REG - Bakkavor Group PLC - Full Year Results 2021
08/03/2022 07:00
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RNS Number : 9354D Bakkavor Group PLC 08 March 2022
8 March 2022
Bakkavor Group plc
2021 full year results
Outperformance and strategic progress while navigating unprecedented industry
challenges
Bakkavor Group plc (the "Company") and its subsidiaries ("Bakkavor" or "the
Group"), the leading international provider of fresh prepared food ("FPF"),
today announces its full year audited results for the 52-week period ended 25
December 2021.
Financial outperformance(1) and strengthened balance sheet
( )
· Like-for-like revenue(2) ahead of pre-pandemic levels, up 1.2% on
2019, and up 6.2% on 2020 to £1,885.6m
· Group reported revenue up 4.4% to £1,871.6m
· Adjusted operating profit(2) of £102.0m, ahead of market
expectations(1) and up 22.0%
· Basic earnings per share of 9.8 pence, up 3.9 pence
· Free cash flow(2) of £91.2m, up £51.1m
· Leverage(2) of 1.9x within medium-term target range, delivered 6
months ahead of previous guidance
· Total dividend per share for 2021 up 10% on 2019, with final dividend
of 3.96 pence per Ordinary share proposed
Good strategic progress underpins future growth and improving returns
· Our scale, experience, category leadership and breadth of portfolio
in the UK has underpinned our significant progress, and puts us in a strong
position to continue to succeed
· US like-for-like revenue up 31.8% and recent investments unlock
capacity for further growth
· Steady top-line recovery in China, and our strategic focus on
entering new channels is being realised with new customers
· Group adjusted operating margin(2) up 70 bps despite inflationary
headwinds and labour challenges, as a result of our strict focus on cost
control and operational efficiency
· Group net carbon emissions reduced by 4.1%, with 'roadmap' to deliver
our 2040 net zero commitment in progress
Remain well-positioned to successfully mitigate inflationary headwinds
· Sales volumes in early 2022 have been encouraging, giving confidence
in the continuation of the Group's revenue momentum through the year
· The Group is committed to mitigating the impact of significant
inflationary headwinds through continued price recovery with customers, strict
cost control and productivity improvements
· The Group is confident in delivering 2022 in line with market
expectations(1) as our established teams, commercial philosophy and dynamic
ways of working equip us well for successfully navigating the tough
environment
· Strong cash generation and strengthened balance sheet provides
flexibility for targeted investment to deliver further efficiencies and take
advantage of medium-term growth opportunities
FINANCIAL SUMMARY FY 2021 FY 2020 Change
£ million (unless otherwise stated)
FY 2019 Change
Group revenue 1,871.6 1,793.5 4.4% 1,885.9 (0.8%)
Like-for-like revenue(2) 1,885.6 1,775.1 6.2% 1,862.9 1.2%
Adjusted EBITDA pre IFRS 16(2) 154.2 139.2 10.8% 138.0 11.7%
Adjusted operating profit(2) 102.0 83.6 22.0% 89.7 13.7%
Adjusted operating profit margin(2) 5.4% 4.7% 70bps 4.8% 60bps
Operating profit 102.0 62.0 64.5% 69.4 47.0%
Operating profit margin 5.4% 3.5% 190bps 3.7% 170bps
Profit before tax 81.4 44.2 84.2% 43.8 85.8%
Basic earnings per share 9.8p 5.9p 3.9p 6.4p 3.4p
Adjusted earnings per share(2) 10.4p 8.7p 1.7p 10.3p 0.1p
Free cash flow(2) 91.2 40.1 51.1 46.9 44.3
Operational net debt(2) (293.7) (333.4) 39.7 (354.8) 61.1
Dividend per share(3) 6.60p 0.00p 6.60p 6.00p 0.60p
1. Based on company compiled consensus ("Consensus") which includes
the following institutions: Peel Hunt, Citi, Investec, Numis, Goodbody,
Berenberg and HSBC. Operating profit Consensus for 2021 of £97.4m.
Operating profit Consensus for 2022 of £98.1m. Last updated on 7 March
2022.
2. Alternative Performance Measures are referred to as
'like-for-like', 'adjusted', 'underlying' and are applied consistently
throughout this document. These are defined in full and reconciled to the
reported statutory measures in Note 13.
3. During the period, the final dividend relating to the period ended
28 December 2019 was paid, please refer to Note 10 for further details.
AGUST GUDMUNDSSON, CEO, COMMENTED:
"In 2021 we achieved meaningful financial and strategic progress against
unprecedented industry challenges. We have continued to leverage our scale,
category leadership, and strict focus on efficiency and cost control to emerge
in a position of strength. Our outperformance, and the support we have given
to our customers, suppliers and communities, would not have been possible
without the exceptional efforts of all of our colleagues, for which I am
incredibly proud.
"While we expect the significant inflationary pressures to persist, we have
demonstrated our ability over the past 36 years to navigate such headwinds. I
believe we are well-positioned to mitigate these challenges, giving us
confidence in delivering on our expectations for the full year."
PRESENTATION
A copy of the 2021 full year results are available on www.bakkavor.com
(http://www.bakkavor.com/)
We will be presenting to analysts in-person and via a webcast at 09.00 am, 8
March 2022, through the Investor section of the Group's website
at: https://q4-emea.wavecast.io/bakkavor/2021-full-year-results
(https://q4-emea.wavecast.io/bakkavor/2021-full-year-results) . The
presentation can also be accessed via a replay service shortly after the
presentation has concluded.
ENQUIRIES
Institutional investors and analysts:
Ben Waldron, Chief Financial Officer
Emily Daw, Head of Investor Relations +44 (0) 20 7908 6114
Financial media:
Rachel Farrington, MHP Communications +44 (0) 20 3128 8613
Oliver Hughes, MHP Communications +44 (0) 20 3128 8622
Katie Hunt, MHP Communications +44 (0) 20 3743 8794
About Bakkavor
Bakkavor is the leading provider of fresh prepared food ("FPF") in the UK,
with a growing international presence in the US and China. The Group is the
number one by market share in the UK in the four FPF product categories of
meals, salads, desserts and pizza & bread, providing high-quality, fresh,
healthy and convenient food. Its customers include every major UK grocery
retailer, including Tesco, Marks & Spencer, Sainsbury's and Waitrose, and
some of the world's best-known food brands. Bakkavor was founded in 1986 and
has its headquarters in London. The Group has c.19,000 employees and operates
23 factories in the UK, 5 in the US and 9 in China.
LEI number: 213800COL7AD54YU9949
Disclaimer - forward-looking statements
This statement, prepared by Bakkavor, may contain forward-looking statements
about Bakkavor. These represent expectations for the Group's business, and
involve known and unknown risks and uncertainties, many of which are beyond
the Group's control. The Group has based these forward‐ looking statements
on current expectations and projections about future events. These
forward-looking statements may generally, but not always, be identified by the
use of words such as 'will', 'aims', 'anticipates', 'continue', 'could',
'should', 'expects', 'is expected to', 'may', 'estimates', 'believes',
'intends', 'projects', 'targets', or the negative thereof, or similar
expressions.
By their nature, forward-looking statements involve risk and uncertainty
because they relate to events and depend on circumstances that may or may not
occur in the future and reflect the Group's current expectations and
assumptions as to such future events and circumstances that may not prove
accurate. A number of material factors could cause actual results and
developments to differ materially from those expressed or implied by
forward-looking statements. There may be risks and uncertainties that the
Group is unable to predict at this time or that the Group currently does not
expect to have a material adverse effect on its business. You should not place
undue reliance on any forward-looking statements. These forward-looking
statements are made as of the date of this announcement. The Group expressly
disclaims any obligation to publicly update or review these forward-looking
statements other than as required by law. Some numbers and period on period
percentages in this statement have been rounded or adjusted in order to ensure
consistency with the financial information.
CHIEF EXECUTIVE'S OVERVIEW
Growth and strategic progress despite unprecedented industry challenges
We have delivered robust growth and achieved meaningful strategic progress
during a year in which we have faced unprecedented industry-wide challenges.
Whilst we, along with the wider industry, have had to manage significant
supply chain disruption and labour shortages, it is the resilience of our
business model combined with our customer and supplier relationships, category
expertise, deep management experience and strengthened financial position that
have underpinned our progress during the year.
Our customers remain at the heart of what we do, and we have supported them
through this challenging period by ensuring the continued availability of our
products, underpinned by our well-established global supply chain network and
relentless focus on excellence across our operations.
We are successfully managing the inflationary headwinds across our cost base.
Our existing pass-through mechanisms are working well, and we have secured
price increases across our customer base to recover input cost and other
inflation. Our focus on operational excellence has also delivered a
year-on-year improvement in efficiency, helping to mitigate the higher cost
environment.
As ever, I am incredibly proud of all of our colleagues, without whom our
strong performance would not have been possible. I would like to personally
thank them for their exceptional efforts which are hugely valued by our
customers, suppliers, and communities. We continue to work hard to support our
colleagues in these challenging times. I was particularly pleased to relaunch
our new values in the year, putting our people front and centre of what we do
and how we behave, and alongside this we have made a significant investment in
training and development.
Overall, we have continued to build on the strong foundations put in place in
previous years, and in conjunction with our redefined values we are
well-positioned to deliver long-term sustainable growth.
A strong financial performance and further strengthened our financial position
Despite the unprecedented challenges encountered through 2021, we delivered a
strong and resilient financial performance across the Group. Reported revenue
increased by 4.4% to £1,871.6 million, driven by the recovery in UK demand,
albeit performance was held back by the continuing supply chain and labour
challenges that have accelerated since the summer. Our US business continued
to deliver meaningful progress with strong top-line growth, and China, whilst
showing good year-on-year growth, remains behind 2019 levels due to ongoing
regional lockdowns meaning a slightly slower recovery . Compared to 2019, the
Group delivered a 1.2% increase in like-for-like revenue.
Our focused and controlled approach to ramping up the business in 2021 and
managing the inflationary headwinds and industry-wide disruption, has
delivered significant progress in profitability in the period across all three
regions. Adjusted operating profit increased by £18.4 million to £102.0
million and adjusted operating margin increased by 70 basis points to 5.4%.
The Group has not incurred any exceptional costs in the period and therefore
there are no adjustments to operating profit.
We spent £55.6 million during the year across our asset base. We have
invested in factory automation, with the continued roll-out of our automated
'smart' manufacturing system in the UK, and have increased our spend on
payback projects that underpin our operational excellence initiatives.
Further, we have continued to increase capacity and enhance our capabilities
internationally.
The financial position of the business has continued to strengthen. We
generated £91.2 million of free cash, and reduced operational net debt by
£39.7 million, resulting in a further reduction to leverage (ratio of net
debt:EBITDA). Our leverage, at 1.9 times, now sits within our target range of
1.5x to 2.0x and is the lowest since we listed the business in 2017, and we
continue to operate with significant liquidity headroom. Our continued cash
generation and robust balance sheet position provide increased flexibility to
invest in the business for growth and we are pleased to recommend a final
dividend of 3.96 pence per Ordinary share, providing a total dividend for the
year of 6.60 pence per Ordinary share.
