Finsbury Food: 2016 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 02 July 2016. Summary:

Financial Highlights

Group revenue of 319.7 million GBP up 24.8 percent, 52 week revenue 313.5 million GBP up 22.4 percent (2015: 256.2 million GBP) and up 12.8 million GBP, 5.0 percent on a like for like basis*1.
Gross profit of 102.6 million GBP up 30 percent (2015: 78.9 million GBP).
Adjusted* operating profit of 17.1 million GBP up 37.7 percent on the prior year, for the 52 week period, operating profit of 16.7 million GBP is up 34.7 percent, (2015: 12.4 million GBP) and up 15.7 percent on a like-for-like basis.
Group adjusted* operating profit margin of 5.3 percent (2015: 4.8 percent).
Adjusted* profit before tax of 16.0 million GBP up 40.8 percent (2015: 11.4 million GBP).
Record capital investment of 12.1 million GBP to ensure long term competitiveness (171 percent of depreciation).
Strong growth in adjusted diluted EPS*2, up 19 percent to 9.5p per share (2015: 8.0p per share).
Final dividend per share of 1.87p taking total dividend for the year to 2.80p up 12 percent (2015: 2.5p per share).
Net debt of 19.7 million GBP equates to 0.8 times 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.

Strategic Highlights

Foodservice channel 21.2 percent (2015: 14.0 percent) of total UK Bakery sales, with 6 out of 8 sites now supplying into this channel including the launch of a new range of cakes. Revenue is up 5.3 percent on a like for like basis, well ahead of market growth.
Successful integration of Fletchers Group and Johnstones Food Services (JFS) into the Group.
Implementation of new Group-wide IT business system is underway.

Operational Highlights

Investment in exciting new innovation for muffins and doughnuts.
Investment in hot cross bun capacity and innovation led to a record number of hot cross buns produced for Easter.
Innovation Centre now fully operational and delighting both customers and staff.
Successful roll out of vision and values across all levels throughout the Group.
JFS winner of Costa supplier of the year.
Winner of Celebration Cake Business of the Year for 2016 at the Bakery Industry Awards.

*Adjusted operating profit and profit before tax exclude significant non-recurring and other items as shown in the table below and includes amortisation of intangibles.
*1 Like for like growth is calculated using financial data for a 52 week period and only where there are comparative trading figures for the prior year for the acquired businesses. The 52 week period is calculated by eliminating the result for the 53rd week in the financial year ended 2 July 2016.
*2 Adjusted diluted EPS has been calculated using earnings excluding the 53rd week, amortisation of intangibles, significant non-recurring and other items as shown on the face of the Statement of Profit and Loss and Other Comprehensive Income. The adjusted diluted EPS has 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.

John Duffy, Chief Executive of Finsbury Food Group Plc, commented: «If 2015 was all about transformation for the Group, then 2016 has been about delivering on our growth strategy and moving even closer to our vision of building the leading speciality bakery group in the UK focused on quality products.

«There has been significant top and bottom line growth, as a result of considerable efforts across the whole Company. The integration of Fletchers and Johnstones has been one of our priorities, and we continue to invest across all aspects of the business, diversifying into new channels and widening our customer base, to deliver a stronger platform for future growth and ensure our long term competitiveness.

«Looking ahead our strongly performing businesses and a robust balance sheet positions us well to both take advantage of growth opportunities and mitigate challenges ahead. The Group remains as dedicated and focused as ever, and I remain confident that the patient, unwavering strategy adopted will reap benefits for the business in the years ahead».

The following figures are for the 53 weeks ended 02 July 2016 and 52 weeks ended 27 June 2015 unless stated otherwise.

Adjusted Operating Profit	2016 (53 weeks) 000 GBP	2015 (52 weeks) 000 GBP
Results from operating activities	12’791	9’526
Significant non-recurring items – SNR (refer to note 3 for detail)	4’290	3’181
Share options charge	–	(10)
Difference between defined benefit pension scheme charges and cash cost	(117)	(100)
Movement in the fair value of foreign exchange contracts	134	(181)
Adjustments, SNR and other items	4’307	2’890
Adjusted results from operating activities	17’098	12’416
Impact of 53rd week	(371)	–
Adjusted results from operating activities for 52 weeks	16’727	12’416

Adjusted Profit before Tax	2016 (53 weeks) 000 GBP	2015 (52 weeks) 000 GBP
Profit before tax	11’804	8’482
Significant non-recurring items – SNR (refer to note 3 for detail)	4’290	3’181
Share options charge	–	(10)
Difference between defined benefit pension scheme charges and cash cost	31	54
Movement in the fair value of interest rate swaps	(219)	(28)
Movement in the fair value of foreign exchange contracts	134	(181)
Unwinding of the discount on deferred consideration receivable	–	(105)
Adjustments, SNR and other items	4’236	2’911
Adjusted profit before tax	16’040	11’393
Impact of 53rd week	(358)	–
Adjusted profit before tax for 52 weeks	15’682	11’393

*Refer to trading results section within the Strategic Report for further details on the adjusted profits.

