Price increases, better management and a lucrative deal with confectionery and snack specialist Nestlé helped three-year old Finsbury Foods to pull itself out of the red in the last half of 2004.
There was also an impressive performance from the firm's speciality bread business, Nicholas & Harris, which appears to have found a lucrative position between small craft bakers and their larger industrial counterparts.
Sales rose by five per cent on last year to £29 million yet net profit for the six months stood at £2.3 million; a far cry from Christmas 2003 when Finsbury found itself £0.3 million in debt after a skilled labour shortage and "significant manufacturing inefficiencies" caused problems in meeting demand.
John Lomer, Finsbury finance director, said the firm's five-year deal with Nestlé, in which Finsbury's Memory Lane cake business would make cakes under Nestlé brands including Smarties and Milky-bar, had gone particularly well. The firm said it was currently launching 10 new products as part of the Nestlé partnership.
"Private label is still the biggest part of the business but there are a lot of benefits in branded goods too. They raise levels of professionalism and improve the company's credibility, which also makes it easier to recruit good staff. Of course, they also offer higher profit margins," said Lomer.
Even so, Finsbury's private label operations have continued apace with deals to supply a range of the UK's major multiple retailers, including market leader Tesco.
Lomer said the firm's success was down to its focus on indulgent products made with high quality ingredients: "When people indulge they want something good". A recent Datamonitor survey showed that 73 per cent of consumers asked saw quality as the most important factor when choosing a treat.
This tactic has so far helped Finsbury to progress without tapping into healthy eating trends such as low-carb and low fat.
"The multiples are constantly looking for health innovation and we have people working on this area, but we don't want to produce a poor product," said Lomer.
"If we can make it taste as good as a standard product then maybe, but that's not the case with low fat at the moment. Many low fat products are filled with extra sugar anyway," he added.
Britain's market shift towards premium products, with the cake market value rising 3.8 per cent last year as a result of higher prices, suits Finsbury's whole product portfolio well.
The firm said its speciality bread business, Nicholas & Harris, performed ahead of expectations during the second half of 2004 and an extension to its manufacturing plant was about to come on-stream, increasing capacity by 50 per cent.
Lomer said the business, which recently signed a deal to launch new products in Asda and become one of the retailer's new product development partners, had a lot of potential.
He said the business' artisan bread, essentially using the natural processes of craft baking with highly skilled workers, was becoming more popular with consumers and was "nice to eat without lying on the stomach in the same way as industrial bread".
Lomer said the size of Nicholas & Harris was crucial: "If you are too tiny you don't have the credibility, but if you are too big then you would want to be too automated."
Even so, Lomer added that Finsbury had an advantage because "it's an area where the big plant bakers don't want to be because it doesn't work for their business model".
Speciality breads have been one of the most popular innovation areas for multiple retailers and private label was well ahead of the big brands last year, according to market analyst group Mintel.
The premium bread sector generally has also grown rapidly in the UK with one third of wrapped bread now sold as a premium product. By comparison, sales of white-sliced bread have fallen slightly over the last few years.
One of Finsbury's main challenges for the rest of the year will be controlling costs to maintain its newfound profitability; something which its premium product portfolio can help with despite multiple retailers driving a notoriously hard bargain.
Lomer said the company's main concern was the projected increases in the UK minimum wage, which "will have a significant impact on costs over the next few years".
He said the company was likely to concentrate on consolidating existing businesses over the next year, unless a particularly lucrative opportunity appeared.