REG - Bakkavor Group PLC - Half-year Report
07/09/2022 07:00
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RNS Number : 5144Y Bakkavor Group PLC 07 September 2022
7 September 2022
Bakkavor Group plc
Robust first half performance, full year outlook in line with expectations
Bakkavor Group plc (the "Company") and its subsidiaries ("Bakkavor" or "the
Group"), the leading international provider of fresh prepared food ("FPF"),
today announces its unaudited half year results for the 26-week period ended
25 June 2022.
Robust trading performance and in a position of financial strength
· Strong revenue momentum; reported revenue up 10.3% to £1,010.2m,
like-for-like revenue(1) up 9.2% on a constant currency basis to £1,000.2m
· Adjusted operating profit(1) of £42.5m, down 9.5%, (H1 2021
£47.0m); UK performance broadly in line with the prior period, while our
international performance has been impacted by COVID-19 restrictions and
inflation
· Leverage(1) maintained at 1.9 times within target range
· Basic earnings per share up 4.8% to 4.4p
· Interim dividend per share of 2.77p, up 5.0% on the prior period
Continuing progress, focused on successfully navigating macro uncertainties
and inflationary headwinds
· UK revenue up by 7.9%, primarily led by price increases, with volume
growth outperforming the FPF market
· Successfully executed pricing and cost actions, along with
productivity improvements, to mitigate significant levels of inflation and
largely protected profitability in the UK
· Strong demand driving significant momentum in the US with
like-for-like revenue up 34.6%, albeit a lag in inflation recovery and
operational disruption from onboarding new business has held back margin
· China was severely impacted by COVID-19 restrictions from March, and
whilst the environment remains uncertain, we are encouraged by the early signs
of volume recovery
· Meaningful progress made within our Trusted Partner strategy; focus
on building data to measure performance effectively and developing our roadmap
to reach net zero by 2040
Full year outlook remains in line with market expectations(2)
· Revenue momentum has continued through July and August, with full
year revenue expected to be in line with the upper end of market
expectations(2)
· In the UK, our broad portfolio of products across categories and
competitive price points positions us well to cater to consumers changing
needs. We are confident of ongoing gains in our share of the FPF market,
underpinned by a strong pipeline of launches
· In the US, sustained demand supports the continuation of our strong
growth trajectory. We expect to see some margin improvement in H2 2022 as
price recovery and efficiency improvements take effect
· In China, the government's zero-tolerance COVID-19 policy means the
near-term outlook remains uncertain, but we are working closely with customers
to drive growth in our categories as the market recovers
· We remain confident in delivering adjusted operating profit within
the range of market expectations(2) for 2022, as we continue to focus on
managing costs, price recovery and driving performance
· While significant levels of inflation and consumer spending headwinds
are expected to persist in 2023, we remain well-placed to capitalise on our
attractive, medium to long term opportunity
FINANCIAL SUMMARY H1 2022 H1 2021 Change
£ million (unless otherwise stated)
Group revenue 1,010.2 915.7 10.3%
Like-for-like revenue(1) 1,000.2 915.7 9.2%
Adjusted EBITDA pre IFRS 16(1) 70.3 74.1 (5.1)%
Adjusted operating profit(1) 42.5 47.0 (9.5)%
Adjusted operating profit margin(1) 4.2% 5.1% (90)bps
Operating profit 41.1 47.0 (12.5)%
Operating profit margin 4.1% 5.1% (100)bps
Profit before tax 32.5 34.6 (6.1)%
Basic earnings per share 4.4p 4.2p 0.2p
Adjusted earnings per share(1) 4.6p 4.8p (0.2)p
Free cash flow(1) 36.6 39.7 (3.1)
Operational net debt(1) (290.1) (324.5) 34.4
Interim dividend per share 2.77p 2.64p 0.13p
1. Alternative performance measures are referred to as
'like-for-like', 'adjusted', 'underlying' and are applied consistently
throughout this document. These are defined in full and reconciled to the
reported statutory measures in Note 21.
2. Based on company compiled consensus ("Consensus") which includes
the following institutions; Berenberg, Citi, Goodbody, HSBC, Investec, Kepler,
Numis and Peel Hunt. Revenue consensus range of £1,991m to £2,089m, with
consensus at £2,034m. Operating profit consensus range for 2022 of £89.9m to
£95.0m, with consensus at £92.0m. Last updated on 6 September 2022.
AGUST GUDMUNDSSON, CEO commented:
"Against a backdrop of macro uncertainties and inflationary headwinds, our
operational delivery has been strong and we have continued to deliver for our
customers. This, once again, demonstrates the continuing resilience of the
Group, underpinned by the strength of our customer partnerships, supply chain
management, scale and category leadership.
"We remain confident in our ability to deliver a full year performance in line
with the range of market expectations as we continue to focus on managing
costs, price recovery, and driving demand in our categories. The current
geo-political uncertainty, however, will result in significant levels of
inflation and consumer spending headwinds persisting through 2023.
"We remain well-placed to capitalise on our attractive, medium to long term
opportunity, with strong foundations, an experienced team and the financial
strength to enable targeted strategic investment to support growth, drive
efficiency and deliver returns to shareholders."
Presentation
A copy of these results is available on www.bakkavor.com
(http://www.bakkavor.com)
We will be presenting to analysts via a webcast at 09.00 am, 7 September 2022,
through the Investor section of the Group's website at:
https://q4-emea.wavecast.io/bakkavor-earnings/half-year
(https://www.google.com/url?q=https://q4-emea.wavecast.io/bakkavor-earnings/half-year&sa=D&source=calendar&ust=1662794546911534&usg=AOvVaw04gkyWKomKAYHR6Zp_jYUd)
. 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:
Katie Hunt, MHP Communications +44 (0) 20 3743 8794
Rachel Farrington, MHP Communications +44 (0) 20 3128 8613
Oliver Hughes, MHP Communications +44 (0) 20 3128 8622
About Bakkavor
We are the leading provider of fresh prepared food ("FPF") 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. Our c.19,000
colleagues operate from 46 sites across our three markets supplying a
portfolio of over 3,200 products across meals, pizza & bread, salads and
desserts to leading grocery retailers in the UK and US, and international food
brands in China. Find out more at www.bakkavor.com (http://www.bakkavor.com)
and see our investor fact sheet here:
Bakkavor-Group-PLC-Fact-Sheet-July-2022.pdf (q4cdn.com)
(https://s28.q4cdn.com/357092721/files/doc_downloads/2022/06/Bakkavor-Group-PLC-Fact-Sheet-July-2022.pdf)
.
LEI number: 213800COL7AD54YU9949
Disclaimer - forward-looking statements
This statement, prepared by Bakkavor, may contain forward-looking statements
about Bakkavor. These represent expectations for the Group's business, and
involve known and unknown risks and uncertainties, many of which are beyond
the Group's control. The Group has based these forward‐looking statements on
current expectations and projections about future events. These
forward-looking statements may generally, but not always, be identified using
words such as 'will', 'aims', 'anticipates', 'continue', 'could', 'should',
'expects', 'is expected to', 'may', 'estimates', 'believes', 'intends',
'projects', 'targets', or the negative thereof, or similar expressions, but
their absence does not mean that a statement is not forward-looking.
By their nature, forward-looking statements involve risk and uncertainty
because they relate to events and depend on circumstances that may or may not
occur in the future and reflect the Group's current expectations and
assumptions as to such future events and circumstances that may not prove
accurate. Several material factors could cause actual results and developments
to differ materially from those expressed or implied by forward-looking
statements. There may be risks and uncertainties that the Group is unable to
predict at this time or that the Group currently does not expect to have a
material adverse effect on its business. You should not place undue reliance
on any forward-looking statements. These forward-looking statements are made
as of the date of this announcement. None of the Company or any of its
associates or Directors, officers or advisers provides any representation,
assurance or guarantee that the occurrence of the events expressed or implied
in any forward-looking statements in this document will actually occur. The
Group expressly disclaims any obligation to publicly update or review these
forward-looking statements other than as required by law. Some numbers and
period on period percentages in this statement have been rounded or adjusted
to ensure consistency with the financial information.
