REG - Bakkavor Group PLC - Half-year Report
06/09/2023 07:00
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RNS Number : 4720L Bakkavor Group PLC 06 September 2023
6 September 2023
Bakkavor Group plc
Strong first half performance, with momentum continuing into H2 - upgraded
full year outlook
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 1
July 2023 ("H1 2023").
Strong financial performance and balance sheet strengthened further
· Like-for-like ("LFL") revenue(1) up 7.4%, driven by price, as well as
volume recovery in China
· Reported revenue up 7.9%, which includes the impact of currency
· Adjusted operating profit(1) up 2.1% to £43.4m
· Operating profit up 12.7% to £46.3m, including £2.9m of exceptional
income(3) related to China
· Strong free cash(1) generation of £51.6m, up £15.0m
· Leverage(1) improved by 0.1x to 1.8x (31 December 2022: 1.9x)
· Operational net debt(1) reduced by £16.2m (31 December 2022:
£284.9m)
· Basic earnings per share of 4.4p (H1 2022: 4.4p)
· Interim dividend of 2.91p, up 5.0% on the prior period
Restructuring plans across three focus areas driving performance ahead of
management expectations
1. Leaner organisational structure realising synergies and efficiencies ahead
of expectations
2. Clear and focused regional priorities had meaningful positive impact on H1
2023 performance
· UK: Volume outperformed the market and inflation mitigated through
price recovery and internal levers;
· US: Business stabilised and operational improvement plans starting to
deliver
· China: Volume recovery leads to reduced operating losses; simplified
operations with associate disposal
3. Enhanced focus on cash management, with capital spend targeted at
productivity investments and working capital improvement, resulting in
reduction in debt and leverage
· Actions set to deliver £17m savings in FY23, ahead of initial £15m
forecast, and £25m annualised
Confident in a strong full year performance, Group outlook upgraded
· With positive momentum expected to continue, the Group anticipates
FY23 adjusted operating profit at least in line with prior year of £89.4m,
c.£4m ahead of current consensus(2)
· Revised outlook underpinned by restructuring savings, strong pipeline
to support UK share gains albeit volumes remain under pressure, delivery of
embedded changes in the US and ongoing volume recovery in China
· Strong cash generation expected to deliver further improvement in net
debt
FINANCIAL SUMMARY H1 2023 H1 2022 Change
£ million (unless otherwise stated)
Group revenue 1,090.4 1,010.2 7.9%
Like-for-like revenue(1) 1,085.0 1,010.2 7.4%
Adjusted EBITDA pre IFRS 16(1) 72.0 70.3 2.4%
Adjusted operating profit(1) 43.4 42.5 2.1%
Adjusted operating profit margin(1) 4.0% 4.2% (20bps)
Operating profit 46.3 41.1 12.7%
Operating profit margin 4.2% 4.1% 10bps
Profit before tax 32.6 32.5 0.3%
Basic earnings per share 4.4p 4.4p -
Adjusted earnings per share(1) 3.9p 4.6p (0.7p)
Free cash flow(1) 51.6 36.6 15.0
Operational net debt(1) (268.7) (290.1) 21.4
Interim dividend per share 2.91p 2.77p 0.14p
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
all covering analysts. Adjusted operating profit Consensus for FY23 at £84.7m
with a range of £82.0m to £86.3m. Last updated on 4 September 2023.
3. For detail of exceptional items please refer to Note 4.
Mike Edwards, CEO, commented:
"I am pleased with the strong performance the Group has delivered in the first
half, and the momentum this has created as we move through the rest of the
year. As ever, the great people we have in the business have been fundamental
to our success and I would like to thank them for their relentless hard work
and commitment.
"Our continued market share gains in the UK reflects our consistent delivery
for customers and demonstrates that our broad product range continues to meet
the needs of shoppers during the cost-of-living crisis.
"Internationally we have seen good progress too, with operational improvement
plans now starting to fuel enhanced profitability in the US. In China,
post-Covid volume recovery is underpinning much reduced operating losses.
