Sales and profits are booming at Finsbury Food Group (FIF) thanks to acquisitions as well as underlying organic growth as the listed bakery diversifies into food service.

Shares in the supplier have risen more than 5% to 112.1p so far today on the back of the interim results for the 26 weeks to 26 December.

Group revenues jumped 46% to £156.6m in the first half, with like-for-like growth of 7.4%, and operating profits climbed 78% to £8m (21% on a like-for-like basis).

The figures reflect the full integration of morning goods specialist Fletchers, which was acquired for £56m in October 2014, and Johnstone’s, bought in June 2015, which helped Finsbury expand into more retail and food service channels, as well as coffee shops - a new market for the group.

Finsbury, which makes muffins, cakes and bread for the likes of Tesco and M&S, as well as Thorntons branded products, is now one of the largest speciality bakery groups in the UK with annualised revenues exceeding £300m as a result.

CEO John Duffy told The Grocer today that the outperformance in the sector was a mix of driving innovation, having attractive licenced products, such as its Minions, Frozen and Star Wars cakes, and changing the promotional and pricing model.

“We’re trying to generate category growth and use all the tools available to us, but I don’t think we’ll perform at this level in fairly mature markets for the longer term,” he added. “We’ll drop back more closely to market growth as we reach market share saturation in key areas. It is the reason we are diversifying out of core areas into broader products and channels.”

Strong organic growth in foodservice sales was supplemented by new bread and morning goods products, with organic bread and the launch of sharing cakes sold under its own Kara brand. Duffy said Kara was a “really good platform” to tap into a foodservice market growing at about 5% a year, compared with just 1.5% in grocery.

Duffy added Finsbury was targeting further acquisitions in 2016 but didn’t specify whether it would be in the foodservice or grocery channel. “Future acquisitions will typically consolidate our market share in existing product areas or introduce further diversification into additional specialist product areas, customers and channels,” the group said in the interim statement.

Finsbury is significantly increasing capital expenditure in the financial year – expected to be £11.6m vs £7.4m last year – as it invests in its bakeries for the long term, with capex in the first half of £3.7m, compared with £1.7m a year ago.

Some of that spend will go towards mitigating against rising costs associated with the new national living wage, which comes into force on 1 April, with lower skilled workers inevitably losing out, Duffy added.

“In the short term we’re working hard to mitigate and offset the cost, but in the medium term the capex will ensure we have more value-added jobs and remove some of the less skill-orientated jobs at the bottom end which are most impacted by the NLW,” he said.

BDO gathered similar findings in its 2016 food and drink report, published last month, with one in five manufacturers in the sector weighing up reducing staff and almost a third set to invest in further automation.

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