Finsbury Food Group shrugs off rising costs

By Rod Addy contact

- Last updated on GMT

Finsbury Food Group said the cost of butter had shrunk operating margins in its UK Bakery division
Finsbury Food Group said the cost of butter had shrunk operating margins in its UK Bakery division
Finsbury Food Group’s UK bakery business resisted soaring butter prices and increases in other costs to grow sales and keep operating profit broadly flat, while group operating profit rose.

Reporting on half-year results on 19 March, the company said: The first half-year results have been delivered despite a backdrop of commodity and exchange rate driven inflationary headwinds and consequentially challenging grocery environment …

“… The grocery ambient cake and the bread and morning goods markets are both large mature markets. The grocery ambient cake market sees year-on-year volume decline of -2.1% and value growth of +1.3% (Source: IRI 26 weeks ending 6th January 2018) and the bread and morning goods grocery market sees year on year volume decline of -1.3% and value growth of +2.2% (source: Kantar Worldpanel 24 weeks ending 31st December 2017).

“UK Bakery operating profit margin has decreased to 5.2% due to commodity price pressure, particularly the spike in butter prices.”

Revenue up

However, despite this the company reported revenue for the division in the first half of 2017 up by 1.1%, from £139m in the same period in 2016 to £140.5m. The division's perating profit fell by 0.7%, from £7.3m to £7.2m in the same period.

Finsbury believed it would continue to benefit from customer and product diversification especially in areas such as the faster-growing foodservice channel.

“The UK grocery market continues to be challenging with food inflation becoming entrenched. As previously noted, this is a result of increased commodity prices, the adverse impact of USD [the US dollar] and Euro exchange rates and the annual above inflation increase in the National Living wage.

Cost inflation

“The group is working hard to mitigate this input cost inflation through continued operational efficiency, investment in automation and, inevitably, price increases. 

“Whilst we are cognisant of the price recovery process, we expect the group's steady performance to continue into the second half of the financial year and are confident that we have created a resilient business that can not only withstand the current headwinds but will continue to progress.”

The company also reported securing a five-year £45m refinanced revolving credit facility from HSBC, Rabobank and RBS, which would enable it to continue its investment plans. The facility could be increased by another £45m if necessary, it said.

Group revenue for Finsbury increased in the first half of 2017 by 0.7% year-on-year to £157.8m. Pre-tax profit was up 4.7% to £8.7m. Exports to Europe from its Lightbody Europe division, which trades primarily in France and specialises in the import and sale of premium UK manufactured food products, had helped to drive the growth, it said. It was an important channel into Europe for group UK manufactured licensed celebration cake and bite style products, it said.

The business was heavily exposed to the euro which had had a favourable impact on translation of euro-denominated sales and profit, according to Finsbury. ​In Euro terms the business has performed well too and we are pleased with the operating profit performance of overseas business.

Related topics: Bakery

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