"We are confident in delivering an upgraded full year performance, with
adjusted operating profit now anticipated to be at least in line with last
year and ahead of current market expectations. This is underpinned by the
execution of our restructuring, which is driving performance and synergies
across the business ahead of our expectations. I am also pleased that we now
have momentum building in all three regions, which is positive as we look
forward.
"This, coupled with an improved balance sheet, mean the Group is in a strong
position to capitalise on its opportunities through the remainder of this year
and beyond."
Presentation
A copy of these results is available on our website:
https://www.bakkavor.com/en/investors/results-and-presentations/default.aspx
(https://www.bakkavor.com/en/investors/results-and-presentations/default.aspx)
We will be presenting to analysts in-person and via a webcast at 09.00am on 6
September 2023 through the Investor section of the Group's website at:
https://brrmedia.news/BAKK_HY23 (https://brrmedia.news/BAKK_HY23) . 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 +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 44 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.
Find out more at www.bakkavor.com (http://www.bakkavor.com) .
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
Our decisive actions are driving a strong performance
The Group has had a strong start to the year, despite market conditions
remaining tough, and we feel positive about both our first half performance
and the momentum we take into the second half.
Reported revenue growth was up 7.9%, and, excluding the impact of currency,
LFL revenue was up 7.4%. This growth was led by price with volume broadly
flat. Volume reflected a strong recovery in China post-Covid, and while UK
volumes were marginally down we continued to outperform the market. Good
underlying growth in the US was offset by the loss of volume with a single
customer as previously reported.
Despite the first half having the challenges of continued supply chain
disruption, inflation and weak underlying UK volume, Group adjusted operating
profit was up 2.1% to £43.4m. The execution of our restructuring plans (as
set out in our full year results in March) was key to our delivery and will
continue to support second half performance. Operating profit was up 12.7% to
£46.3m and included the one-off benefit from simplifying our operations in
China.
Restructuring plans support performance and synergies ahead of plan
1. Leaner organisational structure fuelled synergies and efficiencies
Our new leadership structure has created renewed focus and purpose, and the
pace at which our teams have embraced and embedded these changes has been
reflected in our overall performance. Specifically, operational alignment
around our Meals and Bakery sectors in the UK has fuelled operational
synergies and efficiencies ahead of our expectations.
2. Clear and focused regional priorities established good momentum
UK: We are delivering against our aggressive plan to mitigate softer market
volumes and ongoing cost inflation. Our focus on volume, by ensuring strong
availability of our products despite significant supply chain disruption,
targeted innovation and net business gains, has seen us continue to outperform
the market. We have continued to work closely and collaboratively with our
customers on price recovery, and our two factory closures, completed ahead of
plan, have ensured we continue to use internal levers to protect
profitability. All of this provides good momentum for the second half of the
year.
US: Through our renewed focus on profitability we have stabilised the business
and established a strong platform for future improvement. We have put in place
a new leadership team and implemented factory efficiency initiatives and cost
reduction plans. With these changes now embedded, profitability is starting to
improve, with momentum expected to build through the remainder of the year.
China: We have delivered against our two clear priorities resulting in reduced
losses in the region. Our operational team has successfully delivered against
the strong build back of volume post-Covid and commercially we have continued
to diversify our business, again seeing significant growth with our retail
customers through H1 2023. We expect the steady recovery post-Covid to
continue through 2023.
3. Enhanced focus on managing cash supported improvement in debt and
leverage
We have reduced capital expenditure and been more targeted in our allocation
of spend, with productivity initiatives prioritised. Working capital has
improved as we have focused on stock management, with momentum expected to
continue in the second half. Combined, this has contributed to a £16.2m
reduction in net debt and seen leverage reduce by a 0.1 turns to 1.8x.
The accelerated delivery of our plans, outlined above, is now expected to
result in £17m of savings in FY23, ahead of our initial forecast of £15m,
and £25m on an annualised basis. We also expect the momentum created by our
new structure to continue to unlock new benefits in the second half and into
next year which ensures we are in good shape to deal with ongoing
macro-headwinds.
