REG - Bakkavor Group PLC - Full Year Results 2022
08/03/2023 07:00
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RNS Number : 2093S Bakkavor Group PLC 08 March 2023
Bakkavor Group plc
2022 Full Year results
Robust performance in line with market expectations, executing clear plan to
protect future profits
Bakkavor Group plc (the "Company") and its subsidiaries ("Bakkavor" or "the
Group"), the leading international provider of fresh prepared food ("FPF"),
today announces its audited results for the 53 weeks ended 31 December 2022
("FY22").
Robust performance in line with market expectations and balance sheet strength
maintained
· Like-for-like revenue(1) exceeded £2bn, up 10.6%, with growth
led by price and US volume. Including the 53(rd) week and currency impact,
reported revenue of £2,139.2m was up 14.3%.
· Adjusted operating profit(1) of £89.4m, in line with market
expectations(2). Whilst inflation has largely been mitigated through pricing
and self-help measures, profits were down £12.6m.
· Operating profit of £37.8m includes £50.1m of exceptional
items(3), primarily related to the Group's restructuring plan.
· Good free cash(1) generation of £66.8m (2021: £91.2m), which
supported debt reduction, dividend payment and the purchase of shares to
satisfy awards under the Group's share scheme plans.
· Leverage(1) of 1.9x maintained within the target range, continued
to operate with over £200m of liquidity headroom and a good level of
protection from interest rate rises.
· Total 2022 dividend per share of 6.93p up 5.0%; proposed final
dividend of 4.16p per Ordinary share.
Strong foundations underpin resilient performance
· UK continued to outperform the market, driven by strong service,
breadth of product range and targeted innovation. Operationally remained in
good shape despite disruption from ongoing supply chain challenges.
· Strong US revenue momentum, with growing demand for fresh meals.
Operational challenges, from the pace of growth and customer contractual
dispute, however, put pressure on profits.
· Trading in China impacted by Covid-related disruption, but teams'
resilience minimised financial impact and good progress in further
strengthening retail presence as we seek to diversify our revenue stream.
· Largely mitigated impact of c.£230m of inflation, leveraging the
Group's scale and multi-faceted approach, through pricing, value optimisation,
efficiency improvements and tight cost control.
· Investment in our people through pay and engagement activities
had a positive impact, and labour pressures have eased; availability improved,
and employee turnover has tracked down in H2 2022.
· Targeted approach to sustainability delivered good progress; UK
food waste improved by 110bps to 8.05%, and Group net carbon emissions reduced
by 18.9%.
Clear plan in place to protect 2023 profits, on track to deliver targeted
savings
· Early FY23 trading encouraging; UK volumes in line with
expectations, despite recent fresh produce availability challenges, gained
further market share and confident of continued outperformance with a strong
pipeline of opportunities.
· Near-term focus in the US shifted from growth to profit;
operational improvement and cost reduction plans being embedded, with a more
measured approach to growth to help minimise disruption.
· Positively in China, volumes have shown a gradual recovery in
recent weeks. Whilst we anticipate some ongoing disruption in the near-term,
we remain confident in the long-term prospects for the market.
· Plan on track to deliver £15m savings in FY23; embedded new
leadership structure, UK operations aligned to two sectors and two UK sites to
close, with volume transfer, in Q1 2023.
· The cash costs of implementing the plan are £17.1m, with most of
the cash outflow in FY23, and together with £33.0m of impairment charges, are
recognised as exceptional items(3) in FY22.
· Confident in delivering 2023 adjusted operating profit within the
range of market expectations(2), as our clear strategy, action plan, scale,
strong relationships and balance sheet strength, leave us well-placed to move
forward with confidence.
FINANCIAL SUMMARY FY22 FY21 Change
£ million (unless otherwise stated)
Group revenue 2,139.2 1,871.6 14.3%
Like-for-like revenue(1) 2,069.0 1,871.6 10.6%
Adjusted EBITDA pre IFRS 16(1) 146.2 154.2 (5.2)%
Adjusted operating profit(1) 89.4 102.0 (12.4)%
Adjusted operating profit margin(1) 4.2% 5.4% (120)bps
Exceptional items(3) 50.1 - (50.1)
Operating profit 37.8 102.0 (62.9)%
Operating profit margin 1.8% 5.4% (360)bps
Profit before tax 18.1 81.4 (77.8)%
Basic earnings per share 2.2p 9.8p (7.6)p
Adjusted earnings per share(1) 9.5p 10.4p (0.9)p
Free cash flow(1) 66.8 91.2 (24.4)
Operational net debt(1) (284.9) (293.7) 8.8
Total dividend per share 6.93p 6.60p 5.0%
1. Alternative Performance Measures ("APMs"), including
'like-for-like' ("LFL"), 'adjusted' and 'underlying' are applied consistently
throughout the FY22 full year results statement and defined in full and
reconciled to the reported statutory numbers in Note 11. Note FY22 includes 53
weeks of trading, and the 53(rd) week is excluded from LFL revenue. All other
FY22 measures include the 53(rd) week.
2. Based on company compiled consensus ("Consensus") which includes
all covering analysts. Adjusted operating profit Consensus for 2022: £88.4m,
with a range of £86.7m to £89.1m and 2023: £84.1m, range £80.0m to
£89.0m.
3. A breakdown of exceptional items are included in Note 3.
Mike Edwards, CEO, commented:
"2022 has been a year of challenge and disruption. Despite this difficult
environment, I am pleased with the robust financial performance, strong
operational delivery and the agile response demonstrated by our teams, which
has underpinned this delivery. I would like to thank the entire team for their
ongoing commitment and relentless energy in dealing with the challenges that
we faced through the year.
The decisive action we have taken to protect profits - to restructure our
operations, re-focus our regional priorities and be more targeted in our
investment - combined with our strong balance sheet, provide us with a
stronger platform to move forward with purpose and confidence.
PRESENTATION
A copy of the 2022 full year results is available on
www.bakkavor.com/en/investors/results-and-presentations
(http://www.bakkavor.com/en/investors/results-and-presentations)
We will be presenting to analysts in-person and via a webcast at 09.00am on 8
March 2023 through the investor section of the Group's website at:
https://app.webinar.net/P6JKR7gR2wz
(https://www.google.com/url?q=https%3A%2F%2Fapp.webinar.net%2FP6JKR7gR2wz&sa=D&ust=1676391660000000&usg=AOvVaw2xI3FDf5L3ePOKcLKMU4WA)
. 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: bakkavor@mhpgroup.com (mailto:bakkavor@mhpgroup.com)
Katie Hunt, MHP
+44(0)20 3128 8794
Rachel Farrington, MHP
+44(0)20 3128 8613
Oliver Hughes, MHP
+44(0)20 3128 8622
About Bakkavor
We are the leading provider of fresh prepared food in the UK, and our presence
in the US and China positions the Group well in these, high-growth markets. We
leverage our consumer insight and scale to provide innovative food that offers
quality, choice, convenience, and freshness. Around 18,500 colleagues operate
from 45 sites across our three markets supplying a portfolio of over 2,900
products across meals, pizza & bread, salads and desserts to leading
grocery retailers in the UK and US, and international food brands in China.
LEI number: 213800COL7AD54YU9949
Disclaimer - forward-looking statements
This statement includes forward-looking statements. By their nature,
forward-looking statements involve risk, uncertainty and other factors, which
may cause the actual results and developments of the Group to differ
materially from any results and developments expressed or implied by such
forward-looking statements. You should not place undue reliance on any
forward-looking statements. These forward-looking statements are made as of
the date of this statement. The Group is under no obligation to publicly
update or review these forward-looking statements other than as required by
law.
CHIEF EXECUTIVE'S OVERVIEW
It is an honour to have taken on the role of CEO, and I would like to thank
Agust for his outstanding leadership of Bakkavor over the last 36 years and
his support during my time in the Group. I joined the business in 2001 and am
proud to have played a part in the evolution of the Bakkavor business over the
last 20 years or so. The current environment is incredibly challenging, but I
strongly believe that challenges create opportunities. Bakkavor is a resilient
business with strong foundations - we have a fantastic team, a broad range of
quality products, strong customer relationships, scale and flexibility across
our operations, and significant growth opportunities internationally.
Clear strategy in place, with refined focus to deliver returns
The strategy of the Group remains clear and unchanged. We are focused on
driving returns from our market-leading position in the UK, whilst also
accelerating profitable growth internationally. These priorities are
underpinned by our relentless focus on operational excellence, and on being a
trusted partner for all of our stakeholders. Our strategy remains even more
relevant today against a challenging backdrop, but we need to employ different
tactics to underpin its delivery. We have already taken decisive action to
protect profits, under three focus areas:
1. Leaner organisational structure
2. Clear and focused regional priorities
3. Enhanced focus on managing cash
These initiatives will deliver savings of £15m in FY23 and £25m on an
annualised basis, and provide us with a stronger platform from which to move
forward positively and with purpose as we face what will be another difficult
year. The cash costs of £17.1m to implement the plan, together with £19.5m
of non-cash impairment charges, are recognised as exceptional items in FY22.
Supported by our robust financial position, these actions will ensure that we
continue to deliver for colleagues, customers and shareholders. As we go
through this transition, we will continue to protect the Group's fundamentals
around safety, quality and service, with an absolute focus on delivering for
our customers.
Decisive action to protect profits under three focus areas
1. Leaner organisational structure
We have put in place a new leadership structure which will create renewed
energy, focus and purpose. Operationally, we have aligned our UK business
around two sectors, Meals and Bakery, which will deliver synergies. Meals
combines our existing Meals and Salads businesses, given the dynamic movement
of volume that has become the norm between sites, and Bakery combines our
Pizza, Bread and Desserts businesses to exploit their process similarities. To
create better alignment across our business, we have streamlined our UK
structure by moving to functional reporting for our HR and Finance teams, and
plans are underway to implement this in the US too. Together, this has
necessarily resulted in a number of people leaving our business and we
continue to support our colleagues through this transition.
