London / UK. (ffg) British Finsbury Food Group PLC, a leading manufacturer of cake and bread bakery goods, announces that it has entered into an agreement to acquire the Fletchers Group of Bakeries that produces morning goods and specialist bread products for leading UK grocery retailers and foodservice customers.
- The total consideration payable by the Company for Fletchers is approximately 56.0 million GBP on a debt-free / cash-free basis. The consideration is to be funded through a significantly oversubscribed placing of new Ordinary Shares raising 35.0 million GBP at 0.59 GBP and new debt facilities.
- The Directors expect the Acquisition to be earnings enhancing during its first full year of ownership and allows the Group to benefit from significant cash generation that will support a progressive dividend policy for the Enlarged Group going forward.
- The Enlarged Group will be one of the largest speciality bakery groups in the UK, with sales approaching 300 million GBP and a broad spread of customers across the food retail and foodservice channels. Strategic and financial benefits include:
- complementary product ranges and new food service channels;
- retail customer diversification;
- the benefits of significant capital investment within Fletchers manufacturing; and
- a multi-channel platform for further acquisitions in due course.
- The Acquisition will provide a platform for the Group to address the attractive UK foodservice bakery market, which is worth approximately 900 million GBP per annum, 70 percent of which is morning goods. Both Finsbury Food and Fletchers supply products to the growing morning goods sector.
- As part of a trading update accompanying the Transaction, Finsbury Food confirms it has had a positive trading performance since its year end in June 2014, with sales five percent ahead of prior year through a combination of volume, mix and price. Since March 2014, Fletchers´ financial year has been strong, with sales in line with management expectations. Fletchers is seeing the benefits of substantial capital expenditure in recent years and has secured a number of significant contracts since the 29 March 2014 financial year-end which will benefit sales in the second half.
- Due to the size of the Acquisition relative to the Company, it will be treated as a reverse takeover and, in order for it to proceed, will require shareholder approval and for the Enlarged Share Capital of the Company to be admitted to AIM. An Admission Document containing details of the Enlarged Group and containing a notice of General Meeting is posted to Shareholders and available to view on Finsbury´s website.
John Duffy, Chief Executive of Finsbury Food, commented: «The acquisition of Fletchers is a transformational development for the Group, and will add scale to the effect that we will be one of the largest speciality bakery groups in the UK».
«Fletchers is a highly complementary business, which broadens the Finsbury UK speciality bakery product, customer and channel growth potential and will provide a strong platform for the Group to address the Foodservice markets. We believe the enlarged Group will be in a strong position for new licensing arrangements, joint ventures and stronger customer and brand relationships».
«By servicing both the cake and bakery market, through both retail and foodservice, the enlarged Group will have a diversified product and customer offering, and greater potential for driving growth for our shareholders. We look forward to welcoming the Fletchers team and customers into Finsbury Food and continuing to provide our newly broadened customer base with high quality products and service».
Stephen Holding, Managing Director of Fletchers, said: «Fletchers has undergone a significant transformation since it was acquired by Vision Capital in 2007, and I am very proud of the hard work and dedication of our colleagues which has made the company what it is today. This is an exciting next step for the company and I am looking forward to the opportunities that being part of the enlarged Finsbury Foods will bring».
Background to and reasons for the Acquisition
On 27 February 2013, Finsbury sold its Free From business (consisting of Livwell Bakery and United Central Bakeries) for a total value of approximately 21.0 million GBP to focus on its core cake and bread businesses. The sale of Free From represented a shift in the Company´s strategy from a transitionary period focused on debt reduction to a new period of financial stability and the pursuit of growth. Since the disposal, the Company has reported strong financial results, as most recently evidenced by the audited results for the twelve months ended 28 June 2014, and has generated cash to pay down debt and resume the payment of dividends. The Company has also embarked on significant investment to achieve organic growth.
The Directors have believed since the sale of Free From that it is appropriate for the Company to pursue focussed, complementary, bolt on acquisitions to increase the Group´s scale in the UK bakery market.