Further progress in supporting our people and sustainability
As ever, the great people we have in the business are fundamental to our
success and I would like to thank our teams for their relentless hard work and
commitment. We recognise our people are the best in the industry, and despite
the cost pressures faced by the business, we have continued to invest in them.
Following feedback from our 2022 Employee Engagement Survey, we have been
focused on improvements to enhance the working experience at Bakkavor. I am
particularly proud of our new 'Better Behaviour, Better Bakkavor' workshops
for factory colleagues and in the wake of the ongoing cost-of-living
pressures, our significantly enhanced staff shop offer with a new of range
heavily discounted Bakkavor products.
Our sustainability KPIs are well-embedded with focused workstreams in place to
deliver improvement and we are pleased with the good progress we have made in
the first half. Our Group net carbon emissions reduced by 8.2% and food waste
reduced by 165 basis points to 6.8%, both supported by the enhanced and more
integrated operational focus we have brought to these areas.
Confident of a strong full year performance, ahead of current market
expectations(2)
We are confident in delivering an upgraded full year performance ahead of
current market expectations(2). Adjusted operating profit is now anticipated
to be at least in line with the prior year, £89.4m.
The better than expected returns from our action plans, along with the
positive momentum across all three regions, are key to this. In the UK,
despite expecting volumes to remain under pressure, we are confident that our
pipeline of activity will ensure we continue to outperform the market. In the
US, we have clear line of sight of a profitable second half and in China we
expect losses to be lower on a full year basis.
This, coupled with a stronger balance sheet, mean the Group is in a strong
position to capitalise on its opportunities through the remainder of this year
and beyond.
2. Based on company compiled consensus ("Consensus") which includes
all covering analysts. Adjusted operating profit Consensus for FY23 at £84.7m
with a range of £82.0m to £86.3m. Last updated on 4 September 2023.
DIVISIONAL REVIEW
United Kingdom: Strong trading performance; continued market share gains and
benefits from restructuring plan materialising
£ million H1 2023 H1 2022 Change
Revenue 913.7 849.5 7.6%
Like-for-like revenue(1) 913.7 849.5 7.6%
Adjusted operating profit(1) 44.8 43.7 2.5%
Adjusted operating profit margin(1) 4.9% 5.1% (20bps)
Operating profit 44.8 42.3 5.9%
Operating profit margin 4.9% 5.0% (10bps)
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.
LFL and reported revenue increased by 7.6% to £913.7m, led by pricing as
inflationary pressures persisted. Having consistently outperformed the market,
which was down 3.3% in H1 2023, our volumes were down only 1.0% year-on-year.
Adjusted operating profit was up £1.1m to £44.8m (H1 2022: £43.7m).
Inflationary headwinds remained significant through the first half of the year
and we also had to contend with ongoing supply chain disruption. The impact of
this, however, was more than offset by the benefit of our internal levers.
Operating profit is also £44.8m, up £2.5m (H1 2022: £42.3m) as the prior
year included £1.4m of adjusting items.
Outperforming the market
Cost-of-living pressures continued to impact the FPF market, with shoppers
carefully managing their budgets. In overall terms FPF market volumes were
down 3.3%, with salads and desserts which tend to be categories that are more
discretionary purchases driving this overall decline. Through the period,
whilst meals volumes were down, they were more resilient and fared better than
the overall market, as did pizza and bread which saw volume growth. Despite
this challenging backdrop, we continued to gain market share in overall terms
in the period and outperformed in three of our four categories.
Our share gain has been underpinned by several factors. We have continued to
deliver strong service levels to our customers which in turn ensures good
availability of our products in store despite continued supply chain
disruption. We have targeted our innovation to respond to changing consumer
needs particularly in the face of cost-of-living pressures, which has seen
many of our ranges outperform for our customers. For example, providing better
value alternatives to eating out in our pizza and meals categories, as well as
developing new meal deal offers that provide great value for consumers.
Finally, we have continued to develop our customer relationships, which
combined with the above, has further strengthened their confidence in
Bakkavor's ability to help them deliver for their customers. This has resulted
in us securing new business, again bolstering our market share.