Chairman’s Statement Building on the Foundations

Moving the business forward to become the leading speciality bakery group in the UK, is driving our agenda. Our structures and processes are adjusting and altering to suit the needs of a significantly larger and more diversified Group. New roles and responsibilities have been taken on by many and we continue to invest in people in order to train and develop our dedicated teams. The Board is undergoing changes as well, ensuring the composition, skills and governance are appropriate for the future. From the outside, without the previous year’s acquisitions of Fletchers and Johnstone’s it may appear that this financial year has been less exciting and busy. However, delivering on our vision, integrating these acquisitions and embarking on some exciting projects, whilst achieving a successful financial performance, has actually meant that has been far from the case.

The Results

The headline annual financial results were assisted somewhat by the prior year’s acquisitions with turnover for the 53 weeks at just under 320 million GBP, up 24.8 percent (52 weeks, 313.5 million GBP up 22.4 percent), profit before tax at 16.0 million GBP for the 53 weeks, up 41 percent (15.7 million GBP 52 weeks, up 38 percent) and debt at 0.8 times Ebitda. Importantly, the underlying business performance was strong and exceeded expectations in a number of areas, including those not benefiting from the acquisitions. A full financial review is available later on in the report. This favourable outcome has been achieved through the hard work of Finsbury’s committed team, sound business decision-making and the reliable manufacture and supply of great quality products. The headwinds we encountered were much as anticipated, principally a challenging market place and an uncertain macro-economic outlook, but strong leadership has meant we have overcome these challenges successfully. One of the hidden highlights this year has been the 5 percent like for like organic revenue growth that the business has achieved, particularly when set against a deflationary and competitive market, with a demanding customer base and a discerning consumer. The emphasis and investment put into innovation, helped by new facilities and driven by talented NPD teams, has really delivered for the Group and is an excellent platform for the future.

Investing for the Future

The Group, along with other food businesses, will face inflationary pressures through both commodities cost increases, further driven by currency weakness post Brexit and the National Living Wage. The teams have done an excellent job in anticipating these changes and our plans and investments are aligned to dealing with these. The Board has both the financial capability and the will to invest for the future. We are investing in new plant, equipment and systems as well as taking on the important change of sustainability and environmental responsibility. The additional work required to deliver such projects successfully is often forgotten but it is a great testament to the teams to have not just maintained performance, but actually to have bolstered it, whilst undertaking an extensive programme of investment and integration.

Board Development

Alongside the work on business and strategy development, the Board is changing to reflect the different requirements of the business. The Board needs to have the appropriate skills and experience and a clear remit and purpose, across all areas that are being worked on and developed. In terms of corporate governance, we are focusing on our processes and procedures to ensure that they are in line with best practice and relevant for a business of our size and position. Typically the Board meets at one of our sites to combine the normal meeting agenda with a site update, to ensure, amongst others, that the Non-Executive Directors are well briefed. Our committees have also delivered excellently this year, particularly as both have taken on increased workloads driven by the acquisitions and changes that were undertaken. During the year we announced the addition of two new Non-Executive Directors, Marnie Millard and Zoe Morgan, and the forthcoming retirements from the Board of Paul Monk and Edward Beale, at the 2016 AGM. I look forward to working with Zoe and Marnie and thank Paul and Edward, who each have been on the Board for over 14 years, for their outstanding contribution and commitment to the Group.

Strategy for Continued Growth

The Board has devoted a lot of time this year to reviewing the Group’s strategy. As we are a much larger business and in a much stronger position than previously, we can be ambitious in our plans to grow the business still further. Step changes in turnover will only be achieved through further acquisitions. We are clear on the areas and sectors that are attractive and our prudent approach will be maintained to ensure a clear strategic fit. We have the capability both financially and in terms of leadership to be confident in taking these steps but will do so only if the right opportunities present themselves. The foundations are laid for the next steps and we are looking forward to another successful year. Finally, on behalf of the Board I would like to thank everyone who works at Finsbury for delivering such a successful year, their contribution and passion continues to drive the business forward.

Dividend

Subject to shareholder approval at the Company’s AGM on 23rd November 2016, the final dividend of 1.87 pence per share will be paid on 16 December 2016 to all shareholders on the register at 18 November 2016 and will be recognised in the financial year ending 01 July 2017.

Chief Executive’s Report

2016 has been a tremendously busy but rewarding year for Finsbury. We delivered on our growth aspirations and made great strides towards our vision of building the leading speciality bakery group in the UK focused on quality products.

Finsbury has a clear vision and strategy, is demonstrating strong sales and profit growth whilst also stepping up capital investment to unlock future growth and efficiency opportunities.

Integrating the Fletchers and Johnstone’s prior year acquisitions whilst cementing a stronger platform for future growth were our twin priorities for the last financial year. Meaningful change is delivered in increments, a gradual evolution of the key elements of a business. Integration of acquired businesses takes considerable time and effort. Management teams across all business have responded with energy and expertise to share knowledge, unlock synergies in a timely fashion and share best practice.