The Fletchers group of bakeries produces and supplies a wide range of fresh and frozen bakery products, with a primary focus on morning goods and bread. Fletchers´ products are distributed to leading UK grocery retailers and foodservice customers. The Directors believe the Acquisition is in line with the acquisition strategy of the Company and allows the Company to increase its scale as well as providing the following strategic and financial benefits:
- complementary product ranges, bringing together Finsbury Foods´ cake business, the Fletchers and Finsbury Food bread businesses and Fletchers´ morning goods product range;
- new distribution capability, with the introduction of foodservice distribution channels;
- retail customer diversification across all the key UK supermarkets, as well as a wide range of foodservice customers covering restaurants, coffee shops, bars and fast food outlets;
- operational synergy opportunities between group companies and new customers and channels;
- financial cost synergies in direct and indirect areas due to increased scale;
- the benefits of significant capital investment within Fletchers manufacturing operations and historical tax losses;
- the collective talent of the respective management teams who will seek to ensure the successful integration and growth of the two businesses; and
- a multi-channel platform for further acquisitions in due course.
The enlarged Group will be one of the largest speciality bakery groups in the UK with expected annual sales approaching 300 million GBP, strong cash-flow resilience and dividend capability.
The Enlarged Group Structure
The Enlarged Group will comprise UK Bakery and Overseas. UK Bakery will comprise both the existing UK sector businesses at Memory Lane in Cardiff, Lightbody near Glasgow and N+H at Salisbury as well as the new businesses, Fletchers Group Bakery in Sheffield, Grain D´Or in London and Kara in Manchester. The Overseas business will remain unchanged.
Strategy of the Enlarged Group
The Enlarged Group will be one of the largest speciality bakery groups in the UK, with sales approaching 300 million GBP and a broad spread of customers across the food retail and foodservice channels. The Enlarged Group will have the capability and expertise to produce a wide range of speciality bakery products and will focus on the quality end of this product spectrum. The Enlarged Group´s strategy will focus on creating value by driving revenue and operational efficiency. The Enlarged Group will seek to:
- deliver organic growth via the enhanced product range, innovation and broader customer and channel relationships;
- improve operational efficiencies via supply chain optimisation and capital investment; and
- energise and enable its people in a performance driven culture.
The Directors have identified immediate business priorities, which provide a focus on integration, delivery of synergies and business optimisation whilst also growing underlying business performance. With a stronger balance sheet, the Directors expect the Enlarged Group to be better positioned to pursue new licencing arrangements, joint ventures and stronger customer and brand relationships.
The Directors´ medium term strategy is to develop the Enlarged Group into a UK bakery leadership position targeting sales growth via organic growth and further acquisitions.
Enlarged Group Customers
The Enlarged Group supplies all of the key UK supermarkets. The foodservice customers of the Enlarged Group include Brakes and 3663 and a wide range of restaurants, coffee shops, bars and fast food outlets as end customers.
Current Trading and Prospects
Finsbury Food: As set out in the results of the Company for the year ended 28 June 2014, the Company achieved an increase in adjusted continuing profit before tax of 18 percent to 6.5 million GBP (2013: 5.5 million GBP) on broadly flat revenue of 175.7 million GBP (2013: 176.6 million GBP). The Company increased capital investment spend by 48 percent to 6.2 million GBP while total net debt increased marginally, including deferred consideration payable, to 8.8 million GBP (2013: 7.4 million GBP). The Directors increased the proposed final dividend to 0.75 GBPence per Ordinary Share, taking the total dividend for the financial year to one GBPence per Ordinary Share (2013: 0.75 GBPence per Ordinary Share) a 33 percent increase year on year.
Trading within Finsbury Food post year end has remained positive and the Group remains focused on driving sales growth via additional promotional and innovation investment. Both the capital investment and overhead reduction programmes completed in the previous financial year have complemented lagging input inflation recovery which has now been completed. Group sales are circa five percent ahead of prior year through a combination of volume, mix and price with some production benefits from the increased volumes and little discernible change in inventories.
Fletchers Group: Fletchers reported revenue of 95.0 million GBP (2013: 99.1 million GBP) for the year ended 29 March 2014, with total profit before interest, tax, depreciation and exceptional items of 6.0 million GBP (2013: 6.2 million GBP). Earnings growth in the first six months of the Fletchers Group current financial year has been strong. The Fletchers Group is seeing the benefits of substantial capital expenditure in recent years and has secured a number of significant contracts since the 29 March 2014 financial year-end which will benefit sales in the second half. Production is benefiting from the new capital equipment with selling prices and inventories remaining in line with prior year.