-like basis.
  • Group operating profit margin of 4.8 percent (2014: 4.4 percent).
  • Profit before tax of 11.4 million GBP up 76 percent (2014: 6.5 million GBP).
  • Record capital investment of 7.4 million GBP to ensure long term competitiveness.
  • Strong growth in adjusted diluted EPS, up 22 percent to 7.7 GBPence per share (2014: 6.3 Pence per share).
  • Final dividend per share of 1.67 Pence taking total dividend for the year to 2.50 Pence (2014: 1.00p per share).
  • Net debt of 21.3 million GBP equates to 1.0 times pro forma annualised Ebitda of the Group. Net debt well within the long term banking facility of 51 million GBP available to support current and future growth plans.

Operational Highlights

  • Increase in operating profit margin showing the benefits of ongoing capex investment, continuous improvement, business improvement initiatives and overhead management.
  • Organic sales growth of 6.1 percent versus prior year, driven by market share growth in the UK Cake business.
  • Foodservice sales growth ahead of market growth with 20 new products launched across five ranges.
  • Winner of 2015 Insider Wales Dealmakers Deal of the Year Award.
  • Winner of Bakery Manufacturer of the year for 2015 at the Bakery Industry Awards.
  • Food Manufacturer’s Bakery Manufacturing Company of the year award 2014 and winner of 1st, 2nd and 3rd place in the Q awards.
  • Successful robotic installation in Hamilton and completion of Cake Innovation Centre.
  • Baking academies set up in Cake and Bread.

Strategic highlights

  • Acquired Fletchers, giving a broader spread of customers across food retail and foodservice channels in cake, bread and morning goods businesses.
  • Acquired trade and assets of Johnstone’s, augmenting our foodservice offering.
  • Now one of the largest speciality bakery groups in the UK with annualised revenues of approximately 300 million GBP.
  • Successful delivery of targeted cost cutting initiatives through continuous improvement programmes.

Chief Executive’s Report

Food manufacturing is a complex business. Inheriting a troubled group with a legacy debt issue in a difficult market, we articulated a clear strategy from the outset; a strategy grounded in pragmatic foundations, organic growth and long-term investment.

Our attitude has remained consistent. Identifying areas of cost saving, paying down debt, restructuring our product range for growth, deleveraging the balance sheet: each element laying the platform for the step change acquisition that would accelerate progress.

In October 2014, Finsbury acquired the Fletchers Bakery Group, a bread and morning goods business with three sites and a 100 million GBP turnover.

It was a big call for the Board but the right call. Part funded by an oversubscribed equity raise, the acquisition necessitated re-listing the Company on the AIM market.

I am pleased to report the larger Group is operating well, maintaining strong growth and sales trajectories.

Trading Performance

Results for the full 52-week period ending 27th June 2015 are described in greater depth in the Strategic Report but there are a number of areas I would like to take this opportunity to highlight:

  • Group revenue from continuing operations 256.2 million GBP (175.7 million GBP in 2014)
  • Adjusted profit before tax up 76 percent to 11.4 million GBP (2014: 6.5 million GBP).
  • Record capital investment spend 7.4 million GBP (2014: 6.2 million GBP).
  • Strong growth in adjusted diluted EPS, up 22 percent to 7.7 Pence per share.
  • Final dividend 1.67 Pence per share, amounting to a total dividend of 2.50 Pence per share (2014: 1.00 Pence).
  • Total net debt 21.3 million GBP equates to 1.0 times pro forma annualised Group Ebitda.
  • Foodservice sales growth outpacing market, 20 new products launched across five ranges.
  • Winner of 2015 Insider Wales Dealmakers Deal of the Year Award.
  • Winner of Bakery Manufacturer of the year for 2015 at the Bakery Industry Awards.
  • Bakery Manufacturing’s Company of the Year 2014. 1st, 2nd and 3rd place in the Q Awards.
  • Successful robotic installation in Hamilton and Cake Innovation Centre completed.
  • Baking Academies set up in Cake and Bread.

Drilling Down

Our core business continues to perform strongly. Underlining a robust performance in the second half of last year, our cake business registered an increase in market share, volume and turnover. Organic growth of six percent was stimulated by increased investment in promotional campaigns, outstanding performance from licensed products and innovative methods of optimising the mix for customers.

One acquisition followed another. Reaching the growth stage has taken longer than anticipated but momentum was sustained by a second acquisition, Johnstone’s, in June.

Johnstone’s Just Desserts Limited offers fresh sales outlets and distribution channels, this acquisition will complement our Fletchers growth plans to reconfigure established products – Sharing + Snacking cakes and Artisan Bread – making them available to an entirely new audience of foodservice customers.

The pace of progress is evident in all areas of activity. We invested seven million GBP in capital expenditure this year and will spend eleven million GBP over the next twelve months. Now employing 3’200 members of staff across the group, Finsbury is developing people strategies in both divisions, establishing Baking Academies and setting up sustainability initiatives.

