Strategic Report


4 Finsbury Food Group Annual Report & Accounts 2018


Chairman's Statement


Corporate Governance


Financial Statements


" We continue to build a Group of scale, but one that can deal with the manufacturing complexity and flexibility required for premium and higher-margin products."


The overall story from the year is one of a stable trading performance by the Group, delivered in the face of unprecedented cost inflation of commodity inputs, especially butter. We have achieved a like for like top-line and an underlying bottom-line growth despite this cost pressure, and in a rapidly changing market. This not only demonstrates our resilience, but also that we have the operational abilities to adjust, keep our strategy on track, and achieve the financial performance expected by our investors.


Revenues were up 2.4%, which excludes revenues from our closed loss-making Grain D’Or factory. Including this, Group revenues are down 3.4%. Profit before tax is £4.5 million, reflecting significant one-off closure costs, but is 4.0% up on last year on an adjusted basis. Cash generated from operations increased by 19.8% to £26.9 million, due to the strong underlying performance, and net debt is further reduced to 0.6 times EBITDA. We have also announced a growth in the dividend. The final dividend per share of 2.2p will take the total dividend for the year to 3.3p per share, up 10% from last year’s dividend of 3.0p per share.


There were no changes to the Board of Directors during the year. The Board has adopted the Quoted Companies Alliance Code and we explain our compliance in the Corporate Governance Report.


The Vision Remains the Same


Our vision is to be a leading speciality bakery group, producing a broad range of high-quality products that deliver growth and differentiation for our customers, while fulfilling the needs of end consumers, both in the UK and into Europe.


We continue to build a Group of scale, but one that can deal with the manufacturing complexity and flexibility required for premium and higher-margin products. For ten years we've been doing this while improving margins and efficiency, reducing debt and improving diversification. We believe scale will become increasingly important in the food manufacturing sector as we see our main customers getting larger.


The bakery sector, outside of sliced bread, is reasonably unconsolidated. Over the years we have made major acquisitions and investments, targeting or evolving opportunities based on consumer trends, market niches, growing channels and added-value products that retail and foodservice customers are trying to develop.


Through a combination of organic growth and targeted acquisitions, we will continue to invest to consolidate and grow in existing areas, such as round cake and artisan bread, and expand into new areas. To this end, our successful investment programme will continue. We will invest to expand our capabilities in new product formats, and to diversify into new channels such as foodservice cake, and into healthier style products, particularly 'Free From'. We have further strengthened our capabilities, with the acquisition of Free From baker Ultrapharm after the year end.


The Group has increased in scale, and the individual businesses benefit from this. A lot of work has gone into creating a structure that enables Group-wide cost-effectiveness and allows innovation, common process and best practice to flourish.


Stability in a Changing Market


Markets, channels and customers are consolidating rapidly in response to changing consumer shopping and ‘on-the-move’ consumption behaviour – Tesco and Booker, Amazon and Whole Foods, Co-op and Nisa, the plans of Sainsbury's and Asda – each pairing demonstrates a changing market environment, to which we can add discounter and online shopping growth. In addition to adapting to these changes, bakers and other food producers have faced commodity price increases, with the weaker pound and the cost of butter rocketing.


We believe Finsbury is increasingly well positioned to respond to this fast-changing environment, due to our continuing focus on operating excellence, quality and innovation, and cost effectiveness, combined with our sustainable approach and our commitment to our partners, all underpinned by people who care. We have and continue to invest to manage the risks and grasp the opportunities available for scale manufacturers.


Peter Baker Non-Executive Chairman 14 September 2018


Operational Highlights


Some years ago, we may have struggled to cope with the degree of volatility and unexpected cost increases we have seen of late. However, our diversification over prior years has ensured we are in a healthy position, and able to capitalise on opportunities available to us.


We continued to invest heavily in capital this year, at 1.8 times depreciation, which has enabled us to implement key projects such as our ‘automated craft’ cake line, now fully commissioned and operational in Cardiff, and introduce our new business-wide IT platform.


These sorts of change management projects, often Group-wide, do add a lot of pressure to the workload of our employees. As does new operational equipment, or worries over, for example, the decision to close our loss-making Grain D'Or factory. Much of this added pressure is often on top of the commitment people already put in to simply doing their jobs well. For this I would like to thank all employees once again for their sterling efforts and commitment during the year.


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