2. Clear and focused regional priorities
UK: We will drive an aggressive plan to mitigate the impact of ongoing
inflation and volume pressures by leveraging our scale and strength, working
collaboratively with our customers to recover inflation, and implementing
specific cost and efficiency plans. The investment we have made to enhance
capacity across our sites, combined with our experience of dynamically
transferring volume between sites, means we are well-placed to consolidate
volume and better leverage our cost base. Following a detailed review of our
footprint, we are closing two UK sites (Bakkavor Desserts Leicester and
Bakkavor Salads Sutton Bridge) where volumes can be absorbed across our other
sites. We continue to work with affected colleagues to secure alternative
roles.
US: The growth opportunity remains attractive as the Fresh Prepared Food
market is still in its infancy. To date, the pace of growth in our US business
has put pressure on operational performance and impacted margin conversion. We
are therefore shifting our focus from growth to profit to drive margin
improvement. We have a renewed focus on operational execution and efficiency,
and cost reduction plans, as well as further leveraging our UK talent pool to
provide support and expertise.
China: Severe Covid-related restrictions have created disruption for our
factories and demand, particularly given our customers are largely
quick-service restaurants and coffee shops, impacted by lockdowns and high
case numbers. Now that restrictions have been lifted, the priority for our
China team is on rebuilding volume to leverage our well-invested factory
footprint, with a particular emphasis on diversifying our business by growing
our presence in the grocery retail channel.
3. Enhanced focus on managing cash
We have reviewed capital plans to reduce our overall spend whilst protecting
our strategic investments at our bread site in Crewe, UK and, once
profitability improves, our ready meals site in Charlotte, US. We will
continue to ensure spend is allocated to critical compliance and maintenance
programmes, along with targeting efficiency improvements. We are also seeking
to create benefit from improving working capital, with a particular focus on
stock reduction.
Robust performance in a tough trading environment
2022 has been a year of challenge and disruption. We have seen significant
inflationary pressures across our cost base and on household budgets, which in
turn have driven changes in consumer behaviour. We have also had to contend
with supply chain disruption as global events continue to cause instability
which, combined with a tight labour market, has created a difficult trading
environment.
It is in times like these that partnerships and collaboration come to the
fore. I would like to thank our colleagues for their ongoing hard work and
commitment during this challenging period, and our customers and suppliers for
their continued support and for working alongside us to navigate these
headwinds.
We have delivered a robust performance against this challenging backdrop.
Like-for-like revenue grew by 10.6%, to exceed £2bn. This largely reflects
the impact of price, up 9.2%, and in the UK, while volume was broadly flat, we
gained market share offsetting soft underlying demand. Strong volume momentum
continued in the US, with price increases coming through in the second half,
whilst in China Covid restrictions continued to adversely impact volumes.
The UK business has proved resilient against a challenging backdrop,
leveraging its scale and flexibility to deliver for customers, whilst using
innovation and insights to adapt to changing consumer behaviours and
strengthen our market-leading position.
The US delivered good growth, and the future opportunity of the underdeveloped
market is significant. Profits, however, came under pressure due to
operational disruption from onboarding volume growth, a lag in inflation
recovery and the volume impact in Q4 2022 from a contractual dispute with a
customer. A renewed focus on driving operational improvement, along with cost
reduction plans, should provide a stronger base on which to deliver margin
improvement going forward.
Whilst our China business has continued to be impacted by ongoing severe
Covid-related restrictions, volumes have shown a steady recovery as mobility
restrictions have eased, and we continue to believe in the medium- to
long-term prospects for this region, where we now have a well-invested factory
footprint.
During my 20-year-long career at Bakkavor I have never experienced such high
levels of inflation, equating to c.£230m of cost headwinds in 2022,
equivalent to a 14% increase in costs year-on-year. Our multi-faceted
approach, across pricing, value optimisation, operational efficiency
improvements, leveraging our scale and tight cost control, has enabled us to
largely mitigate the impact.
The Group's underlying performance for the year was in line with market
expectations, with adjusted operating profit of £89.4m (FY21 £102.0m).
The Group's balance sheet remains in a strong position, with leverage within
our target range at 1.9 times and significant liquidity headroom of over
£200m against our debt facilities. We have been disciplined in our approach
to capital allocation, but continue to have well-invested factories. Our spend
in the year has concentrated on expanding capacity at two of our US sites, to
underpin the strategic growth opportunity in meals, and on efficiency
improvements in the UK to drive operational excellence.
Continued progress in supporting our people and sustainability
I am proud of all we are doing for our teams and communities through our
Trusted Partner ESG strategy and broader people agenda. In 2022, 86% of our
colleagues participated in our engagement survey, and the feedback provides us
with opportunities to make Bakkavor an even better place to work. In
particular, we recognise the demands of working in the fast-paced environment
that Fresh Prepared Food manufacturing requires, and we also understand that
there is more that we can do to support our people.
Whilst the broader labour market remains tight, through the year we have seen
the pressures gradually easing. This is particularly evident in the
availability of people, with a reduced level of absences in our own workforce
and agencies. Furthermore, whilst staff turnover marginally increased on last
year, levels have tracked down in H2 2022, albeit remaining higher than ideal.
It is pleasing to see the investment we have made in our people has had a
positive impact, with a c.10% investment in factory pay rates, upweighted
engagement activities and the launch of our new values. The majority of our
factory colleagues benefitted from an out-of-cycle pay award and an annual pay
increase. Our new values, launched in early 2022, have been positively
received, and we are continuing to embed them into our culture and ways of
working.
We have refined our approach under our Trusted Partner ESG strategy to be more
targeted. Going forward, our efforts will be centred on three priority issues:
food waste, climate and Net Zero, and environmentally sustainable sourcing. As
well as having a positive impact from an environmental and social perspective,
we also recognise that there are financial benefits to making progress in
these key areas. As such, we are focused on improving our non-financial data
and processes, and on developing our capital and operational plans.
In 2022 we enhanced our operational understanding and focus on food waste and
the benefit of this has already begun to materialise, with food waste reduced
by 110 basis points to 8.05% on last year. We have also continued to develop
our plans to reach Net Zero by 2040. In 2022, our Group net carbon emissions
reduced significantly, by 18.9% year-on-year, which was supported by our
investment in refrigeration upgrades and energy initiatives. We also remain
committed to delivering on our commitments across the other areas under our
Trusted Partner strategy, which are well-embedded into our day-to-day
operations.
Confident of emerging stronger from current conditions
We expect the challenging trading environment in 2022 to continue into the
coming year, as consumers are impacted by the cost-of-living crisis. Inflation
across the cost base is also expected to persist, particularly in energy and
labour, and we expect an increase in costs of c.6% to 8% in 2023.
Trading in early 2023 has been encouraging, despite fresh produce availability
challenges which are expected to continue until April. Our UK business has
continued to gain market share and plans to help drive margin improvement and
reduce costs in the US are being embedded, with a new leadership structure in
place from April 2023. Our President of Bakkavor USA, Pete Laport, is leaving
in mid-March and we thank him for his contribution and commitment during his
time with the US business. In China, as the region is emerging from Covid we
have seen a gradual recovery in volumes and, whilst we anticipate some ongoing
disruption in the coming months, the outlook for the region is more positive.
Progress under our action plan is on track to deliver the expected savings,
with the two UK sites due to close by the end of Q1 2023. This decisive action
to reduce costs and protect our business, combined with our clear strategy,
focused regional priorities, targeted investment, unique scale and breadth and
balance sheet strength, provides us with an even stronger platform from which
to move forward positively. We are confident in our ability to deliver 2023 in
line with market expectations and are well-placed to capitalise on the medium-
to long-term opportunity.
OPERATIONAL REVIEW
United Kingdom: Resilient performance, with scale and breadth leveraged to
mitigate the impact of macro-headwinds and gain market share. Reshaped
operations further strengthen strong foundations.
£ million FY 2022 FY 2021 Change
Revenue 1,783.1 1,592.4 12.0%
Like-for-like revenue(1) 1,752.3 1,592.4 10.0%
Adjusted operating profit(1) 92.7 97.8 (5.2%)
Adjusted operating profit margin(1) 5.2% 6.1% (90bps)
Operating profit 54.6 97.8 (44.2%)
Operating profit margin 3.1% 6.1% (300bps)
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
statutory measures in Note 11.
Trading performance
Like-for-like revenue increased 10.0% to £1,752.3m (2021: £1,592.4m), and
was up 12.0% on a reported basis, which includes the impact of the 53(rd)
week. The growth was primarily driven by price and, while volumes were broadly
flat, we gained market share, in a period when consumer demand has been under
pressure.
In the UK we faced c.£200m of cost inflation in 2022 - the largest level of
inflation the UK business has ever experienced. Our teams' commitment to
mitigate the impact, through pricing and internal levers across value
optimisation, operational efficiency, leveraging our scale and tight cost
control, meant adjusted operating profit was only down 5.2% to £92.7m (2021:
£97.8m). The dilutionary impact of passing-through cost increases, combined
with an element of unrecovered inflation, meant adjusted operating profit
margin was down 90 basis points to 5.2%.
As the environment is expected to remain tough, we have taken action to
protect profits in 2023. This has resulted in £36.6m of exceptional charges
in 2022 related to the corporate and UK operational restructure, and closure
of two UK sites (of which £17.1m cash and £19.5m non-cash impairment
charges). Including these costs, operating profit was £54.6m at an operating
margin of 3.1% (2021: £97.8m, 6.1%).