In meals, at home dining solutions have performed well with our research
suggesting that over half of shoppers are eating out less and eating fewer
takeaways compared to six months ago. The re-development of the oriental range
for our biggest customers delivered incremental sales growth and
re-established them as the market leader in this category. Despite the impact
of inflation, meals continue to provide great value and we have seen
particular strength in our Italian ranges. All of this has resulted in us
seeing progressive share in the meals category.
As a category, pizza and bread has performed strongly relative to the overall
FPF market, being seen as an affordable and filling meal option with strong
growth in 'value' ranges and meal deal volume as consumers again look for
alternatives to takeaways and eating out. This is the one category that we
have not seen share gain in, as our business mix means we are
under-represented in the value tier, particularly in pizza.
The salads category has been less resilient than meals, impacted by
availability issues as well as cost-of-living pressures leading consumers to
reduce purchase of fresh cut products opting for cheaper wholehead produce
equivalents. Despite this challenging backdrop, there were two dynamics that
ensured we gained share. First, we effectively navigated industry-wide
availability challenges ensuring our biggest customer in this category
outperformed the market, with our service levels being exceptional through the
peaks we saw for the Coronation and the Summer period. Secondly, we
successfully onboarded new business in prepared fruit which further extended
our market share gain.
Desserts volumes have been most impacted due to their more discretionary
nature, higher cost inflation and reduced promotions as HFSS legislation
started to come in to force. Despite this, we outperformed the market with our
mix of business being favourable as we saw our biggest categories, cream
cakes, trifles and cheesecake, performing much stronger than potted desserts
performing less favourably. Our performance was also supported by strong
growth in our The Delicious Dessert Company brand, which is continuing to
attract new, younger consumers to the category.
Restructuring and targeted investment underpin strong operational performance
Our operational delivery has helped close the gap in inflation recovery.
It has been fuelled by the synergies realised from our new UK structure, which
is now aligned to two operating sectors; Meals and Bakery, as well as the
benefits we have seen from closure of two factories and associated
consolidation of volume across our other sites.
The investment in our new manufacturing system is now complete, with RedZone
live in all UK factories. This is underpinning strong operational improvement
as our manufacturing teams now have access to live performance data and trend
analysis. Another important benefit of the system is that it signposts us to
opportunities to invest behind performance, removing bottlenecks and points of
inefficiency, creating a pipeline of future opportunities.
Our ongoing targeted and disciplined approach to capital investment has seen
us prioritise spend on productivity initiatives with the £10m strategic
investment in a new automated craft bread line at our Crewe site, to increase
productivity, as well as capacity, now nearing completion. This investment
also includes the replacement of nitrogen chilling with a low carbon energy
solution which delivers a cost saving whilst also helping reduce our carbon
emissions.
Successfully mitigated supply chain challenges and ongoing inflationary
pressures, however significant improvement in labour availability is a
positive dynamic
We continued to experience supply chain disruption which has impacted
availability, notably in fresh produce and fruit, largely due to adverse
weather patterns being experienced across Europe and other parts of the world.
Whilst this had some impact on sale in certain sub-categories, generally our
scale and breadth has helped insulate us from this.
Inflationary pressures have remained significant across the cost base, and the
majority of the Group's £91m inflation in H1 2023 was borne by the UK, mainly
due to two key factors. First, items where we had successfully hedged and
therefore beaten the market last year, have been exposed to current market
pricing as we have taken new positions this year. The key examples of this
would be grocery items, such as tomatoes and oil, as well as energy. Secondly,
labour, where inflation continues to be fuelled by movements in the National
Living Wage. There are some pockets of deflation in certain commodities such
as dairy, although prices remain elevated and in overall terms we are still
operating in an inflationary environment, however, we are hopeful that
inflation is now past its peak.
Our ongoing focus on operational efficiency, value optimisation and tight cost
control, along with the continued support we have received from our customers
on price, has helped to mitigate the impact.
