Finance Genius

  露辛達布魯斯-加戴恩和杰維斯科塔姆，分別是創始人兼首席執行官天才食品（天才）的領導人之一。
2010年9月在united king dom(uk)進行無麩質烘焙會議，以檢討公司的戰略計劃。在只有15個月里，天才們銷售額已經達到了
千萬英鎊。要完成一個了不起的成就，五年內要達到一個新的里程碑，將要要采取LACTOFREE的，另一種“自由”品牌。露辛達和杰維斯不談業務如何增長，而是關注財務發展，天才是一家私營公司，如果要維持下去，留學生dissertation只能依靠其內部產生的收益，是否能通過銀行貸款來資助擴張計？那么應該找到上市的交易所，但是誰會給它機會利用金融市場的股本和債務資本？天才是一個獨立的實體公司，但其產品制造是芬斯伯里食品集團的（芬斯伯里）。芬斯伯里是非常熱衷于進一步的綜合和收購，并有實際意義想法的合資企業。它會是天才最佳合作伙伴嗎？

   It was September 2010 and Lucinda Bruce-Gardyne and Gervase Cottam,
respectively founder and chief executive of  Genius Foods (Genius), one of the
leading gluten-free bakery in the  www.400190.com  United King dom (UK), were meeting to review the
company’s strategic plan. In only 15 months, Genius had reached sales revenue of
￡10 million, a remarkable achievement – it  had taken Lacto free, another “free from”
brand, five years to reach this milestone. Lucinda and Gervase were not short of
ideas to grow the business. But they were concerned about how to finance this
growth. Genius was a private company. Should it remain so, and rely on its internally
generated earnings, and maybe bank loans,  to finance its expansion plans? Should
it seek a listing with a stock exchange, which would give it the opportunity to tap
financial markets for equity and debt capital? Genius was an independent entity, but
its products were manufactured by Fins bury Food Group (Finsbury). Finsbury was
very keen on further integration, and had moot ed the idea of a joint venture, or even
an acquisition. Would it be in Genius’s best interest to tie the knot?

 
Genius Foods 天才的食品

  Genius was founded by Lucinda Bruce-Ga rdyne, a housewife and mother of
three who had been trained at Leiths School  of Food and Wine and had previously
worked at Bibendum, a top restaurant in  London. Two of Lucinda’s children suffered
from food allergies and intolerances,  and could not eat bread and cakes. This had
given Lucinda the motivation to develop recipes for gluten-free bakery products, so
that her children could enjoy bread and cakes,  like all other children.  With the help of
Sir Bill Gammell, a local businessman whose child had a gluten intolerance, Lucinda#p#分頁標題#e#
had launched Genius in April 2009. With in 15 months, it had become one of the
leading free from brands, on track for reac hing sales revenues of ￡20 million this
coming year.
 
  Genius currently offered a limited  range of bakery products, which were
manufactured by United Central Bakeries Ltd (UCB), a subsidiary of Finsbury. These
products were sold by supermarket chains  such as Asda, Morrisons, Sainsbury’s,
Tesco and Waitrose. In March 2010, Lucinda had also reached an agreement with
Starbucks, the coffee chain, to supply gluten-free bread to 600 branches in the UK. 
 
  But Genius would not st op there; Lucinda and Gervase had plans to grow the
business in two directions. First, they  were contemplating  expanding abroad, in
particular in North America. The United States (US) market was about eight times
the size of the UK market, and Gervase had  estimated that it currently represented
about 60% of worldwide sales for gluten-free products; this was close to $3 billion.
Though the potential was huge, entering the  North American market would not be
easy. Genius had no experience doing business abroad, it was completely unknown
outside the UK, and had limit ed financial resources.
 
 Lucinda was also keen on diversifying the range of Genius’s gluten-free
products, and go beyond selling bakery products. She had developed recipes for
sausage rolls, chicken and steak pies, Cornish slices, etc. Her aim was to offer
 people who were avoiding gluten either for medical reason or by personal choice a
whole range of high quality food products. Genius was now a well-recognised brand
by both customers and distributors, and she thought that it was time to leverage up
this brand to diversify the portfolio of products. But this would require additional
investments, and Genius currently did not have enough funds to afford a rapid
expansion of the product portfolio.

Three Options 三個選擇
 
  To finance Genius’s expansion, Luc inda and Gervase had identified three
options.
 
  The first option was to remain a privately held and independent company.
Genius was Lucinda’s “baby”, and though she wanted to grow her business, she did
not want to relinquish control and have other people dictate the company’s strategy.
This option would require re-investing internally generated earning s, and maybe turn
to high-street banks to provide loans. In  the aftermath of the  credit crunch, most
banks were restricting credit. This meant that Genius might have to delay some of its
expansion plans.
 