GROUP CHIEF EXECUTIVE'S REVIEW
A robust performance navigating current macro uncertainties and inflationary
headwinds
In the first half, the Group delivered a robust performance against an
increasingly challenging backdrop.
Revenue growth was strong, with like-for-like revenue(1) up 9.2% in H1 2022,
reflecting double-digit volume growth in the US and price increases that
accelerated through the period in the UK. This was partially offset by the
impact on volumes in China from the severe COVID-19 related restrictions.
The geo-political environment has continued to impact the global economy,
resulting in unprecedented cost pressures and supply chain disruption. The
accelerating cost inflation we have experienced has been effectively managed.
Inflation recovery through timely price increases and our disciplined cost
control, along with operational efficiency improvements have helped to
mitigate the impact on profitability. Whilst we have not been immune to the
global supply chain challenges, which resulted in disruption across the group,
we have continued to deliver high levels of customer service.
As a result, the UK delivered a robust performance, having broadly maintained
its adjusted operating profit despite the anticipated dilutionary impact on
margin from increased cost prices. Group operating profit, however, was held
back by COVID-19 related restrictions in China and a lag in inflation recovery
and disruption from onboarding new business in the US.
Despite the challenges in the first half, we have increased our market share
in the UK and the Group is well-placed for the considerable growth and
recovery opportunities in our US and Chinese markets respectively. We have
good visibility of costs for the remainder of 2022, with contracts, pricing
agreements and pass-through mechanisms in place, and we expect cost inflation
to be 12% to 14% for the full year. Further, our balance sheet is in a strong
position; we have maintained leverage within our target range and our
liquidity headroom remains significant. The Bakkavor team are at the heart of
our success, and I would like to extend my thanks for their continued hard
work and commitment.
United Kingdom: Robust trading performance and strong operational delivery
£ million H1 2022 H1 2021 Change
Revenue 849.5 787.5 7.9%
Like-for-like revenue(1) 849.5 787.5 7.9%
Adjusted operating profit(1) 43.7 44.0 (0.7)%
Adjusted operating profit margin(1) 5.1% 5.6% (50)bps
Operating profit 42.3 44.0 (3.9)%
Operating profit margin 5.0% 5.6% (60)bps
1. Alternative performance measures are
referred to as 'like-for-like', 'adjusted', 'underlying' and are applied
consistently throughout this document. These are defined in full and
reconciled to the reported statutory measures in Note 21.
In the UK, like-for-like revenue grew by 7.9% driven by pricing in the wake of
significant inflation across our cost base. The volume growth we delivered in
the period outperformed the FPF market and enabled us to gain market share.
We have broadly held our Adjusted operating profit at £43.7 million (H1 2021
£44.0 million), through proactive management and recovery of ongoing cost
inflation. However, this has had some dilutionary impact on adjusted operating
profit margin. Due to a change in accounting policy, £1.4m of costs for
software as a service ('SaaS') projects previously capitalised, were expensed
in the period and have been excluded from Adjusted operating profit. There
were no exceptional items in either period.
UK category review
The FPF market has started to see the impact of changes in consumer behaviour
as the cost of living increases; shoppers are more carefully managing their
budgets and visiting stores less frequently. Whilst desserts and pizza and
bread volumes have been impacted by reduced discretionary spend and a pullback
in promotions respectively, demand for meals remains robust and salads has
continued to recover strongly, with food-to-go volumes back above pre-COVID-19
levels. The breadth of our product portfolio across categories, customers and
price points has enabled us to succeed in this changing market and gain share
in the first half.
We continued to drive consumers to our categories through innovation, with
over 200 new products launched in the first half of the year. This included a
new stir-fry range as part of a multi-category business win with a strategic
customer, and we have also reviewed existing recipes to ensure they are cost
effective whilst retaining their quality.
We have supported our desserts category through the strong performance of our
The Delicious Dessert Company brand; we launched its range of eclairs with
another customer and expanded the product range.
UK strategic and operational actions
Our operational delivery has been strong, with high levels of customer service
and a good performance across food safety and health and safety metrics. We
have worked hard to minimise the impact of persistent inflationary pressures
and largely protected our profitability. This was achieved through a
combination of cost price increases, via pass-through mechanisms and
traditional pricing discussions, self-help actions to tightly manage costs and
drive performance, and forward purchasing to lock-in prices.
We have not been immune to the well-publicised, global supply chain
challenges, exacerbated in recent months by the conflict in Ukraine. We have
seen some temporary disruption to supply, along with heightened costs, but
have continued to work hard to minimise the impact on our business.
Across our workforce, we are seeing the benefit of our engagement efforts and
rate of pay increases take effect. Levels of absence and vacancies have
reduced from previously elevated levels. While labour availability has
remained tight, our continued investment in productivity improvements and
dynamic ways of working have helped to mitigate the impact. In particular,
delivering on peak volumes for our customers through the summer period is
reflective of these efforts; we transferred production of certain salads to
meals sites, and completed investment at a salads site to increase capacity
and efficiency, and reduce headcount requirements.
We have maintained tight control of capital spend while investing to maintain
our infrastructure and enhance productivity. The returns from our investment
in the 'smart' manufacturing system are delivering ahead of target, with
implementation at the remaining five sites expected to complete by early 2023.
This roll-out is part of our broader focus on driving efficiency improvements
and operational excellence across people, process and performance. This is
based on robust data, standardising our ways of working, training and
upskilling our people, and creating a culture of continual improvement. As
part of this programme, the Board has approved investment in our bread site at
Crewe to increase capacity and enhance operational efficiency.
Looking ahead, whilst we remain cautious about underlying volumes, we will
continue to work in partnership with our customers to adapt to changes in
consumer behaviour. Our broad portfolio of products across meal occasions and
categories, along with the diversity of price points from value through to
premium, means we are well placed to cater to consumers evolving needs.
As we have seen in prior recessionary periods, we expect to benefit as
consumers trade down from eating out to purchasing meal equivalents in the
supermarket. We remain committed to delivering value for our customers and our
strong pipeline of launches is expected to deliver further gains in market
share.
Managing our costs and driving performance remain our focus, ensuring we
continue to deliver for our customers through this tough operating
environment.
United States: Strong demand driving significant revenue momentum and capacity
expansion
£ million H1 2022 H1 2021 Change
Revenue 116.6 81.3 43.4%
Like-for-like revenue(1) 109.3 81.3 34.6%
Operating profit 3.1 4.5 (32.1)%
Operating profit margin 2.6% 5.5% (290)bps
Alternative performance measures are referred
to as 'like-for-like', 'adjusted', 'underlying' and are applied consistently
throughout this document. These are defined in full and reconciled to the
reported statutory measures in Note 21.
Significant revenue momentum within our US business has continued, with
like-for-like revenue up 34.6% to £109.3 million. Strong volume growth was
driven by the supply of fresh meals to our strategic customers, with this
category comprising over 50% of revenue.
Operating profit was down by £1.4 million to £3.1 million in H1 2022 due to
intensifying input cost inflation and a lag in pricing recovery. Temporary
operational disruption, as higher volumes were on-boarded, also impacted
margin. More positively, price increases started to come into effect towards
the end of the period, and plans are now well-established to improve operating
leverage.
US strategic and operational actions
Demand for our fresh prepared products remains strong and customers see our
offering as a key differentiator to attract consumers to their stores. The
national meals program launched last year with a strategic customer is
delivering well and we launched 33 new products in the first half.
