Finsbury Food Group plc

Interim Results

Finsbury Food Group plc (AIM: FIF), a leading manufacturer of cake, bread and morning goods, is pleased to announce its interim results for the 26 weeks to 2 January 2010.

§ Sustained level of profitability

§ Strong growth in Bread and Free From

§ Continued focus on driving operational efficiencies

§ Continued investment and integration

─   New Scottish Cake Distribution Centre

─   New production facility in Free From supporting successful launch of Genius

─   Goswells fully integrated into Nicholas and Harris improving capacity utilisation and brand offering

─   Investment in marketing, category management and consumer research

§ Strengthened and up-skilled management teams

Commenting on the results, Chief Executive John Duffy said:

"Given our craft bakery and premium product bias, we have worked hard in the current climate to invest in organic growth opportunities for the Group whilst continuing to drive greater operating efficiencies.  The change in consumer behaviour may still be some time in coming, but we believe the Group has coped well in delivering a sustained level of profitability in difficult market conditions and will emerge stronger as the economy picks up."

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Publication quality photographs are available via Redleaf Communications

Notes to Editors:

§ Finsbury is the second largest participant in the UK cake industry, a market valued at £1.51bn (TNS, January 2008) and the market leader in the supply of gluten free baked goods to the UK's multiple grocers;

§ The Group's strategy is to generate returns for shareholders by building a crafted bakery group focused on premium, celebration and well being that delivers for customers and consumers.  Finsbury continues to develop its licensed brand portfolio to complement its core retailer brand relationships and improve its understanding of and response to changing consumer needs;

§ Whilst the Company sees exciting organic growth opportunities in all its businesses and its short-term focus is on integrating and growing its existing businesses, the aim is to take advantage of the right bolt on acquisitions to drive longer term value as opportunities and circumstance allow.

Overview

Our decision last year to focus on improving internal efficiency by leveraging the acquired Group scale and integrating appropriate functions has proved successful.  We are pleased to report that, throughout the period, Finsbury has performed in line with management expectations and we have made significant investments to drive further efficiencies throughout the Group to ensure Finsbury is well positioned for the upturn in the market, when it comes.

As expected, trading for the Group through its first half year period was impacted by consumers seeking better value, typically by trading down and more frequently choosing promotional product offerings. We have been working hard to offset the impact of this trading environment through organic growth elsewhere in the business, improving efficiencies and managing volatile input costs.

Despite these recessionary effects, we were pleased to achieve strong growth in our Bread and Free From division, boosted by the Goswell acquisition and the growth of our Free From offering.  Sales of £17.6m from this division represented a like for like increase of 14% on the comparable period last year.

The total cake market has continued to decline over the period and this has impacted our Cake division, particularly given our scale and bias towards premium and healthier cakes.  Sales for the Cake division have fallen compared to the corresponding period last year, although some of this was low margin business we chose to exit from.  Sales of £65.3m for this division represent a fall of 8% on a like for like basis.  Some of our licensed brands in Cake have bucked this trend, however, with sales of Thorntons branded cakes, in particular, growing by 9% year on year.

Our goal remains to improve our business and to exit the recession leaner and better equipped for future growth. To this end, we have continued to invest across the Group, opening a new warehouse, improving key sites and appointing new senior management to strengthen the Group. We believe these measures will succeed in driving the Group forward and enable Finsbury Food Group to emerge stronger from the downturn, capitalising on the expected rebound in premium market sales.

Development of the Group

With a view to driving further efficiencies, Finsbury has invested across the Group's sites including the opening of a new Scottish distribution centre. The Group has moved all of its Cake distribution in Scotland to one central location; the Scottish Cake Distribution Centre based at a new warehouse facility at Eurocentral, Lanarkshire. This shift has cut distribution costs, improved efficiency and is now fully operational.

The Group has also invested in a new production facility to build on Finsbury's market leading position in "Free From". Finsbury's successes within the market include the launch of the fresh Free From bread in conjunction with the Genius brand. The integration of Goswells into our Bread and Free From division has improved capacity utilisation and increased our branded bread offering through licensed brands such as Vogel and Cranks.

Finsbury has invested in detailed consumer research to enable the Group to better understand and identify key trends and consumer demand.  This will help to ensure that Finsbury has the competitive edge and remains at the forefront of consumer development.  The Group's extensive history and knowledge of the baking industry, teamed with its ability to react quickly to changing consumer demands and innovative strengths, should enable the Group to remain a leader within its markets.