Clear focus on our colleagues, products and operational performance delivered
positive UK recovery
Our clear focus on delivering innovative, great-tasting, fresh products for
our customers every day, underpinned by our operational excellence and
approach to retaining and attracting talent, has been critical to our strong
performance in the UK.
Prioritising and investing in our colleagues
Our colleagues remain our priority and I am hugely supportive of the steps we
have taken during the year to enhance ways of working and invest in
development and recognition, whilst also being agile in our response to
industry-wide labour shortages. This positions the Group well in the context
of ongoing labour challenges.
We have implemented a range of initiatives to increase our recruitment and
manage our retention as we, along with the wider industry, have faced a high
level of vacancies and employee turnover. Since 2019, remuneration of our
senior executives has been linked to delivering an improvement in retention
and this will continue to be a key metric for our business. More recently, we
have reset pay rates and provided additional and enhanced benefits including
free transport, referral bonuses, increased flexibility in working patterns
and upgraded site facilities.
We have also made significant investments in developing our talent for the
future, with the launch of two training programmes: an Executive Leadership
Development Programme and a Front-Line Leaders Development Programme for all
UK factory supervisors.
In recognition of the incredible work that our colleagues deliver, in December
2021 we held our 'Proud to Be Bakkavor' awards. These awards celebrated our
colleagues achieving fantastic results for our customers, colleagues, and
communities. We received over 80 submissions which included a diverse set of
nominations across all areas of the business including product innovation,
excellence in operational delivery and wellbeing initiatives.
Leveraging deep consumer insight to drive growth through product innovation
In the UK, following initial disruption from the pandemic, we were strongly
encouraged by the recovery in sales as lockdown restrictions eased and
shopping visit frequency returned. Against the backdrop of labour shortages
and supply chain disruption, we focused on maintaining availability of core
product lines whilst also developing innovative products to drive growth in
our categories.
We launched over 340 new products in 2021, responding to consumers' desire to
'do better' underpinned by our category insight which focuses on the 'big 6'
drivers of growth. We have relaunched the full range of salads for one
customer and delivered several seasonal products to make these events
extra-special for our customers and consumers. In desserts, we leveraged our
market-leading position, consumer insights and operational capabilities to
launch two new brands, to attract new consumers and enhance category growth.
Looking forward, our new product pipeline is well placed to deliver exciting,
great tasting, fresh new products which meet our customers' and consumers'
evolving needs.
Driving further operational efficiencies
Driving superior performance across the Group through operational excellence
continues to be a strategic priority, especially in the context of ongoing
industry-wide challenges that have accelerated through the year. We have
delivered another year of improvement, building on our strong foundations
across our operations and the supply chain.
We have also bolstered our operational excellence team, increased our spend on
payback projects and are driving bigger, bolder change programmes on a
Group-wide basis. These projects will better empower our teams to deliver
operational excellence, with dedicated managers in place at each site, and
enhanced management reporting of operational KPIs, through the continued
roll-out of a new automated 'smart' manufacturing system, which is now live at
16 UK sites. This in turn is supporting the identification of further
improvement opportunities and enabling us to be even more targeted in our
investments to maximise returns.
We also completed an assessment of UK site automation opportunities which has
yielded a significant number of potential opportunities, and in the context of
the tight labour market we are looking to accelerate our investment in this
area.
Good progress in the US and China, with significant growth opportunity ahead
In the US, we continue to make significant progress as we realise the benefits
of the commercial and operational reset that concluded in June 2020. Sales
growth has accelerated, as demand for our fresh, convenient products continues
to grow, and we have continued to support our strategic grocery retail and
online customers in the development and expansion of their offering. We
successfully launched a range of fresh meals with a strategic customer
nationally and delivered our biggest ever Thanksgiving for the US business.
Operationally, our focus remains on capturing the significant growth
opportunity in this fast developing market. We have enhanced and introduced
initiatives to both attract new talent and retain existing colleagues. Our
investments to increase ready meals capacity in Charlotte and Carson, to
accommodate the national supply of fresh meals, is now complete. Our existing
footprint will require further investment over the coming years to increase
capacity, and with this investment we believe these sites can deliver $500
million in revenue.
Cost headwinds, first felt acutely in the second quarter of the year, have
persisted, and whilst we have been successful in securing price increases
across our customers in the second half of the year to help mitigate the
impact, margins have been held back. Consumer demand for our fresh, convenient
food remains strong and we are well placed to benefit from the accelerating
growth in this market.
China continues to recover on a steady trajectory. Whilst we have maintained
our high service levels and continued to deliver on new product development,
the rate of recovery in our foodservice customers has slowed due to an ongoing
impact from local lockdowns, thereby dampening performance. However, the
benefit of our strategic focus on entering new channels with our existing
product ranges is being realised with new retail and catering customer wins in
China. We have seen good growth in both our Hong Kong and Bakery businesses in
2021, offsetting the weaker performance in foodservice.
With the completion of our new Wuhan facility earlier in 2021 and the new site
in Xi'an due to complete in the second quarter of 2022, we have an established
national footprint and significant headroom to continue to capitalise on the
clear growth opportunity. With this increased capacity, we expect limited
further strategic investment in the region in the coming years.
Continued progress on sustainability
Being a trusted partner to all our stakeholders is key to our future success,
and we have evolved our Group strategy to emphasise the importance of trust in
everything that we do. This includes upholding our ESG responsibilities, where
we have delivered progress in the year, but also recognising that we need to
improve further.
We set out our commitment to become a Net Zero carbon business across our
Group operations by 2040 and have started to develop our 'roadmap' to support
the delivery of this. Our Group net carbon emissions decreased by 4.1% in 2021
and this was driven by improvement in the UK, where net emissions reduced by
15.0% on 2020. This is underpinned by the investments we have made to continue
to upgrade our refrigeration systems and drive energy efficiency improvements,
with the conversion to more efficient LED lighting now complete across the
majority of our sites. We have also sought to better understand our climate
risk exposure and are voluntarily reporting under the Task Force on
Climate-related Financial Disclosures ("TCFD") guidelines for the first time.
To support meeting the UK Plastics Pact's goals of eliminating problematic
plastic packaging, we have removed c.400 tonnes of plastic in the year and
increased the recyclability of our packaging (99.8% of our packaging is
recyclable). Whilst the return in volumes to pre-pandemic levels has resulted
in a year-on-year increase in food waste, up 67 basis points to 9.15% in 2021,
we have redistributed more than 400,000 meals to charities and recycled more
than 21,000 tonnes as animal feed.
We recognise that a healthy workplace encompasses not only keeping our
colleagues safe, but also sustaining their wellbeing and in 2021 we have
enhanced the support our colleagues receive, overseen by our newly formed
Wellbeing Steering Committee.
Building on the Group's momentum in 2022
Bakkavor's history is characterised by repeated and fundamental change. In the
36 years since my brother and I founded the Company, we have seen the business
evolve enormously, and we continue to adapt and respond to the changing
environment within which we operate. This year will be no different.
Sales volumes in early 2022 are encouraging, giving confidence in building on
the Group's positive revenue momentum through 2022. We remain well-positioned
to mitigate the impact of industry-wide supply chain and labour challenges,
and resulting increases in costs, that are expected to persist in the near
term.
The tragic events in Ukraine are not causing a direct impact to our supply
chain as we do not have significant exposure to the region, however the
consequences for the global economy are uncertain at this stage. We are
carefully monitoring the situation, and our thoughts are with all those
affected.
Our market-leading position in the UK continues to deliver a robust
performance, and we see meaningful growth potential in the US where we have a
strong manufacturing footprint and strategic relationships in place. In China,
with ongoing regional restrictions we expect COVID-19 to continue to hold back
performance and the recovery to be steady, however further diversification of
our customer base will leave us well placed to capitalise on the long-term
growth potential within the region.
We are confident in delivering 2022 in line with market expectations as our
established teams, commercial philosophy and dynamic ways of working equip us
well for successfully navigating the tough environment. We remain positive
about the medium-term growth opportunity, with the Group's strengthened
balance sheet providing the flexibility for targeted investment to support
future growth, drive efficiency and deliver returns to shareholders.
OPERATIONAL REVIEW
United Kingdom: Robust financial performance despite industry-wide challenges
£ million FY 2021 FY 2020 Change
Revenue 1,592.4 1,566.6 1.6%
Like-for-like revenue(1) 1,592.4 1,548.2 2.9%
Adjusted operating profit(1) 97.8 90.7 7.8%
Adjusted operating profit margin(1) 6.1% 5.8% 30bps
Operating profit 97.8 69.1 41.5%
Operating profit margin 6.1% 4.4% 170bps
1. Alternative Performance Measures are referred to as
'like-for-like', 'adjusted', 'underlying' and are applied consistently
throughout this document. These are defined in full and reconciled to the
reported statutory measures in Note 13.
Trading performance
The UK delivered a 2.9% increase in like-for-like revenue to £1,592.4 million
(2020: £1,548.2 million) despite industry-wide challenges (notably supply
chain disruption and labour shortages) intensifying through the period with
volumes constrained as a result. This performance represented a positive
recovery in volumes as lockdown restrictions eased and demand for our fresh
prepared products has remained strong since, with like-for-like revenue down
only 2.3% compared to 2019.
The UK delivered a 7.8% increase in adjusted operating profit to £97.8
million (2020: £90.7 million), with margins up by 30 basis points to 6.1%
(2020: 5.8%) and no exceptional items in 2021. This robust performance was
delivered through a combination of sales growth, an acute focus on driving
further efficiency and supply chain management, and a tight control of costs.
Profitability was held back by inflationary pressures which accelerated
towards the end of the year. However, our pricing models mean we are able to
pass on the inflationary impact of key raw materials and we negotiate
inflationary increases for other materials, packaging, freight and labour
costs that sit outside of our cost models on a case-by-case basis. Following
discussions with our customers, we are increasing pricing for 2022, in line
with our expectations, which, alongside our ongoing efficiency drive, will
help offset inflation in the costs which sit outside of our pricing models.
Looking forward, with inflation pressures expected to persist and in certain
instances heighten in the near term, we expect to continue the dialogue with
our customers around pricing through 2022.
Whilst working hard to contain the impact of cost pressures and labour
challenges, we have ensured our operational delivery has remained strong, as
evidenced by a consistent and high-level performance across health and safety,
food safety, quality, and service.
Category update
Overall, we have seen a positive recovery in the FPF market post-pandemic. All
our categories are in growth compared to 2019 apart from salads, which faced
production constraints in 2021. We remain focused on driving an exciting
pipeline of activity to bring innovation to our categories, with the launch of
over 340 products in 2021, but in a controlled and disciplined way given the
wider industry challenges. For a small number of sub-categories, we have taken
the decision to focus on core ranges to ensure we maintain our customer
service levels and manage our labour requirements.
