Finsbury Food has now released their final results for the year ended 2019.
Revenues increased when compared to last year due to a £7.4M growth in UK bakery and a £4.3M increase in overseas. Cost of sales also increased to give a gross profit £3.3M higher. Operating lease payments reduced by £496K, share option charges were down £441K, there was no impairment of assets, which accounted for £987K last year, and site closure costs fell by £12.1M. R&D costs were up £420K, amortisation increased by £613K, there was £823K of reorganisation costs and other admin expenses grew by £5.4M which meant that the operating profit was £10.1M higher. There was a £525K negative swing in the value the hedges, bank interest increased by £492K and tax charges were up £2M to give a profit for the year of £9.3M, a growth of £7.1M year on year.
When compared to the end point of last year, total assets increased by £30.3M, driven by an £11.5M increase in goodwill, a £7.1M growth in property, plant and equipment, a £5.1M increase in receivables, a £3M growth in cash and a £1.7M increase in the value of software. Total liabilities also increased during the year due to a £22.7M growth in borrowings and a £2.8M increase in deferred consideration. The end result was a net tangible asset level of £12M, a decline of £9.3M year on year.
Before movements in working capital, cash profits were broadly flat. There was a cash outflow from working capital but tax payments fell by £1.3M to give a net cash from operations of £13.5M, a decline of £4.8M year on year. The group spent £11M on fixed assets and £16.9M on acquisitions to give a cash outflow of £14.4M before financing. They took out £22.1M of new loans and paid out £5.2M in dividends which meant that there was a cash flow of £2.9M and a cash level of £12.4M at the year-end.
The operating profit of the UK bakery business was £14.2M, a decline of £1.3M year on year. The out of home easting supplying pubs, restaurants etc was a particularly strong performer. Artisan brands continue to grow strongly. The operating profit in the overseas business was £2.7M, a growth of £305K when compared to last year.
The group is coming out of its intense investment phase, and will benefit from these investments in the coming year. Following the launch of their own Free From brand in Europe last year, Wiso, they have also launched Free From cakes in addition to the Free From bread and mornings goods ranges. These products capitalse on the fact that making the choice to avoid gluten or embrace veganism are growing lifestyle choices.
Within licensed brands, the second half of the year has been particularly active with the big block buster movie releases of Toy Story 4 and the latest Avengers and Spiderman instalments. They also continued to keep their core product portfolio licenses fresh with a relaunch of Batman, Minions, Pokemon, Paw Patrol, Peppa Pig, Trolls and Me to You cakes.
In September 2018 the group acquired Ultrapharm for £16.9M plus up to £3M payable in annual instalments up to 2021. The business is a Free From bakery with product ranges covering bread, buns, rolls and morning goods. The acquisition generated goodwill of £11.5M and the business made an operating profit of £295K in the period.
Going forward the board are confident the strong second half performance will continue into the year ahead as the core business continues to perform well with strong Q1 growth to date. Having made investments in IT and the new free from bakery in Poland they are expecting to significantly reduce their capex going forward as they focus on driving efficiencies from the new systems and utilise their additional capacity.
At the current share price the shares are trading on a PE ratio of 11.2 which falls to 8.1 on next year’s consensus forecast. After a 6% increase in the dividend the shares are yielding 4.4% which increases to 4.7% on next year’s forecast. At the year-end the group had a net debt position of £35.6M, up £20M year on year.
Overall then this has been a bit of a mixed year for the group. Profits were up but this was due to less site closure costs than last year, and underlying profits were down somewhat as a small improvement in the overseas bakery was offset by a decline in the UK. Net tangible assets declined, as did the operating cash flow with no free cash being generated, although this was due to a change in working capital movements and cash profits were broadly flat. Going by management comments, it does seem that things are improving, however, and the recent investments should help performance. That being said, there is quite a lot of debt here and a rather flimsy tangible asset base. The shares are quite cheap though, with a forward PE of 8.1 and yield of 4.7%. Could be worth a punt.
On the 20th November the group announced that momentum from the second half of the previous year has been maintained and the group continues to achieve strong growth across the core business. Sales for the first four months of the year grew by 6.4% as a result of a strong retail and foodservice performance in the UK as well as new business wins across the group. The wider macroeconomic and political environment remains challenging in the UK but the board is confident of achieving market expectations for 2020.