Finsbury Food

Cake-maker Finsbury Food is struggling to cope with effects of the downturn after losing money in its premium cake division.

After a 7% fall in first-half revenues to £83m, chief executive officer John Duffy says the AIM-quoted company is trying to adjust to a change in consumer tastes following the recession. ‘For years we were "trading up" in the sorts of cakes we sold,' he reflects, 'while in the recession consumers were much more price-sensitive.’

According to Duffy, who joined the company in 2008 to sort out its problems, UK cake sales fell 2% in the six months to January, though the overall decline in sales was offset by growth in Finsbury’s ‘Free From’ range, whose products are free from ingredients such as gluten and wheat, and are sold to a number of British supermarkets including Tesco and Sainsbury's. Sales in the Free From and bread division rose 16%. Duffy says this increase was bolstered by ‘self-diagnosing’ consumers believing they had an intolerance to particular ingredients excluded by the Free From strategy – a trend that he quips the company only discovered recently.

With a stock market value of £8m, Finsbury Food has debts of £40.6m, which Duffy acknowledges is ‘too high’, adding that post-recession ‘it’s no longer a good thing to be highly leveraged’. Broker KBC Peel Hunt forecasts full-year pre-tax profits of £5m on £192.4m turnover, with earnings projected to fall from 6.8p to 6.3p a share.

Having seen the shares drop from 65p in 2008 to 15.25p today, investors should cut their losses and consider returning if Duffy's medicine looks like working.