Inflationary headwinds across our cost base have remained acute and a 77%
increase in the price of chicken, our largest ingredient, since January is
having a material impact (Source: Urner Barry Chicken Index). However, we have
continued to engage with our customers on inflation recovery and successfully
secured price increases towards the end of the period. In addition to price,
we have used other levers to help mitigate inflationary pressure, such as
alternative sourcing strategies and a heightened focus on operational
efficiency, the benefit of which is expected to start to come through in the
second half.
In common with the wider industry, labour availability remains a challenge,
and we continue to be agile in our approach to attracting and retaining talent
to our business. We have accelerated our recruitment process and reduced
agency reliance, and also continued to invest in our central and sites teams
to support our future growth.
There remains substantial growth potential in the US and we are seeing
significant inbound interest from customers for our fresh, high-quality meals.
We expect to see some margin improvement in H2 2022 as we remain focused on
operational delivery, with improvement plans in place to drive margin across
labour and materials, and price recovery takes effect. Strategic investment to
further increase fresh meals capacity in our East and West Coast sites
commenced in the period. This is part of a two-year programme of investment
across our existing sites which we believe will provide capacity to deliver
$500 million in revenue.
China: COVID-19 driven headwinds; well-placed for recovery in an attractive
market
£ million H1 2022 H1 2021 Change
Revenue 44.1 46.9 (6.0)%
Like-for-like revenue(1) 41.4 46.9 (12.0)%
Operating loss (4.3) (1.5) (184.3)%
Operating loss margin (9.7%) (3.2%) (650)bps
Alternative performance measures are referred
to as 'like-for-like', 'adjusted', 'underlying' and are applied consistently
throughout this document. These are defined in full and reconciled to the
reported statutory measures in Note 21.
In China, regional COVID-19 related restrictions significantly impacted
performance in the period, with like-for-like revenues down 12.0% to £41.4
million and an operating loss of £4.3 million. This compares to an operating
loss of £1.5m in H1 2021.
China strategic and operational actions
Although the year started well, with good momentum in retail and office
catering channels, the business was severely impacted when Shanghai and the
surrounding cities went into lockdown from March 2022. Many of our customers
were forced to close stores or saw a significant reduction in demand, and we
temporarily closed our head office and bakery site. Lockdown restrictions
started to ease from early June, and the external trading environment began to
gradually improve thereafter.
Given the challenging operating environment, we focused on supporting our
customers and our people, alongside protecting the business through tight cost
control. While inflationary pressures have persisted, our strong relationships
with suppliers have helped mitigate the impact.
Construction of our new site in Xi'an is complete. After a six month delay due
to COVID-19, we received government approval to manufacture at this new site
in June, and we expect to transfer production from our existing site by the
end of 2022.
We remain cautious about the near-term outlook whilst the government's
zero-tolerance COVID-19 policy remains in place, however, we are encouraged by
the recovery in volumes seen since early June, as customer stores have
reopened and mobility restrictions have eased. We expect the business to
remain loss making at an operating profit level for 2022 as we navigate the
post COVID-19 recovery. We believe the market remains highly attractive, and
we are confident of delivering profitable and sustainable growth in the
medium-term and beyond. Our customers are committed to their own growth plans,
and we have a well-invested footprint ready to capitalise on this opportunity.
Developing our talent and culture
The skills and experience of our diverse workforce are key to the future
growth of the Group, and we have continued to drive several initiatives across
the business to enhance our employee value proposition, culture, and talent.
We launched campaigns to raise employee awareness of our new values and help
embed these values to shape our culture. This included employee forum sessions
with our workforce engagement director, which have been very positively
received.
We have made good progress with developing our own talent through our early
careers programme. We have more than doubled the size of our apprenticeship
programme to 94 places (up from 44 last year), and we were pleased to be voted
the leading company for Apprentices in the FMCG sector for the third year
running, with our graduate programme awarded second place.
We have started to see positive trends across several of our people metrics as
the benefit of our recruitment initiatives, along with our wider engagement
efforts and rate of pay increases, are taking effect. The availability of
people has increased, and vacancy levels have come down, with reduced absences
seen in the UK and stable in the US.
Trusted Partner progress
Despite the challenging operating environment, we have made further progress
on our Trusted Partner ESG strategy. In June we formed a separate ESG
Committee, now decoupled from the Nomination Committee, to oversee progress in
this area, which reports directly into the Group Board.
We remain focused on our climate change strategy, and we are developing a
roadmap to achieve our commitment to reach Net Zero by 2040. Other areas of
focus include food waste reduction, where we continue to deliver good
progress, and the sustainability of our packaging, where we have removed over
148 tonnes of plastic with one customer alone through packaging changes. We
are also continuing to develop the necessary data and processes to measure the
performance of sustainability linked metrics more effectively.
We remain passionate about making Bakkavor an equal, inclusive and engaging
workplace where everyone can thrive. To support gender equality within the
organisation, we launched a female mentoring programme and remain a major
sponsor of the Diversity and Inclusion in Grocery Programme, that aims to
bring together FMCG businesses to deliver change.
Outlook
We remain confident in our ability to deliver within the range of market
expectations for the full year. This is underpinned by our continued focus on
managing costs, price recovery, driving demand in our categories and
delivering high levels of service, working in close partnership with our
customers and suppliers.
The current geo-political uncertainty, however, will result in significant
levels of inflation and consumer spending headwinds persisting through 2023.
We remain well placed to capitalise on our attractive, medium to long term
opportunity, with strong foundations, an experienced team, and the financial
strength to enable targeted strategic investment to support growth, drive
efficiency and deliver returns to shareholders.
FINANCIAL REVIEW
Revenue
Reported revenue increased by £94.5 million, or 10.3%, from £915.7 million
in H1 2021 to £1,010.2 million in H1 2022. Like-for-like revenue was up 9.2%,
from £915.7 million in H1 2021 to £1,000.2 million in H1 2022. This increase
was mainly driven by pricing, as the Group sought to recover increases in its
cost base.
In the UK, reported and like-for-like revenue increased by 7.9%, or £62.0
million, from £787.5 million in H1 2021 to £849.5 million in H1 2022. This
was primarily driven by price increases to mitigate the significant inflation
seen across our cost base, and some volume growth.
In the US, reported revenue increased by 43.4%, or £35.3 million, from £81.3
million in H1 2021 to £116.6 million in H1 2022. £7.3 million of the
increase was due to the strengthening of the Dollar in the period.
Like-for-like revenue, which is at constant currency, increased by 34.6% from
£81.3 million in H1 2021 to £109.3 million. This was driven by continued
volume growth from our existing customers combined with pricing increases to
partially offset raw material inflation.
In China, reported revenue decreased by 6.0%, or £2.8 million, from £46.9
million in H1 2021 to £44.1 million in H1 2022. Like-for-like revenue, which
is at constant currency, decreased by 12.0%, or £5.5 million, from £46.9
million in H1 2021 to £41.4 million, with volumes heavily impacted by severe
COVID-19 lockdown restrictions.
Operating profit
Operating profit for the period was £41.1 million, down £5.9 million, or
12.5% compared to H1 2021 with operating margins down 100 basis points at
4.1%
There were no exceptional items reported in H1 2022 or H1 2021. However, £1.4
million of costs incurred in the period associated with the configuration and
customisation of software as a service ('SaaS') projects are treated as an
adjusting item. Therefore, Adjusted operating profit decreased £4.5 million
or 9.5% from £47.0 million in H1 2021 to £42.5 million. Adjusted operating
margins were down 90 basis points to 4.2%.
In the UK, Adjusted operating profit in H1 2022 was £0.3 million lower than
H1 2021 at £43.7 million. The US business reported Adjusted operating profit
of £3.1 million, down £1.4 million on H1 2021, driven by the impact of the
significant inflationary pressure on the cost base and a lag in pricing
recovery. Operational challenges in the period have also affected short-term
profitability in the US. China recorded an Adjusted operating loss of £4.3
million which was £2.8 million more than the prior period, due to the severe
regional lockdowns, which heavily impacted volumes and reduced efficiency.
