Cardiff-headquartered food producer Finsbury Food (FIF:AIM) warns sterling weakness has increased the cost of key raw materials sending shares 5.6% lower to 117.5p.

The sterling-driven commodity cost spike overshadows a broadly positive update from long-standing Shares favourite Finsbury, a manufacturer of celebration cakes, breads, rolls and muffins.

John Duffy

INPUT COST SPIKE

In the speciality bakery manufacturer's update covering the opening four months of the new financial year to June 2017, Finsbury states: 'Whilst consumer confidence has remained stronger than anticipated, input costs, which are globally priced in dollars or euros, have increased substantially following sterling's weakness.'

Thankfully, Finsbury 'has been able to respond to these challenges by modifying promotional activity whilst also reviewing potential opportunities for reformulation changes to minimise the on-cost and maintain affordability of our great products for customers.'

FINSBURY ON TRACK

Total sales of £101.5m were generated the four months to end-June despite continuing food price deflation. A 4% revenue decline in the UK Bakery division is disappointing, albeit one mitigated by 36.5% growth generated at Finsbury's 50%-owned export-focused business.

Following on from the very strong growth of recent years, 'trading has been successfully maintained at these levels into the new financial year'. Duffy also assures the food producer 'continues to benefit from strong cashflow' which is allowing it to step-up investment in innovative new products and in efficiency and productivity projects.

Finsbury Food - NOV 16The net result is that Finsbury Food remains on track to achieve Cenkos' full year estimate of growth in pre-tax profits to £17.1m (2016: £16.6m). Consumer uncertainty and currency impact notwithstanding, Shares has a positive stance on Finsbury, whose savvy institutional backers include Miton, Hargreave Hale and Ruffer.

Finsbury's finances, fortunes and growth prospects have been dramatically transformed since CEO John Duffy (pictured below) took over in the hot seat in 2009.

Following the transformational acquisition of Fletchers in late 2014, Finsbury is now a bigger, more diversified bakery business supplying supermarkets and the structurally growing 'out of home eating' food service channel.

Acquisitions are likely to continue to be a key part of Duffy's strategy.

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Issue Date: 23 Nov 2016