Outperformed the market, underpinned by strong service, breadth of product
portfolio and targeted innovation
At a market level, performance across the Fresh Prepared Food categories has
been varied as consumers have adapted their behaviours in response to
cost-of-living pressures. Consumers are choosing to eat out less and are
seeking more affordable weekend treats, benefitting the top-tier meals and
meal deal offers. Pizza and bread have also held up well, with value ranges
performing strongly and the category benefitted from the FIFA World Cup in Q4.
Desserts volumes, however, were impacted as consumers cut back their spend on
more discretionary items, and salads were impacted as consumers switched from
more basic products, such as bagged leaf, to cheaper wholehead equivalents.
Against this backdrop, Bakkavor further strengthened its number one position
with market share gains. Consistent high customer service levels, the breadth
of our product range across categories and price points and targeted
innovation set us apart from our competitors. The year also ended strongly
with Christmas trading in line with our expectations.
From a market share perspective, Bakkavor outperformed across meals, desserts
and salads, whilst our pizza and bread performance was marginally behind the
market due to our customer mix and reduced promotional activity. Some of the
highlights include a strong performance in our premium and Italian meals
ranges, and expanded range and meal-deal offer under the Pizza Express brand.
We have also seen new, younger consumers buy into our categories with strong
momentum in The Delicious Dessert Company brand, which delivered 370% revenue
growth and products are now available in over 1,100 stores.
With our salads range focused on more 'value-added' products, and a good
recovery in food-to-go salads and wraps post-Covid, the impact of softer
volumes seen across the market in more basic salads products has, for our
business, been limited. The hot summer and continued post-Covid recovery
supported a good performance for Bakkavor in salads. Servicing peak volumes in
the summer for our customers was underpinned by our forward-planning on labour
and targeted capacity and efficiency investments.
Value-seeking behaviours by consumers, and our own self-help efforts to
mitigate inflationary pressures, have meant that our product development
activity in 2022 centred on value optimisation. Of the 850 products we
launched in 2022, 60% related to the redevelopment of existing products.
Examples include recipe reformulation in pizza to meet HFSS guidelines,
packaging weight reduction on a range of ready meals, and the removal of
plastic lids from a range of dressed salads to support our sustainability
agenda and reduce the use of plastic.
Reshaped operations to protect profits
The scale, agility and resilience of our operations have come to the fore in a
period where there has been ongoing and significant supply chain disruption,
and unprecedented levels of inflation. Leveraging our well-established global
supply chain has been pivotal in helping mitigate the impact, and we have
benefitted from the added scale that our customers provide by buying certain
ingredients together. We are also thankful for the support we have received
from our customers on price, through both pass-through mechanisms and
constructive discussions on costs that sit outside these mechanisms.
Operationally, we have maintained our shape and delivered strong KPIs across
health and safety, food safety and customer service.
Whilst we maintained a tight control of costs through 2022, our Group plan to
protect profits saw us take more significant action in Q4. We have
operationally consolidated our UK business from four to two sectors, Meals and
Bakery, and moved our HR and Finance teams to functional reporting. This has
streamlined our structure, helped focus our activity and created greater
accountability across our business. We also completed a review of our
manufacturing footprint, which resulted in the difficult but necessary
decision to close two sites: Bakkavor Desserts Leicester and Bakkavor Salads
Sutton Bridge. Both sites are on track to close by the end of Q1 2023; Sutton
Bridge closed at the end of February and Leicester is due to close by the end
of March, with production transferring to other sites where we have already
invested in capacity and capability. Whilst a challenging time for affected
colleagues, we have supported them by offering alternative roles at other
sites, as well as hosting job fairs and working with local employers.
Targeted investment to drive operational excellence
The 'Excellence' pillar of our strategy is underpinned by our relentless focus
on efficiency. In 2022, our £43m of capital investment has centred on
operational improvement projects, along with ongoing maintenance. Examples
include automated salad lines, and capacity increases and packaging equipment
replacement in stir-fry. Our new manufacturing system is also now in place at
all but one of our UK factories, driving our operational performance
improvements. In addition, the conversion to LED lighting and previous
investment in harnessing heat released from refrigeration systems has helped
reduce costs and supported progress on our sustainability commitments.
With our Group-wide enhanced focus on cash, we will continue to prioritise
capital spend on productivity initiatives. Our strategic investment in
Bakkavor Bread Crewe, to increase flatbread capacity and productivity, is
underway and on track to commission in H2 2023, and we are investing to
enhance our fresh-cut fruit capacity and efficiency. The data-driven insight
provided by our new manufacturing system is also already helping build our
pipeline of future opportunities to drive further efficiency.
Confidence in continued market share gains, with actions underway to further
strengthen resilient foundations
We have taken decisive action to protect profits as the trading environment is
anticipated to remain challenging through 2023. Our plan in the UK is clear;
we will drive an aggressive plan to mitigate the impact of ongoing inflation
and volume pressures by leveraging our scale and strength, working
collaboratively with our customers to recover inflation and embedding our cost
saving and efficiency plans. Whilst we cannot predict exactly how consumer
spending will evolve, we will continue to leverage our insight, and adapt our
ranges to ensure our products deliver the value and quality that consumers
desire. Building on our outperformance in 2022, we are confident we will
continue to gain market share, with a strong pipeline of opportunities and we
are well placed to benefit from an increasingly unstable supply base. We are
encouraged by trading in early 2023, with volumes in line with expectations
despite fresh produce availability challenges, and continued market share
gains. Overall, our new re-energised leadership team is well-placed to deliver
on our plan, and this will further strengthen the resilient foundations of our
business.
United States: Delivered strong revenue growth, and demand for fresh meals
remains unabated. Looking ahead, we have a clear focus on operational
performance to deliver sustainable improvement.
£ million FY 2022 FY 2021 Change
Revenue 255.3 180.1 41.8%
Like-for-like revenue(1) 226.2 180.1 25.6%
Adjusted operating profit(1) 3.3 8.9 (62.9%)
Adjusted operating profit margin(1) 1.3% 4.9% (360bps)
Operating (loss) / profit (0.5) 8.9 (105.6%)
Operating (loss) / profit margin (0.2%) 4.9% (510bps)
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
statutory measures in Note 11.
Trading performance
Strong revenue momentum in the US has continued, with like-for-like revenue up
25.6% to £226.2m. This reflects strong volume growth and, in the second half
of the year, some impact of price. Including the impact of currency, £25.5m,
and the 53(rd) week, reported revenue was up 41.8%.
Operationally, onboarding this significant growth and the withdrawal of volume
by a single customer due to a contractual dispute since November 2022, has
created disruption and put pressure on profits. This was particularly apparent
in our East and West Coast sites, Charlotte and Carson, where we have seen the
majority of volume growth. Combined with the lag in recovering inflation, this
has meant adjusted operating profit was down £5.6m to £3.3m at a margin of
1.3% (2021: 4.9%). The operating loss of £0.5m includes £3.8m of exceptional
charges related to the impairment of inventory and trade receivables with the
above customer.
Strategic and operational progress
Demand for our fresh, high-quality products has remained strong. Our customers
continue to see our fresh meals offering as a key differentiator versus their
competitors and to attract consumers into store. Fresh meals now comprise over
50% of our US revenue, which is up over 30% year-on-year, benefitting from the
full-year effect of the national meals programme win; this launched in the
summer of 2021, combined with range extensions and the introduction of over 45
new meals products in 2022. We also onboarded a new customer in July 2022 for
whom we are delivering a range of ten fresh meals in over 250 stores across
the Midwest region.
Inflation remained elevated through 2022, particularly in poultry and
distribution, and whilst there was a timing lag, our customers have been
supportive of the pricing action we have taken. We also have several
initiatives in place to help mitigate the impact on both costs and our supply
chain, including the new sourcing of key commodities to improve price, and
reducing sourcing distance and inventory requirements.
Labour availability remains a challenge across our industry. We continue to be
agile in our approach to recruitment in order to keep up with the rapid pace
of growth, and have plans in place to streamline this process and improve
training for new colleagues. We also continue to leverage the wealth of
experience from our UK business; the recent appointment of a new US Finance
leader, who was previously Financial Controller within our UK Pizza and Bread
business, is just one example of this.
Looking ahead, our near-term focus has shifted from growth to profit: driving
operational performance and reviewing our cost base to improve margin in a
sustainable way. To support the delivery of this, our approach to growth will
be more measured and as we seek to minimise disruption, our capacity
investment in the region will only recommence once profit momentum in the
business has returned. Robust operational improvement and restructuring plans
are now being embedded, with a new leadership structure to be in place from
April 2023. Our President of Bakkavor USA, Pete Laport, is leaving in
mid-March and we thank him for his contribution and commitment during his time
with the US business. Whilst the benefit of our plans will take time to
deliver, we expect to see some margin improvement through 2023. We are making
progress to reach resolution on the contractual dispute with a customer, which
is expected to reach closure by end of Q2 2023. The pipeline for growth in
this underdeveloped market, however, remains significant and we remain excited
about the medium-term opportunity for our business and converting this growth
at an attractive and sustainable margin.
China: Trading impacted by Covid-related disruption, but teams' resilience
minimised financial impact and good progress made in diversifying our
channels. Confident that the long-term prospects remain attractive.
£ million FY 2022 FY 2021 Change
Revenue 100.8 99.1 1.7%
Like-for-like revenue(1) 90.5 99.1 (8.6%)
Adjusted operating loss(1) (6.6) (4.7) (40.4%)
Adjusted operating loss margin(1) (6.5%) (4.7%) (180bps)
Operating loss (16.3) (4.7) (246.8%)
Operating loss margin (16.2%) (4.7%) (1,150bps)
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
statutory measures in Note 11.
Trading performance
Trading continued to be impacted by ongoing Covid-related challenges, with
like-for-like revenue of £90.5m down 8.6% compared to 2021. Reported revenue
was up 1.7%, however, including the impact of currency, £8.7m, and the 53(rd)
week. Volumes in the second half began to recover, following a period of
severe regional lockdown restrictions earlier in the year; but with rising
case numbers in the remaining weeks of the year, they have remained behind
pre-pandemic levels.