Whilst performance in our meals category in the first quarter was adversely
impacted by lockdown restrictions, volumes recovered well as restrictions
eased into the summer, against a weaker comparative period. This growth was
primarily driven by ready meals, supported by strong underlying performance,
new product launches and seasonal events. We have, however, taken the decision
to exit several lower margin modern-deli category lines, which have
traditionally peaked in the summer and at Christmas. Whilst this improves our
ability to utilise our year-round capacity going forward, the reduction in
volumes combined with the disruption associated with labour shortages and
supply chain challenges, has resulted in the meals category contributing a
lower level of sales in the second half of the year.
Our salads category has seen a significant recovery in demand versus the prior
year, driven by the return in frequency of shopping visits and mobility
through the year. The seasonal summer peak in salads always requires an
increase in labour, however the pace of growth post lockdown combined with
increasing challenges in labour availability meant we were unable to meet all
demand in this period. We made the decision to focus on maintaining our high
customer service levels by delivering a reduced number of products and
successfully executed the launch of over 60 products to refresh the whole
salads range for one of our strategic customers. Whilst food-to-go remains
down compared to 2019, we have seen a natural strengthening of the category
and demand remained strong through the rest of the year.
In our desserts business, performance has been strong compared to both 2020
and 2019. This performance reflected the decision we made in the summer, in
the context of labour challenges, to deliver a more focused all-year-round
product range and protect the delivery of our seasonal products for the
important Christmas period, which we have successfully executed. The launch of
The Delicious Dessert Company brand is delivering what we set out to do:
bringing new, younger consumers to the category. This range has been rolled
out to 900 stores across two strategic customers in the second half of the
year and we are looking to expand the product range further.
Demand for pizza and bread remains robust, with significant growth compared to
2019 and a positive year-on-year performance versus 2020 despite lapping
strong comparatives. This was driven by good growth in flatbreads and premium
pizza ranges, as the increase in demand during the pandemic has held up as
restrictions have eased. Whilst promotional dynamics have changed in this
category, the demand for our range of products remains strong.
Strategic and operational actions
Our full-year performance is testament to the robust foundations we have laid
down, with scale, category leadership and strong relationships with customers
that are committed to driving sales of fresh prepared food through their store
networks and online channels. This positioning has enabled us to successfully
navigate the recent unprecedented industry-wide challenges. However, we remain
highly focused on mitigating these ongoing challenges which emerged with the
UK's exit from the European Union ("EU") and accelerated with the onset of the
pandemic, including supply chain disruption and labour shortages.
We have successfully minimised any disruption related to the UK exiting the EU
to date. Our detailed planning process ensures ongoing compliance, and we are
well prepared to navigate the further administrative changes still to come.
Our inbound logistics platform in Spain continues to ensure our import process
works smoothly, and we remain well prepared for the changes that were due in
the second half of 2021 but have been delayed to 2022.
We continue to work collaboratively to ensure our customers remain well
stocked with our high-quality products, whilst agreeing appropriate pricing in
the context of cost inflation. To date, we have been relatively unaffected by
the disruption to distribution across the industry, and we have continued to
support our customers who manage outbound distribution from our factories to
stores.
The recruitment and retention of colleagues remains a significant challenge
for the Group, with certain regions experiencing particularly heightened
labour shortages. We have taken several steps to mitigate the current labour
constraints, including enhancing our recruitment programme, offering flexible
shift patterns, the use of apprenticeship programmes, referral bonus schemes,
and further investment in colleague training, facilities, transport and
wellbeing. We also took the decision, after an in-depth benchmarking of our
factory labour rates across the country, to implement an out-of-cycle pay
increase to the majority of our factory-based colleagues. The impact of this
significant investment has been supported by customers through revised
pricing. Whilst labour shortages remain a challenge, we are doing all we can
to create a better place to work and position the Group as an attractive
employer.
Alongside our efforts to mitigate labour constraints, we have been investing
in automation and continuous process improvement throughout the year to
enhance productivity. We have increased resource behind our operational
excellence team to ensure we maintain pace in delivering on our efficiency
investments and develop a strong pipeline of projects, focused on reducing the
reliance on labour. Importantly, the recent roll-out of the new automated
'smart' manufacturing system (a Management Control Reporting System) across
our UK sites is providing us with highly detailed factory data upon which to
make investment decisions that will maximise performance.
Looking forward, we expect to continue to deliver growth in the UK as demand
for our fresh prepared products remains strong. However, as the industry-wide
operational challenges and inflationary headwinds are expected to persist
through 2022, we expect further engagement with our customers, to recover
pricing, will be required. We are confident that, with our strong
relationships, experience, and relentless focus on operational excellence, we
will continue to manage and mitigate these pressures effectively.
United States: Significant revenue growth and margin expansion despite labour
and inflationary headwinds
£ million FY 2021 FY 2020 Change
Revenue 180.1 146.5 22.9%
Like-for-like revenue(1) 193.0 146.5 31.8%
Operating profit 8.9 0.6 1,383.3%
Operating profit margin 4.9% 0.4% 450bps
1. Alternative Performance Measures are referred to as
'like-for-like', 'adjusted', 'underlying' and are applied consistently
throughout this document. These are defined in full and reconciled to the
reported statutory measures in Note 13.
Trading performance
In 2021, we continued to build on the commercial and operational progress made
in the last two years. We further enhanced our strategic customer
relationships in traditional grocery retail and online channels, and
underpinned our platform for growth with investment to unlock capacity across
our existing footprint.
As a result, we continued to see positive momentum through the period,
supported by growth with our strategic customers through national supply
contracts, range expansion and increased product penetration. Reported revenue
increased by 22.9% to £180.1 million and increased 31.8% on a like-for-like
constant currency basis to £193.0 million.
We are realising the benefits of the commercial and operational reset that
concluded 18 months ago, with an £8.3 million increase in operating profit to
£8.9 million, and a significant step up in margin to 4.9% (2020: 0.4%).
Margins were, however, held back by significant inflationary pressure as we
moved through the year. This was notably a result of increases in labour
rates, both regulatory and through our own out-of-cycle reset of wage rates,
as well as inflation most significantly in proteins, packaging, and
distribution costs.
Nonetheless, our simplified portfolio and improved operational efficiencies
underpinned operational gearing as volumes increased, and utilisation rates at
our newly invested manufacturing footprint picked up meaningfully.
Strategic and operational actions
In the US, consumer demand for fresh and convenient meals and other fresh
prepared food continues to accelerate. Retailers are increasingly looking to
differentiate themselves through own-label offerings, and as a leading
supplier we are driving growth in this market. The US business achieved
excellent growth in fresh meals, supported by the successful nationwide
roll-out of a range of meals to over 500 stores for a new strategic customer
and continued growth with our e-commerce customers. We have delivered a strong
pipeline of innovation through the year, bringing more healthy products to
market such as the launch of a range of low carbohydrate meals, as well as
providing convenient larger format meals for families. We have also broadened
retailers' own-label fresh food ranges, with the launch of complementary
burritos, soups and artisan bread.
Whilst industry challenges intensified through the year, the business has
delivered a strong operational performance in the US, accommodating a
significant increase in volumes with minimal disruption. To secure the
increase in headcount needed to support the level of growth, we have adapted
our approach to colleagues by increasing wage rates and introducing new
incentives, reviewing wage rate differentials, and investing in our site
facilities to provide a more attractive working environment.
We have also experienced significant input cost inflation in the period,
however there is an acknowledgement by our customers that the issues are
unprecedented and industry wide; through an open and constructive dialogue we
have successfully secured price increases in the latter part of the year. The
short-term lag in passing these costs on to customers has held back our margin
in the period.
During the year, we completed investment at our Charlotte and Carson sites,
providing the capacity to meet increased demand for our fresh meals. The
investment to enhance our houmous processing capability and capacity at Carson
continues to progress well.
Looking ahead, we remain well placed to capitalise on the significant growth
potential in the US market. We are focused on stabilising our workforce and
enhancing our internal operational structures to support the growth of our
business and drive operating leverage to further improve margin. Our existing
footprint will require further investment over the coming years to increase
capacity, and with this investment we believe these sites can deliver $500m in
revenue.
China: Steady recovery and margin improvement, moderated by short-term
headwinds
£ million FY 2021 FY 2020 Change
Revenue 99.1 80.4 23.2%
Like-for-like revenue(1) 100.2 80.4 24.6%
Operating (loss) (4.7) (7.7) 39.0%
Operating (loss) margin (4.7%) (9.6%) 490bps
1. Alternative Performance Measures are referred to as
'like-for-like', 'adjusted', 'underlying' and are applied consistently
throughout this document. These are defined in full and reconciled to the
reported statutory measures in Note 13.
Trading performance
Whilst China has largely recovered from the pandemic, it continues to see
periodic impacts from regional lockdowns, with like-for-like revenue down 2.4%
compared to 2019. The significant like-for-like revenue growth in 2021 of
24.6% to £100.2 million, and reported revenue growth of 23.2% to £99.1
million, reflected strong growth in Bakery, Hong Kong and new channels,
partially offset by reduced volumes from certain foodservice customers. We
maintain a positive outlook for continued growth in 2022 and beyond.
Whilst the business remains loss making from an operating profit perspective,
it has delivered positive EBITDA and operating losses have reduced
considerably with the steady recovery in volumes. However, inflationary
headwinds and the adverse impact of weather on seasonal produce have held back
margin improvement in the second half, with pricing on leaf crops alone over
three times the historical market rate. Our strategic investments for growth
in the region are nearing completion, with the new site in Wuhan operational
since April 2021 and Xi'an due to complete in the second quarter of 2022.
Strategic and operational actions
In China, consumer demand for fresh, convenient and healthy products across
all channels has accelerated. We continue to be well-positioned to capitalise
on this opportunity, and in 2021 we launched over 550 products and delivered
significant progress on new channel opportunities. In 2021 we were awarded the
supply of a range of food-to-go products for a large campus canteen and
delivered strong growth with a strategic retail customer through range
expansion and store roll-out, as well as launching two healthy breakfast items
for a large coffee chain and introducing meat alternatives to our sandwiches
and wraps for strategic customers. We will continue to target new channel
opportunities for growth with our existing range of fresh, great-tasting food.
The Bakery business has benefitted from our recent capacity investment and
continued to develop its customer base, particularly with online players, and
Hong Kong performance rebounded in 2021 from April onwards through a
combination of volumes returning as lockdown restrictions eased and new
customer wins, as well as continuing to roll-out our Fresh Kitchen branded
retail counters.
