Earlier this year UK baker Finsbury Food Group offloaded its gluten-free bread business to venture partner Genius Foods. However, Finsbury, which makes cakes for brands under licence and for UK retailers, still sees potential in bread and today announced plans to significantly increase capacity. Michelle Russell spoke to CEO John Duffy.
Five months after Finsbury Food Group, the UK baker, offloaded a growing part of its business, it has demonstrated it is investing for the future.
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In February, Finsbury sold its free-from business to venture partner Genius Foods, leaving the company with interests in the UK cake and bread sectors.
Finsbury is one of the largest cake suppliers in the UK, supplying products under licence for brands like Thorntons and under retailer own label. Cake is Finsbury’s largest business but today (1 July) Finsbury announced it was expanding its bread production to meet the “growth expectations” of its customers.
Finsbury has secured a 15-year lease on a 25,000 sq ft building that neighbours its existing Nicholas and Harris bakery in Salisbury. Over the next two years, Finsbury will expand the plant into the new building, “significantly” expanding capacity.
Speaking to just-food following the announcement, CEO John Duffy said the investment was “bang on strategy” and could help double the size of Finsbury’s bread business.
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By GlobalData“We sold our free-from division back in February which was quite a big event … but we always wanted to retain our interest in bread. It has doubled in size in the last five years or so, it’s a great little business. We’ve invested in it over the years to increase capacity and equipment. And this investment is about continuing to invest and grow the business organically. It’s improving our balance sheet, raising equity, giving ourselves funds to invest in the remaining businesses.”
The free-from business accounted for around 14% of group revenues and, Duffy admitted to just-food in February, had been growing “strongly”. However, he said the rest of the Finsbury business was also performing well and the company planned to expand its cake and speciality bread assets.
The Nicholas and Harris facility is one of four Finsbury operates in the UK. It also has two “large” facilities in Scotland and one “small” cake plant in Wales. The Nicholas and Harris facility is the only bread plant it operates and Duffy said the site needed extra capacity.
“[Production] has been squeezed into the existing facility, which has been gradually expanded over the last five or seven years but it was getting to the stage where it was bursting at the seams a little bit. This acquisition of the building next door is a little bit of luck and a lot of hard work. It has been used as a car showroom before so will take quite a lot of investment but the beautiful thing about it is, it’s a big space.”
Duffy said the investment to extend capacity will allow Finsbury to “nearly double” its bread business.
“At the moment the business turns over around GBP27m [annually] and this facility ought to allow us the opportunity to nearly double the business again in terms of what we’re able to do in a facility that size. It certainly gives us good growth and potential for the business over the next five years or so … that may well be through a mix of organic growth … and perhaps a small acquisition might also feature in that as well to accelerate the growth.”
The investment Finsbury is making in its bread business is despite the pressures of operating in what the chief executive describes as a “tough” category in terms of commodity inflation and consumer spend.
“The bread business is such a tiny player in such a massive market that normally I would be looking at the overall category and seeing it as flat and being difficult to grow in. With the Nicholas and Harris business, what we’ve seen is double-digit organic growth and we’re still a very small business. We’re at GBP26m turnover and speciality bread is an area that people are still interested in.
He adds: “We’re seeing good growth and it’s been consistent. So whilst I’m nervous we are backing a trend, it is one that we’ve managed to deliver on for a reasonable period of time. Partly it’s about customers being successful, partly it’s about the brand you’ve got being successful and partly it’s about being a small but specialist player in a very large market.”
Duffy said the “hard work” Finsbury has been putting into the business is paying off. In March, the company said its outlook was “stronger than ever” after having booked a 33% increase in first-half profits.
“Our expectations, all the work were doing internally to try and make the business more efficient, is paying off and it will be more of the same in our second half. Consumer spending is very value focused and commodities are still volatile from one year to the next. There’s no let up or change in the macro environment but we’ve just been focused on trying to do better internally and trying to invest harder internally so we’re more efficient and that will continue to be our focus.”
Duffy said its long-term strategy continues to include looking for good M&A opportunities and that while there was still an element of interest in international markets, it is the UK market that remains a focus for Finsbury.
“Our international focus is probably still more the export-orientated route rather than buying a manufacturing facility in a foreign market. I’m not saying we’d never do that but at the moment we’re a sub GBP200m company in a large UK market that we know well and that we are geared up to be successful in. It’s about judging opportunity, risk and reward, and we still see plenty of opportunity in the UK to invest and grow organically and do some M&A.
“We’ve gone from a famine to a feast if I’m honest. A year ago around this time, we were sitting with a total group debt in the region of GBP35m. With the equity from the free-from business the debt level is now around GBP10m. We still have a degree of debt but it’s a sensible level and it gives us the flexibility and a little bit of leverage to offers quite a lot of scope to be able to invest. The balance sheet … we have plenty of scope to be able to invest more.”
Finsbury has a joint venture in Europe with a French distributor. The company has also been expanding its export business, particularly in our licensed celebration cakes to other parts of the world. It recently began exporting these to Australia.
“We’re very aware of the European market, so we’re probably in truth interested in exploring more export opportunities but our M&A strategy in terms of hard physical activity on the ground is likely to be UK-focused. We are looking at opportunities in both cakes and bread.”
