Finsbury Food Share Discussion Threads

[jpjp100] 26/11/2011 19:50

markt, I made an initial contribution to your new thread and will watch it with interest

[jpjp100] 26/11/2011 19:49

interesting thread this one, even more interesting to see who else posts what on here

markt's opening posts (it is clear that markt only has a vague understanding of how the food industry works, but that's OK and not meant as a criticism)... some valid points, some not so valid and some of the risks associated with owning FIF shares not even mentioned imo

for me, the only reason - and I mean the only reason, in fact I didn't even do any research beyond learning this one fact - that I bought my first tranche of shares in FIF was seeing John Duffy take on the CEO role.

Subsequently I have researched FIF and its competitors in some detail and have followed up on my initial purchase with several further purchases.

If Duffy left, I think I would be more likely to offload my holding than keep it, but will not make that call in advance of course.

[markt] 26/11/2011 18:21

jp
new thread created if you are interested...

[markt] 26/11/2011 18:13

so...some -ve factors about FIF, its sector etc

(there are +ve factors as well.....see other threads.....this thread is trying to ensure a more open discussion of pros and cons)

- the market seems to think that the acquisition of Lightbody for 52M incl debt and 4M equiv. value of lease for around 46-50M of turnover !!..(very high ratio in low profit food sector)...was a very bad move.....that overpaid big time....
Mr Saatchi, the chairman was very happy....he sold almost all ..and made millions and left in 2008.
The CEO left. The FD left a few months before.
Virtually at same time as the acquisition the shares stopped at their peak of 110p and then started their down trend to fall for 2 years to around 12p !. The market was not impressed.

- the 'new' FD S.Boyd did not buy shares.....so he did not see them as cheap....till July 2011 at the same time as he was given a massive amount of share options, much larger amount that the shares he bought...so one infers that he only bought the shares because of the options.
Essentially the same for the CEO J.Duffy.
- very low profit margin. PAT is around 2% of turnover.
- gross profit % has seen a fall over the last few years
and that is despite investing in new machines, reducing staff numbers and saving costs in every aspect of production ..for some years now). This is important for a company producing very low PAT margin.
- profit is small compared to the wages bill. that creates a risk of X.

- the adjusted EPS for the years 2009, 2010, 2011 is 6.9p, 7.0 and 7.1p.
This is despite a 20M increase in turnover between 2010 and 2011 and less staff in 2011 than 2010. And no noticeable staff reductions made in 2011.
One would have expected the diluted EPS in 2011 to have increase noticeably versus 2010 but it did not. This shows imho that the margin has reduced.

-diluted EPS around 2007-08 = 10.5p and in 2011 = 7.1p. despite the increase in turnover, reduction in staff numbers and other cost savings such as combining factories etc