Our balance sheet has been transformed. Raising fresh equity enabled the group to take on less debt, enabling us to pay a bigger dividend. To some degree, a dividend is about confidence. What the dividend says is we believe in the earnings.

However, the economic outlook remains uncertain. Consumers still have limited disposable income and they want to spend it wisely. Discounters are continuing to take market share in a grocery sector that is relatively static.

Scale becomes important. If you are up against a well-run, well-invested larger business, it is increasingly hard to compete in the area of food. I think we are seeing a number of small food businesses go into receivership – we have just bought one – and I see more opportunities of this kind in the future.

The coming year, behind the scenes, will be demanding. Fresh layers of infrastructure are required to support 300 million GBP of annualized sales. We have already recruited a senior Group HR Director; we need to make sure we have the right people around the table to engage in the debate and make sure we take the right decisions.

Our vision has never wavered; to build a speciality bakery group focused on quality products, delivering what consumers demand and our customers want.

That vision is starting to bear fruit. We have done the hard yards, built a track record of doing the right things and navigated a route to balance sheet resilience.

The group is taking shape as a diversified platform, equipped to increase shareholder value, identify acquisition opportunities and deliver further growth.

Strategic Report

Our strategic objective is to create sustainable value for our shareholders, customers and other stakeholders by building a UK wide speciality bakery group. We will produce a broad range of high quality products, targeted at growing channels and market niches, which deliver growth and differentiation for our major customers and fulfil the needs of end consumers.

Our growth strategy will continue to be delivered by a combination of organic growth and targeted acquisitions. Consolidating our market share in existing areas, such as celebration cakes and organic bread, as well as diversifying our existing product capability into new channels such as foodservice cake will deliver the organic growth. Further acquisitions will introduce new product, customer or channels diversification or accelerate market consolidation in our core product areas. The recent acquisition of Fletchers introduced significant customer (M+S), channel (foodservice) and product diversification (i.e. muffins and croissants) into the group. The Johnstone’s acquisition similarly took Finsbury into the coffee shop cake market for the first time.

Markets

The total UK ambient cake market (including pre-packed cake and in-store bakery) is valued at 1.09 billion GBP (source: Kantar Worldpanel 52 w/e 20 June 2015). The past twelve months has seen value and unit sales grow by plus 1.2 percent and plus 0.4 percent respectively. We continue to be the second largest supplier of pre-packed ambient cake to the UK’s multiple grocers and have strengthened our leading position in the niche areas on which we focus.

Annual bread and morning goods sales are in excess of 4.8 billion GBP (source: Kantar Worldpanel), although the market remains flat. We are a niche player in this market, manufacturing a comprehensive range of bread and morning goods such as artisan, healthy lifestyle and organic breads through to rolls, muffins and morning pastries. All are available fresh and frozen depending on the customer channel requirements. The foodservice out of home eating sector continues to grow while the retail environment remains challenging.

Business

The Group consists of the UK Bakery and the Overseas sectors businesses.

UK Bakery

UK Bakery has eight factories each with its own range of products and manufacturing capabilities.

Lightbody of Hamilton Limited, based in Hamilton, employs over 1’100 people and is the UK’s largest supplier of Celebration Cakes with Disney, Universal, Weight Watchers and Thorntons product within its Licensed Portfolio as well as Own Label Cake. It also produces a wide range of sweet snacking products, slices and in store bakery bites, a number of which are under our licensed brands.

Memory Lane Cakes Limited is based in Cardiff and employs around 850 permanent staff as well as agency staff during promotional and seasonal peak times. It is the leading manufacturer of the UK retailers own label sharing cake ranges. Memory Lane Cakes also produces under a number of our licensed brands as well as our own Memory Lane brand.

The Fletchers Group of Bakeries acquired in October 2014 has three factories located in Sheffield, Manchester and London employing over 650 people. It produces a wide range of fresh and frozen bread and morning goods products, which are distributed to leading UK retailers and foodservice customers. The Fletchers foodservice business represents an important new channel to the Group through its Kara brand and own label offering and should provide revenue growth opportunities from the development of a foodservice range of Cake products and the range of Nicholas and Harris Limited. (N+H) products.

N+H, based in Salisbury, employs around 280 people and produces a range of speciality bread and morning goods which are distributed to UK retailers and, following the Fletchers acquisition, to foodservice customers. N+H is now under the Fletchers’ management due to the similar nature of its business. Its offering however is still differentiated from the Fletcher’s business with its focus on «clean label» breads, rolls and buns. Within its brand portfolio, N+H has Vogel’s seeded bread, Cranks Organic and Village Bakery Rye bread, all of which have a unique niche position in the UK market.

Johnstone’s business and assets were acquired in June 2015. Johnstone’s produces bite style cake products, including its renowned caramel shortcake. It is based in East Kilbride employing over 120 people supplying foodservice customers, particularly national coffee shop chains.