The decrease in operating profits in the UK and the US was driven by the
impact of the significant inflationary pressure on the cost base. Whilst
strict cost control has been applied and pricing actions have been implemented
to protect profitability in the challenging environment, these actions lag
inflationary cost increases and, therefore, margins have been negatively
impacted.
Finance costs
Finance costs were £8.9 million in both H1 2022 and H1 2021. In 2021, the
Group voluntarily repaid £37.5 million of its most expensive debt that was
due to mature in June 2024. The reduced finance costs associated with the
repayment of this debt have been partly offset by the impact of rising
interest rates during H1 2022.
The Group closely monitors its interest rate exposure and has £150 million of
fixed rate interest swaps in place until March 2024. In July 2022, the Group
put in place a further £30 million of fixed rate interest swaps from March
2024 until March 2026. The Group's cost of debt is c.3.5% per annum.
Tax
The Group tax charge for the period was £7.0 million in H1 2022 (H1
2021: £10.0m). The £7.0 million charge represents an effective tax rate
of 21.5% on profit before tax of £32.5 million, in line with the
forecasted group annual effective tax rate. Excluding adjusting items and the
change in fair value of derivative financial instruments, the underlying
effective tax rate was 21.2% compared to the 27.7% underlying rate for the
corresponding period last year.
The effective tax rate is 2.5% higher (H1 2021: 10.0%) than the UK statutory
tax rate of 19% (H1 2021: 19%). The main item which increases the effective
rate by 2.4% (H1 2021: 9.2%) is a deferred tax charge provided at a rate of
25%. This in line with 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.
Earnings per share
Basic earnings per share increased by 0.2 pence, from 4.2 pence in H1 2021 to
4.4 pence in H1 2022. This is mainly due to the impact of a reduction in the
effective tax rate in the current period more than offsetting the decrease in
trading profits in H1 2022.
Adjusted earnings per share decreased by 0.2 pence from 4.8 pence in H1 2021
to 4.6 pence in H1 2022. This is calculated before costs associated with the
configuration and customisation of software as a service ('SaaS') projects and
the change in fair value of derivative financial instruments.
Cash flow
Net cash from operating activities, which is calculated before capital
expenditure but after payments for exceptional items, increased by £2.2
million from £57.0 million in H1 2021 to £59.2 million in H1 2022. The Group
achieved a higher cash inflow despite reduced operating profit through tight
control of working capital. The Group's interest paid also decreased by £0.9
million to £8.2 million in H1 2022.
Net cash used in investing activities increased from £18.9 million in the
prior period to £23.5 million in H1 2022. This was primarily due to an
increase in capital expenditure, with spend starting to return to more normal
levels in the first half of the year. This compares to H1 2021 when action was
taken to limit spend to mitigate against the impact of COVID-19 restrictions
in place at that time.
Net cash used in financing activities decreased by £18.4 million, from £40.0
million in H1 2021 to £21.6 million in H1 2022. This decrease reflects the
repayment of borrowings the Group made in H1 2021 of £23.8 million, compared
to a smaller repayment of £2.1 million in the current period. Included in the
Group's financing cash outflow is £2.7 million relating to the purchase of
the Group's own ordinary shares through an Employment Benefit Trust to satisfy
share awards under the Group's share scheme plans.
Free cash flow for H1 2022, which is the key measure the Directors use to
manage cash flow in the business, was an inflow of £36.6 million, a decrease
of £3.1 million on the prior year due to the factors set out above.
£ million 26 weeks ended
25 June
2022 26 weeks ended
26 June
2021
Operating profit 41.1 47.0
Depreciation and other non-cash items 34.2 34.6
Net retirement benefits charge less contributions (1.0) (1.0)
Working capital movements (3.7) (11.4)
Interest and tax paid (11.4) (12.2)
Net cash generated from operating activities 59.2 57.0
Purchases of property, plant and equipment (21.2) (18.9)
Purchases of intangible assets (2.3) -
Cash impact of exceptional items - 0.7
Refinancing fees 0.9 0.9
Free cash flow 36.6 39.7
Debt and leverage
Since December 2021, operational net debt has reduced by £3.6 million to
£290.1 million at the end of H1 2022. Leverage (the ratio of operational net
debt to adjusted EBITDA) at June 2022 has been maintained at 1.9 times and
remains within our medium term target range of 1.5 to 2.0 times. The Group's
liquidity position remains strong, with significant liquidity headroom of over
£195 million against facilities of £486 million, of which £430 million
mature in March 2026. The Group continues to have comfortable headroom against
all financial covenants.
Dividend
During the period the Group paid £22.8 million in respect of the final
dividend for FY 2021.
The strength of our balance sheet and cash generation supports our long-term
growth aspirations and commitment to increasing returns to shareholders, and
we recognise the importance of a progressive dividend to our shareholders. The
Board has, therefore, resolved to pay an interim dividend of 2.77 pence per
Ordinary share, up 5.0% on the prior period. The interim dividend is expected
to comprise approximately 40% of the total annual dividend. The interim
dividend will be paid on 14 October 2022 to shareholders registered on the
record date at 16 September 2022.
Going forward, the Board expects to maintain a progressive dividend policy
over the medium term.
Investment and returns
The Group's ROIC for the 12 months to 25 June 2022 has been maintained at
7.2%, consistent with the 12 months to 25 December 2021. Despite a slight
reduction in Adjusted operating profit before tax, the reduction in effective
tax rate during 2022 increased Adjusted operating profit after tax in the
current period. The Group has maintained tight control of capital spend and,
therefore, invested capital which has limited the increase and avoided any
erosion of ROIC.
Pensions
Under the IAS 19 valuation principles, the Group recognised a surplus of
£37.4 million for the UK defined benefit scheme as at 25 June 2022 (26
December 2021: surplus of £37.2 million). The decrease in value of plan
assets of c.£85m was almost exactly offset by a decrease in the defined
benefit obligation of the same amount due to the liability hedging that is in
place. The Group and the Trustee agreed in November 2020 the triennial
valuation of the UK defined benefit pension scheme as at 31 March 2019. This
resulted in a funding shortfall of £11.7 million, which will be paid over an
agreed recovery period ending on 31 March 2024, with payments of £2.5 million
per annum.
Capital allocation
We maintain a disciplined approach to capital allocation, with the overriding
objective to enhance shareholder value. The allocation of capital is split
across capital investment, reduction and maintenance of leverage, and
dividends, with inorganic opportunities considered 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, and a progressive dividend policy.
Principal Risks and Uncertainties
The principal risks and uncertainties facing the Group are set out on pages 72
to 86 of the 2021 Annual Report and Accounts, published on 18 March 2022, and
remain unchanged as at 25 June 2022. These risks include, but are not limited
to, consumer behaviour and demand, competitors, strategic growth and change
programmes, reliance on a small number of key customers, food safety and
integrity, health and safety, supply chain, availability, recruitment and
retention of colleagues, Brexit disruption, COVID-19 pandemic, IT systems and
cyber risk, climate change and sustainability, disruption to Group operations,
treasury and pensions and legal and regulatory. The conflict in Ukraine has
increased the pressure on global supply chains and further intensified cost
inflation including energy costs, and whilst the Group continues to utilise
levers to mitigate the impact, 'supply chain' and 'consumer behaviour and
demand' risks are heightened.