People

As announced on 20 January 2010, Finsbury has appointed Stephen Boyd as Group Finance Director. Stephen brings considerable experience to the Group having previously delivered growth, scale and efficiency for the numerous food companies he has managed. His previous working experience with John Duffy has proved very successful in creating value for those businesses and Finsbury looks forward to benefiting from their proven strategies over the coming months and years.

The appointment of our first Group Technical Director, Frances Swallow, is a key milestone in the structure of the Group. Frances will work with all of our bakery sites as well as our main customers and suppliers to leverage our scale and implement best practice throughout our operations, in order to optimise our product offering and quality.

We have also strengthened our key personnel with the addition of a new marketing team. We believe that this will ensure that Finsbury's products are placed with intelligence and successfully projected to our target audiences.

The above appointments to the management team add a wealth of experience to the Group. Utilising the strengths of these individuals and the existing management, the Board believes the team is well placed to take the Company into its next stages of development.

Trading results

Group revenue for the 26 weeks to 2 January 2010 was £82.9 million (27 weeks to 3 January 2009: £89.1 million), a decrease of £6.2 million (7%) on the corresponding period last year. Like for like sales, excluding the effect of the business acquired during the course of the last financial year (Goswell Enterprises Ltd) and the additional week of trading in the comparative period, decreased by £4.5 million (5.2%).

Profit before tax and significant non-recurring and other items was £1.8 million (2009: £1.8 million). This was achieved after net finance expense of £1.2 million (2009: £1.4 million).

The tax charge for the period is based on the estimated effective tax rate on profits for the full year of 28%. This is higher than the effective rate for the full year ended 30 June 2009 when we benefited from utilisation of prior period losses.

Adjusted earnings per share were 2.3p (2009: 2.4p). The dilutive effect of share options in the period is negligible.

There was a net cash outflow of £1.4 million (2009: £3.0 million) during the period. Net cash generated from operating activities was £3.4 million (2009: £3.9 million). Capital expenditure in the period of £3.0m includes £2.0m investment in a new production facility to facilitate the roll out of Genius fresh "Free From" bread.

Banking facilities

The Group's total net debt as at 2 January 2010 was £40.6 million (3 January 2009: £42.9 million) including net borrowings from HSBC Bank Plc and secured loan notes. The total included an overdraft of £0.1 million (2009: £8.9 million overdraft) against a maximum facility of £2.0 million (2009: £12.5 million).

The key features of the current facilities, totalling £49 million, are as follows:

·     overdraft (£2.0m)

·     confidential invoice discounting facility (up to £16.0m based on debtor level)

·     term loan A repayable over five years (£10.9m)

·     term loan B repayable at the end of five years (£6.6m)

·     mortgage (£8.2m)

·     rolling asset finance facility (£5.4m)

The term loans are linked to LIBOR whilst all other debt is linked to base rate. The effective rate of interest on the debt at 2 January 2010, taking account of interest rate swaps in place and with the base rate at 0.5%, was 5.2%. 

Our relationship with HSBC remains strong and they are supportive of our strategy and vision for the Group. This relationship has been built over the past 4-5 years and was reflected in the renegotiation of our facility last March.  They continue to work with us to ensure the business is well placed to succeed in the coming years.

Outlook

Trading for the eight weeks since the half year end continues to be in line with management expectations and mirrors that of the first 26 weeks of the year. Over these eight weeks, sales in our Cake division were 11% below the same period last year but growth in our Bread and Free From division has accelerated to 20%, on a like for like basis.  Post Christmas is typically a weaker sales period characterised by increased promotional activity to stimulate consumer demand.

Like the prior year, we expect that trading in the second half will be significantly stronger than the first, particularly given Easter product seasonality but also as a result of the continued operational efficiency initiatives and the benefit from the Goswell acquisition.  Given the economic climate, whilst the impact of sterling, as well as overall pressures on input prices and consumer behaviour remain difficult to predict, we are confident of continued progress in the second half.

Our craft bakery and premium product bias as a Group has resulted in a tough trading environment over the last 12 months as more customers bought into lower priced products.  We have worked hard to invest in our organic growth opportunities to offset the decline in premium cake sales whilst continuing to drive greater operating efficiencies.  Whilst we recognise that the desired change in consumer behaviour may still be some time in coming, we believe the Group has coped well in delivering a sustained level of profitability in difficult market conditions and is in a stronger position to emerge from the end of the economic downturn.

Consolidated Income Statement (unaudited)

 Consolidated Balance Sheet

Consolidated Cash Flow Statement

STATEMENT OF RECOGNISED INCOME AND EXPENSE

NOTES TO THE FINANCIAL STATEMENTS

NOTES TO THE FINANCIAL STATEMENTS continued