Finsbury Food Group: interim results H1 2015/2016

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, announced its unaudited interim results for the first half of the current financial year, ended 26 December 2015. Summary:

• Group revenue of 156.6 million GBP up 46 percent (H1/2014: 107.6 million GBP) and up 7.4 percent on a like-for-like basis
• Operating profit of 8.0 million GBP up 78 percent (H1/2014: 4.5 million GBP) and up 21 percent on a like-for-like basis
• Group operating profit margin of 5.1 percent (H1/2014: 4.2 percent)
• Profit before tax of 7.5 million GBP up 84 percent (H1/2014: 4.1 million GBP) and up 22 percent on a like-for-like basis
• Increase in operating gross margin and profit margin following ongoing capital investment of 3.7 million GBP (H1/2014: 1.7 million GBP) and operational initiatives
• Strong growth in adjusted diluted EPS, up 38 percent to 4.4 Pence per share (H1/2014: 3.2 Pence per share)
• Interim dividend per share increased 12 percent to 0.93 Pence (H1/2014: 0.83 Pence per share)
• Net debt of 21.1 million GBP equates to 0.9 (H1/2014: 1.3) times pro forma annualised Ebitda of the Group

Strategic Highlights

• The prior year acquisitions of Fletchers in October 2014 and Johnstone’s in June 2015 are fully integrated and providing a broader spread of customers across food retail and foodservice channels
• The Group is now one of the largest speciality bakery groups in the UK with annualised revenues exceeding 300 million GBP
• Ongoing successful efficiency led capital investment strategy and continuous improvement programmes

Operational Highlights

• Organic sales growth of 7.4 percent versus prior year, driven by market share growth across the Group
• New cake innovation centre fully operational
• Successful diversification into foodservice from existing Cake sites
• Launch of artisan breads into foodservice sector
• Winner of Bakery Manufacturer of the year for 2015 at the Bakery Industry Awards in September 2015
• Finalist in Food Manufacturers’ Bakery Manufacturer of the year for 2015 in November 2015

Commenting on the results, Chief Executive John Duffy said: «We are very pleased to once again be reporting a strong first half performance, with our organic growth being supplemented by the acquisition of Fletchers and Johnstone’s. Alongside this growth, our capital investment strategy, together with our continued efficiency programme has resulted in improved operating margins».

«Despite operating in a challenging market, we have created a Group that is well positioned to flourish in an improving environment and we look forward to benefiting from increased consumer confidence. Having built solid foundations and implemented a robust growth strategy that aims to create sustainable value for our stakeholders, we look forward to driving further growth both organically and through strategic M+A».

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.

The acquisitions of Fletchers Bakeries in October 2014 and Johnstone’s Food Service in June 2015 have been successfully integrated into the Group, reflecting the Board’s acquisition experience and capabilities. The acquisition of Fletchers Bakeries brings opportunities in new foodservice channels, retail customer diversification and complementary product ranges. Johnstone’s manufactures bite style cake products such as caramel shortcake with a customer base in the coffee shop sector, which the Group previously had little exposure to.

Net debt of 21 million GBP at half year, equating to 0.9 times annualised Ebitda, results in a healthy balance sheet and considerable scope to develop site capabilities and participate in industry consolidation and appropriate M+A.

Our core strategy is centred on generating returns for shareholders. Adjusted diluted earnings per share are 38 percent higher at 4.4 Pence per share as a result of the growth in operating profit.

A final dividend for the year to 27 June 2015 of 1.67 Pence per share was paid on 10 December 2015 to shareholders on the register at the close of business on 13 November 2015. This brought the total dividend for the year to 27 June 2015 to 2.50 Pence per share.

The Board of Directors is announcing an interim dividend for the year ending 02 July 2016 of 0.93 Pence per share (H1/2014: 0.83 Pence per share), an increase of 12 percent. This increase is in line with good trading performance. The interim dividend will be paid on 22 April 2016 to shareholders on the register at the close of business on 01 April 2016. The election deadline for participants in the Company’s Dividend Re-investment Plan will be 01 April 2016.

Outlook

The Group delivered a strong performance over the first half, a result of our organic growth supplemented by the acquisitions of Fletchers and Johnstone’s.

Whilst the UK grocery market continues to be challenging, the wider economic environment is slowly improving. The broader channel, customer and product diversification achieved recently within the Group will continue to benefit us given our access to higher growth opportunities such as the faster growing foodservice channel.

The Group has laid strong foundations and delivered a good first half performance. We expect this to continue into the second half of the financial year as we deliver the planned acquisition related scale and efficiency synergy benefits. Our balance sheet remains strong and we will continue to invest in our businesses to deliver our stated growth strategy.

Operating Review

UK Bakery

	H1/2015	H1/2014	Growth	Like for Like Growth
Revenue	143.2 mio. GBP	96.3 mio. GBP	49 percent	6.1 percent
Operating profit	7.2 mio. GBP	3.8 mio. GBP	91 percent	23 percent
Operating margin	5.0 percent	3.9 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 has increased by 49 percent to 143.2 million GBP and, on a like-for-like basis, revenue growth is 6.1 percent. Operating profit in the period has increased by 91 percent to 7.2 million GBP. Operating profit growth is 23 percent on a like-for-like basis, revenue and operating profit growth has been experienced across all businesses.

The grocery cake market is mature with year on year volume decline of 1.9 percent and value increase of 0.5 percent (Source: IRI Infoscan w/e 02 January 2016). Revenue growth has been driven by a successful Christmas trading period as well as the success of the Minions licensed celebration cake and promotional activity on bites.

The bread and morning goods retail market is mature with year on year volume growth of 1.9 percent and value decline of minus 1.5 percent (source: Kantar bread and morning goods data w/e 03 January 2016). The acquisition of Fletchers bakeries in October 2014 has significantly expanded our existing bread and morning goods opportunities with the introduction of new retail and foodservice customers. Our focus is on more niche style bakery products as opposed to traditional bread and therefore revenue growth exceeds market performance.

Our foodservice sales are experiencing strong organic growth supplemented by new bread and morning goods products e.g. organic bread and the launch of 10 inch round cakes sold under our Kara foodservice brand. The acquisition of Johnstone’s in June 2015 has brought opportunities for further cake and bread product diversification into the coffee shop Foodservice sector.

The UK Bakery Operating profit margin is 5 percent due to operational efficiencies within our factories and includes the benefit of significant capital expenditure over the last two years. The Group will continue to invest in automation and operational improvements to increase further product capabilities and margins.

Like for like growth is calculated using financial data where there are comparative trading figures for the first half of the prior year.

Overseas

	H1/2015	H1/2014	Growth
Revenue	13.4 mio. GBP	11.3 mio. GBP	19 percent
Operating profit	0.8 mio. GBP	0.6 mio. GBP	29 percent
Operating margin	5.7 percent	5.3 percent

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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 UK manufactured licensed celebration cake and bite products. The business is heavily exposed to the Euro and within this context we are pleased with the operating profit performance of Overseas business.