Condensed Consolidated Income Statement
26 weeks ended 25 June 2022 (Unaudited) 26 weeks ended 26 June 2021
(Unaudited)
£ million Notes Underlying activities Exceptional items Total Underlying activities Exceptional Total
items
(Note 4)
(Note 4)
Continuing operations
Revenue 3 1,010.2 - 1,010.2 915.7 - 915.7
Cost of sales (738.7) - (738.7) (645.1) - (645.1)
Gross profit 271.5 - 271.5 270.6 - 270.6
Distribution costs (42.1) - (42.1) (36.8) - (36.8)
Other administrative costs (188.4) - (188.4) (186.8) - (186.8)
Share of results of associates after tax 0.1 - 0.1 - - -
Operating profit 41.1 - 41.1 47.0 - 47.0
Finance costs 5 (8.9) - (8.9) (8.9) - (8.9)
Other gains and (losses) 6 0.3 - 0.3 (3.5) - (3.5)
Profit before tax 32.5 32.5 34.6 - 34.6
Tax 7 (7.0) - (7.0) (10.0) - (10.0)
Profit for the period 25.5 - 25.5 24.6 - 24.6
Earnings per share
Basic 8 4.4p 4.2p
Diluted 8 4.3p 4.2p
Condensed Consolidated Statement of Comprehensive Income
26 weeks ended 26 weeks ended
25 June 2022 (Unaudited) 26 June 2021
(Unaudited)
Profit for the period 25.5 24.6
Other comprehensive income/(expense)
Items that may be reclassified to the income statement:
Exchange differences on translation of foreign operations 13.8 (4.4)
Gain on cash flow hedges 6.4 0.2
Tax relating to these items (2.0) -
Items that will not be reclassified to the income statement:
Actuarial (loss)/gain on defined benefit pension schemes (0.7) 16.0
Tax relating to these items 0.2 (4.0)
Total other comprehensive income net of tax 17.7 7.8
Total comprehensive income 43.2 32.4
Condensed Consolidated Statement of Financial Position
£ million Notes 25 June 25 December
2022 (Unaudited) 2021 (Audited)
Non-current assets
Goodwill 10 654.3 650.1
Other intangible assets 3.9 1.7
Property, plant and equipment 11 556.7 545.2
Interests in associates and other investments 12.9 11.8
Deferred tax asset 9.9 9.9
Retirement benefit asset 37.4 37.2
Derivative financial instruments 6.5 2.6
1,281.6 1,258.5
Current assets
Inventories 12 80.2 70.8
Trade and other receivables 13 159.8 142.8
Cash and cash equivalents 15 46.3 31.1
Derivative financial instruments 1.6 0.3
287.9 245.0
Total assets 1,569.5 1,503.5
Current liabilities
Trade and other payables 14 (418.7) (390.8)
Current tax liabilities (1.2) (1.3)
Borrowings 15 (7.5) (3.0)
Lease liabilities 15 (10.2) (10.8)
Provisions (7.4) (8.5)
Derivative financial instruments (0.2) (1.7)
(445.2) (416.1)
Non-current liabilities
Borrowings 15 (325.6) (317.6)
Lease liabilities 15 (79.1) (73.8)
Provisions (15.0) (14.3)
Derivative financial instruments (0.1) (0.4)
Deferred tax liabilities (45.3) (40.6)
(465.1) (446.7)
Total liabilities (910.3) (862.8)
Net assets 659.2 640.7
Equity
Share capital 17 11.6 11.6
Own shares held 17 (2.7) -
Merger reserve (130.9) (130.9)
Hedging reserve 6.1 1.7
Translation reserve 41.0 27.2
Retained earnings 734.1 731.1
Total equity 659.2 640.7
Condensed Consolidated Statement of Changes in Equity
£ million Share capital Own shares held Merger reserve Hedging reserve Translation reserve Retained earnings Total
Balance at 27 December 2020 11.6 - (130.9) (0.7) 24.8 693.3 598.1
(Audited)
Profit for the period - - - - - 24.6 24.6
Other comprehensive income/(expense) for the period - - - 0.2 (4.4) 12.0 7.8
Total comprehensive income/(expense) for the period - - - 0.2 (4.4) 36.6 32.4
Dividends (Note 9) - - - - - (23.2) (23.2)
Credit for share-based payments - - - - - 1.1 1.1
Balance at 26 June 2021 11.6 - (130.9) (0.5) 20.4 707.8 608.4
(Unaudited)
£ million Share capital Own shares held Merger reserve Hedging reserve Translation reserve Retained earnings Total
Balance at 26 December 2021 11.6 - (130.9) 1.7 27.2 731.1 640.7
(Audited)
Profit for the period - - - - - 25.5 25.5
Other comprehensive income/(expense) for the period - - - 4.4 13.8 (0.5) 17.7
Total comprehensive income for the period - - - 4.4 13.8 25.0 43.2
Purchase of own shares - (2.7) - - - - (2.7)
(Note 17)
Dividends (Note 9) - - - - - (22.8) (22.8)
Credit for share-based payments - - - - - 1.1 1.1
Cash-settlement of share-based payments - - - - - (0.3) (0.3)
Balance at 25 June 2022 11.6 (2.7) (130.9) 6.1 41.0 734.1 659.2
(Unaudited)
Condensed Consolidated Statement of Cash Flows
£ million Notes 26 weeks 26 weeks
ended ended
25 June 26 June
2022 2021
(Unaudited) (Unaudited)
Net cash generated from operating activities 18 59.2 57.0
Investing activities
Purchases of property, plant and equipment (21.2) (18.9)
Purchase of intangible assets (2.3) -
Net cash used in investing activities (23.5) (18.9)
Financing activities
Dividends paid 9 (22.8) (23.2)
Own shares purchased 17 (2.7) -
Increase in borrowings 13.8 13.1
Repayment of borrowings (2.1) (23.8)
Principal elements of lease payments (7.8) (6.1)
Net cash used in financing activities (21.6) (40.0)
Net increase/(decrease) in cash and cash equivalents 14.1 (1.9)
Cash and cash equivalents at beginning of period 31.1 24.8
Effect of foreign exchange rate changes 1.1 (0.4)
Cash and cash equivalents at end of period 46.3 22.5
Notes to the condensed CONSOLIDATED INTERIM financial statements
1. General Information
The information for the 26 weeks ended 25 June 2022 and 26 weeks ended 26 June
2021 is unaudited and does not constitute statutory accounts within the
meaning of s435 (1) and (2) of the Companies Act 2006. These Condensed
Consolidated Interim Financial Statements have been prepared in accordance
with the UK-adopted International Accounting Standard 34, 'Interim Financial
Reporting' and the Disclosure Guidance and Transparency rules of the Financial
Conduct Authority. The Condensed Consolidated Statement of Financial Position
as at 25 December 2021 has been derived from the Consolidated Statement of
Financial Position included in the Group's Financial Statements for the 52
weeks ended 25 December 2021, a copy of which has been delivered to the
Registrar of Companies. The auditor's report on those accounts was not
qualified, did not include any reference to any matters to which the auditors
drew attention by way of emphasis without qualifying the report and did not
contain statements under section 498 (2) or (3) of the Companies Act 2006.
This financial information does not include all of the information and
disclosure required in the Annual Consolidated Financial Statements and should
be read in conjunction with the Bakkavor Group plc (the "Group") Annual
Consolidated Financial Statements for the 52 weeks ended 25 December 2021,
which have been prepared in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006 and
international financial reporting standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union.
Controlling parties
Two of the Company's Directors, Agust Gudmundsson and Lydur Gudmundsson, hold
shares in the Company through their beneficial ownership of Carrion
Enterprises Limited (the corporate holding structure of Agust Gudmundsson) and
Umbriel Ventures Limited (the corporate holding structure of Lydur
Gudmundsson). On 20 May 2022, Lydur Gudmundsson purchased 200,000 ordinary
shares in the Company. Following the transaction, Umbriel Ventures Limited
holds 142,303,505 ordinary shares (representing 24.56% of the issued share
capital of the Company) and Carrion Enterprises Limited holds 142,103,505
ordinary shares (representing 24.52% of the issued share capital of the
Company).
Lixaner Co Limited, a company owned and controlled by Sigurdur Valtysson, who
runs the family office for Agust and Lydur Gudmundsson, holds 6,457,750
ordinary shares (representing 1.11% of the issued share capital of the
Company).