While our post-pandemic recovery steadily improved through the first half of
the year, continued local lockdowns and the impact of adverse weather on leaf
crops has hampered performance. The stringent government restrictions have
resulted in regional lockdowns and meant our key customer stores, often
located in more tourist and travel-centric areas, have had to close
periodically, with resulting volatility in demand that has held back sales and
presented operational challenges. Further, it was in the summer, typically our
seasonal peak in sales, when the leaf crop was particularly affected by
weather. The lower-quality produce meant yield was reduced, with a knock-on
impact on operational efficiency and inflationary pressure, the impact of
which was exacerbated as we were required to purchase additional volume
outside of our contracted volumes.
While labour also continues to remain a challenge, and we are facing over 10%
inflation in wage rates, we have continued to work collaboratively with our
customers and suppliers to successfully manage these challenges and maintained
100% service levels across our customer base. We have put in place several
measures to mitigate the impact, including expanding our recruitment pool and
continuing to focus on automation opportunities across the business. We expect
inflationary pressures across labour and raw materials to persist in 2022 but
will continue to use a number of levers to reduce the impact on our cost base
through new product development, operational efficiency and customer price
discussions.
Our significant strategic investments in the region are nearing completion,
providing an enhanced national platform for future growth with broader supply
capabilities. We successfully transferred production to the new replacement
site in Wuhan in April 2021 and work on the new site in Xi'an is progressing
well, with a slight delay due to government restrictions on construction in
the region; Xi'an is now due to complete in the second quarter of 2022. This
will provide a well-invested and solid platform for growth with plentiful
capacity to capture the meaningful growth opportunity within the Chinese
market; we expect operational leverage to increase significantly as demand
continues to recover.
Overall, we are well placed to drive further growth with our existing key
customers as they continue to expand their store footprint and capitalise on
new channel opportunities as we diversify our customer base. While
inflationary headwinds and the impact of COVID-19 are expected to persist in
2022, with our investment in capacity expansion nearly complete, we have built
a strong platform for growth.
FINANCIAL REVIEW
We delivered a strong financial performance across all our regions in 2021,
despite unprecedented challenges in the form of supply chain constraints and
cost inflation. Like-for-like revenue, operating profit and margins have all
progressed when compared to the prior year, and the pre-pandemic period of
2019. The increased profitability converted into a healthy cash performance
with operational net debt lower and leverage at its lowest since the Group was
listed on the London Stock Exchange in 2017.
Revenue
Reported revenue increased by £78.1 million, or 4.4%, from £1,793.5 million
in 2020 to £1,871.6 million in 2021.
Like-for-like revenue, which is determined after adjustments for currency
movements and the closure of a factory in 2020, was up 6.2%, from £1,775.1
million in 2020 to £1,885.6 million in 2021. Of the 6.2% like-for-like
growth, 5.9% was from volume and 0.3% from pricing. This reflects a year of
recovery in the UK and China, as sales volumes returned following the easing
of COVID-19 restrictions during the period, and due to the impact of the
pandemic on 2020 sales, and of accelerating growth in the US.
Operating profit
Operating profit increased by £40.0 million, or 64.5%, from £62.0 million in
2020 to £102.0 million in 2021 with margins increasing by 190 basis points to
5.4%. The increase in profitability across all three regions is due to the
benefits from the return of consumer demand as COVID-19 restrictions eased and
the corresponding increase in volume, with the US also benefitting from
increased volumes as capacity investments allowed for further growth.
Increasing raw material inflation and the impact of labour shortages in the UK
and US have partially offset the incremental profit from volume growth in the
second half of the year, and further inflationary pressure is expected into
next year. Whilst the Group incurred significant costs in the prior year, as
the business responded to the COVID-19 outbreak with enhanced health and
safety and hygiene protocols, these controls have remained in place and much
of the cost has continued into 2021. Operating profit also includes a credit
of £3.0 million (2020: £9.7 million) arising from the reassessment of the
need for certain commercial accruals. During the year, the Group reported a
net credit of £7.2 million (2020: £1.4 million) relating to an insurance
claim for business interruption and damage to assets at one of its operating
sites. The costs associated with a 75% payout of the annual performance bonus
are also included in 2021 operating profit.
There were no exceptional items in 2021 (2020: £23.3 million) and therefore
adjusted operating profit for this year is the same as operating profit at
£102.0 million. This is an increase of 22.0% from the £83.6 million adjusted
operating profit reported for 2020. Adjusted operating profit margin increased
by 70 basis points to 5.4% in 2021. The exceptional items in the prior year
all relate to the UK segment with UK adjusted operating profit increasing from
£90.7 million in 2020 to £97.8 million in 2021.
Finance costs
Finance costs decreased by £3.9 million, or 18.6%, from £21.0 million in
2020 to £17.1 million in 2021. The costs for 2020 include £1.7 million for
the accelerated amortisation of refinancing fees following the Group's
refinancing of its core debt facilities during the period. The remaining £2.2
million is due to a decrease in borrowing costs from lower average debt levels
in the period and the repayment of term loans in the year. The Group's cost of
bank debt is circa 3% per annum, 50 basis points lower than previously
reported following repayments in 2021.
Tax
The Group tax charge for the period increased by £14.5 million, from £10.1
million in 2020 to £24.6 million in 2021. The charge for the year represents
an effective tax rate of 30.2% on profit before tax of £81.4 million.
Excluding exceptional items and the change in fair value of derivative
financial instruments, the underlying effective tax rate was 29.7% and exceeds
the 21.7% underlying rate for the corresponding period last year. The
underlying rate is 10.7% higher than the UK statutory tax rate of 19%, with
9.7% of the increase relating to the UK Government's announcement to increase
the corporation tax rate from 19.0% to 25.0%, which will take effect from 1
April 2023. Whilst this change has no impact on current taxes in the period,
it does affect our UK deferred tax liabilities, as these were previously
provided for at 19.0%.
Given the change to rates has been enacted, the Group has now provided for
these liabilities at a rate of 25.0%, being the rate at which these
liabilities are expected to crystallise. The effective tax rate for 2022 is
expected to be slightly in excess of the UK statutory tax rate and in the
range of 20% to 22%. A reconciliation of the expected tax rate to the
effective tax rate is as follows:
£ million 52 weeks ended 25 December 2021
Profit before tax 81.4
Expected tax at 19.0% 15.5 19.0%
Impact of:
Non-deductible items (1.8)
Adjustment in respect of prior periods 1.5
Losses carried forward not recognised 0.7
Unprovided deferred tax assets now recognised (0.1)
UK deferred tax rate change 7.9
Overseas tax rates 0.9
Total tax charge 24.6 30.2%
Earnings per share
Basic earnings per share has increased from 5.9 pence for 2020 to 9.8 pence in
2021, reflecting the benefit from higher sales volumes across the business as
COVID-19 restrictions have eased, as well as increasing efficiencies across
our factories.
Adjusted earnings per share, which is calculated before exceptional items and
the change in fair value of derivative financial instruments, has increased to
10.4 pence for 2021 from 8.7 pence in 2020, reflecting the improvement in
underlying trading in the period. The weighted average number of shares in
issue during both 2021 and 2020 was 579,425,585.
Cash flow
Net cash from operating activities, which is calculated before capital
expenditure but after payments for exceptional items, increased by £55.5
million from £88.5 million in 2020 to £144.0 million in 2021. The majority
of this benefit was driven by working capital improvements, which was to be
expected given the Group's negative working capital cycle, combined with the
increase in operating profit for the year. In addition, tax paid has decreased
by £10.0 million following higher payments in 2020. This was due to changes
to UK legislation that required the estimated tax due for a financial year to
be paid within that period and the cash benefit from the UK corporate tax
super-deduction on investments since April 2021. The Group's interest paid has
also decreased by £3.5 million, mainly due to 2020 including £4.2 million of
refinancing fees compared to £0.9 million of fees in 2021. The interest
benefit from lower debt levels was largely offset by phasing of interest
payments.
Net cash used in investing activities decreased by £1.3 million in the period
from £56.2 million in 2020 to £54.9 million in 2021. This was primarily due
to lower capital expenditure in the prior year and the first quarter of 2021
as the Group delayed investment spend to mitigate against the impact of
COVID-19 restrictions.
Free cash flow for 2021, which is the key measure the Directors use to manage
cash flow in the business, was an inflow of £91.2 million, an improvement of
£51.1 million on the prior year due to the factors set out above.
Debt and leverage
Partly offsetting the £91.2 million of free cash inflow in the period was the
payment of the previously suspended 2019 final dividend of £23.2 million, an
interim dividend of £15.3 million, £0.9 million of financing fees and £1.2
million in respect of exceptional items recorded in the prior year. Overall,
this has resulted in a decrease of £39.7 million in operational net debt
during the year to £293.7 million. Leverage (the ratio of operational net
debt to adjusted EBITDA) was 1.9 times at December 2021 and within the Group's
target range of 1.5- 2.0 times. The Group's liquidity position remains strong
with headroom of over £190 million against debt facilities of £489 million
and comfortable headroom against all financial covenants.
From a debt maturity perspective, on 9 March 2021, the Group extended the
maturity date of £430 million of its core debt facilities from March 2024 to
March 2025. On 1 March 2022, the Group extended the maturity date of £430
million of its core debt facilities from March 2025 to March 2026. In April
2021 and September 2021, the Group voluntarily repaid £37.5 million of its
most expensive debt that was due to mature in June 2024. The interest margin
on this loan was LIBOR+4%. In November 2021, the Group repaid an additional
term loan of £20 million.
Investment and returns
The Group's return on invested capital ("ROIC") improved by 60 basis points
from 6.6% at the end of 2020 to 7.2% as at 25 December 2021. This reflects the
improved profitability across the Group driven by the lifting of COVID-19
restrictions combined with benefits from recent capital investments being
realised, particularly in the US. During 2021 capital investment was limited
in quarter one as projects were rephased to later in the year due to the
COVID-19 restrictions in place at that time. Thereafter further investment
took place including an increase in ready meals capacity in the US, and in
China, we completed the development of our new site in Wuhan and our
investment in the replacement site in Xi'an is underway. In addition, this
year the UK has benefitted from productivity investments in smart technology
to improve our management control and review processes. Over the medium term,
the Group expects to see an improvement in ROIC as recent investments,
including the key development projects, deliver an increase in returns. The
Group also plans to continue to spend circa 4.5% per annum of reported revenue
on capital investment going forward with a focus on return enhancing projects.
Pensions
Under the IAS 19 valuation principles that are required to be used for
accounting purposes, the Group recognised a surplus of £37.2 million for the
UK defined benefit scheme as at 25 December 2021 (26 December 2020: surplus of
£11.2 million). The increase in the surplus is mainly due to the liability
hedging in place for the scheme.
The Group and the Trustee agreed in November 2020 the triennial valuation of
the UK defined benefit pension scheme as at 31 March 2019. This resulted in a
funding shortfall of £11.7 million, which will be paid over an agreed
recovery period ending on 31 March 2024, with payments of £2.5 million per
annum.