Underpinned by the teams' resilience, we have sought to protect our business
and maintained a tight control of overheads. However, against a backdrop of
changes in demand patterns in response to Covid, rising labour costs and
inflation, China reported an adjusted operating loss of £6.6m for the year
(2021: £4.7m). Included in the operating loss of £16.3m is a £9.7m non-cash
impairment of our associate in Hong Kong due to the ongoing impact of Covid on
trading performance.
Strategic and operational progress
The trading environment in China remained volatile during FY22 as the
government continued to operate a zero-tolerance Covid policy and implement
strict regional lockdowns for most of the year. Reduced mobility and depressed
consumer spending have had a pronounced negative impact on demand from our
customers. This has been particularly evident for our strategic customers
operating quick service restaurants and coffee chains.
New product development has been limited through lockdown periods, however, it
has quickly returned as we looked to provide new and exciting products for our
customers as their stores re-opened. Our existing strategic foodservice
customers continue to have aggressive roll-out plans and believe in the
medium-term opportunity.
We have continued to make progress against our strategy of diversifying our
channels. Retail now comprises almost 20% of revenue and is up over 60%
year-on-year. Retail performance has been robust, and we have launched a new
range and expanded our store distribution with one of our strategic grocery
retail customers, and also expanded our range and increased volumes with
another retailer. Whilst office catering was held back by increased working
from home, volumes have rebounded strongly as workers returned to the office
following relaxation in restrictions.
Operationally, we have had to manage through the challenges resulting from
tight labour availability, supply chain disruption and fluctuations in demand.
The business and our people have demonstrated great resilience in adapting to
this tough environment. Progress was also made to support our Group Net Zero
target with the installation of solar panels at our site in Beijing, which
provides c.15% of electricity for the site.
Our strategic investment in the region is now complete and we continue to
maintain a tight control of capital spend. The last of our new sites, Xi'an,
saw production transfer from the old site in mid-November 2022.
Whilst the near-term outlook remains uncertain, it has been positive to see
the steady recovery in volumes through the second half of the year as
restrictions eased, which also led to improvements in efficiency and margin.
The relaxation of quarantine rules in mid-December 2022 has, however, led to a
spike in cases which has resulted in further volatility in order patterns and
inefficiencies across our factories. Positively, China is emerging from Covid,
and whilst trading at the start of 2023 has continued to experience some
disruption from the ongoing impact of Covid, the change to China's Covid
policy is welcome, and we remain confident in the long-term prospects for the
market.
FINANCIAL REVIEW
Robust performance and in a position of financial strength
Revenue
Group revenue increased 14.3% to £2,139.2m (2021: £1,871.6m). LFL revenue,
which excludes the benefit of the 53(rd) week and is at constant currency, was
up 10.6% to £2,069.0m. Of this growth, 9.2% was price and 1.4% volume.
UK reported revenue was up 12.0% to £1,783.1m (2021: £1,592.4m), and up
10.0% on a LFL basis to £1,752.3m. This was primarily driven by price
increases to mitigate significant inflation seen across our cost base, and
some volume growth in the first part of the year. US reported revenue
increased 41.8% to £255.3m (2021: £180.1m), and of this increase £25.5m
reflected the currency impact of a weaker Sterling. LFL revenue was up 25.6%
to £226.2m (2021: £180.1m), driven by strong volume growth from our existing
customers combined with pricing action taking effect in the second half of the
year. In China, reported revenue increased by 1.7% to £100.8m (2021:
£99.1m), with the benefit of currency more than offsetting the decline in
volume due to the impact of Covid through the year. LFL revenue was down 8.6%
to £90.5m (2021: £99.1m), however, this full-year result masks volatility in
revenue movements with significant volume declines during months of severe
regional lockdowns, offset by volume recovery as restrictions eased.
Operating profit
Adjusted operating profit decreased by 12.4% to £89.4m (2021: £102.0m).
Whilst it is disappointing to see a reduction in profit of £12.6m, this was
against a backdrop of £230m of inflation. Adjusted operating margin at 4.2%
was down 120 basis points (2021: 5.4%).
In the UK, adjusted operating profit was down 5.2% at £92.7m, as whilst we
have been successful in price recovery with customers, along with driving
operational efficiency and tight cost control, this has not fully offset the
impact of significant inflationary pressure across the cost base. In the US,
adjusted operating profit of £3.3m was down 62.9% on 2021. This was driven by
the impact of cost inflation and a lag in pricing recovery, combined with
operational disruption from onboarding significant volume growth in the first
nine months of the year, and in November 2022, the withdrawal of volume from a
single site due to a contractual dispute. China's adjusted operating loss
increased by £1.9m to £6.6m. This was due to severe regional lockdowns which
heavily impacted volumes and reduced efficiency, particularly in the first
half of the year, and again in the final few weeks of the year as Covid began
to spread rapidly across the population.
Operating profit decreased by 62.9% to £37.8m (2021: £102.0m), with margins
down 360 basis points at 1.8%. Operating profit is after a pre-tax exceptional
charge of £50.1m and £1.5m of costs incurred in the year associated with the
configuration and customisation of software as a service ("SaaS") projects,
treated as an Adjusting item.
Exceptional items
Exceptional items, excluded from adjusted operating profit, comprise:
£m FY 2022 FY 2021
Corporate restructuring costs 5.3 -
UK site closures:
· Closure costs 11.8 -
· Impairment charge 19.5 -
Investment in associate impairment 9.7 -
US customer contractual dispute 3.8 -
impairment
Total exceptional items 50.1 -
In 2022, the Group incurred an exceptional charge of £50.1m. Of this, £17.1m
relates to cash restructuring costs for the closure of two of our UK sites (by
the end of Q1 2023) and the costs of a corporate restructuring, which includes
redundancy payments. The majority of this cash cost will be incurred in 2023.
There is a non-cash impairment charge of £19.5m, of which £19.3m relates to
fixed assets at the two sites due to close and £0.2m impairment of intangible
assets for one of the businesses. The value of the Group's investment in
associated undertakings based in Hong Kong has been written down in the period
by £9.7m due to the ongoing impact of Covid and reduced tourism on the
trading performance of that business. An ongoing contractual dispute with a US
customer has resulted in a £3.8m impairment of inventory and receivables
related to this customer. However, we continue to pursue the recovery of these
assets as we seek to reach resolution on this matter. Of the total
exceptionals, £19.3m is cash costs, with £2.5m incurred in FY22 and the
balance of the outflow to come in FY23.
Finance costs
Group profit before tax was £18.1m (2021: £81.4m), which includes finance
costs of £20.8m in 2022, up 21.6% on 2021 (2021: £17.1m). This increase was
driven by rising interest rates during 2022, partially offset by the voluntary
repayments of £37.5m of our more expensive debt in April and September 2021
(previously due to mature in June 2024).
The interest cost on the Group's bank facilities is SONIA plus a margin. To
hedge against movements in SONIA the Group has £150m of fixed rate interest
swaps for SONIA in place until March 2024, at an average rate of 37 basis
points, and has continued to closely monitor its interest rate exposure. In
July 2022, the Group put in place a further £30m of fixed rate interest swaps
for SONIA from March 2024 until March 2026, at an average rate of 233 basis
points. The Group's cost of debt at the end of 2022 was c.3.9% per annum and
is expected to increase further, to c.5% in FY23, given the recently announced
increase in UK interest base rates.
Tax
The Group's profit after tax was £12.5m (2021: £56.8m). The Group tax charge
for 2022 decreased by £19.0m to £5.6m (2021: £24.6m). The charge represents
an effective tax rate of 30.9% on profit before tax of £18.1m. The underlying
effective tax rate was 21.5% (2021: 29.7%), which excludes exceptional and
Adjusting items. The effective rate is 2.5% higher than the UK statutory tax
rate of 19% mainly due to the effect of non-deductible expenses, overseas tax
losses not recognised in deferred tax and the impact of a change in the UK
corporation tax rate to 25%. The latter reflecting the government announcement
that UK corporation tax will increase to 25% effective from 1 April 2023,
being the rate at which timing differences are expected to reverse. This does
not impact current taxes. We expect the effective tax rate for 2023 to
increase slightly above the enacted UK corporation tax rate, 25%, given the UK
is where we pay the majority of our corporate taxes.
£m FY 2022 FY 2021
Profit before tax 18.1 81.4
Tax charge at UK corporation tax rate of 19% (2021: 19%) 3.4 15.5
Net non-deductible expenses/ (non-taxable income) (1.2) (1.8)
Non-deductible impairment of investment 1.8 -
Adjustment in respect of prior periods (0.3) 1.5
Other reconciling items(1) 1.9 9.4
Tax charge for the period 5.6 24.6
Add: Tax credit on exceptional items 9.1 -
Tax charge excl. exceptional items 14.7 24.6
Add: Tax credit on adjusting items 0.3 0.8
Underlying tax charge 15.0 25.4
Effective tax rate on underlying profit before tax of £69.8m (2021: £85.4m) 21.5% 29.7%
1 Other reconciling items - see Note 5.
Earnings per share
Basic earnings per share ("EPS") decreased from 9.8 pence in 2021 to 2.2 pence
in 2022. This was primarily driven by the impact of the exceptional costs
which totalled £50.1m.
Adjusted EPS, which excludes the impact of exceptional and adjusting items and
the change in fair value of derivative financial instruments, decreased by 0.9
pence to 9.5 pence in 2022. This decrease was driven by lower adjusted
operating profit, which was partly offset by a reduction in tax charges. The
weighted average number of shares in issue (used to calculate Adjusted EPS)
during 2022 was 577,575,716 (2021: 579,425,585), and decreased on 2021 due to
the purchase of the Group's Ordinary shares through an Employee Benefit Trust
("EBT") to satisfy share awards under the Group's share scheme plans.