Given the close relationship between the parties, Sigurdur Valtysson is to be
considered as acting in concert with Agust and Lydur Gudmundsson for the
purposes of the definition in the Takeover Code and the parties are
controlling shareholders of the Company. The aggregate shareholding in the
Company of Carrion Enterprises Limited and Umbriel Ventures Limited and their
concert party group (Lixaner Co Limited) is 290,864,760 ordinary shares
(representing 50.20% of the issued share capital of the Company).
Principal activities and seasonality
The principal activities of the Group comprise the preparation and marketing
of fresh prepared foods and the marketing and distribution of fresh produce.
These activities are undertaken in the UK, US and China and products are
primarily sold through high street supermarkets. The Group's cash flows are
affected by seasonal variations. Sales of fresh prepared food have
historically tended to be marginally higher during the summer months and in
the weeks leading up to Christmas. The Group generally has higher gross profit
margins during the summer months because the Group is able to source locally
produced raw materials during that period, which reduces costs.
2. Significant accounting policies
Basis of accounting
The financial information has been prepared on the historical cost basis,
except for the revaluation of financial instruments and defined benefit
pension scheme assets and liabilities (which are stated at fair value or
actuarial valuation).
Accounting policies
The accounting policies adopted are consistent with those of the previous
Financial Statements except as described below:
Software-as-a-Service arrangements
During the year, the Group revised its accounting policy in relation to
upfront configuration and customisation costs incurred in implementing
Software-as-a-Service ('SaaS') arrangements in response to the IFRIC agenda
decision clarifying its interpretation of how current accounting standards
apply to these types of arrangements.
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.
When they meet the definition of and recognition criteria for an intangible
asset, cost incurred relating to the development of software code that enhance
or modify existing on-premise systems are recognised as intangible assets.
This change in accounting policy has resulted in costs of £1.4 million that
would previously have been capitalised being expensed to administration costs
for the 26 weeks ended 25 June 2022.
Purchase of own shares
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.
There have been no changes in the period to the Group's critical accounting
judgements and key sources of estimation uncertainty as disclosed in the
Group's Annual Financial Statements for the 52 weeks ended 25 December 2021.
Going concern
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
and covenant compliance under its financing facilities. The Directors have
carried out a robust assessment of the significant risks currently facing the
Group. This has included scenario planning on the implications of further
inflation and continuing labour availability issues. The Group has also
modelled the potential impact of lower sales volumes from supply chain issues
and 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.
3. Segment 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 prepares and markets 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 21.
The following table provides an analysis of the Group's segment information
for the period 26 December 2021 to 25 June 2022:
£ million UK US China
Total
Revenue 849.5 116.6 44.1 1,010.2
Adjusted EBITDA (Note 21) 70.6 7.2 (1.1) 76.7
Depreciation (25.8) (3.9) (3.5) (33.2)
Amortisation - (0.2) - (0.2)
Share scheme charges (1.1) - - (1.1)
Profit on disposal of property, plant and equipment - - 0.2 0.2
Share of results of associate - - 0.1 0.1
Adjusted operating profit/(loss) (Note 21) 43.7 3.1 (4.3) 42.5
Configuration and customisation costs for SaaS projects (1.4) - - (1.4)
Exceptional items (Note 4) - - - -
Operating profit/(loss) 42.3 3.1 (4.3) 41.1
The following table provides an analysis of the Group's segment information
for the period 27 December 2020 to 26 June 2021:
£ million UK US China
Total
Revenue 787.5 81.3 46.9 915.7
Adjusted EBITDA (Note 21) 71.0 7.9 1.4 80.3
Depreciation (25.9) (3.2) (2.9) (32.0)
Amortisation - (0.2) - (0.2)
Share scheme charges (1.1) - - (1.1)
Adjusted operating profit/(loss) (Note 21) 44.0 4.5 (1.5) 47.0
Exceptional items (Note 4) - - - -
Operating profit/(loss) 44.0 4.5 (1.5) 47.0
Major customers
For the 26 weeks ended 25 June 2022, the Group's four largest UK customers
accounted for 75.7% (26 weeks ended 26 June 2021: 76.4%) of total Group
revenue from continuing operations. These customers accounted for 90.1% (26
weeks ended 26 June 2021: 88.6%) of total UK revenue from continuing
operations. The Group does not enter into long-term contracts with its retail
customers. The percentage of Group revenue from these customers is as follows:
26 weeks ended 26 weeks ended
25 June 26 June
2022 2021
Customer A 33.1% 34.0%
Customer B 22.3% 21.8%
Customer C 12.0% 11.6%
Customer D 8.3% 9.0%
All of the Group's revenue is from the sale of goods.
4. Exceptional items
The Group's financial performance is analysed in two ways; underlying
performance (which does not include exceptional items) and exceptional items
that are material and not expected to reoccur. The Directors consider that the
underlying activities results better represent the ongoing operations and key
metrics of the Group.
Exceptional items includes items that are non-recurring, significant in nature
and are important to users in understanding the business, including
restructuring costs, disruption costs, pre-commissioning and start-up costs
for new manufacturing facilities, impairment of assets, disposals of
subsidiaries and associates and fair value adjustments.
The Group incurred no exceptional costs in H1 2022 and H1 2021.
5. Finance costs
£ million 26 weeks ended 26 weeks ended
25 June 26 June
2022 2021
Interest on borrowings 7.1 7.5
Interest on lease liabilities 1.5 1.3
Unwind of discount on provisions 0.3 0.1
8.9 8.9
6. Other gains and (losses)
£ million 26 weeks ended 26 weeks ended
25 June 26 June
2022 2021
Foreign exchange gains 0.4 0.1
Change in fair value of derivative financial instruments (0.1) (3.6)
0.3 (3.5)
7. Tax
The Group's effective tax rate for the period was 21.5% (2021: 29.0%). The
effective tax rate is 2.5% higher (H1 2021: 10.0%) than the UK statutory tax
rate of 19% (H1 2021: 19%). The main item which increases the effective rate
by 2.4% (H1 2021: 9.2%) is a deferred tax charge arising in connection with
the rate at which we provide for deferred tax assets and liabilities. This is
following the Government announcement on 3 March 2021 and the substantive
enactment of this measure on 24 May 2021, that the UK corporation tax rate
will increase to 25% effective from 1 April 2023. This does not impact current
taxes however, UK deferred tax liabilities are provided at 25%, being the rate
at which timing differences were expected to reverse.
A reconciliation of the expected tax rate to the forecast effective tax rate
is as follows:
£ million 26 weeks ended
25 June
2022
Profit before tax 32.5
Expected tax at 19.0% 6.2 19.0%
Impact of:
Non-deductible items 0.5 1.5%
UK rate change 0.8 2.4%
Overseas tax rates 0.1 0.4%
Prior year adjustments (0.6) (1.8%)
Total tax charge 7.0 21.5%
8. Earnings per share
The calculation of earnings per Ordinary share is based on earnings after tax
and the weighted average number of Ordinary shares in issue during the period.
For diluted earnings per share, the weighted average number of Ordinary shares
in issue is adjusted to assume conversion of all potentially dilutive Ordinary
shares.
The calculation of the basic and diluted earnings per share is based on the
following data:
Earnings
£ million 26 weeks ended 26 weeks ended
25 June 26 June
2022 2021
Profit for the period 25.5 24.6
Number of shares
'000 26 weeks ended 26 weeks ended
25 June 26 June
2022 2021
Weighted average number of Ordinary shares 578,426 579,426
Effect of potentially dilutive Ordinary shares 8,978 8,746
Weighted average number of Ordinary shares for diluted earnings per share 587,404 588,172
26 weeks ended 26 weeks ended
25 June 26 June
2022 2021
Basic earnings per share 4.4p 4.2p
Diluted earnings per share 4.3p 4.2p
9. Dividends
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 has been declared in
September 2022 (2.64 pence per Ordinary share declared in September 2021) and
is payable on 14 October 2022 to Ordinary shareholders registered on the
record date at 16 September 2022.