There have been some positive developments from a people perspective. Vacancy
levels are much reduced and we have good availability of agency staff. We have
accelerated our investment in our people recognising that their contribution
is key to the success of our business, with our key initiatives outlined
earlier. We have made good progress with our labour plans, continuing to
enhance our factory rates of pay and broader benefits.
Confident momentum will continue in second half
Following the delivery of a strong performance in H1 2023, the UK business
takes good momentum into the second half. Our restructuring plans will
continue to deliver benefits, operational efficiency initiatives are
well-embedded, and we will maintain a tight control of costs. Whilst we are
likely to see soft underlying volumes in the second half as the cost-of-living
pressures continue, we are confident of continuing to outperform the market
given the strong pipeline of opportunities we can see.
United States: Plans embedded to support improvement in profitability
£ million H1 2023 H1 2022 Change
Revenue 117.6 116.6 0.9%
Like-for-like revenue(1) 111.6 116.6 (4.2%)
Operating profit 0.1 3.1 (96.8%)
Operating profit margin 0.1% 2.6% (250bps)
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.
LFL revenue was down 4.2% to £111.6m. This reflects good underlying growth,
up 11%, offset by the loss of volume from a single customer as we re-shape our
business. Including the impact of currency, reported revenue was up 0.9% to
£117.6m.
Operating profit of £0.1m, down £3.0m on H1 2022, but in line with
expectation with momentum building quarter on quarter. As reported at the year
end, our focus is very much on improving efficiency and controlling cost with
a progressive trend through the first half of the year, which gives us
confidence in momentum building through the remainder of the year.
US strategic and operational actions
As highlighted in our year-end statement, we are switching our focus from
growth to profit in the short-term. In the first half of the year this has
seen us stabilise the business and establish a strong platform for future
improvement.
We have new leadership in place, with our US operations now being led by a
Chief Operating Officer. Under this new leadership, we have completed a cost
base review and have implemented granular performance improvement plans at
each of our sites. Our primary focus from a performance perspective has been
on labour efficiency where we have looked to improve the robustness of our
planning, optimise shift patterns and balance labour across our lines.
In 2023, we have seen inflationary pressure ease and have the benefit of price
increases secured in 2022 that help mitigate the higher prices we continue to
pay for key raw materials.
Our focus on profit has meant our approach to growth has been more measured.
Our commercial activity has therefore focused on doing a better job for our
customers, improving both quality and service with an emphasis on driving core
volume. We are also pleased to confirm that we have reached agreement on
settlement terms in relation to the previously reported legal dispute.
We move into the second half with the leadership team fully populated, with
key new appointments in customer leadership, site leadership at our two
biggest factories and people leadership. Now this is in place, we have the
resource and capability to execute our plans as we re-shape our business.
Targeting a profitable second half
Given our focus on delivering sustainable profits from a stable business, we
anticipate minimal growth in the second half and into 2024 as we continue to
re-shape the business. As a result of this, we continue to pause our strategic
capital expenditure as we seek to drive efficiency and maximise capacity
utilisation from our existing assets.
We fully expect our embedded plans to deliver a profitable second half and to
bring adjusted operating profit for the full year in line with 2022.
Whilst we are less focused on growth in the short-term, consumer demand for
our fresh prepared products remains strong and we remain very positive and
confident about the opportunity for long-term growth and profitability in this
attractive market.
China: Post-Covid recovery in volumes supports improved profitability
£ million H1 2023 H1 2022 Change
Revenue 59.1 44.1 34.0%
Like-for-like revenue(1) 59.7 44.1 35.1%
Adjusted operating loss(1) (1.5) (4.3) 65.1%
Adjusted operating loss margin(1) (2.5%) (9.7%) 720bps
Operating profit / (loss) 1.4 (4.3) 132.6%
Operating profit / (loss) margin 2.4% (9.7%) 1,210bps
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.
Trading recovered to pre-Covid levels with LFL revenue of £59.7m up 35.1%
against a softer H1 2022 due to regional lockdowns. Including the impact of
currency, reported revenue was up 34.0% to £59.1m.
Increased sales supported an improvement in profitability, with an adjusted
operating loss of £1.5m, £2.8m lower than H1 2022.
