6 Finsbury Food Group Annual Report & Accounts 2017


Since joining the Company in 2009, our team has been keenly focused on creating strong foundations and a competitive cost base to ensure that we are in a solid position to weather industry-wide challenges.


Driving efficiency and scale has been a long-term focus for Finsbury and has represented the rationale behind a range of initiatives we have implemented over recent years.


With this in mind, having been operating within a deflationary UK grocery food market during the period under review, the effectiveness of these initiatives has been tested. Therefore I am pleased to report on the solid performance and trading resilience the Group has demonstrated against the headwinds posed by sustained Sterling devaluation and high input costs experienced during FY 2017. This performance, which includes growth in both Group sales and profit in the year on a like for like basis, follows several years of very strong organic and acquisition-led growth and demonstrates the benefits of the investment and diversification strategy implemented over recent years. Additionally, our strong cashflow and robust balance sheet allowed us to both reduce debt and increase our dividend whilst continuing to invest to strengthen our business for the future.


The Group is now one of the largest speciality bakery groups in the UK with a small but fast growing European business. The latter performed particularly strongly as it benefited from improved celebration cake and free from product ranges and was boosted by the exchange rate tailwind from a weaker Sterling.


All food manufacturers and their customers have had to navigate the transition from the deflationary food market of recent years to the inflationary environment evident throughout the second half and beyond. Sterling’s structural decline amplified typically cyclical commodity input cost increases for UK manufacturers importing many of their ingredients. The National Living Wage has similarly amplified annual labour cost inflation throughout the labour intensive food and agriculture sector and indeed beyond. This trend looks set to continue for some time with high profile butter price hikes, driven by increased demand and a supply shortfall, the most significant example in recent months.


This market transition has seen us work proactively with our brand partners and customers to revise our product, pricing and promotional portfolio to strike the right sustainable balance of providing value for consumers whilst delivering on margin requirements. These are difficult customer conversations and whilst diminished promotional spend reduced sales growth in the short-term, operating margin was successfully maintained in FY17 in conjunction with our internal efficiency improvement initiatives and recent capital investment.


Strategic Investment Underpinning the Future


Finsbury’s goal is to ensure that the Group is well positioned to maintain pricing for consumers and to remain a low cost producer for customers. These resilient results are testament to the importance of continually investing in our operations in order to improve overall productivity and offset increases in the Group’s cost base.


FY17 saw the second consecutive year of record capital investment at £12.5m, some 181% of depreciation, as we further strengthen the Group’s growth capacity, product capability, efficiency and cost competitiveness.


This has seen the installation of a new automated whole cake line in an upgraded bakery at our Cardiff site. This is currently undergoing product commissioning for full production in FY18. We have also opened a new artisan bread bakery at our Salisbury site. Both of these will enable future growth aligned to changing consumer demand for premium, healthy and authentic product ranges across different market channels.


The second major investment area is focused on redesigning our business processes to drive scale and efficiency across the Group businesses. This standardisation of process across all sites in the Group establishes agreed best practice and this is then embedded within the roll out of our new ERP IT platform across the Group during the first half of FY18.


The third major investment area, largely non capital expenditure, is our ‘people’ strategy. Having successfully rolled out our vision and values last year, we completed our first Group employee engagement survey, with an engagement score of 68%, to establish a base for future improvement. A new Group-wide talent management system and an associated management development programme were also successfully deployed during the year to nurture the development of both today’s and, importantly, tomorrow’s leaders.


£12.5m 68%


£38.1m


A 15% rise in sales to continental Europe, demonstrating the benefits of geographic diversification.


FY17 saw the second consecutive year of record capital investment at £12.5m, some 181% of depreciation, as we further strengthen the Group's growth capacity, product capability, efficiency and cost competitiveness.


Having successfully rolled out our vision and values last year, we completed our first Group employee engagement survey, with an engagement score of 68%, to establish a base for future improvement.


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