- turnover over the years 2008-2010 FELL if you take into account inflation !
...shows that it is a difficult sector...and that total sales in cake sector (big part of turnover for FIF) have probably fallen
- the ups and downs in turnover shows that sales and profits are dependant on external factors outside the control of FIF....whether they make a good product or not
- they make a physical product....so to sell it a distance from the factory involves costs and makes it harder for them to compete in other countries, and/or reduce the margin after paying transport costs
- the interest cost + depreciation cost is the same as the PAT.
- the PAT is only approx. 2 X interest cost......if they have to pay higher interest rates at some time in the future then the PAT will be hit hard
- high debt relative to PAT. around 32M bank debt and 4.3M deferred payments. paying off around 4M /year on average...so 9 years to pay off approx.
Actual debt pay off in the future....will only be known after the future has occurred !
- they do not own most of the brands they produce...and they do not own the outlets....hence a lot of things that affect performance are outside of their own hands.
- they do not receive long term orders for most of sales. instead it appears that they receive daily and/or weekly orders. The supermarket does not really care if they sell bread from company 1 or company 2....they are interested in making maximum profits.
- the supermarket chains are experts in making suppliers compete on price
- it is a bad sector historically. many companies have gone bust or been bought out at low prices
- the P/E ratings for shares for companies in the sector are normally low
- FIF main turnover comes from cake sector where it is No.1 or No. 2 in the UK it appears....it is unlikely that they can get people to eat more cake than they do at present. (the competitors will also be ....competing !)
- risk of reduced sales in the sector due to retailing sector having a hard time, due to economic problems
- most of FIF sales are cakes and hence are not basic eating items but are an extra. In times of economic problems like now...there is a risk of X for sales.and for margin
- to increase sales FIF always has to buy and use more raw materials and gas and wages. In return they get a very small profit, 2% PAT of turnover at FIF level.
- to increase sales above a certain point they have to add shift working...and after that to rent another factory and buy expensive machines...and provide staff.....large shifts in turnover can not be switched ON/OFF in 1 day.
...for say a software company it is a different situation.
- the board appears to have performed very badly. The FIF board made at acquisition that cost 38M + 4M real value of lease + approx. 10M debt. ie. 52M.
That acquisition looks to be the cause of the collapse in the FIF share price ...started immediately after the acquisition. The share price is still only 1/3rd of what it was then the acquisition was made. ....at the same time the CEO left , a few months after the CEO left and the FD left before (he would have been involved in the take over discussions) !!
Did the FD and chairman know what was about to happen even though it was them that did the deal ?!!
- the CEO keeps changing. Will the current new CEO leave in 1 or 2 years if he manages to exercise his massive options package ?
and receive 1 years salary ?
and then yet another CEO....and yet another big options package ?
- do the option writers know what they are doing ? small options package for previous CEO and he did a good job !! (EPS up, share price to 100p !!) resigned himself, if he sold then he made good profit. Ex-chairman made millions by exercising options and warrants at 20p and 30p and selling at 90p !!...Now massive options package for new directors which they can exercise and then leave if they wish in 2013. Repeated dilution.
- a lot of on-going dilution in the EPS by repeatedly providing options to directors.
- current amount of options is very big as a % of the number of existing shares
- the accounts for recent years are full of words like "challenging", "difficult"
- wages bill and cost of materials is very big versus PAT. risk of X.
- if increase wages bill by 3% every year....it increases costs by millions ..then it is a big risk to the amount of FIF profit.
- sales and profit is dependant in pasrt on cost of raw materials. On 2-7-2008 the co. announced that profit would be down by 1.5M due to material costs (flour, eggs, butter) having increased. The co. needs X years to pay off its debt, could raw material costs be high during one of those years ?
- no dividend since has to concentrate on reducing debt.
- risks if economic problems get worse, which is expected in Europe and may encroach into the UK since UK sells 40% of exports to Europe..so they are linked...
- if Euro falls then UK economy will suffer due to pound being more expensive
- if Euro falls then FIF sales to Europe would be expected to be hit. If Euro falls by say 20% and selling price in Euros increases by 20% then one could envisage that there is a risk of X that european sales could stop....completely (since products made in Eurozone could then be cheaper).
--------

FIF has had years of acquisitions....and of moving production from factory 1 to factory 2 to reduce costs...reduce costs by closing site of factory 1. Investing in new machines which produce more for the same costs.....

and the result so far seems to be that profitability is the same as it was X years ago. 7.0p diluted EPS in 2010 and 7.1p diluted EPS in 2011 despite 20M more turnover. ADVFN says diluted EPS was 7.4p in 2008 and also 7.4p in 2011.
ie. that the acquisition of Lightbody has not increased the EPS !!....

ie. appears that FIF is having to run hard and make many improvements ....to stay still..

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The big options issued in July 2011 (6.5M) and the existing large number of options will be a big increase in the number of diluted shares in 2012 accounts and 2013, makes it harder to increase the diluted EPS in 2012 and 2013.
----

The issuing of massive amounts of options would infer for many people that the board perceive that it is not an easy smooth road for FIF in 2012 and 2013 and there are many risks.....and hence that massive incentives are needed for the directors....to try to make sure that they stay and to try to provide motivation.

-----

The number of options is now a massive %. (I don't think any of the 'longs' realise).

[markt] 26/11/2011 17:57

Thread title should perhaps be "negative aspects and risk factors"...but can't change it now.

----
For +ve points about FIF....read the Boffster thread...but any -ve comments are sometimes not very welcome on that thread since most posters are shareholders and only want to see +ve posts...

some -ve posts are on occasion deleted on the Boffster thread.

....so I create this thread...

=====

The intial 2 posts on this thread...by yours truly !.....do not attempt to discuss the pros and cons of the FIF shares wrt a specific share price...or say it is a good buy , hold or a good sell.