  The second option was to seek a  listing with a stock exchange. Gervase#p#分頁標題#e#
thought that the alternative investment market (AIM) of the London Stock Exchange
(LSE) was a good place to list a company like Genius, though he had not
investigated what it would take to obtain a  listing. Being a public company would give
the company more visibility, and it would be the opportunity to tap financial markets
for both equity and debt capital. But becoming a public company was expensive, and
brought its lot of challenges.
 
  The third option was to team up with  another company, and benefit from their
industrial expertise as well as capita l. Genius already  had an agreement with
Finsbury, which was manufacturing its products. Finsbury had a track record of
acquiring businesses, and seemed interested in closer ties with Genius. They could
help grow the portfolio of products, though they did not have much knowledge of the
North American market either. But even if there was an existing relationship between
Genius and Finsbury, Lucinda and Gervase were not ruling out finding another
partner, including a foreign one.

 
Finsbury Food Group 芬斯伯里食品集團
 
  Finsbury was a UK-based foods group  listed on the AIM of the LSE. The
company had mainly grown through acquisitions, and was now a portfolio of
subsidiaries including Lightbody of Ham ilton Ltd, Memory Lane Cakes Ltd (which
produced cakes for Nestlé, Weight Watchers and Thorntons), UCB (the subsidiary
producing Genius Foods’ gluten-free bakery products), Nicholas & Harris Ltd and
Goswell Enterprise Ltd, a recent additi on that had cost the group ￡2.2 million in
2009. These acquisitions had enabled Finsbury to grow quickly, but they had
increased the group’s financial  gearing substantially. As long as earnings were
growing, the relatively high level of debt was not too much of an i ssue. But the recent
recession had put pressure on sales revenue, which were down 6% between 2009
3
 
and 2010, at ￡168.3 million. Margins had also suffered lately, due to an increase in
the price of food commodities such  as sugar and wheat, combined with a
strengthening of the currencies these commodities were traded in. The gross profit
margin had however recovered slightly between 2009 and 2010.
 
  The dangerously high level of debt had pushed Finsbury to take actions, and
engage in restructuring activities. A new  management team had  been appointed to
turn around the company. John Duffy had ta ken over as chief executive officer
(CEO) in September 2009, joined in January 2010 by a new finance director,
Stephen Boyd. Both men had worked in the f ood industry before, and came from
private equity firms. They therefore  had valuable experience restructuring#p#分頁標題#e#
operations, and negotiating with providers of  capital. They soon put in place
measures to achieve cost savings, whilst at the same time acti vely managing their
banking relationship.
 
  As of July 2010, Finsbury had net debt1 of ￡36.5 million, down from ￡41.0
million the year before. It had access to a ￡50.2 million facility with HSBC Bank plc,
including a ￡2.0 million overdr aft, a ￡16.0 milli on confidential invoice discounting
facility, a ￡12.9 million term loans repayable ov er five years, a ￡4.7 million term loans
repayable in five years, a ￡8.2 million mortgage facility and ￡6.4 million rolling asset
finance facility. But there was still a non-neg ligible amount of cr edit risk: ￡13.5 million
had to be repaid within a year; some of the loans and borrowings carried variable
interest rates that could increase overni ght; and Finsbury was subject to strict bank
covenants. To preserve cash, Finsbury had also eliminated its dividend, and did not
plan to re-instate it in the near future.
 
  Finsbury’s aim was to grow earnings and  cash flows to be able to pay down
debt and invest in growth opportunities. The agreement with Genius had been a
bonanza, boosting the group’s sales and improving margins. It was therefore
important to keep the relationship with G enius alive and thriving, and Finsbury was
prepared to make additional investments to support Genius’s growth.

 
Conclusion 結論
 
  Lucinda and Gervase were in need  of help to determine how to finance
Genius’s growth. They were in particular looking for:

  A critical assessment of Finsbury’s  financial health. As Genius relied on
Finsbury to manufacture its gluten-free products, and could potentially
become an even closer partner, Lucinda and Gervase wanted to make sure
that the food group wa s not facing any major financia l issues. In particular,
they wanted reassurance that Finsbury  was not overly indebted, and that its
cost of capital was not so high that it would prevent positive net present value
projects to be undertaken.
 
  Recommendations as to which option  to follow:
  (1) remain independent and
rely on its internally generated earnings , and maybe bank loans, to finance its
expansion plans
  (2) seek a listing with a stock exchange, which would give it the opportunity to tap financial markets fo r equity and debt capital or
 (3) tie the knot with either Fins bury or another suitor.

 
Resources 資源
 
For your analysis of Finsbury’s financial health, use:
   The Annual Report & Account s 2010 (posted on myBU); and
   If necessary, databases available via the library (e.g. FAME, Thomson#p#分頁標題#e#
Analytics).
 
For financial market information (e.g. share prices, yields, etc), use  free resources
on the Internet. Please make sure that you always cite your source.