Dividend
We were pleased to reinstate dividend payments during the year, and we now
propose a final dividend of 3.96 pence per Ordinary share. This provides a
total dividend for 2021 of 6.60 pence per Ordinary share, and would be an
increase of 10.0% on 2019 (no dividend was paid in respect of 2020). If
approved by shareholders, the final dividend will be paid on 30 May 2022.
Capital allocation policy
The Group remains disciplined in its approach to allocation of capital with
the overriding objective being to enhance shareholder value. Our capital
allocation framework is as follows:
· disciplined capital investment;
· reduce and maintain leverage to within target range;
· a progressive dividend;
· targeted approach to considering inorganic opportunities that may
arise.
Principal risks and uncertainties
There are a number of potential risks and uncertainties which could have a
material impact on future Group performance and could cause actual results to
differ materially from expected and historical results. During the year, the
Group modified three of its principal risks; 'supply chain' replaces 'raw
material and input cost inflation', 'availability, recruitment and retention
of colleagues' replaces two separate risks 'labour availability and cost' and
'recruitment and retention of key employees', and 'climate change and
sustainability' replaces 'sustainability'. The risk and uncertainties are
described in detail in the Risk Management and Risks section of the Annual
Report and Accounts for the year ended 25 December 2021, available on 18 March
2022 on the company website.
Related parties
During the period, Group companies only entered into transactions with related
parties who are members of the Group.
CONSOLIDATED INCOME STATEMENT
52 WEEKS ENDED 25 DECEMBER 2021
52 weeks ended 25 December 2021 52 weeks ended 26 December 2020
£
million
Note(s)
Underlying activities Exceptional Underlying activities Exceptional
items1 Total items1 Total
Continuing operations
Revenue 1,871.6 - 1,871.6 1,793.5 - 1,793.5
2
Cost of sales (1,330.9) - (1,330.9) (1,279.4) - (1,279.4)
Gross profit 540.7 - 540.7 514.1 - 514.1
Distribution costs (75.1) - (75.1) (70.5) - (70.5)
Other administrative costs (363.9) - (363.9) (360.1) (21.6) (381.7)
(net)
3
Share of results of associates after tax 0.3 - 0.3 0.1 - 0.1
Operating profit/(loss) 102.0 - 102.0 83.6 (21.6) 62.0
Finance (17.1) - (17.1) (19.3) (1.7) (21.0)
costs
5
Other gains and (losses) (3.5) - (3.5) 3.2 - 3.2
Profit/(loss) before 81.4 - 81.4 67.5 (23.3) 44.2
tax
3
Tax (24.6) - (24.6) (14.5) 4.4 (10.1)
(charge)/credit
6
Profit/(loss) for the period 56.8 - 56.8 53.0 (18.9) 34.1
Earnings per share
Basic 9.8p 5.9p
7
9.6p 5.8p
Diluted
7
1 The Group presents its income statement with three columns. The Directors
consider that the underlying activities are more representative of the ongoing
operations and key metrics of the Group. Details of exceptional items can be
found in Note 4 and include material items that are non-recurring, significant
in nature and are important to users in understanding the business, including
restructuring costs, accelerated amortisation of financing fees and impairment
of assets. In addition, the Group uses further Alternative Performance
Measures which can be found in Note 13.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
52 WEEKS ENDED 25 DECEMBER 2021
52 weeks ended 52 weeks ended
25 December 26 December
£ 2021 2020
million
Profit for the period 56.8 34.1
Other comprehensive income/(expense)
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain on defined benefit pension 24.5 0.4
schemes
(6.6) (0.1)
Tax relating to components of other comprehensive
income
17.9 0.3
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 2.6 (2.6)
Gain/(loss) on cash flow hedges 2.0 (1.1)
Hedging gains reclassified to profit or loss 0.4 0.2
Tax relating to components of other comprehensive (0.2) 0.2
(expense)/income
4.8 (3.3)
Total other comprehensive income/(expense) 22.7 (3.0)
Total comprehensive income 79.5 31.1
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 25 DECEMBER 2021
25 December 26 December
£ 2021 2020
million
Note
Non-current assets
Goodwill 650.1 649.6
Other intangible 1.7 2.2
assets
Property, plant and 545.2 535.3
equipment
Interests in associates and other 11.8 12.2
investments
Deferred tax 9.9 13.0
asset
9
Retirement benefit 37.2 11.2
asset
Derivative financial 2.6 -
instruments
1,258.5 1,223.5
Current assets
Inventories 70.8 63.8
Trade and other 142.8 136.4
receivables
Cash and cash 31.1 24.8
equivalents
Current tax asset - 0.1
Derivative financial 0.3 0.6
instruments
245.0 225.7
Total assets 1,503.5 1,449.2
Current liabilities
Trade and other (390.8) (367.6)
payables
Current tax liabilities (1.3) -
Borrowings (3.0) (23.2)
8
Lease (10.8) (11.1)
liabilities
Provisions (8.5) (11.0)
Derivative financial (1.7) (0.9)
instruments
(416.1) (413.8)
Non-current liabilities
Borrowings (317.6) (331.4)
8
Lease (73.8) (70.9)
liabilities
Provisions (14.3) (14.4)
Derivative financial (0.4) (0.9)
instruments
Deferred tax (40.6) (19.7)
liabilities
9
(446.7) (437.3)
Total liabilities (862.8) (851.1)
Net assets 640.7 598.1
Equity
Called up share 11.6 11.6
capital
Merger (130.9) (130.9)
reserve
Hedging 1.7 (0.7)
reserve
Translation 27.2 24.8
reserve
Retained earnings 731.1 693.3
Total equity 640.7 598.1
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
52 WEEKS ENDED 25 DECEMBER 2021
Called up share Merger reserve Hedging reserve Translation reserve Retained earnings Total equity
£ million capital
Balance at 29 December 2019 11.6 (130.9) - 27.2 657.8 565.7
Profit for the period - - - - 34.1 34.1
Other comprehensive (expense)/income for the period - - (0.7) (2.6) 0.3 (3.0)
Total comprehensive (expense)/income for the period - - (0.7) (2.6) 34.4 31.1
Credit for share-based payments - - - - 1.2 1.2
Deferred tax - - - 0.2 (0.1) 0.1
Balance at 26 December 2020 11.6 (130.9) (0.7) 24.8 693.3 598.1
Profit for the period - - - - 56.8 56.8
Other comprehensive income for the period - - 2.2 2.6 17.9 22.7
Total comprehensive income for the period - - 2.2 2.6 74.7 79.5
Reclassification - - 0.2 (0.2) - -
Dividends (Note 10) - - - - (38.5) (38.5)
Credit for share-based payments - - - - 2.3 2.3
Cash-settlement of share-based payments - - - - (0.6) (0.6)
Deferred tax - - - - (0.1) (0.1)
Balance at 25 December 2021 11.6 (130.9) 1.7 27.2 731.1 640.7
CONSOLIDATED STATEMENT OF CASH FLOWS
52 WEEKS ENDED 25 DECEMBER 2021
52 weeks ended 52 weeks ended
25 December 26 December
£ 2021 2020
million
Note
Net cash generated from operating 144.0 88.5
activities
11
Investing activities:
Dividends received from 0.7 0.1
associates
(59.8) (56.4)
Purchases of property, plant and equipment
4.2 0.1
Proceeds on disposal of property, plant and equipment
Net cash used in investing activities (54.9) (56.2)
Financing activities:
Dividends (38.5) -
paid
10
Increase in borrowings 28.1 334.1
Repayment of borrowings (60.9) (355.9)
Principal elements of lease (11.7) (11.4)
payments
Net cash used in financing activities (83.0) (33.2)
Net increase/(decrease) in cash and cash equivalents 6.1 (0.9)
Cash and cash equivalents at beginning of period 24.8 25.9
Effect of foreign exchange rate changes 0.2 (0.2)
Cash and cash equivalents at end of period 31.1 24.8
1. Significant Accounting Policies
Basis of accounting
The financial information set out in this document does not constitute
statutory accounts for Bakkavor Group plc for the period ended 25 December
2021 but is extracted from the Annual Report and Accounts 2021. The Annual
Report and Accounts 2021 will be delivered to the Registrar of Companies in
due course. The auditors' report on those accounts was unqualified and neither
drew attention to any matters by way of emphasis nor contained a statement
under either Section 498(2) of Companies Act 2006 (accounting records or
returns inadequate or accounts not agreeing with records and returns), or
section 498(3) of Companies Act 2006 (failure to obtain necessary information
and explanations).
The Annual Reports & Accounts 2021 have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006 and international financial reporting standards adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
Where the fiscal year 2021 is quoted in these Financial Statements this
relates to the 52-week period ended 25 December 2021. The fiscal year 2020
relates to the 52-week period ended 26 December 2020. The fiscal year 2019
relates to the 52-week period ended 28 December 2019. The Group Financial
Statements comprise the Financial Statements of the parent undertaking and its
subsidiary undertakings, together with the Group's share of the results of
associated undertakings comprising a 52 or 53-week period ending on the
Saturday of or immediately before 31 December.
These Financial Statements are presented in Pounds Sterling because that is
the currency of the primary economic environment in which the Group operates.
The Financial Statements have been prepared on the historical cost basis,
except for the revaluation of financial instruments and retirement benefit
plan assets (which are stated at fair value).
Accounting policies and new standards
The accounting policies applied by the Group are consistent with those
disclosed in the Group's Annual Report. These policies are consistent with the
Accounts for the 52 weeks ended 26 December 2020, except for new standards and
interpretations effective for the first time for the reporting period and the
Group now applies hedge accounting for certain derivatives.
The Group has elected to early adopt amendments to IFRS 9, IAS 39, IFRS 7 -
Interest Rate Benchmark Reform Phase 2 and IFRS 16 - COVID-19 Related Rent
Concessions as issued in August 2020. In accordance with the transition
provisions, the amendments have been adopted retrospectively to hedging
relationships and financial instruments. Comparative amounts have not been
restated, and there was no impact on the current period opening reserves
amounts on adoption.
Going concern
The Directors have reviewed the historical trading performance of the Group
and the forecasts through to March 2023.
The Directors, in their detailed consideration of going concern, have reviewed
the Group's future revenue projections and cash requirements, which they
believe are based on prudent interpretations of market data and past
experience. The Directors have also considered the Group's level of available
liquidity under its financing facilities. The Directors have carried out a
robust assessment of the significant risks currently facing the Group. This
has included scenario planning on the implications of further inflation and
continuing labour availability issues. The Group has also modelled the
potential impact of lower sales volumes from further Covid restrictions,
supply chain issues and reduced consumer demand in response to increasing
retail prices.
Having taken these factors into account, under either scenario, the Directors
consider that adequate headroom is available based on the forecasted cash
requirements of the business. At the date of this report, the Group has
complied in all respects with the terms of its borrowing agreements, including
its financial covenants, and forecasts to continue to do so in the future.