At the AGM on 20 May 2021, a deferred final dividend of 4 pence per Ordinary
share for the financial year ended 28 December 2019 was re-instated and
declared. The total amount of £23,177,023 was paid to Ordinary shareholders
on 25 May 2021.
10. Goodwill
£ million
At 27 December 2020 649.6
Exchange rate difference during the period (1.2)
At 26 June 2021 648.4
At 26 December 2021 650.1
Exchange rate difference during the period 4.2
At 25 June 2022 654.3
11. Property, plant and equipment
£ million
At 27 December 2020 535.3
Additions 29.8
Depreciation charge for the period (32.0)
Impairment of right of use asset (1.3)
Exchange rate difference during the period (2.4)
At 26 June 2021 529.4
At 26 December 2021 545.2
Additions 37.3
Disposals (0.5)
Depreciation charge for the period (33.2)
Exchange rate difference during the period 7.9
At 25 June 2022 556.7
12. Inventories
£ million 25 June 25 December
2022
2021
Raw materials and packaging 67.3 60.7
Work-in-progress 3.1 2.0
Finished goods 9.8 8.1
80.2 70.8
13. Trade and other receivables
£ million 25 June 25 December
2022
2021
Amounts receivable from trade customers 121.6 118.2
Expected credit loss (2.4) (2.8)
Net amounts receivable from trade customers 119.2 115.4
Other receivables 23.8 17.2
Prepayments 16.8 10.2
Trade and other receivables due within one year 159.8 142.8
During the period, the Group has continued to operate trade receivable
factoring arrangements. These are non-recourse arrangements and therefore
amounts are de-recognised from trade receivables. At 25 June 2022 £134
million was drawn under factoring facilities, an increase of £16 million
compared to 25 December 2021 representing cash collected before it was
contractually due from the customer.
As at 25 June 2022, the Group's amounts receivable from trade customers
includes £53.4 million (25 December 2021: £53.8 million) which could be
factored under the non-recourse trade receivable factoring arrangement.
14. Trade and other payables
£ million 25 June 25 December
2022
2021
Trade payables 258.7 237.6
Other taxation 2.0 2.1
Other payables 35.9 21.5
Accruals and deferred income 122.1 129.6
Trade and other payables due within one year 418.7 390.8
During the period, the Group has continued to operate an arrangement which
provides financing for the Group's suppliers. This is a voluntary programme
that potentially gives suppliers earlier access to cash. At 25 June 2022,
trade payables amounting to £43.5 million (25 December 2021: £31.6 million)
were subject to these arrangements. These balances are classified as trade
payables, and the related payments as cash flows from operating activities
since the original obligation to the supplier remains and has not been
replaced with a new obligation to the bank.
15. Net debt
£ million 25 June 25 December
2022
2021
Cash and cash equivalents 46.3 31.1
Borrowings (7.5) (3.0)
Lease liabilities (10.2) (10.8)
Total debt due within one year (17.7) (13.8)
Borrowings (325.6) (317.6)
Lease liabilities (79.1) (73.8)
Total debt due after one year (404.7) (391.4)
Group net debt (376.1) (374.1)
Group net debt is the sum 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.
On 1 March 2022 the Group extended the maturity date of £430 million of its
core debt facilities from March 2025 to March 2026.
16. Financial Instruments
The categories of financial instruments are as follows:
£ million 25 June 25 December
2022
2021
Financial assets
Fair value through OCI or profit and loss:
Trade receivables 53.4 53.8
Derivative financial instruments 8.1 2.9
Loans and receivables at amortised cost:
Trade receivables 65.8 61.6
Other receivables 23.8 17.2
Cash and cash equivalents 46.3 31.1
197.4 166.6
£ million 25 June 25 December
2022
2021
Financial liabilities
Fair value through OCI or profit and loss:
Derivative financial instruments 0.3 2.1
Other financial liabilities at amortised cost:
Trade payables 258.7 237.6
Other payables 35.9 21.5
Accruals 120.7 128.4
Borrowings 333.1 320.6
Lease liabilities 89.3 84.6
838.0 794.8
Trade receivables have been determined as level 2 under IFRS 7 Financial
Instruments: Disclosures. The fair value of loans and receivables approximates
to their carrying values due to the short-term nature of the receivables. The
fair values for the derivative financial instruments have been determined as
level 2 under IFRS 7 Financial Instruments: Disclosures. Quoted prices are not
available for the derivative financial instruments and so valuation models are
used to estimate fair value. The models calculate the expected cash flows
under the terms of each specific contract and then discount these values back
to a present value. These models use as their basis independently sourced
market parameters including, for example, interest rate yield curves and
currency rates.
The fair value of other financial liabilities at amortised cost approximates
to their carrying value. The trade and other payables approximate to their
fair value due to the short-term nature of the payables. The lease liabilities
fair value approximates to the carrying value based on discounted future cash
flows.
17. Share capital and own shares held
Issued share capital as at 25 June 2022 and 25 December 2021 amounted to
£11.6 million (579,425,585 Ordinary shares of £0.02 each).
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 25 June 2022 was 2,492,273 (26 June 2021: nil). This represents 0.43%
of total called up share capital at 25 June 2022 (26 June 2021: nil).
No own shares held of Bakkavor Group plc were cancelled during the periods
presented.
18. Notes to the Condensed Consolidated Statement of Cash Flows
£ million 26 weeks ended 26 weeks ended
25 June
26 June
2022
2021
Operating profit 41.1 47.0
Adjustments for:
Share of results of associates (0.1) -
Depreciation of property, plant and equipment 33.2 32.0
Amortisation of intangible assets 0.2 0.2
Profit on disposal of property, plant and equipment (0.2) -
Impairment of assets - 1.3
Share scheme charges 1.1 1.1
Net retirement benefits charge less contributions (1.0) (1.0)
Operating cash flows before movements in working capital 74.3 80.6
(Increase)/decrease in inventories (9.4) 6.3
(Increase) in receivables (16.9) (4.3)
Increase/(decrease) in payables 23.2 (13.8)
(Decrease)/increase in provisions (0.6) 0.4
Cash generated by operations 70.6 69.2
Income taxes paid (3.2) (3.1)
Interest paid (8.2) (9.1)
Net cash generated from operating activities 59.2 57.0
19. Contingent liabilities
The Group may from time to time, and in the normal course of business, be
subject to claims from customers and counterparties. The Group regularly
reviews all of these claims to determine any possible financial loss to the
Group. No provision was considered necessary in the Consolidated Financial
Statements.
20. Events after the Statement of Financial Position date
There are no events to report.
21. 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 (LFL) revenue
The Group defines LFL revenue as revenue from continuing operations adjusted
for the revenue generated from businesses closed or sold or acquired in the
current and prior year and the effect of foreign currency movements.
The following table provides the information used to calculate LFL revenue for
the Group:
£ million 26 weeks ended 26 weeks ended Change %
25 June
26 June
2022
2021
Statutory revenue 1,010.2 ]]915.7 10.3%
Effect of currency movements (10.0) -
Like-for-like revenue 1,000.2 915.7 9.2%
The following tables provides the information used to calculate LFL revenue
for each segment:
UK 26 weeks ended 26 weeks ended Change %
25 June
26 June
2022
2021
£ million
Statutory revenue 849.5 787.5 7.9%
Like-for-like revenue 849.5 787.5 7.9%
US
£ million 26 weeks ended 26 weeks ended Change %
25 June
26 June
2022
2021
Statutory revenue 116.6 81.3 43.4%
Effect of currency movements (7.3) -
Like-for-like revenue 109.3 81.3 34.6%
China
£ million 26 weeks ended 26 weeks ended Change %
25 June
26 June
2022
2021
Statutory revenue 44.1 46.9 (6.0%)
Effect of currency movements (2.7) -
Like-for-like revenue 41.4 46.9 (12.0%)
Adjusted EBITDA and Adjusted operating profit
The Group manages the performance of its businesses through the use of
'Adjusted EBITDA' and 'Adjusted operating profit'. 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 this is a non-cash amount. 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 following table provides a reconciliation from the Group's operating
profit to Adjusted operating profit and Adjusted EBITDA.