Cash flow
Net cash from operating activities decreased by £16.9m to £127.1m in 2022
(2021: £144.0m). This was mainly due to the lower adjusted operating profit.
Working capital, excluding movements in exceptionals, was slightly lower than
the prior year due to the 53(rd) week in 2022. The cash impact of exceptional
items in 2022 was £2.5m (2021: £1.2m).
Net cash used in investing activities increased by £8.8m to £63.7m in 2022
(2021: £54.9m). This was driven by an increase in capital expenditure in
2022, primarily the strategic investment in the US, and is against a softer
comparative with investment in 2021 delayed to mitigate against the impact of
Covid restrictions.
Free cash flow was an inflow of £66.8m, £24.4m lower than the prior year due
to the factors set out above.
Capital allocation
We maintain a disciplined approach to capital allocation, with the overriding
objective to enhance shareholder value. In 2022, we allocated our free cash
inflow of £66.8m across debt reduction (£8.8m) to support the maintenance of
leverage and dividends (£38.8m). To satisfy share awards under the Group's
share scheme plans, £3.1m was spent to purchase the Group's own Ordinary
shares through an EBT. The balance of cash was allocated across IFRS 16
payments, refinancing fees, exceptional items and foreign exchange.
There were no acquisitions in the year, but we continue to consider these
where they are a strategic fit for our business. In the medium-term, we remain
committed to investing to enhance returns, maintaining leverage within the
target range of 1.5 to 2.0 times.
Investment and returns
Group ROIC was 7.1% for the 12 months to 31 December 2022, compared to 7.2% in
the prior year. This reflects the year-on-year decrease in adjusted operating
profit after tax, with underlying trading performance down, partly offset by
the reduction in effective tax rate. There was also a marginal decrease in
average invested capital, as the Group has maintained a tight control of
capital spend thereby limiting the increase in invested capital.
Over the medium-term, the Group expects to see an improvement in ROIC as
recent investments, including the key strategic projects, deliver an increase
in returns. With the Group's enhanced focus on managing cash, we expect the
level of capital investment to reduce on the prior year at c.£50m.
Debt and leverage
Operational net debt decreased £8.8m to £284.9m. Leverage (the ratio of
operational net debt to adjusted EBITDA) was maintained at 1.9 times at
December 2022 and is within the Group's target range of 1.5-2.0 times. The
Group's liquidity position remains strong with headroom of over £200m against
debt facilities of £486m, and comfortable headroom against all financial
covenants. From a debt maturity perspective, on 1 March 2022, the Group
extended the maturity date of £430m of its core debt facilities from March
2025 to March 2026.
Dividend
During the year, the Group paid £22.8m in respect of the final dividend for
FY21 and £16.0m for the interim dividend declared in September for FY22.
The strength of our balance sheet and cash generation supports our long-term
growth aspirations and commitment to delivering returns to shareholders. We
propose a final 2022 dividend of 4.16 pence per Ordinary share, resulting in a
total dividend for 2022 of 6.93 pence per Ordinary share. This represents an
increase of 5.0% on 2021 and is in line with the interim dividend announced in
September 2022. If approved by shareholders, the final dividend will be paid
on 5 June 2023.
Pensions
Under IAS 19 valuation principles, the Group recognised a surplus of £12.8m
for the UK defined benefit scheme as at 31 December 2022 (26 December 2021:
£37.2m surplus). The decrease in value of plan assets of c.£127m was as a
result of volatile markets due to the wider macro-economic environment and
this was more than the decrease in the defined benefit obligation arising from
the gilt yield increases despite the liability hedging that is in place.
As a result of the volatility in the gilt markets at the end of September and
in early October, the scheme Trustees asked the Group to provide further
collateral for its liability hedging of interest and inflation rate movements.
The Group agreed to provide a £15m short-term line of credit to the scheme to
meet this collateral requirement and, following changes to the scheme's
investments, the line of credit was fully repaid by the end of the year.
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 £11.7m, which will be paid over an agreed recovery
period ending on 31 March 2024, with payments of £2.5m per annum. The Group
is currently in discussions with the Trustee in respect of the latest
triennial valuation as at 31 March 2022 and the associated updated funding
plan.
Summary
The Group delivered a solid performance against a tough backdrop. Strong
revenue growth reflected our success in taking pricing action to offset
significant inflationary pressures, and Group adjusted operating profit was in
line with market expectations. We exit the year in a strong financial
position, with leverage within our target range, financing in place through to
FY26 and a good level of protection against interest rate rises. Whilst
macro-headwinds are expected to persist through 2023, our balance sheet
strength, combined with our clear plan to protect profits, provide the strong
foundations from which we can continue to deliver on our strategy and deliver
for our customers, colleagues and shareholders.
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. 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 31 December 2022,
available on 17 March 2023 on the company website.
Related parties
During the period, Group companies only entered into transactions with related
parties who are members of the Group. Transactions with Directors and
shareholders are set out in Note 33 in the Group's Consolidated Financial
Statements for FY22.
In addition, as a result of the volatility in the gilt markets, the Group's
Defined Benefit Pension Scheme was required to provide further collateral for
its liability hedging of interest and inflation rate movements. The Group
agreed to provide a £15m short-term line of credit to the Scheme in October
2022 to meet this collateral requirement. The line of credit attracted
interest at a rate of 2.1% plus SONIA and was fully repaid by 23 December
2022.
CONSOLIDATED INCOME STATEMENT
53 WEEKS ENDED 31 DECEMBER 2022
53 weeks ended 31 December 2022 52 weeks ended 25 December 2021
£m Note Underlying activities Exceptional Total Underlying activities Exceptional Total
items(1) items(1)
Continuing operations
Revenue 2 2,139.2 - 2,139.2 1,871.6 - 1,871.6
Cost of sales (1,576.5) - (1,576.5) (1,330.9) - (1,330.9)
Gross profit 562.7 - 562.7 540.7 - 540.7
Distribution costs (89.4) - (89.4) (75.1) - (75.1)
Other administrative costs (net) (385.6) (50.1) (435.7) (363.9) - (363.9)
Share of results of associates after tax 0.2 - 0.2 0.3 - 0.3
Operating profit/(loss) 87.9 (50.1) 37.8 102.0 - 102.0
Finance costs 4 (20.8) - (20.8) (17.1) - (17.1)
Other gains and (losses) 1.1 - 1.1 (3.5) - (3.5)
Profit/(loss) before tax 68.2 (50.1) 18.1 81.4 - 81.4
Tax (charge)/credit 5 (14.7) 9.1 (5.6) (24.6) - (24.6)
Profit/(loss) for the period 53.5 (41.0) 12.5 56.8 - 56.8
Earnings per share
Basic 6 2.2p 9.8p
Diluted 6 2.1p 9.6p
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 3 and include material items that are non-recurring, significant
in nature and are important to users in understanding the business, including
restructuring costs and impairment of assets. In addition, the Group uses
further Alternative Performance Measures which can be found in Note 11.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
53 WEEKS ENDED 31 DECEMBER 2022
£m Note 53 weeks ended 31 December 2022 52 weeks ended 25 December 2021
Profit for the period 12.5 56.8
Other comprehensive (expense)/income
Items that will not be reclassified subsequently to profit or loss:
Actuarial (loss)/gain on defined benefit pension schemes (26.3) 24.5
Tax relating to components of other comprehensive (expense)/income 5 6.6 (6.6)
(19.7) 17.9
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 17.3 2.6
Gain on cash flow hedges 13.3 2.0
Hedging (gains)/losses reclassified to profit or loss (1.4) 0.4
Tax relating to components of other comprehensive income/(expense) 5 (3.1) (0.2)
26.1 4.8
Total other comprehensive income 6.4 22.7
Total comprehensive income 18.9 79.5
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
£m Note 31 December 2022 25 December
2021
Non-current assets
Goodwill 655.1 650.1
Other intangible assets 8.8 1.7
Property, plant and equipment 548.1 545.2
Interests in associates and other investments 3.7 11.8
Deferred tax asset 8 12.9 9.9
Retirement benefit asset 12.8 37.2
Derivative financial instruments 9.9 2.6
1,251.3 1,258.5
Current assets
Inventories 86.2 70.8
Trade and other receivables 161.0 142.8
Cash and cash equivalents 40.2 31.1
Derivative financial instruments 2.7 0.3
290.1 245.0
Total assets 1,541.4 1,503.5
Current liabilities
Trade and other payables (430.0) (390.8)
Current tax liabilities (1.1) (1.3)
Borrowings 7 (13.1) (3.0)
Lease liabilities (11.3) (10.8)
Provisions (22.0) (8.5)
Derivative financial instruments (0.3) (1.7)
(477.8) (416.1)
Non-current liabilities
Borrowings 7 (309.2) (317.6)
Lease liabilities (85.9) (73.8)
Provisions (15.0) (14.3)
Derivative financial instruments - (0.4)
Deferred tax liabilities 8 (35.7) (40.6)
(445.8) (446.7)
Total liabilities (923.6) (862.8)
Net assets 617.8 640.7
Equity
Called up share capital 9 11.6 11.6
Own shares held 9 (3.1) -
Merger reserve (130.9) (130.9)
Hedging reserve 9.5 1.7
Translation reserve 44.5 27.2
Retained earnings 686.2 731.1
Total equity 617.8 640.7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
53 WEEKS ENDED 31 DECEMBER 2022
£m Note Called up share capital Own shares held Merger reserve Hedging reserve Translation reserve Retained earnings Total
equity
Balance at 27 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 9 - - - - - (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 5 - - - - - (0.1) (0.1)
Balance at 25 December 2021 11.6 - (130.9) 1.7 27.2 731.1 640.7
Profit for the period - - - - - 12.5 12.5
Other comprehensive income/(expense) for the period - - - 8.8 17.3 (19.7) 6.4
Total comprehensive income/(expense) for the period - - - 8.8 17.3 (7.2) 18.9
Reclassification to inventory - - - (1.0) - - (1.0)
Purchase of own shares 9 - (3.1) - - - - (3.1)
Dividends 9 - - - - - (38.8) (38.8)
Credit for share-based payments - - - - - 1.9 1.9
Cash-settlement of share based payments - - - - - (0.6) (0.6)
Deferred tax 5 - - - - - (0.2) (0.2)
Balance at 31 December 2022 11.6 (3.1) (130.9) 9.5 44.5 686.2 617.8
CONSOLIDATED STATEMENT OF CASH FLOWS
53 WEEKS ENDED 31 DECEMBER 2022
£m Note 53 weeks ended 31 December 2022 52 weeks ended 25 December
2021
Net cash generated from operating activities 10 127.1 144.0
Investing activities:
Interest received 0.2 -
Dividends received from associates - 0.7
Purchases of property, plant and equipment (61.1) (59.8)
Proceeds on disposal of property, plant and equipment 0.1 4.2
Purchase of intangibles (2.9) -
Net cash used in investing activities (63.7) (54.9)
Financing activities:
Dividends paid 9 (38.8) (38.5)
Own shares purchased 9 (3.1) -
Increase in borrowings 9.7 28.1
Repayment of borrowings (9.2) (60.9)
Principal elements of lease payments (14.0) (11.7)
Net cash used in financing activities (55.4) (83.0)
Net increase in cash and cash equivalents 8.0 6.1
Cash and cash equivalents at beginning of period 31.1 24.8
Effect of foreign exchange rate changes 1.1 0.2
Cash and cash equivalents at end of period 40.2 31.1
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 31 December
2022 but is extracted from the Annual Report & Accounts 2022. The Annual
Report & Accounts 2022 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).