Consequently, the Directors consider that the Company and the Group have
adequate resources to meet their liabilities as they fall due for the
foreseeable future. For this reason, they continue to adopt the going concern
basis in preparing the Financial Statements.
2. Segmental Information
The following table provides an analysis of the Group's segmental information
for the period to 25 December 2021:
£ UK US China Un-allocated Total
million
Note
Revenue 1,592.4 180.1 99.1 - 1,871.6
13
Adjusted 149.3 15.7 1.8 - 166.8
EBITDA
13
Depreciation (52.0) (6.4) (6.8) - (65.2)
Amortisation (0.1) (0.4) - - (0.5)
Share scheme charges (2.3) - - - (2.3)
Profit on disposal of property, plant and equipment 2.9 - - - 2.9
Share of results of associates - - 0.3 - 0.3
Adjusted operating 97.8 8.9 (4.7) - 102.0
profit/(loss)
13
Exceptional items - - - - -
Operating profit/(loss) 97.8 8.9 (4.7) - 102.0
Finance costs (17.1)
Other gains and (losses) (3.5)
Profit before tax 81.4
Tax (24.6)
Profit for the period 56.8
Other segment information:
Capital additions 59.6 9.0 6.8 - 75.4
Interests in associates - - 11.7 - 11.7
Total assets 1,238.7 144.1 86.7 34.0 1,503.5
Non-current assets 1,068.9 120.2 66.8 2.6 1,258.5
All of the Group's revenue is derived from the sale of goods in 2021. There
were no inter-segment revenues. The un-allocated assets of £34.0 million
relate to cash and cash equivalents and derivative financial instruments which
cannot be readily allocated because of the Group cash-pooling arrangements
that are in place to provide funds to businesses across the Group.
The following table provides an analysis of the Group's segmental information
for the period to 26 December 2020:
£ million Note UK US China Un-allocated Total
Revenue 13 1,566.6 146.5 80.4 - 1,793.5
Adjusted EBITDA 13 145.3 8.0 (1.1) - 152.2
Depreciation (53.0) (6.8) (6.3) - (66.1)
Amortisation (0.1) (0.4) - - (0.5)
Share scheme charges (1.2) - - - (1.2)
Loss on disposal of property, plant and equipment (0.3) (0.2) (0.4) - (0.9)
Share of results of associates - - 0.1 - 0.1
Adjusted operating profit/(loss) 13 90.7 0.6 (7.7) - 83.6
Exceptional items - Impairment 4 (16.7) - - - (16.7)
Exceptional items - Other 4 (4.9) - - - (4.9)
Operating profit/(loss) 69.1 0.6 (7.7) - 62.0
Finance costs (21.0)
Other gains and (losses) 3.2
Profit before tax 44.2
Tax (10.1)
Profit for the period 34.1
Other segment information
Capital additions 58.8 3.0 6.6 - 68.4
Interests in associates - - 12.1 - 12.1
Total assets 1,204.0 136.9 82.9 25.4 1,449.2
Non-current assets 1,035.7 121.9 65.9 - 1,223.5
All of the Group's revenue is derived from the sale of goods in 2020. There
were no inter-segment revenues. The un-allocated assets of £25.4 million
relate to cash and cash equivalents which cannot be readily allocated because
of the Group cash-pooling arrangements that are in place to provide funds to
businesses across the Group.
Major customers
In 2021, the Group's four largest customers accounted for 74.0% (2020: 75.2%)
of the Group's total revenue from continuing operations. These customers
accounted for 87.0% (2020: 86.7%) of total UK revenue from continuing
operations. The Group does not enter into long-term contracts with its retail
customers.
Each of these four customers accounts for a significant amount of the Group's
revenue and are all in the UK segment.
The percentage of Group revenue from these customers is as follows:
2021 2020
Customer A 33.4% 35.7%
Customer B 20.3% 20.0%
Customer C 11.5% 11.1%
Customer D 8.8% 8.4%
3. Profit before tax
Profit before tax for the period has been arrived at after
charging/(crediting):
£ million 2021 2020
Depreciation of property, plant and equipment:
• Owned 53.2 53.8
• Leased 12.0 12.3
Research and development costs 8.6 7.0
Cost of inventory recognised as an expense 836.0 809.5
Net movement of inventory provision recognised as (gain)/expense (0.2) 4.1
Amortisation of intangible assets 0.5 0.5
Exceptional items - 21.6
(Profit)/loss on disposal of property, plant and equipment (2.9) 0.9
Share scheme charges 2.3 1.2
Foreign exchange (gains)/losses (0.5) 0.2
Staff costs 539.2 514.0
Other administrative costs (net) are comprised of:
£ million 2021 2020
Other administrative costs (371.1) (361.5)
Other operating charges (0.3) (1.1)
Total operating costs (371.4) (362.6)
Other operating income 7.5 2.5
Other administrative costs (net) (363.9) (360.1)
Other operating charges and income relate to an insurance claim which resulted
in a net profit of £7.2 million (2020: £1.4 million). This included proceeds
that were used to replace damaged assets which resulted in a gain on disposal
of fixed assets of £1.6 million (2020: loss of £0.2 million).
The analysis of the Auditors' remuneration is as follows:
£ million 2021 2020
The audit of the Company's Consolidated Financial Statements 0.3 0.2(1)
The audit of the Company's subsidiaries pursuant to legislation 0.7 0.5
Total audit fees 1.0 0.7
1 The prior year figure has been restated to reflect audit fee amendments
relating to the audit of the prior year Financial Statements
Non-audit fees of £40,000 (2020: £40,000) were paid to the Group's Auditors
for permitted services.
4. Exceptional Items
The Group's financial performance is analysed in two ways: review of
underlying performance (which does not include exceptional items) and separate
review of exceptional items that are material and not expected to reoccur. The
Directors consider that the underlying performance is more representative of
the ongoing operations and key metrics of the Group.
Exceptional items are those that, in management's judgement, should be disclosed by virtue of their nature or amount. Exceptional
items include material items that are non-recurring, significant in nature and
are important to users in understanding the
business, including restructuring costs, accelerated amortisation of financing fees and impairment of assets:
£ million 2021 2020
Restructuring costs, impairment and onerous contract provision - 21.6
Operating loss - 21.6
Finance costs - 1.7
Loss before tax - 23.3
Tax on exceptional items - (4.4)
Loss after tax - 18.9
2021
No exceptional costs have been incurred by the Group.
2020
The Group incurred £23.3 million of costs presented as exceptional items in
2020, and an after tax charge of £18.9 million. The closure of two salads
factories in Alresford and Spalding led to cash restructuring charges of £4.9
million, with a further £8.2 million impairment charge in respect of their
tangible fixed assets. Following a review of assets, the Group also incurred a
further impairment charge of £8.5 million in the UK business for assets that
are now either redundant or related to products that have been discontinued in
the year. In addition, the Group incurred £1.7 million of accelerated
amortisation of refinancing fees following the Group's refinancing of its core
debt facilities on 18 March 2020.
5. Finance Costs
£ 2021 2020
million
Interest on borrowings 14.2 18.2
Interest on lease liabilities 2.7 2.7
Unwinding of discount on provisions 0.2 0.1
Total 17.1 21.0
There were no borrowing costs included in the cost of qualifying assets during
2020 or 2021. Borrowing costs included in the cost of qualifying assets during
prior years arose within the general borrowing pool and were calculated by
applying a capitalisation rate of 3.0% to expenditure on such assets.
Amounts included in the cost of qualifying assets have been capitalised under
IAS 23 and are therefore subject to deferred tax; the deferred tax charge to
income was £nil (2020: £0.1 million).
Interest on borrowings for 2021 includes no exceptional costs (2020: £1.7
million in respect of the accelerated amortisation of previous financing fees
following the Group's refinancing of its debt facilities on 18 March 2020).
6. Tax
£ 2021 2020
million
Note
Current tax:
Current period 7.6 12.1
Prior period adjustment 0.2 0.5
Total current tax charge 7.8 12.6
Deferred tax:
Deferred tax relating to the origination and reversal of temporary differences 7.6 (5.2)
in the period
Deferred tax relating to changes in tax rates 7.9 1.5
Prior period adjustment 1.3 (0.4)
Unrecognised tax loss originating in the current period - 1.6
Total deferred tax 16.8 (2.5)
charge/(credit)
9
Tax charge for the period 24.6 10.1
The Group tax charge for the period was £24.6 million (2020: £10.1 million)
which represents an effective tax rate of 30.2% (2020: 22.9%) on profit before
tax of £81.4 million (2020: £44.2 million). Tax is calculated using
prevailing statutory rates in the territories in which we operate however most
of the Group's profits are earned in the UK where the statutory tax rate is
19% for 2021 (2020: 19%).
The effective tax rate is 11.2% higher (2020: 3.9%) than the UK statutory tax
rate of 19% (2020: 19%). The main item which increases the effective rate by
9.7% is a deferred tax charge arising in connection with the rate at which we
provide for deferred tax assets and liabilities. This is following the
Government announcement on 3 March 2021 and the substantive enactment of
this measure on 24 May 2021, that the UK corporation tax rate will increase to 25% effective from 1 April 2023. We have
therefore valued deferred tax assets and liabilities at 25% at the balance sheet date, up from 19% at 26 December 2020.
Excluding exceptional items and other adjusting items the effective tax rate
on underlying activities was 29.7% (2020: 21.7%) (see Note 13).
In 2021 the tax risk provision was £1 million (2020: £1 million) because it
is considered unlikely that the tax authorities will take a different approach
to any material calculations of tax liability.
The charge for the period can be reconciled to the profit per the consolidated
income statement as follows:
2021 2021 2020 2020
%
£ million % £ million
Profit before tax: 81.4 100.0 44.2 100.0
Tax charge at the UK corporation tax rate of 19% (2020: 19%) 15.5 19.0 8.4 19.0
Non-deductible expenses (1.8) (2.0) - -
Prior period adjustment 1.5 1.7 0.1 0.2
Tax effect of losses carried forward not recognised 0.7 0.9 1.6 3.9
Unprovided deferred tax assets now recognised (0.1) (0.2) - -
Overseas taxes at different rates 0.9 1.1 (1.5) (3.5)
Deferred tax change in rate 7.9 9.7 1.5 3.5
Tax charge and effective tax rate for the period 24.6 30.2 10.1 22.9
In addition to amounts charged to the consolidated income statement, the
following amounts in respect of tax were charged/ (credited) to the
consolidated statement of comprehensive income and equity:
2021 2020
£ million £ million
Tax relating to components of other comprehensive income/(expense):
Deferred tax:
Remeasurements on defined benefit pension scheme actuarial gain 4.6 0.1
Deferred tax rate change on defined benefit pension scheme actuarial gain 2.0 -
Cash flow hedges and cost of hedging 0.2 (0.2)
Deferred tax on share schemes 0.1 0.1
6.9 -
Tax relating to components of other comprehensive income/(expense): 6.8 (0.1)
Tax relating to share-based payments recognised directly in equity: 0.1 0.1
6.9 -
As disclosed in the prior year accounts, HMRC has previously raised an enquiry
in the UK concerning the structure used to fund overseas investment during the
two periods ended 30 December 2017 and 29 December 2018 and if successful,
approximately £0.3 million additional UK tax would have been payable for
those years. During the year ended 25 December 2021, however, the HMRC enquiry
was settled resulting in no additional UK tax being due. Since no provision
had been made for the potential £0.3 million, no further provisions or
releases are included in these accounts in respect of 2017 and 2018. In
addition to this, for each of the following three years up to and including
the current period ended 25 December 2021, there is uncertainty in connection
with the applicability of the UK tax rules to the structure which could lead
to additional UK tax payable. This is a complex area with a range of possible
outcomes and judgement has been used in calculating the provision. For these
reasons it cannot be known with certainty whether additional amounts of UK tax
will be due, however, we consider it is unlikely that there will be material
amounts due over and above the provisions currently held.
