FIF.L Regulatory News (FIF)

Finsbury Food Group Plc

Pre-Close Trading Update and COVID-19 Statement

Finsbury Food Group Plc (AIM: FIF), a leading UK speciality bakery manufacturer of cake, bread and morning goods for both the retail and foodservice channels, provides an update on trading for the financial year ended 27 June 2020, prior to entering its close period.

Trading update

· Resilient overall performance with revenues of £306.3m

· Steady monthly improvement during Q4 following significant reduction immediately after lockdown

· Continued strong cash generation resulting in significant debt reduction with period end net debt of c.£27m

· Swift action taken by management leaves the Group in a better position to handle continued uncertainty associated with COVID 19

· Successfully and safely maintained operations throughout lockdown

Group revenues for the year were £306.3m (2019: £315.3m), slightly down on the prior year. Revenue in the Group's core division, UK Bakery, decreased 2.6% and in the Group's Overseas division decreased 4.9%. Following a strong first half performance which saw Group revenues grow 4.7% to £159.4m, performance in the second half was impacted by the outbreak of the COVID-19 pandemic, with sales down 9.8% to £146.9m.

The second half sales were a combination of good momentum and strong trading in January and February in line with market expectations, followed by significantly weaker trading at the outbreak of the pandemic at the end of March and depressed but progressively improving sales through April, May and June (down 24%, 19% and 15% on last year respectively).

The implementation of lockdown effectively meant that demand in the foodservice and food to go sectors, which together accounted for approximately 20% of total Group revenue in FY19, reduced to almost nil overnight before gradually recovering to 39% of prior year levels for Q4. Retail, the largest part of the Group, remained relatively resilient albeit impacted by consumer shopping behavioural changes during lockdown. While celebration cakes sales declined, with families having less opportunity to celebrate with family and friends during lockdown, we saw increased demand for certain everyday product ranges, particularly our round cakes and buns and rolls.

The steady monthly sales improvements we have seen since March have resulted from many individual adaptations. Within retail we have gradually reinstated full product ranges as, initially, some complex products could not be manufactured until social distancing measures were implemented in our bakeries and some products were delisted by customers to prioritise store cupboard essentials. Foodservice and food to go volumes have started to recover following a gradual re-opening of some customer sites.

Operational update

Our priority has and continues to be the health and safety of our employees and playing our part in feeding the nation. We have taken significant precautions to protect our colleagues since the outbreak through a combination of homeworking where possible and the roll-out of comprehensive social distancing measures across our sites.

As previously announced, in March the Board took the decision to temporarily close its foodservice buns and rolls business, Kara, in response to reduced demand. In June, the facility reopened, and shift numbers have continued to increase since. Across the other Group sites we furloughed staff when market demand initially dropped with many having now returned to work as demand recovers. We will continue to bring furloughed staff back on a demand led basis.

Actions taken to mitigate impact of COVID-19

As previously announced, due to the change in demand across the business, the Board immediately took a number of cash and cost-conserving actions to ensure the business remained on a sound footing to deliver on its longer-term growth ambitions. These included:

· the freezing of all discretionary expenditure and capital investment;

· careful management of cash resources; and

· the suspension of the interim dividend.

In addition to these measures, the Board and Executive team took a 30% salary reduction between April and June whilst other senior executives took a 20% reduction.

Financial update

The Group remained cash generative in the period with net debt reducing 24% to circa £27m. All banking covenants were met comfortably with extensive headroom remaining within a £55.0m revolving credit facility.

We continue to have strong relationships with our three banks and have been in regular dialogue with them since the onset of COVID-19. We have not required any accommodation from them nor needed to look to any of the Government loan schemes. They remain highly supportive and the Board remains confident that the Company will continue to trade comfortably within its existing banking facilities.

Outlook

Looking ahead, it is anticipated that many of the changing consumer behaviours the Group has witnessed will endure, especially where they have accelerated pre-existing trends such as online grocery shopping, home-delivered eat-in, and an increase in home working. Others are likely to reverse as the easing of lockdown restrictions sees a measured return to out of home eating, a focus on health and wellbeing products such as artisan, gluten free and vegan, and a return to growth of the 'snacking on the go' trend of recent years.

That said, demand patterns in the months ahead remain uncertain, particularly in the foodservice channel and the ongoing Brexit uncertainty and we therefore remain unable to provide market guidance at this time. However, barring a significant return to lockdown, the Group anticipates a gradual recovery as consumers readjust shopping and consumption behaviours both in and out of home.

John Duffy, CEO of Finsbury Food Group, said:

"While the pandemic meant that sales were down in Q4, we are encouraged by the steady monthly improvements we have seen since March as demand begins to move in the right direction again.

"It has been a challenging period for the Group but we have remained cash generative. By implementing comprehensive cost and cash management measures quickly and effectively we will emerge from the crisis with new and more efficient ways of working that will be of long-term benefit to the Group.

"We continue to operate against a backdrop of heightened uncertainty and likely will for some time, but the Group remains well-positioned to withstand the current situation, working collaboratively with large customers and global brand partners alike to ensure we anticipate and respond to future demand patterns and proactively develop products and ranges that fulfil those shifting consumer needs. The benefits of the Group's geographical, channel, customer and product diversification have been evident throughout the crisis, and we have illustrated that we are robust, but agile - we have adapted quickly so far and will continue to do so.

"These have been incredibly testing times for our colleagues and their families. On behalf of the board I would like to take this opportunity to again extend our profound thanks to them all for their hard work, passion and commitment."

This announcement contains inside information.

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Notes to editors:

· Finsbury Food Group Plc (AIM: FIF) is a leading UK manufacturer of cake and bread bakery goods, supplying a broad range of blue chip customers within both the grocery retail and 'out of home eating' foodservice sectors including major multiples and leading foodservice providers.

· The Company is one of the largest speciality bakery groups in the UK and, with its Overseas division, has sales in the financial year ending 27 June 2020 exceeding £306m.

· The Company's bakery product range is comprehensive and includes:

o Large premium and celebration cakes.

o Small snacking cake formats such as cake slices and bites.

o Artisan, healthy lifestyle and organic breads through to rolls, muffins (sweet and savoury) and morning pastries, all of which are available both fresh and frozen dependent on customer channel requirements.

o Gluten Free bread, morning goods and cake ranges.

· The Company is one of the largest ambient cake manufacturers in the UK, a market valued at over £965 million (source: IRI 52 w/e 20th June 2020). The retail bread and morning goods market has a value of £4.7 billion (source: Kantar Worldpanel 52 w/e 19th April 2020). The retail Free From Cake market is valued at £52 million (source: Kantar Worldpanel 52 w/e 17th May 2020). The retail Free From bread & morning goods market is valued at £137 million (source: Kantar Worldpanel 52 w/e 19th April 2020).The UK Out of Home sector Foodservice Bakery sector is worth approximately £1bn per annum (source: UK foodservice data derived from MCA data for 52 weeks to 31st December 2019).

· The Company comprises a core UK Bakery division and an Overseas division:

o The UK Bakery division has manufacturing sites in Cardiff, East Kilbride, Hamilton, Salisbury, Sheffield, Manchester, and Pontypool.

o The Overseas division comprises the Company's 50% owned company, Lightbody Stretz Ltd, which supplies and distributes the Group's UK-manufactured products and third party products, primarily to Europe, and the Company's manufacturing facilities in Rybarzowice and Zywiec in Poland.