Campbells Cake Company Limited is based in Twechar near Glasgow and employs 33 people. Campbells produces cold set products such as caramel shortbread and tiffin for retailers.

Brands and Licences

The Group has a large retailer branded own label business as well as a substantial licensed celebration portfolio which we continue to develop and seek opportunities to enhance. Fletchers has a sizeable food service business to which we sell both branded product, through the Kara brand, and own label product.

Kara

Kara is the foodservice brand of the Finsbury Food Group, distributing to more than 300 wholesalers, independents and end-users such as pubs, hotels and restaurant chains. The Kara brand has been operating in the foodservice sector for more than three decades and is synonymous with the famous floured bap. Today the Kara brand has a fantastic variety of frozen bakery products, providing foodservice customers with a one stop shop for their bakery requirements.

Thorntons

The Group continues to develop and innovate its branded offering via its licensing arrangement with the Thorntons confectionery business. Thorntons is the 4th largest brand in the ambient cake market and continues to grow its unit sales, outperforming the market over the last 52 weeks (Source: Symphony IRI 52 w/e 20 June 2015). Ferrero International bought Thorntons in August 2015 to expand its UK business. Ferrero have expressed their intention to maintain the Thorntons’ brand. Thorntons remains the dominant player within the Cake Bites market holding a market share in excess of 40 percent, and 2015 has seen the introduction of a raft of new product innovations which broaden and enhance the brand’s offering in the marketplace.

Weight Watchers

Weight Watchers remains one of the largest food brands in the UK and we hold the licence to manufacture and distribute low fat cake to the UK and Ireland’s grocers under this brand. The Low Fat cake category continues to struggle in the face of evolving consumer health and dietary requirements. Latterly however, there has been a focus on product packaging innovation to deliver better portion control to the consumer and on a stronger more impactful pack design. On-going we seek to evolve and innovate the brand and offering ensuring its continued consumer relevance.

Character Licensed Portfolio

Character Licensed celebration cake has been a key growth area for the business, driving an overall value increase of 31 percent in the last 52 weeks (Source: Symphony IRI 52 w/e 20th June 2015). The evolving portfolio of licenses, strong product innovation and continued partnerships with licensors have all played a vital role in this success.

Disney

The Disney partnership has allowed us to develop a range of celebration cakes to meet multiple age segments and occasions. Franchises such as the phenomena of Frozen has been a resounding success story and Marvel superhero’s of Avengers and Spiderman are ever evolving. Ongoing are the evergreen classics of Mickey Club House, Disney Princess Fairies and Cars. Late 2015 will see the much anticipated next addition to the Star Wars franchise which is sure to bring continued excitement into the category.

Other Licensed Celebration Cake

The mix of evergreen and trend driven licenses have also been a key driver of performance for the business offering a comprehensive range of product that meets all key target markets. Brands such as the ever present Peppa Pig, Turtles, Spongebob and Me to You, to the new sensation that is the Minions, have all been key drivers of the success.

Vogel’s

The consumers’ need for healthy nutritious food is the driver behind the Vogel’s brand. Founded on the principles of Alfred Vogel, the pioneering Swiss nutritionist, Vogel’s is a range of ‘clean label’ seeded breads crammed to bursting with seeds and grains. The loaves are baked without added sugar, emulsifiers, enzymes, or artificial preservatives or flavourings. And the best thing about Vogel’s – the way we bake it means that it makes the most fantastic toast!

Village Bakery

The country’s leading Rye bread brand, targeted at consumers aiming to avoid wheat, comprising a range of wholemeal and seeded loaves. The bread is made with the simplest of all recipes: Organic Rye flour, water and a little sea salt, with no added yeast, emulsifiers or enzymes.

Cranks

A range of what our customers call «Proper Bread» made with organic stoneground flour from a specially selected group of English farmers. Cranks bread is fermented for longer – up to six hours – to give it great flavour and texture without using any additives such as emulsifiers and enzymes. Cranks is the UK’s leading organic bread brand.

Overseas

The Group has a meaningful presence in Continental European markets, particularly in France and Benelux, through its 50 percent owned Company Lightbody Stretz Limited, that supplies and distributes the Group’s UK manufactured and third party products.

Trading Results

Continuing Group revenue for the 52 week period to 27 June 2015 was 256.2 million GBP (2014: 175.7 million GBP). Operating Profit margins were 4.8 percent (2014: 4.4 percent). Capital investment, improvement in operational efficiency and product mix are the main drivers for the improvement in margin. Inflationary increases and employee pay rises have been offset by operational improvements and returns from capital investment. Administrative expenses have increased driven by acquired businesses and through increased retailer marketing support, new product development, range support, remuneration for outperformance of targets and improvements in the fabric of the workplace.

Dividend

Subject to shareholder approval at the Company’s AGM on 25th November 2015, the final dividend of 1.67 Pence per share will be paid on 10 December 2015 to all shareholders on the register at 13 November 2015 and will be recognised in the financial year ending 02 July 2016 (Image: pexels.com).