Strategically the Group achieved further diversification of channel, customers and products following the prior year acquisitions. Over 21 percent of our UK Bakery sales are now into the faster growing ‘out of home eating’ foodservice channel, from zero two years ago, with foodservice items supplied from six of our eight bakeries. We also sell a vast array of specialty cake, bread and morning good products to all major UK grocery retailers from premium to discounter.

After several years of unstinting effort across the company, the fruits of change are emerging. It gives me great pleasure to report a significant rise in top and bottom line growth for the current financial year. As the first full trading year following the acquisitions, it was pleasing to exceed the 2014 equity raise sales and profit expectations for shareholders.

Trading Performance

Results for the full 53-week period ended 2 July 2016 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 of 319.7 million GBP up 24.8 percent, 52 week revenue 313.5 million GBP up 22.4 percent (2015: 256.2 million GBP) and up 12.8 million GBP, 5.0 percent on a like for like basis*1.
Adjusted profit before tax of 16.0 million GBP up 40.8 percent, 52 week 15.7 million GBP up 38 percent, (2015: 11.4 million GBP) and up 17.1 percent on a like for like basis*1.
Increase in operating gross margin to 5.3 percent (2015: 4.8 percent) following record capital investment of 12.1 million GBP (2015: 7.4 million GBP) and operational initiatives.
Strong growth in diluted adjusted*2 EPS, up 19 percent to 9.5p per share (2015: 8.0p per share).
Final dividend per share of 1.87p taking the total dividend for the year to 2.8p per share up 12 percent (2015: 2.5p per share).
Net debt 19.7 million GBP (2015: 21.3 million GBP) equates to 0.8 times Ebitda of the Group.
Foodservice 21.2 percent of total UK Bakery sales up from 14.0 percent and up 5.3 percent on a like for like basis.
Successful integration of Fletchers Group and Johnstone’s Food Service Ltd (JFS).
Implementation of new Group-wide IT business system is underway.
Significant product innovation; including Kara branded cakes launched into Foodservice channel, investment in muffin, doughnut and hot cross bun capability and capacity.
Successful roll out of company vision and values across all levels throughout the business.
JFS winner of Costa supplier of the year.
Winner of Celebration Cake Business of the Year for 2016 at the Bakery Industry Awards.

Results in Perspective

Our business is performing strongly. Organic growth of 5 percent for the year was well spread, exceeding that of the markets we operate in and our initial expectations, especially in the first half.

The UK Bakery division like for like growth of 3 percent was strong but outshone by stellar growth of over 25 percent in the Overseas division, the Group’s 50 percent owned European business, as a result of improved distribution of licensed celebration cake and free from bakery ranges. UK Bakery growth was well diversified across different products, customers and channels given the largely new mix brought by both Johnstones and Fletchers.

Consumer appetite for the breadth and quality of our offering is clear, illustrated by the continued growth of our premium traditional bespoke products, such as artisan breads and licensed celebration cakes.

Our drive to advance has been constant. We are investing across all aspects of the business to deliver a stronger platform for future growth.

Investment comes in many forms and our scale requires the correct level of infrastructure. The record 12 million GBP annual capital expenditure being most tangible which has facilitated a new artisan bread bakery, increased hot cross bun capacity and further cake automation, ensuring we offer the right growth products at the right price for our customers.

Our people are essential to the continued success of the larger Group. As such we have set out to strengthen our culture and the Finsbury way of doing business. Working from the bottom up in small groups at each site we have agreed on a common set of Finsbury Group values, these will cement our approach and behaviours as a business. A more comprehensive long term people strategy has also been created and is now being rolled out. Elements of this include improving employee engagement, implementing talent management and offering an enhanced leadership development programme.

As a large, diversified bakery Group, investing in business process is essential. We constantly strive to reap scale benefits and become more efficient, whether automating low skilled bakery tasks or removing inefficiencies within non-value added elements of our business processes. One especially noteworthy project is the upgrade and on-going roll out across the Group businesses of the Fletchers IT software platform following a comprehensive best practice review.

Looking ahead, the enlarged multi channel business is in good shape for the growth opportunities and challenges ahead, with strongly performing businesses and a strong balance sheet.

The devaluation of Sterling post Brexit will, if maintained, lead to a new era of cost inflation for many of our raw materials regardless of any potential change in consumer confidence or shopping behaviour. Planned future National Living Wage increases will similarly increase our costs and put pressure on our margins. We are working hard to offset this cost inflation through enhanced internal efficiency. Inevitably such pressures are inflationary.

We have demonstrated our ability to grow organically as well as by acquisition, which is important for the journey ahead. Investment has already been prioritised as an integral part of our strategy to better prepare us for the uncertain environment ahead, improving our competitiveness and ability to fulfil customers and consumer needs.

I would like to thank all the staff across the Finsbury Group for their dedication and unrelenting efforts over recent years. In particular I would like to recognise the major contribution by new people coming into the Group over the past few years.

I remain confident that the patient, unwavering strategy adopted and well laid foundations over recent years will reap benefits for the business in the years ahead.