July 4, 2008

Finsbury Aims to Seek Out Opportunities in Tough Times ; Cake Firm Feels Squeeze in Commodity Costs

By Aled Blake

PREMIUM cake and bakery products manufacturer Finsbury Food has warned that its sector faces a tough 18 months of trading ahead.

But it said it hoped to make the most of the opportunities thrown up by a potential downturn in the market.

In a trading update, Cardiff headquartered Finsbury revealed that margins have been reduced by more than pounds 1.5m in the year to June 2008, which it said had been "compensated for by strict overhead cost control".

And it added that sales had remained strong in all its subsidiaries, with the integration of businesses acquired in the last 18 months continuing well.

The past financial year has seen Finsbury take the leading market position in the supply of gluten-free baked foods through its United Central Bakeries (UCB) subsidiary, while its acquisition of Anthony Alan Foods has given it the rights to distribute cakes under the Weight Watchers brand.

In a statement to the Stock Exchange, Finsbury said: "The board is pleased to confirm that sales have remained strong with excellent growth in all subsidiaries.

This is particularly pleasing for the second half of the year where the prior year comparables were much higher."

Sales for Memory Lane Cakes have grown by 11% year-on year, with Light body up 11%. The combination of California and Campbells Cakes are up 14%.

In addition, Nicholas and Harris sales are up 19%, and the average weekly sales from UCB have risen by 17% when comparing the second half of the year to the first half. Chief executive Dave Brooks said that flexibility and an understanding of the consumer needs were the "most important assets a business can have in times of uncertainty".

He went on: "Our sales growth prospects remain very positive over the coming year with major range relaunches either in progress or planned with all of our major customers. We are also the beneficiaries of some very strong licensing partnerships with major brands such as Weight Watchers, Thorntons, Disney and Nestle - all of which can offer something new in our core areas.

"The next 12 to 18monthswill see a tough trading environment, though such conditions also contain significant opportunities for the best businesses to seek out and thrive. Our goal is to ensure we are one of those businesses."

The speed of the increase in core commodities - wheat, dairy and eggs - in the last financial year has been "unprecedented", Finsbury said.

The company said that while it had passed costs on to customers, there is a "natural time lag" in achieving selling price increases.

Its statement said: "There is still upward pressure on input prices with many commodities remaining volatile. This is in addition to continued pressure throughout the supply chain caused by rising fuel and energy prices, coupled with the weakening of sterling.

"The group remains in dialogue with its customers to look for opportunities to recover these costs in a constructive manner."

Finsbury said its underlying fundamentals remain strong with the board expecting a growth in earnings in the next 12 months.

It said: "While we continue to control our core commodity costs to the best of our ability, there are certain macro economic factors in the global and UK economy which are outside of our control.

"We will continue to use our flexibility and innovation skills to be prepared to move with the markets as the situation unfolds, without compromising our desire to create great tasting products.

"With market leading positions in all of our chosen operating sectors, the group can focus on the right balance between immediate returns and longer term investment in the business to ensure it is as well placed as it possibly can be to benefit fromthe emerging trends in the economy."

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