On 31 December 2020, IFRS as adopted by the European Union at that date was
brought into UK law and became UK-adopted International Accounting Standards,
with future changes being subject to endorsement by the UK Endorsement Board.
Bakkavor Group plc transitioned to UK-adopted International Accounting
Standards in its consolidated financial statements on 26 December 2021. This
change constitutes a change in accounting framework. However, there is no
impact on recognition, measurement or disclosure in the period reported as a
result of the change in framework. The Consolidated Financial Statements of
the Bakkavor Group plc group have been prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the Companies
Act 2006 as applicable to companies reporting under those standards.
The Consolidated Financial Statements comprise the Financial Statements of the
parent undertaking and its subsidiary undertakings (the "Group"), 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. Where the fiscal year 2022 is quoted in these Financial Statements
this relates to the 53-week period ended 31 December 2022. The fiscal year
2021 relates to the 52-week period ended 25 December 2021.
These Financial Statements are presented in Pounds Sterling because that is
the currency of the primary economic environment in which the Group operates.
Foreign operations are included in accordance with the foreign currency policy
set out below.
The Group considers the impact of climate-related factors in the preparation
of the Financial Statements and discloses any material impact in the relevant
Notes.
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 25 December 2021, except for new standards and
interpretations effective for the first time for the reporting period and for
the changes described below.
The Group has made a change to its accounting policy in relation to upfront
configuration and customisation costs incurred in implementing
Software-as-a-Service ('SaaS') arrangements.
During 2022, the Company began purchasing its own Ordinary shares from the
market through an Employee Benefit Trust called the Bakkavor Group plc
Employee Benefit Trust. These shares are held to satisfy share awards under
the Group's share scheme plans. Own shares are recorded at cost and are
deducted from equity.
Going concern
The Directors have reviewed the historical trading performance of the Group
and the forecasts through to March 2024.
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 the
potential impact of lower sales volumes from reduced consumer demand in
response to increasing retail prices.
Having taken these factors into account under the scenario, which is
considered to be severe but plausible, 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 Group has adequate resources to
meet its 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 chief operating decision-maker ("CODM") has been defined as the Management
Board headed by the Chief Executive Officer. They review the Group's internal
reporting in order to assess performance and allocate resources. Management
has determined the segments based on these reports.
As at the statement of financial position date, the Group is organised into
three regions, the UK, US and China, and manufactures fresh prepared foods and
produce in each region.
The Group manages the performance of its businesses through the use of
'Adjusted operating profit', as defined in Note 11.
Measures of total assets are provided to the Management Board; however, cash
and cash equivalents, short-term deposits and some other central assets are
not allocated to individual segments. Measures of segment liabilities are not
provided to the Management Board.
The following table provides an analysis of the Group's segmental information
for the period to 31 December 2022:
£m Note UK US China Un-allocated Total
Revenue 11 1,783.1 255.3 100.8 - 2,139.2
Adjusted EBITDA 11 147.7 12.4 (0.1) - 160.0
Depreciation (52.8) (8.7) (6.8) - (68.3)
Amortisation (0.3) (0.4) - - (0.7)
Share scheme charges (1.9) - - - (1.9)
Profit on disposal of property, plant and equipment - - 0.1 - 0.1
Share of results of associates - - 0.2 - 0.2
Adjusted operating profit/(loss) 11 92.7 3.3 (6.6) - 89.4
Exceptional items 3 (36.6) (3.8) (9.7) - (50.1)
Configuration and customisation costs for SaaS projects (1.5) - - - (1.5)
Operating profit/(loss) 54.6 (0.5) (16.3) - 37.8
Finance costs (20.8)
Other gains and (losses) 1.1
Profit before tax 18.1
Tax (5.6)
Profit for the period 12.5
Other segment information:
Capital additions 46.0 39.0 1.9 - 86.9
Interests in associates - - 3.6 - 3.6
Total assets 1,215.1 200.2 73.3 52.8 1,541.4
Non-current assets 1,018.1 167.8 55.5 9.9 1,251.3
The following table provides an analysis of the Group's segmental information
for the period to 25 December 2021:
£m Note UK US China Un-allocated Total
Revenue 11 1,592.4 180.1 99.1 - 1,871.6
Adjusted EBITDA 11 149.3 15.7 1.8 - 166.8
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 profit/(loss) 11 97.8 8.9 (4.7) - 102.0
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 and 2022.
There were no inter-segment revenues. The un-allocated assets of £52.8m
(2021: £34.0m) 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.
Major customers
In 2022, the Group's four largest customers accounted for 73.2% (2021: 74.0%)
of the Group's total revenue from continuing operations. These customers
accounted for 87.9% (2021: 87.0%) 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:
2022 2021
Customer A 32.6% 33.4%
Customer B 20.5% 20.3%
Customer C 12.2% 11.5%
Customer D 7.9% 8.8%
3. 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 and
impairment of assets:
£m 2022 2021
Corporate restructuring costs (5.3) -
UK site closures:
- Closure costs (11.8) -
- Impairment charge (19.5) -
Investment in associate impairment (9.7) -
US customer contractual dispute impairment (3.8) -
Total exceptional items (50.1) -
Tax on exceptional items 9.1 -
Total exceptional items after tax (41.0) -
2022
In 2022, the Group incurred an exceptional charge of £50.1m. Of this, £17.1m
relates to restructuring costs for the closure of two of our UK sites by the
end of Q1 2023, and the costs of a corporate restructuring, which includes
redundancy payments, onerous and other closure costs. The majority of the cash
impact will be recognised in 2023. There is also an impairment charge of
£19.3m in respect of the relevant fixed assets at the two sites due to close
and £0.2m for the impairment of intangible assets for one of the businesses
and these charges have no cash impact. The value of the Group's investment in
associated undertakings based in Hong Kong has been written down in the period
by £9.7m due to the ongoing impact of Covid on the trading performance of
that business. An ongoing contractual dispute with a US customer has resulted
in a £3.8m impairment of inventory and receivables related to this customer.
However, we continue to pursue the recovery of these assets as we seek to
reach resolution on this matter.
2021
No exceptional costs have been incurred by the Group.
4. Finance costs
£m 2022 2021
Interest on borrowings 16.9 14.2
Interest on lease liabilities 3.1 2.7
Unwinding of discount on provisions 0.8 0.2
Total 20.8 17.1
There were no borrowing costs included in the cost of qualifying assets during
2021 or 2022. 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 credit to
income was £nil (2021: £nil).
5. Tax
£m Note 2022 2021
Current tax:
Current period 9.7 7.6
Prior period adjustment 1.7 0.2
Total current tax charge (pre-exceptional items) 11.4 7.8
Deferred tax:
Deferred tax relating to the origination and reversal of temporary differences 3.7 7.6
in the period
Deferred tax relating to changes in tax rates 1.6 7.9
Prior period adjustment (2.0) 1.3
Total deferred tax charge (pre-exceptional items) 8 3.3 16.8
Tax on exceptional items:
Current tax (3.4) -
Deferred tax (5.7) -
Total tax credit on exceptional items (9.1) -
Total tax charge for the period 5.6 24.6
The Group tax charge for the period was £5.6m (2021: £24.6m) which
represents an effective tax rate of 30.9% (2021: 30.2%) on profit before tax
of £18.1m (2021: £81.4m). 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 was 19% for 2022 (2021: 19%).
The effective tax rate is 11.9% higher (2021: 11.2%) than the UK statutory tax
rate of 19% (2021: 19%).
The main item which, increases the effective rate by 10.2% is the tax effect
of an exceptional charge relating to impairment of investments (see Note 3).
As in the prior year the effective rate is also increased by 2.6% in relation
to 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.
Excluding exceptional items and other Adjusting items the effective tax rate
on underlying activities was 21.5% (2021: 29.7%) (see Note 11).