....the intial 2 posts attempt to do what the thread title says....."-ve aspects relative to FIF"

[bonio10000] 25/11/2011 20:11

well - the shareprice seems to be exhibiting a

markt improvement

;-)

[markt] 25/11/2011 17:32

2005 options scheme from Ian Farnsworth
"The scheme is wholly based on performance and
the number of share options that can be exercised is dependent on the actual earnings per share for
the year 5 years after the date of grant".

In 2011 3.25M options vest 2 months after the options are awarded....

BIG change...and no explanation to shareholders.
Before the remuneration committee explained its policy and stated the perf. targets.
Now....mega issue of options (12%) and not 1 word of explanation.

Very strange imo.

[markt] 25/11/2011 17:26

21st Aug post
"I informed that other companies give real info in their trading updates such as profit numbers....while FIF intentionally does not give this important info. ie. that FIF is intentionally keeping shareholders in the dark."

The RNS of yesterday is the same.....nothing has changed.
No profit information, no margin information. ..."that FIF is intentionally keeping shareholders in the dark"

[markt] 25/11/2011 17:23

options
the 2005 accounts on p33 state the performance reqts. to be met for options for directors....and that max. of 0.75% of the issued share cap. would be issued.

Ian Farnsworth was the renumer. committee chairman....and I think he still is

Yet in 2011.....big change in policy....
12% issued in new options....I think to vest over 2 years, fin year 2012 and 2013....6% per year ! (even if it is 3 years then it is 4%, much higher than 0.75%)

yet no explanation to shareholders of why the complete massive change and why so many options...
and before the options perf. conditions were stated in accounts...and now Mr Beale says that it is commercially sensitive information !

[jpjp100] 25/11/2011 15:35

My main concern for FIF in the short term is that it is operating in a market with excess capacity. Will one of the other players in the market 'do something silly' to win back some of the market share that FIF has taken from them in achieving 17% sales growth in a broadly flat market?

I hope FIF's strong control on costs, its licence portfolio, free from and growing (albeit from a small base) European market are a deep and wide enough moat to protect its castle from such actions.

But I don't know enough about the other players in the market to judge what might be round the corner.

You can be sure of one thing: The big retail customers know more about the overall market than any one supplier and they are not shy about using that knowledge to their advantage.

[spaceparallax] 25/11/2011 14:32

Have a read of our recent posts on the ILX thread = might be enlightening re Markt

[jpjp100] 25/11/2011 14:20

markt, whatever the reasons for your in depth study of all things associated with Beale and the companies that he is involved in, your observations are useful to many

have you considered talking with AIM or the FSA with a view to understanding if your concerns are significant from a regulatory perspective?

[markt] 25/11/2011 13:05

sorry for a string of posts...but this is a valid question I think...

----

Options

Do directors keep their options if they leave the company ?
D.Brooks is listed as having 652k options.(1.2% of FIF)..ex-CEO I think....but he left FIF around 2008....
.....then Martin Lightbody as CEO...and now Mr Duffy....

Each director with options can leave and the options stay in place ?

If keep issuing millions of new options to new directors and if they then leave and options stay in place....dilution....

[markt] 25/11/2011 12:59

Lightbody-Stretz
...the company that acts as agent in France......performing very well...

50% owned by FIF

but

if FIF is keen to increase sales in Europe should it not set up its own sales route ?....and get 100% of the profit

Perhaps for France there is an agreement that L-Stretz does it....
but surely FIF could still do itself in rest of Europe, no ?

If the expected turnover is small then it is not viable....but the turnover is significant imho.
..and if can sell to the French s.markets then why not to the Germans, 80M of them....
...and if sell to supermarket distribution depots then don't need much of a sales team/cost

[markt] 25/11/2011 12:32

well done to FIF for the large increase in turnover...

...but what about telling shareholders and the market a bit more...some real info...like effect on profit

margin is down....by how much ?!!

[spaceparallax] 25/11/2011 10:45

it does sound like a cop-out.

[aleman] 25/11/2011 09:47

Did anybody ask them about their plans on returning to paying dividends?

[spaceparallax] 25/11/2011 09:42

thanks Boff, just remember the doggy bag next time.

[jpjp100] 24/11/2011 21:06

TS as good as can be expected imo

cautiously optimistic, but mindful of a tanking economy, tough customers, a competitive market and uncertain commodity markets

happy enough here