7. Earnings Per Share
The calculation of earnings per Ordinary share is based on earnings after tax
and the weighted average number of Ordinary shares in issue during the period.
For diluted earnings per share, the weighted average number of Ordinary shares
in issue is adjusted to assume conversion of all potentially dilutive Ordinary
shares.
The calculation of the basic and diluted earnings per share is based on the
following data:
Earnings
£ million 2021 2020
Profit for the period 56.8 34.1
Number of shares
'000 2021 2020
Weighted average number of Ordinary shares 579,426 579,426
Effect of potentially dilutive Ordinary shares 9,775 4,193
Weighted average number of Ordinary shares including dilution 589,201 583,619
2021 2020
Basic earnings per share 9.8p 5.9p
Diluted earnings per share 9.6p 5.8p
The Group calculates Adjusted basic earnings per Ordinary share and details of
this can be found in Note 13, Alternative performance measures.
8. Borrowings
The interest rates and currency profile of the Group's borrowings at 25
December 2021 were as follows:
£ million Currency Facility amount Amount drawn down at year end Interest rate Non-utilisation fee Maturity date
£ million
£ million
Term Loan GBP 225.0 225.0 SONIA(2) plus a margin of 2.25% N/A Mar 2025(1)
Revolving Credit Facility ("RCF") GBP 230.0 65.0 SONIA(2) plus a margin of 2.25% 0.7875% Mar 2025(1)
Asset Finance Facility GBP 21.7 21.7 Fixed interest rate N/A Aug 2027
Asset Finance Facility GBP 12.1 12.1 Fixed interest rate N/A Jun 2028
Total 488.8 323.8
1 £12.4 million of the term loan and £12.6 million
of the RCF mature in March 2024.
2 The interest rate for these facilities includes a
Credit Spread Adjustment following the transition from LIBOR to SONIA in
September 2021.
On 18 March 2020, the Group completed a refinancing of its core debt
facilities through a new term loan and Revolving Credit Facility totalling
£455 million. The refinancing resulted in the addition of new lenders to the
Group. The new facilities were due to mature in March 2024, with an option to
extend the tenure by a further two years subject to lender approval. £430
million of these facilities were extended in March 2021, to mature in March
2025.
The Group's total banking facilities amount to £455.0 million (2020: £512.5
million) comprising (i) £225.0 million in term loans (2020: £282.5 million
term loan), with £12.4 million maturing in March 2024 and £212.6 million in
March 2025 and (ii) £230.0 million Revolving Credit Facilities ("RCF") (2020:
£230.0 million RCF), which includes an overdraft and money market facility of
£20.0 million (2020: £20.0 million) and further ancillary facilities of
£13.3 million (2020: £13.3 million). For the RCF, £12.6 million matures in
March 2024 and £217.4 million in March 2025. The bank facilities are
unsecured. These banking facilities are subject to covenant agreements
including the Group maintaining a minimum interest cover of 4.0x and not
exceeding an adjusted leverage of 3.0x. In addition, the Group has access to
£8.4 million of local overdraft facilities in the US and China which are
unsecured.
In September 2021 the Group transitioned from LIBOR to SONIA, as described in
Note 1 of the Annual Report and Accounts 2021. £455.0 million of the total
£488.8 million of facilities were subject to this transition.
The Asset Finance Facility is made up of two separate facilities which are secured against specific items of plant and machinery.
Firstly, a £25.0 million facility, which could be drawn against up to August
2020, of which the Group initially drew down £24.9 million with £21.7
million outstanding at the end of 2021. No further draw down can be made
against this facility. The facility has been drawn in tranches, with each
tranche being repaid on a quarterly basis over a period of seven years, and
the weighted
average interest rate for the facility at 25 December 2021 was 2.41% (2020:
2.41%). The interest rate is fixed at the prevailing rate on
commencement of the loan tranche. Secondly, the Group has drawn down £13.1
million during the year under a separate asset financing facility with £12.1
million outstanding at the end of 2021. No further draw down can be made
against this facility. The facility has been drawn in tranches, with each
tranche being repaid on a monthly basis over a period of seven years, and the
weighted average interest rate for the facility at 25 December 2021 is 3.20%
(2020: n/a). The interest rate is fixed at the prevailing rate on commencement
of the loan tranche.
During 2021, the Group repaid two term loans with total capital repayments being £57.5 million. £37.5 million related to a term
loan which was due to mature in June 2024, but which was repaid early with £17.5 million paid in April 2021 and £20.0 million in
September 2021. The remaining £20.0 million was paid in November 2021 when an additional term loan matured.
25 December 26 December
£ million 2021 2020
Bank loans 320.6 354.6
320.6 354.6
Borrowings repayable as follows:
On demand or within one year 3.0 23.2
In the second year 2.9 1.2
In the third to fifth years inclusive 303.1 318.5
Over five years 11.6 11.7
320.6 354.6
Analysed as:
Amount due for settlement within 12 months (shown within current liabilities) 3.0 23.2
Amount due for settlement after 12 months 317.6 331.4
320.6 354.6
As at 25 December 2021 and 26 December 2020, all of the Group's borrowings
were denominated in Sterling.
2021 2020
% %
The weighted average interest rates paid were as follows: Bank loans and
overdrafts
2.54 2.68
Apart from the Asset Finance Facility, interest on the Group's term loan and
other borrowings are at floating rates, thus exposing the Group to cash flow
interest rate risk. This risk is mitigated using interest rate swaps.
The fair value of the Group's borrowings is as follows:
25 December 26 December
£ million 2021 2020
Fair value of the Group's borrowings 323.8 356.6
Net debt is the net of cash and cash equivalents, prepaid fees to be amortised
over the term of outstanding borrowings, outstanding borrowings, interest
accrued on borrowings and lease liabilities and is as follows:
25 December 26 December
£ million 2021 2020
Analysis of net debt
Cash and cash equivalents 31.1 24.8
Borrowings (4.1) (22.3)
Interest accrual (0.2) (2.3)
Unamortised fees 1.3 1.4
Lease liabilities (10.8) (11.1)
Debt due within one year (13.8) (34.3)
Borrowings (319.7) (334.3)
Unamortised fees 2.1 2.9
Lease liabilities (73.8) (70.9)
Debt due after one year (391.4) (402.3)
Group net debt (374.1) (411.8)
9. Deferred Tax
The following are the major deferred tax liabilities and assets recognised by
the Group and movements thereon during the current and prior reporting period.
Accelerated tax depreciation IAS 23 Retirement Overseas tax losses and accrued interest
£ million capitalised interest Fair value Intangibles Provisions benefit obligations Share scheme US goodwill Total
gains
At 29 December 2019 (26.4) (0.4) 0.7 (0.1) 0.4 (1.6) 0.8 25.3 (7.9) (9.2)
Credit/(charge) to income 1.1 (0.1) (0.7) - 0.1 (0.4) (0.5) 2.3 (0.9) 0.9
Exchange differences - - - - - - - 1.3 0.3 1.6
Charge to equity - - 0.2 - - (0.1) (0.1) - - -
At 26 December 2020 (25.3) (0.5) 0.2 (0.1) 0.5 (2.1) 0.2 28.9 (8.5) (6.7)
Credit/(charge) to income (13.7) - 0.2 (0.1) 0.2 (0.6) 0.6 (2.6) (0.8) (16.8)
Exchange differences (0.1) - - - - - - (0.2) - (0.3)
Charge to equity - - (0.2) - - (6.6) (0.1) - - (6.9)
At 25 December 2021 (39.1) (0.5) 0.2 (0.2) 0.7 (9.3) 0.7 26.1 (9.3) (30.7)
Certain deferred tax assets and liabilities have been offset where the Group
has a legally enforceable right to do so. The following is the analysis of the
deferred tax balances (after offset) for financial reporting purposes:
25 December 26 December
£ million 2021 2020
Deferred tax assets 9.9 13.0
Deferred tax liabilities (40.6) (19.7)
(30.7) (6.7)
Deferred tax assets in respect of some capital losses as well as trading
losses have not been recognised as their future recovery is uncertain or not
currently anticipated. The total gross deferred tax assets not recognised are
as follows:
25 December 26 December
£ million 2021 2020
Capital losses 3.4 3.7
Trading losses 14.6 13.9
18.0 17.6
The capital losses arose in the UK and are available to carry forward
indefinitely but can only be offset against future capital gains. The trading
losses are non-UK losses and are available to offset against future taxable
profits. These losses are timebound, and £13.5 million will expire after five
years if unused.
There are no deferred tax liabilities associated with undistributed earnings
of subsidiaries due to the availability of tax credits against such
liabilities or the exemption from UK tax on such dividends.
Temporary differences arising in connection with interests in associates are
insignificant.
10. Dividends
As a result of the COVID-19 pandemic and its impact on the business during
2020 the Board did not declare any dividends for the financial year ended 26
December 2020.
At the AGM on 20 May 2021, a deferred final dividend of 4 pence per Ordinary
share for the financial year ended 28 December 2019 was re-instated and
declared. The total amount of £23,177,023 was paid to Ordinary shareholders
on 25 May 2021.
An interim dividend of 2.64 pence per Ordinary share was declared in September 2021. The total amount of £15,296,835 was paid to
Ordinary shareholders on 15 October 2021. This has resulted in total dividend payments of £ 38,473,858 (2020: £nil) during the year.
A final dividend of 3.96 pence per share has been proposed for approval at the
Annual General Meeting on 25 May 2022 and will be payable on 30 May 2022 to
Ordinary shareholders on the register at 29 April 2022.