The charge for the period can be reconciled to the profit per the consolidated
income statement as follows:
2022 2022 2021 2021
£m
%
£m
%
Profit before tax: 18.1 100.0 81.4 100.0
Tax charge at the UK corporation tax rate of 19% (2021: 19%) 3.4 19.0 15.5 19.0
Net non-deductible expenses/(non-taxable income) (1.2) (6.9) (1.8) (2.0)
Non-deductible impairment of investment 1.8 10.2 - -
Prior period adjustment (0.3) (1.7) 1.5 1.7
Tax effect of losses carried forward not recognised 1.0 5.5 0.7 0.9
Unprovided deferred tax assets now recognised - - (0.1) (0.2)
Overseas taxes at different rates 0.4 2.2 0.9 1.1
Deferred tax rate differential 0.5 2.6 7.9 9.7
Tax charge and effective tax rate for the period 5.6 30.9 24.6 30.2
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:
2022 2021
£m
£m
Tax relating to components of other comprehensive income/(expense):
Deferred tax:
Remeasurements on defined benefit pension scheme actuarial (loss)/gain (5.0) 4.6
Deferred tax rate change on defined benefit pension scheme actuarial (1.6) 2.0
(loss)/gain
Cash flow hedges and cost of hedging 3.1 0.2
Deferred tax on share schemes 0.2 0.1
(3.3) 6.9
Tax relating to components of other comprehensive income/(expense): (3.5) 6.8
Tax relating to share-based payments recognised directly in equity: 0.2 0.1
(3.3) 6.9
HMRC had previously raised an enquiry into the structure used to fund our
overseas investment in the US business. Although a number of earlier years
were agreed, for the years ended 2019 onwards and including the current period
ended 31 December 2022, 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.
In 2022 the tax risk provision was £1.0m (2021: £1.0m) because it is
considered likely that additional liabilities will become due to the tax
authorities.
6. 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,
excluding own shares held.
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 2022 2021
£m
Profit for the period 12.5 56.8
Number of shares 2022 2021
'000
Weighted average number of Ordinary shares 577,576 579,426
Effect of potentially dilutive Ordinary shares 9,767 9,775
Weighted average number of Ordinary shares including dilution 587,343 589,201
2022 2021
Basic earnings per share 2.2p 9.8p
Diluted earnings per share 2.1p 9.6p
The Group calculates Adjusted basic earnings per Ordinary share and details of
this can be found in Note 11, Alternative performance measures.
7. Borrowings
The interest rates and currency profile of the Group's borrowings at 31
December 2022 were as follows:
Currency Facility amount £m Amount drawn down at year end £m Interest rate Non-utilisation fee Maturity
date
Term Loan GBP 225.0 225.0 SONIA(2) plus a margin of 2.1% N/A Mar 2026(1)
Revolving Credit Facility ("RCF") GBP 230.0 60.0 SONIA(2) plus a margin of 2.1% 0.735% Mar 2026(1)
Asset Finance Facility GBP 19.2 19.2 Fixed interest rate N/A Aug 2027
Asset Finance Facility GBP 10.4 10.4 Fixed interest rate N/A Jun 2028
Asset Finance Facility USD 1.7 1.7 SOFR(3) plus 2.12% N/A Feb 2023
Total 486.3 316.3(4)
1 £12.4m of the term loan and £12.6m 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.
3 SOFR stands for Secured Overnight Financing Rate.
4 £316.3m represents the committed facilities of the Group, the Group's
Consolidated Statement of Financial Position discloses £322.3m which includes
local overdraft facilities, unamortised fees and interest accrued.
On 18 March 2020, the Group completed a refinancing of its core debt
facilities through a new term loan and Revolving Credit Facility totalling
£455m. 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. £430m of these
facilities were extended in March 2021 and further extended in March 2022 to
mature in March 2026.
The Group's total banking facilities amount to £455.0m (2021: £455.0m)
comprising:
a. £225.0m in term loans (2021: £225.0m term loan), with £12.4m maturing
in March 2024 and £212.6m in March 2026; and
b. £230.0m Revolving Credit Facilities ("RCF") (2021: £230.0m RCF), which
includes an overdraft and money market facility of £20.0m (2021: £20.0m) and
further ancillary facilities of £13.3m (2021: £13.3m). For the RCF, £12.6m
matures in March 2024 and £217.4m in March 2026. The bank facilities are
unsecured and 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.
The Asset Finance Facility is made up of three separate facilities which are
secured against specific items of plant and machinery as follows:
a. £25.0m facility, which could be drawn against up to August 2020, of
which the Group initially drew down £24.9m with £19.2m outstanding at the
end of 2022. 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 31 December 2022 was 2.41% (2021: 2.41%).
The interest rate is fixed at the prevailing rate on commencement of the loan
tranche.
b. £13.1m drawn down during 2021 under a separate asset financing facility
with £10.4m outstanding at the end of 2022. 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 31 December 2022 is 3.20%
(2021: 3.20%). The interest rate is fixed at the prevailing rate on
commencement of the loan tranche.
c. Bakkavor Foods USA Inc has entered into an asset financing facility of up
to $5.0m (£4.1m) of funding, based on approved funding requests. As at 31
December 2022 £1.7m funding had been approved and drawn and the interest rate
for this was a variable rate of SOFR plus 2.12%.
In September 2021 the Group transitioned from LIBOR to SONIA which impacted
£455.0m of the total debt facilities.
In addition, the Group has access to £8.9m (2021: £8.4m) of local overdraft
facilities in the US and China which are uncommitted and unsecured. One of the
Group's UK subsidiary companies, Bakkavor Finance (2) Limited, has provided
Corporate Guarantees totalling $5m for the US local overdraft facility and RMB
40m for the China local overdraft facility.
During the previous financial period, the Group repaid two term loans with
total capital repayments being £57.5m.
£m 31 December 2022 25 December 2021
Bank overdrafts 8.2 -
Bank loans 314.1 320.6
322.3 320.6
Borrowings repayable as follows:
On demand or within one year 13.1 3.0
In the second year 16.1 2.9
In the third to fifth years inclusive 292.4 303.1
Over five years 0.7 11.6
322.3 320.6
Analysed as:
Amount due for settlement within 12 months (shown within current liabilities) 13.1 3.0
Amount due for settlement after 12 months 309.2 317.6
322.3 320.6
2022 2021
%
%
The weighted average interest rates paid were as follows:
Bank loans and overdrafts 3.50 2.54
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:
£m 31 December 2022 25 December 2021
Fair value of the Group's borrowings 324.5 323.8
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:
£m 31 December 2022 25 December 2021
Analysis of net debt
Cash and cash equivalents 40.2 31.1
Borrowings (14.1) (4.1)
Interest accrual (0.4) (0.2)
Unamortised fees 1.4 1.3
Lease liabilities (11.3) (10.8)
Debt due within one year (24.4) (13.8)
Borrowings (310.4) (319.7)
Unamortised fees 1.2 2.1
Lease liabilities (85.9) (73.8)
Debt due after one year (395.1) (391.4)
Group net debt (379.3) (374.1)
8. 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.
£m Accelerated tax Fair value gains Provisions Retirement benefit obligations and share schemes Overseas tax losses and accrued interest US goodwill Total
depreciation(1)
At 27 December 2020 (25.9) 0.2 0.5 (1.9) 28.9 (8.5) (6.7)
(Charge)/credit to income (13.8) 0.2 0.2 - (2.6) (0.8) (16.8)
Exchange differences (0.1) - - - (0.2) - (0.3)
Charge to equity and other comprehensive income - (0.2) - (6.7) - - (6.9)
At 25 December 2021 (39.8) 0.2 0.7 (8.6) 26.1 (9.3) (30.7)
(Charge)/credit to income (6.3) (0.2) 0.2 0.5 3.4 (0.9) (3.3)
Credit to income on exceptional items 4.7 - - - 1.0 - 5.7
Exchange differences (0.9) - - - 3.1 - 2.2
(Charge)/credit to equity and other comprehensive income - (3.1) - 6.4 - - 3.3
At 31 December 2022 (42.3) (3.1) 0.9 (1.7) 33.6 (10.2) (22.8)
1 IAS23 Capitalised interest and Intangibles deferred tax balances are shown
within the Accelerated tax depreciation values above.
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:
£m 31 December 2022 25 December 2021
Deferred tax asset 12.9 9.9
Deferred tax liabilities (35.7) (40.6)
(22.8) (30.7)
Included in the above are deferred tax assets of £33.6m (2021: £26.1) in
connection with US tax losses and accrued interest amounts which will be
deductible in future accounting periods. These deferred tax assets are offset
by liabilities for which there is a legally enforceable right to do so. The US
tax losses and accrued interest amounts can be carried forward indefinitely
and used against future US taxable profits.
The carrying amount of deferred tax assets is reviewed at each statement of
financial position date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
In evaluating whether it is probable that sufficient taxable profits will be
earned in future accounting periods, all available evidence has been
considered by management including forecasts and business plans. These
forecasts are consistent with those prepared and used internally for business
planning and impairment testing purposes. Following this evaluation,
management determined there would be sufficient taxable profits generated to
continue to recognise these deferred tax assets in full.
Deferred tax assets in respect of some capital losses as well as trading loses
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:
£m 31 December 2022 25 December 2021
Capital losses 5.0 3.4
Trading losses 21.2 14.6
26.2 18.0
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 £20.3m (2020: £13.5m) 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.
9. Called up share capital and dividends
Called up share capital
£m 31 December 2022 25 December 2021
Issued and fully paid:
579,425,585 (2021: 579,425,585) Ordinary shares of £0.02 each 11.6 11.6
All Ordinary shares of £0.02 each are non-redeemable, and carry equal voting
rights and rank for dividends and capital distributions, whether on a winding
up or otherwise.
Own shares held
During the period, the Company began purchasing shares through an Employee
Benefit Trust called the Bakkavor Group plc Employee Benefit Trust (the
"Trust"). Own shares purchased are recorded at cost and deducted from equity.