Adjusted operating loss excludes £2.9m of exceptional income; £1.5m of
proceeds from the sale and leaseback in Hong Kong and a £1.4m net gain on the
sale of our two associate investments, as we simplified our operations.
China strategic and operational actions
The rebound in consumer spending post-Covid has supported a strong recovery in
volumes and has seen revenues from our foodservice customers increase
significantly. In addition, we remain absolutely committed to building our
presence in retail to diversify the business, and as a result our retail sales
grew 50% on H1 2022 as we launched new products and expanded our ranges.
Retail now comprises c.20% of our overall business.
The increase in volumes across our factory footprint has delivered an improved
operational performance and supported significantly reduced losses as we start
to benefit from better utilisation of our sites. The benefit of our efficiency
gains has also helped to mitigate the impact of wage inflation. The labour
market has remained tight but we continue to manage this effectively without
disruption.
H2 2023 expected to be broadly in line with H1
Looking forward, we anticipate the post-Covid recovery in volumes to continue
steadily, albeit the year-on-year growth rate is expected to moderate in H2,
compared to H1, given stronger prior year comparatives where there were fewer
lockdowns. We remain focused on building volume to leverage the significant
capacity headroom afforded by our well-invested footprint and continuing to
diversify into retail.
This market continues to offer a significant growth opportunity, but in turn
this is attracting greater competition which is putting margins under
pressure. Our focus is on driving performance to help offset these pressures.
We expect H2 2023 adjusted operating loss to be broadly in line with H1.
FINANCIAL REVIEW
Revenue
Reported revenue increased by 7.9% to £1,090.4m (H1 2022: £1,010.2m). LFL
revenue, which excludes only the impact of currency movements, grew by 7.4% to
£1,085.0m (H1 2022: £1,010.2m). Of this growth, 7.8% was price while volume
declined marginally, by 0.4%. Detail of reported and LFL revenue movements at
a regional level is included in the divisional reviews.
Adjusted operating profit
Adjusted operating profit increased by £0.9m to £43.4m (H1 2022: £42.5m),
due to the factors outlined below.
Input inflation continued to play a major part in our overall performance in
the first half. We faced £91m of cost inflation, which represented a 10%
increase on our total cost base, and this was driven by two major factors as
outlined in the UK section; re-establishing previously hedged positions and
labour inflation. Whilst there have been pockets of deflation, overall prices
remain elevated, and we continue to operate in an inflationary environment. We
expect an increase in costs at the lower end of our previous guidance of c.6%
to 8% in 2023.
Continued support from customers meant that recovery of inflation through
price increases was £79m in H1 2023, resulting in net inflation recovery of
87% across the Group. This includes the benefit annualization of price
increases from 2022 as well as price increases secured in H1 2023.
Volumes being down 0.4% led to a small negative impact of £2m. Our own
internal levers were, therefore, fundamental to powering the P&L.
Productivity gains and better than expected savings from restructuring
initiatives benefited performance by £15m in the first half of the year.
From a margin perspective, adjusted operating profit margin fell by 20 basis
points to 4.0% (H1 2022: 4.2%). This reflects the dilutive impact of only
recovering the absolute value of inflation, not margin, combined with an
element of unrecovered inflation.
Operating profit
Operating profit of £46.3m was up 12.7% (H1 2022: £41.1m), with margin
improving by 10 basis points to 4.2% (H1 2022: 4.1%). The combination of
exceptional and adjusting items, £4.3m, and the increase to adjusted
operating profit of £0.9m resulted in the £5.2m improvement in operating
profit.
H1 2023 operating profit includes £2.9m of exceptional income, excluded from
adjusted operating profit, from simplifying our operations in China. Of this,
£1.5m relates to a gain from the sale and leaseback of a property in Hong
Kong and £1.4m from the net gain on disposal on the sale of our two associate
investments.
H1 2022 adjusted operating profit excluded £1.4m of costs associated with the
configuration and customisation of software as a service ('SaaS') projects,
treated as an adjusting item. There were no costs relating to this in H1 2023.
