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Higher costs sour record half for Finsbury Food

Thorntons baker’s half-year profits hit by surging commodity prices and worker shortages
February 21, 2022
  • Half-year dividend comes back at 0.8p 
  • Board keen on acquisitions

‘Treating yourself’ may soon have to be an afternoon cake rather than a new car or holiday, as inflation strips away discretionary spending power. Bully for cake makers. Finsbury Food (FIF) is not celebrating heartily, just yet, however, as higher costs ate into its first-half profit and led it to increase prices. The group makes cakes under licence like Thorntons’ mini caramels and even Xbox- and Super Mario-branded cakes as well as bread and pastries for hospitality. 

Despite the tougher operating conditions, the half-year dividend is back as expected, following the reinstatement of a final payout last year. This will be 0.83p a share, compared with the 1.23p half-year dividend that the group cancelled once Covid-19 set in two years ago. 

On top of the returned dividend, Finsbury has committed to growing scale, first off by buying a greater stake in its European distribution business for €7mn (£5.8mn). The board has also made clear its plan to put more into acquisitions: “[the group] would be prepared to use equity for larger, transformative transactions”. 

Chief executive John Duffy told Investors’ Chronicle a deal the magnitude of Finsbury’s acquisition of Fletchers Bakery in 2014 was not out of the question. The group raised £35mn for that transaction, effectively doubling its share count. 

Looking back at the first half of the financial year, the group saw its UK operating profit fall over a quarter year on year to £4.7mn because of higher costs, with prices for ingredients such as wheat and oil soaring, while labour shortages and wage increases also had an impact. Gas prices didn’t help, either, given bakeries are extremely energy intensive. As a positive, sales were up 6 per cent in that period, to £142mn. The smaller overseas division managed to maintain its operating margin as most of Finsbury’s baking is done in the UK. It reported a £1.9mn operating profit, up from £1.3mn. 

Management has forecast improved profitability in the second half after a December price hike. Duffy said consumers would likely keep buying cakes and other sweets even as inflation hits household budgets, maintaining “small luxuries” while cutting spending elsewhere. This cost-of-living crisis is not this management team’s first, given Duffy was also in charge in the recession of 15 years ago. 

Finsbury is keen to use this current uncertainty to expand. Consumer behaviour shows more bullishness from the general public than a glance at inflation data would indicate, but this could be short-lived. Broker Panmure Gordon is optimistic that the price hike will have a positive impact, forecasting adjusted pre-tax profit at £16.9mn, a 12 per cent increase on last year, while also raising its earnings per share forecast 0.2p to 11.6p based on the half-year numbers. Hold. 

Last IC View: Hold, 95p, 20 Sep 2021

FINSBURY FOOD (FIF)   
ORD PRICE:86pMARKET VALUE:£112mn
TOUCH:85-86p12-MONTH HIGH:103pLOW: 70.7p
DIVIDEND YIELD:3.8%PE RATIO:10
NET ASSET VALUE:86p*NET DEBT:21%
Six months to 25 DecTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
20201537.414.10nil
20211675.663.200.83
% change+9+24-22
Ex-div:24 Mar   
Payment:21 Apr   
*Includes intangible assets of £87.5mn, or 67p a share