The own shares held represents the cost of shares in Bakkavor Group plc
purchased in the market and held by the Trust to satisfy share awards under
the Group's share scheme plans.
The number of Ordinary shares held by the Trust at 31 December 2022 was
2,940,514 (25 December 2021: nil). This represents 0.51% of total called up
share capital at 31 December 2022 (25 December 2021: nil).
Total cash purchases made through the EBT during the year amounted to £3.1m
(2021: £nil).
£m Number of shares £000
Balance at 26 December 2021 - -
Acquisition of shares by the Trust 2,994,036 3,128
Distribution of shares under share scheme plans (53,522) (54)
Balance at 31 December 2022 2,940,514 3,074
No own shares held of Bakkavor Group plc were cancelled during the periods
presented.
Dividends
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 reinstated 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.
At the AGM on 25 May 2022, a final dividend of 3.96 pence per Ordinary share
for the financial year ended 25 December 2021 was declared. Following a waiver
in relation to 2,439,135 Ordinary shares held in the Bakkavor Group plc
Employee Benefit Trust, £22,848,663 was paid to Ordinary shareholders on 30
May 2022.
An interim dividend of 2.77 pence per Ordinary share was declared in September
2022. Following a waiver in relation to 2,492,273 Ordinary shares held in the
Bakkavor Group plc Employee Benefit Trust, £15,981,053 was paid to Ordinary
shareholders on 14 October 2022.
This has resulted in total dividend payments of £38,829,716 (2021:
£38,473,858) during the year.
A final dividend of 4.16 pence per share has been proposed for approval at the
Annual General Meeting on 31 May 2023 and will be payable on 5 June 2023 to
Ordinary shareholders on the register at 28 April 2023.
10. Net cash generated from operating activities
£m 2022 2021
Operating profit 37.8 102.0
Adjustments for:
Share of results of associates after tax (0.2) (0.3)
Depreciation of property, plant and equipment 68.3 65.2
Amortisation of intangible assets 0.7 0.5
Profit on disposal of property, plant and equipment (0.1) (2.9)
Impairment of assets 29.2 1.3
Share scheme charges 1.3 1.7
Net retirement benefits charge less contributions (2.2) (1.4)
Operating cash flows before movements in operating assets and liabilities 134.8 166.1
(Increase) in inventories (15.8) (7.0)
(Increase) in receivables (17.3) (6.2)
Increase in payables 32.8 18.9
Increase/(decrease) in exceptional provisions(1) 18.4 (0.4)
(Decrease) in provisions (1.4) (2.9)
Cash generated by operations 151.5 168.5
Income taxes paid (5.1) (6.5)
Interest paid (19.3) (18.0)
Net cash generated from operating activities 127.1 144.0
1 Included within the increase in exceptional provisions are inventory and
receivable provision movements of £3.3m (2021: £nil).
Analysis of changes in net debt
£m 26 December 2021 Cash Lease Exchange movements Other non-cash 31 December 2022
flow
additions
movements(1)
Borrowings (320.6) (0.5) - (0.2) (1.0) (322.3)
Lease liabilities (84.6) 14.0 (25.6) (1.0) - (97.2)
Total liabilities from financing activities (405.2) 13.5 (25.6) (1.2) (1.0) (419.5)
Cash and cash equivalents 31.1 8.0 - 1.1 - 40.2
Net debt (374.1) 21.5 (25.6) (0.1) (1.0) (379.3)
£m 27 December 2020 Cash Lease Exchange movements Other non-cash 25 December 2021
flow
additions
movements(1)
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 31 December 2022 of £0.4.m (2021:
£0.2m) and prepaid bank fees of £2.6m (2021: £3.4m). The net reduction in
these balances in the period of £1.0m (2021: net increase of £1.2m) is shown
in the table above as 'Other non-cash movements' in Borrowings.
11. 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, the effect of foreign currency movements and
revenues. In addition revenues for week 53 are taken out in the relevant
financial years to ensure that like-for-like revenue is shown on a 52 week
basis each year.
The following table provides the information used to calculate like-for-like
revenue for the Group.
£m 2022 2021 Change %
Statutory revenue 2,139.2 1,871.6 14.3%
Effect of currency movements (34.2) -
Week 53 revenue (36.0) -
Like-for-like revenue 2,069.0 1,871.6 10.6%
The following tables provide the information used to calculate like-for-like
revenue for each segment.
UK
£m 2022 2021 Change %
Statutory revenue 1,783.1 1,592.4 12.0%
Week 53 revenue (30.8) -
Like-for-like revenue 1,752.3 1,592.4 10.0%
US
£m 2022 2021 Change %
Statutory revenue 255.3 180.1 41.8%
Effect of currency movements (25.5) -
Week 53 revenue (3.6) -
Like-for-like revenue 226.2 180.1 25.6%
China
£m 2022 2021 Change %
Statutory revenue 100.8 99.1 1.7%
Effect of currency movements (8.7) -
Week 53 revenue (1.6) -
Like-for-like revenue 90.5 99.1 (8.6)%
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, costs incurred to configure or customise 'software as a service'
('SaaS') arrangements, 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.
SaaS arrangements are service contracts providing the Group with the right to
access the cloud provider's application software over the contract period.
Costs incurred to configure or customise, and the ongoing fees to obtain
access to the cloud provider's application software, are recognised as
operating expenses when the services are received, unless the configuration
and customisation activities significantly modify or customise the cloud
software, in which case the costs are expensed over the SaaS contract term.
The Group adjusts for the cost of these projects as they are infrequent in
nature and relate to significant systems changes within the business.
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.
£m Note 2022 2021
Operating profit 37.8 102.0
Exceptional items 3 50.1 -
Configuration and customisation costs for SaaS projects 1.5 -
Adjusted operating profit 89.4 102.0
Depreciation 68.3 65.2
Amortisation 0.7 0.5
Share scheme charges 1.9 2.3
Profit on disposal of property, plant and equipment (0.1) (2.9)
Share of results of associates after tax (0.2) (0.3)
Adjusted EBITDA post IFRS 16 160.0 166.8
Less IFRS 16 impact (13.8) (12.6)
Adjusted EBITDA pre IFRS 16(1) 146.2 154.2
Covenant adjustments 0.6 1.4
Adjusted EBITDA (pre IFRS 16 and including covenant adjustments) 146.8 155.6
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.
£m Note 31 December 2022 25 December 2021
Group net debt 7 (379.3) (374.1)
Unamortised fees (2.6) (3.4)
Interest accrual 0.4 0.2
Lease liabilities recognised under IFRS 16 96.6 83.6
Group operational net debt (284.9) (293.7)
Adjusted EBITDA (pre IFRS 16 and including covenant adjustments) 146.8 155.6
Leverage (Operational net debt/Adjusted EBITDA pre IFRS 16 and including 1.9 1.9
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.
£m 2022 2021
Net cash generated from operating activities 127.1 144.0
Interest received 0.2 -
Dividends received from associates - 0.7
Purchases of property, plant and equipment (61.1) (59.8)
Proceeds on disposal of property, plant and equipment 0.1 4.2
Purchase of intangibles (2.9) -
Cash impact of exceptional items 2.5 1.2
Refinancing fees 0.9 0.9
Free cash flow 66.8 91.2
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, configuration and customisation costs
for SaaS projects and the change in value of derivative financial instruments.
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.
£m 2022 2021
Profit for the period 12.5 56.8
Exceptional items (Note 3) 50.1 -
Configuration and customisation costs for SaaS projects 1.5 -
Change in fair value of derivative financial instruments 0.1 4.0
Tax on the above items (9.4) (0.8)
Adjusted earnings 54.8 60.0
Add back: Tax on Adjusted profit before tax 15.0 25.4
Adjusted profit before tax 69.8 85.4
Effective tax rate on underlying activities
(Tax on Adjusted profit before tax/Adjusted profit before tax) 21.5% 29.7%
Number of shares 2022 2021
'000
Weighted average number of Ordinary shares 577,576 579,426
Effect of dilutive Ordinary shares 9,767 9,775
Weighted average number of diluted Ordinary shares 587,343 589,201
2022 2021
Adjusted basic earnings per share 9.5p 10.4p
Adjusted diluted earnings per share 9.3p 10.2p
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 and
configuration and customisation costs for SaaS projects 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 and end of the period.
The Directors believe that ROIC is a useful indicator of the amount returned
as a percentage of shareholders' invested capital and that ROIC can help
analysts, investors and stakeholders to evaluate the Group's profitability and
the efficiency with which its invested capital is employed.
The following table sets out the calculations of Adjusted operating profit
after tax and invested capital used in the calculation of ROIC.
£m Note 2022 2021
Operating profit 37.8 102.0
Exceptional items 3 50.1 -
Configuration and customisation costs for SaaS projects 1.5 -
Adjusted operating profit 89.4 102.0
Taxation at the underlying effective rate (19.2) (30.3)
Adjusted operating profit after tax 70.2 71.7
Invested capital
Total assets 1,541.4 1,503.5
Total liabilities (923.6) (862.8)
Net debt at period end 379.3 374.1
Derivatives not designated as hedges - 0.9
Retirement benefit scheme surplus (12.8) (37.2)
Deferred tax liability on retirement benefit scheme 3.2 9.3
Invested capital 987.5 987.8
Average invested capital for ROIC calculation 987.7 994.4
ROIC (%) 7.1% 7.2%
12. Statement of directors' responsibilities in respect of the financial
statements
We confirm to the best of our knowledge that:
· The Group Financial Statements, which have been prepared in
accordance with UK-adopted International Accounting Standards, 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 Group Board by:
Mike
Edwards
Ben Waldron
Chief Executive
Officer
Chief Financial Officer and Asia Chief Executive Officer
7 March 2023
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