£ million 26 weeks ended 26 weeks ended
25 June
26 June
2022
2021
Operating profit 41.1 47.0
Configuration and customisation costs for SaaS projects 1.4 -
Exceptional items (Note 4) - -
Adjusted operating profit 42.5 47.0
Depreciation 33.2 32.0
Amortisation 0.2 0.2
Share scheme charges 1.1 1.1
Profit on disposal of property, plant and equipment (0.2) -
Share of results of associates (0.1) -
Adjusted EBITDA 76.7 80.3
Less IFRS 16 impact (6.4) (6.2)
Adjusted EBITDA pre IFRS 16(1) 70.3 74.1
(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 are reconciled to
operating profit in Note 3.
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 provides a
reconciliation from the Group's net debt to the Group's operational net debt.
£ million 25 June 25 December
2022
2021
Group net debt (376.1) (374.1)
Unamortised fees (3.4) (3.4)
Interest accrual 0.7 0.2
Lease liabilities recognised under IFRS 16 88.7 83.6
Group operational net debt (290.1) (293.7)
Adjusted EBITDA (last 12 months pre IFRS 16 and including covenant 151.6 155.6
adjustments)
Leverage (Operational net debt/Adjusted EBITDA(1)) 1.9 1.9
(1)For the last 12 months pre IFRS 16 and including 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 and intangible assets 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 as set out in Note 13 and the extension of payment
terms for certain suppliers as described in Note 14. The Directors view free
cash flow as a key liquidity measure, and the purpose of presenting free cash
flow is to indicate the underlying cash available to pay dividends, repay debt
or make further investments in the Group. The following table provides a
reconciliation from net cash generated from operating activities to free cash
flow.
£ million 26 weeks ended 26 weeks ended
25 June
26 June
2022
2021
Net cash generated from operating activities 59.2 57.0
Purchases of property, plant and equipment (21.2) (18.9)
Purchase of intangible assets (2.3) -
Cash impact of exceptional items - 0.7
Refinancing fees 0.9 0.9
Free cash flow 36.6 39.7
Adjusted earnings per share
The Group calculates Adjusted basic earnings per share by dividing Adjusted
earnings by the weighted average number of Ordinary shares in issue during the
period. The Group calculates Adjusted diluted earnings per share by dividing
Adjusted earnings by the weighted average number of Ordinary shares (including
dilutive shares) for diluted earnings per share. 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 Directors use this measure as
it tracks the underlying profitability of the Group and enables comparison
with the Group's peer companies. The following table reconciles profit for the
period to Adjusted earnings.
£ million 26 weeks ended 26 weeks ended
25 June
26 June
2022
2021
Profit for the period 25.5 24.6
Configuration and customisation costs for SaaS projects 1.4 -
Exceptional items (Note 4) - -
Change in fair value of derivative financial instruments 0.1 3.6
Tax on the above items (0.2) (0.6)
Adjusted earnings 26.8 27.6
Add back: Tax on adjusted profit before tax 7.2 10.6
Adjusted profit before tax 34.0 38.2
Effective tax rate on underlying activities 21.2% 27.7%
(Tax on Adjusted profit before tax/Adjusted profit before tax)
Number 000's
Weighted average number of Ordinary shares 578,426 579,426
Effect of dilutive Ordinary shares 8,978 8,746
Weighted average number of Ordinary shares for diluted earnings per share 587,404 588,172
Adjusted basic earnings per share 4.6p 4.8p
Adjusted diluted earnings per share 4.6p 4.7p
Return on Invested Capital ("ROIC")
The Group defines ROIC as Adjusted operating profit after tax divided by the
average invested capital for the rolling 52 week period. Adjusted operating
profit after tax is defined as operating profit excluding the impact of
exceptional items and configuration and customisation costs for SaaS projects
less tax at the Group's effective tax rate. Invested capital is defined as
total assets less total liabilities excluding; net debt, pension assets and
liabilities (net of deferred tax), and fair values for derivatives not
designated in a hedging relationship, at the period end. The Group utilises
ROIC to measure how effectively it uses invested capital. Average invested
capital is the simple average of invested capital at the beginning of the
period and the end of the period.
The Directors believe that ROIC is a useful indicator of the amount returned
as a percentage of shareholders' invested capital. The Directors believe that
ROIC can help analysts, investors and stakeholders to evaluate the Group's
profitability and the efficiency with which its invested capital is employed.
The following table sets out the calculations of Adjusted operating profit
after tax and invested capital used in the calculation of ROIC.
£ million 52 weeks ended
25 June 52 weeks ended
2022
25 December
2021
Operating profit 96.1 102.0
Configuration and customisation costs for SaaS projects 1.4 -
Exceptional items - -
Adjusted operating profit 97.5 102.0
Taxation at the underlying effective rate (25.4) (30.3)
Adjusted operating profit after tax 72.1 71.7
Invested capital
Total assets 1,569.5 1,503.5
Total liabilities (910.3) (862.8)
Net debt at period end 376.1 374.1
Derivatives not designated as hedges - 0.9
Retirement benefit scheme surplus (37.4) (37.2)
Deferred tax liability on retirement benefit scheme 9.3 9.3
Invested capital 1,007.2 987.8
Average invested capital for ROIC calculation 999.7 994.4
ROIC (%) 7.2% 7.2%
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge, the Condensed set
of Financial Statements has been prepared in accordance with IAS 34: 'Interim
Financial Reporting', with ASB's 2007 Statement Half-Yearly Reports, as
contained in the UK adopted International Accounting Standard 34, 'Interim
Financial Reporting', and that the interim management report includes a fair
review of the information required by Disclosure Guidance and Transparency
Rules ("DTR") 4.2.7R and DTR 4.2.8R, namely:
· an indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
· material related party transactions that have taken place in the
first six months of the current financial year and any material changes in the
related party transactions described in the last annual report.
The Board of Directors that served during the six months ended 25 June 2022,
and their respective responsibilities, can be found on pages 94 and 95 of the
2021 Annual Report & Accounts. A list of current directors is maintained
on the Bakkavor Group plc website at:
https://www.bakkavor.com/en/about-us/leadership/group-board/default.aspx
(https://www.bakkavor.com/en/about-us/leadership/group-board/default.aspx)
Approved on behalf of the Group Board by:
Agust Gudmundsson Ben Waldron
CEO CFO
6 September 2022
Independent review report to Bakkavor Group plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Bakkavor Group plc's condensed consolidated interim financial
statements (the "interim financial statements") in the half-yearly financial
report of Bakkavor Group plc for the 26 week period ended 25 June 2022 (the
"period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Condensed Consolidated Statement of Financial Position as at 25
June 2022;
· the Condensed Consolidated Income Statement and the Condensed
Consolidated Statement of Comprehensive Income for the period then ended;
· the Condensed Consolidated Statement of Cash Flows for the period
then ended;
· the Condensed Consolidated Statement of Changes in Equity for the
period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly financial report
of Bakkavor Group plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim financial
statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the Directors
The half-yearly financial report, including the interim financial statements,
is the responsibility of, and has been approved by the directors. The
directors are responsible for preparing the half-yearly financial report in
accordance with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority. In preparing the half-yearly
financial report, including the interim financial statements, the directors
are responsible for assessing the group's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the half-yearly financial report based on our review. Our
conclusion, including our Conclusions relating to going concern, is based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
complying with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in
writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
6 September 2022
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