Shares in UK cake maker Finsbury Food Group tumbled today (24 January) after the company warned higher costs will hit its performance in the second half of its financial year.

In a trading update for the first six months of its fiscal year, Finsbury said it expected to report half-year profits "in line with market expectations" despite pressure on costs and lower revenue.

Sales in the first half of the year to 28 December totalled GBP86.6m (US$143.5m), down from GBP88.2m in the comparable period of last year. Bakery sales were down 2.1% in the UK, while joint venture Lightbody Europe remained flat on the year.

Cost inflation of ingredients such as butter and sugar put pressure on margins but was mitigated by "internal efficiency investment", the company said.

The company said it remained "confident" of posting a "year-on-year improvement" in pre-tax profits.

However, Finsbury warned "general cost inflation" would "impact" the company's performance in the second half of the year.

The company, which makes cakes under licence for brands including Nestle and Thorntons, said it would look to protect volumes and look to reduce overheads.

Shares were down 5.94% at 51.5p at 12:15 GMT.

Show the press release

Finsbury Food Group plc Pre-Close Trading Statement

Finsbury Food Group plc (Aim: FIF), a leading manufacturer of cake and bread bakery goods is today providing an update on trading for the first half of the current financial year, ended 28th December 2013, prior to entering its close period.

The Board expects to report first half profit in line with market expectations. Following the sale of the Free From business in February 2013, continuing first half

Group sales revenues are £86.6m, versus £88.2m in the prior year period. The UK Bakery business declined by 2.1%, £1.6m, whilst Lightbody Europe, the Group's 50% owned joint venture business, was flat year on year. Cost inflation in key ingredients such as butter and chocolate combined with general cost inflation continues to keep pressure on margins. The Company has however mitigated this pressure with internal efficiency investment and a cost reduction focus.

The planned cake capital investment programme is progressing well with the new cake slice 'snap pack' packaging format launched and further snacking cake automation investment on track for year end completion. Similarly the Nicolas and Harris bread facility expansion is being commissioned in January 2014. These and future capital investments will underpin further internal efficiency and capacity improvements to support sales growth in the coming years.

The Board remains confident of reporting a year on year improvement in PBT but believes general cost inflation will impact the Group's performance during the second half of the financial year. In reaction to the current trading environment, the Group plans to invest in up-weighted market activities to protect volumes and undertake an overhead reduction programme which will be completed in the second half. The full year benefit of the overhead reduction will be seen in the next financial year.

John Duffy, Chief Executive of Finsbury Food Group plc, commented; "Whilst the trading environment remains tough in the short term, in line with our stated strategy, our low level of debt and interest cost allows us to make significant investment in our factories and businesses for the future.

"In a transitional year following the sale of the fast growing Free From division and consequent group restructuring and capital investment, I am pleased with the progress made and believe we will enter next fiscal in a stronger position for the eventual improvement in consumer market behaviour ahead."

Original source: Finsbury Food Group