11. Net Cash Generated from Operating Activities
£ million 2021 2020
Operating profit 102.0 62.0
Adjustments for:
Share of results of associates after tax (0.3) (0.1)
Depreciation of property, plant and equipment 65.2 66.1
Amortisation of intangible assets 0.5 0.5
(Profit)/loss on disposal of property, plant and equipment (2.9) 0.9
Impairment of assets 1.3 19.1
Share scheme charges 1.7 1.2
Net retirement benefits charge less contributions (1.4) (1.1)
Operating cash flows before movements in working capital 166.1 148.6
(Increase)/decrease in inventories (7.0) 0.7
(Increase) in receivables (6.2) (5.1)
Increase/(decrease) in payables 18.5 (22.6)
(Decrease)/increase in provisions (2.9) 4.9
Cash generated by operations 168.5 126.5
Income taxes paid (6.5) (16.5)
Interest paid (18.0) (21.5)
Net cash generated from operating activities 144.0 88.5
Analysis of changes in net debt
£ million 27 December Cash flow Lease additions Exchange movements Other non-cash movements(1) 25 December
2020
2021
Borrowings (354.6) 32.8 - - 1.2 (320.6)
Lease liabilities (82.0) 11.7 (14.2) (0.1) - (84.6)
Total liabilities from financing activities (436.6) 44.5 (14.2) (0.1) 1.2 (405.2)
Cash and cash equivalents 24.8 6.1 - - 0.2 31.1
Net debt (411.8) 50.6 (14.2) (0.1) 1.4 (374.1)
1 Includes accrued interest at 25 December 2021 of £0.2 million (2020: £2.3 million) and prepaid bank fees of £3.4 million (2020: £4.3 million). The movement in these balances in the period
of £1.2 million is shown in the table above as 'Other non-cash movements' in Borrowings.
12. Events After The Statement Of Financial Position Date
On 1 March 2022 the Group extended the maturity date of £430 million of its
core debt facilities from March 2025 to March 2026.
13. Alternative Performance Measures
The Group uses various non-IFRS financial measures to evaluate growth trends,
assess operational performance and monitor cash performance. The Directors
consider that these measures enable investors to understand the ongoing
operations of the business. They are used by management to monitor financial
performance as it is considered to aid comparability of the financial
performance of the Group from year to year.
Like-for-like revenue
The Group defines like-for-like revenue as revenue from continuing operations
adjusted for the revenue generated from businesses closed or sold in the
current and prior year, revenue generated from businesses acquired in the
current and prior period and the effect of foreign currency movements. The
Directors believe like-for-like revenue is a key metric of the Group's revenue
growth trend, as it allows for a more meaningful comparison of trends from
period to period.
The following table provides the information used to calculate like-for-like
revenue for the Group.
£ million 2021 2020 Change %
Statutory revenue 1,871.6 1,793.5 4.4%
Revenue from closed and sold businesses - (18.4)
Effect of currency movements 14.0 -
Like-for-like revenue 1,885.6 1,775.1 6.2%
The following tables provide the information used to calculate like-for-like
revenue for each segment
UK
£ million 2021 2020 Change %
Statutory revenue 1,592.4 1,566.6 1.6%
Revenue from closed and sold businesses - (18.4)
Like-for-like revenue 1,592.4 1,548.2 2.9%
US
£ million 2021 2020 Change %
Statutory revenue 180.1 146.5 22.9%
Effect of currency movements 12.9 -
Like-for-like revenue 193.0 146.5 31.8%
China
£ million 2021 2020 Change %
Statutory revenue 99.1 80.4 23.2%
Effect of currency movements 1.1 -
Like-for-like revenue 100.2 80.4 24.6%
Adjusted EBITDA and adjusted operating profit
The Group manages the performance of its businesses through the use of
'Adjusted EBITDA' and 'Adjusted operating profit', as these measures exclude
the impact of items that hinder comparison of profitability year-on-year. In
calculating Adjusted operating profit, we exclude restructuring costs, asset
impairments, and those additional charges or credits that are considered
significant or one-off in nature. In addition, for Adjusted EBITDA we exclude
depreciation, amortisation, the share of results of associates after tax and
share scheme charges, as these are non-cash amounts. Adjusted operating profit
margin is used as an additional profit measure that assesses profitability
relative to the revenues generated by the relevant segment; it is calculated
by dividing the Adjusted operating profit by the statutory revenue for the
relevant segment. The Group calculates Adjusted EBITDA on a pre-IFRS 16 basis
for the purposes of determining covenants under its financing agreements.
The following table provides a reconciliation from the Group's operating
profit to Adjusted operating profit and Adjusted EBITDA.
£ 2021 2020
million
Note
Operating profit 102.0 62.0
Exceptional - 21.6
items
4
Adjusted operating profit Depreciation 102.0 83.6
Amortisation 65.2 66.1
0.5 0.5
Share scheme charges 2.3 1.2
(Profit)/loss on disposal of property, plant and equipment Share of results of (2.9) 0.9
associates after tax
(0.3) (0.1)
Adjusted EBITDA post IFRS 16 166.8 152.2
Less IFRS 16 impact (12.6) (13.0)
Adjusted EBITDA pre IFRS 161 154.2 139.2
Covenant adjustments 1.4 6.6
Adjusted EBITDA (pre IFRS 16 and including covenant adjustments) 155.6 145.8
1 Excludes the impact of IFRS 16 as the Group's bank facility agreement
definition of Adjusted EBITDA excludes the impact of this standard.
Adjusted EBITDA and Adjusting operating profit by segment is reconciled to
operating profit in Note 2.
Operational net debt and leverage
Operational net debt excludes the impact of non-cash items on the Group's net
debt. The Directors use this measure as it reflects actual net borrowings at
the relevant reporting date and is most comparable with the Group's free cash
flow and aligns with the definition of net debt in the Group's bank facility
agreements which exclude the impact of IFRS 16. The following table sets out
the reconciliation from the Group's net debt to the Group's operational net
debt.
25 December 26 December
£ 2021 2020
million
Note
Group net (374.1) (411.8)
debt
8
Unamortised fees (3.4) (4.3)
Interest accrual 0.2 2.3
Lease liabilities recognised under IFRS 16 83.6 80.4
Group operational net debt (293.7) (333.4)
Adjusted EBITDA (pre IFRS 16 and including covenant adjustments) 155.6 145.8
Leverage (Operational net debt/Adjusted EBITDA pre IFRS 16 and including 1.9 2.3
covenant adjustments)
Free cash flow
The Group defines free cash flow as the amount of cash generated by the Group
after meeting all of its obligations for interest, tax and pensions, and after
purchases of property, plant and equipment (excluding development projects),
but before payments of refinancing fees and other exceptional or significant
non-recurring cash flows. Free cash flow has benefitted from non- recourse
factoring of receivables and the extension of payment terms for certain
suppliers. The Directors view free cash flow as a key liquidity measure, and
the purpose of presenting free cash flow is to indicate the underlying cash
available to pay dividends, repay debt or make further investments in the
Group. The following table provides a reconciliation from net cash generated
from operating activities to free cash flow.
£ million 2021 2020
Net cash generated from operating activities 144.0 88.5
Dividends received from associates 0.7 0.1
Purchases of property, plant and equipment (59.8) (56.4)
Proceeds on disposal of property, plant and equipment 4.2 0.1
Cash impact of exceptional items 1.2 3.6
Refinancing fees 0.9 4.2
Free cash flow 91.2 40.1
Adjusted earnings per share
The Group calculates Adjusted basic earnings per Ordinary share by dividing Adjusted earnings by the weighted average number
of Ordinary shares in issue during the year. Adjusted earnings is calculated
as profit for the period adjusted to exclude exceptional items as presented in
the consolidated income statement and the change in value of derivative
financial instruments. The Directors use this measure as it tracks the
underlying profitability of the Group and enables comparison with the Group's
peer companies. The following table reconciles profit for the period to
Adjusted earnings.
For Adjusted diluted earnings per share, the weighted average number of
Ordinary shares in issue is adjusted to assume conversion of all potentially
dilutive Ordinary shares.
£ million 2021 2020
Profit for the period 56.8 34.1
Exceptional items (Note 4) - 21.6
Accelerated finance costs - 1.7
Change in fair value of derivative financial instruments 4.0 (3.4)
Tax on the above items (0.8) (3.8)
Adjusted earnings used for the adjusted earnings per share calculation 60.0 50.2
Add back: Tax on adjusted profit before tax 25.4 13.9
Adjusted profit before tax 85.4 64.1
Effective tax rate on underlying activities
(Tax on Adjusted profit before tax/Adjusted profit before tax) 29.7% 21.7%
Number of shares
'000 2021 2020
Weighted average number of Ordinary shares 579,426 579,426
Effect of dilutive Ordinary shares 9,775 4,193
Weighted average number of diluted Ordinary shares 589,201 583,619
2021 2020
Adjusted basic earnings per share 10.4p 8.7p
Adjusted diluted earnings per share 10.2p 8.6p
Return on Invested Capital ("ROIC")
The Group defines ROIC as Adjusted operating profit after tax divided by the
average invested capital for the year. Adjusted operating profit after tax is
defined as operating profit excluding the impact of exceptional items,
impairment of assets and profit on disposal of subsidiaries less tax at the
Group's effective tax rate. Invested capital is defined as total assets less
total liabilities excluding net debt at the period end, pension assets and
liabilities (net of deferred tax) and fair values for derivatives not
designated in a hedging relationship. The Group utilises ROIC to measure how
effectively it uses invested capital. Average invested capital is the simple
average of invested capital at the beginning of the period and the end of the
period.
The Directors believe that ROIC is a useful indicator of the amount returned
as a percentage of shareholders' invested capital. The Directors believe that
ROIC can help analysts, investors and stakeholders to evaluate the Group's
profitability and the efficiency with which its invested capital is employed.
£ 2021 2020
million
Note
Operating profit 102.0 62.0
Exceptional - 21.6
items
4
Adjusted operating profit 102.0 83.6
Taxation at the underlying effective rate (30.3) (18.1)
Adjusted operating profit after tax 71.7 65.5
Invested capital
Total assets 1,503.5 1,449.2
Total liabilities (862.8) (851.1)
Net debt at period end 374.1 411.8
Derivatives not designated as hedges 0.9 0.3
Retirement benefit scheme surplus (37.2) (11.2)
Deferred tax liability on retirement benefit scheme 9.3 2.1
Invested capital 987.8 1,001.1
Average invested capital for ROIC calculation 994.4 997.3
ROIC (%) 7.2% 6.6%
The following table sets out the calculations of adjusted operating profit
after tax and invested capital used in the calculation of ROIC.
14. Statement of Directors' responsibilities
We confirm to the best of our knowledge that:
· the Group Financial Statements, which have been prepared in
accordance with International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union, give a true and fair view of the assets, liabilities,
financial position and profit of the Group; and
· the announcement includes a fair review of the development and
performance of the business and the position of the Group, together with a
description of the principal risks and uncertainties that it faces.
Approved on behalf of the Board by:
A
Gudmundsson
B Waldron
Chief Executive
Officer
Chief Financial Officer
7 March 2022
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