Finance costs
Group profit before tax was £32.6m (H1 2022: £32.5m). This includes finance
costs of £13.3m, up from £8.9m in H1 2022, impacted by continued rising
interest rates during the period. 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 interest rate 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 2023 until
March 2026, at an average rate of 233 basis points. We expect the full year
interest charge to be c.£28m, assuming UK base rates reach c.6% by the end of
2023.
Tax
The Group tax charge for H1 2023 was £7.5m (H1 2022: £7.0m), representing an
effective tax rate of 23.0%. The underlying effective tax rate, which excludes
exceptional items, adjusting items and change in fair value of derivative
financial instruments, was 25.1% (H1 2022: 21.2%). The increase in the
underlying effective tax rate is driven by an increase to the UK corporation
tax rate, which became effective in April 2023, and is in line with the
forecasted Group effective tax rate for FY23 of c.25%.
Earnings per share
Basic earnings per share remained at 4.4 pence in H1 2023 (H1 2022: 4.4
pence). This is due to the improvement in operating profit being offset by the
increase in finance and tax costs.
Adjusted earnings per share decreased by 0.7 pence to 3.9 pence in H1 2023 (H1
2022: 4.6 pence), as it excludes the benefit of the exceptional income in H1
2023. Adjusted earnings per share also excludes the impact of adjusting items,
£1.4m related to SaaS in H1 2022, and the change in fair value of derivative
financial instruments.
Cash flow
Free cash generation of £51.6m was £15.0m higher than H1 2022 reflecting
improved operating profit and an enhanced focus on working capital, partly
offset by increased interest and tax payments. As part of our enhanced our
focus on managing cash, as outlined earlier this year, we have sought to drive
improvement in working capital, focused predominantly on inventory management.
Our inventory levels had risen over the last two years to protect the business
from supply chain disruption and to avoid significant levels of inflation. We
have therefore been focused on returning to more normalised levels of
inventory. We delivered significant progress in the first half of the year,
thereby supporting the overall reduction in debt position and financing
costs.
£ million 26 weeks ended 26 weeks ended
1 July
25 June
2022
2023
Operating profit 46.3 41.1
Exceptional items (2.9) -
Depreciation and other items 35.5 34.2
Net retirement benefits charge less contributions (1.0) (1.0)
Working capital (excl. exceptional items) 15.0 (3.7)
Interest and tax paid (19.0) (10.5)
Dividends received from associates and interest received 0.5 -
Purchases of property, plant and equipment (net) (21.9) (21.2)
Purchases of intangible assets (0.9) (2.3)
Free cash flow 51.6 36.6
Debt and leverage
Since December 2022, operational net debt has reduced by a further £16.2m to
£268.7m at the end of H1 2023. This was primarily due to the strong
improvement in free cash generation, along with the one-off benefit from
simplifying our operations in China.
Leverage, the ratio of operational net debt to adjusted EBITDA, at H1 2023
improved by 0.1 times to 1.8 times. The Group's liquidity position remains
strong, with headroom of over £200m against our core debt facilities of
£485m. The Group continues to have comfortable headroom against all financial
covenants.
We expect to continue to deliver an improvement in debt and leverage in the
second half of the year. The two key drivers of this, after the expected
improvement in profitability, are maintaining a tight control of capital
expenditure focusing on productivity improvements as well as further working
capital improvement materialising from our focus on stock management. We
expect a further modest working capital inflow in H2 2023, resulting in a full
year inflow of c.£20m.
Dividend
During the period the Group paid £24.0m in respect of the final dividend for
FY22.
The improved strength of the Group's financial position and continued good
cash generation, supports our long-term growth aspirations and commitment to
increasing returns to shareholders. The Board has, therefore, resolved to pay
an interim dividend of 2.91 pence per Ordinary share, up 5.0% on the prior
period. The interim dividend will be paid on 13 October 2023 to shareholders
registered on the record date at 5 September 2023.
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 1 July 2023 was 7.1%, in line with the
year end (7.1%). Adjusted operating profit after tax saw a slight reduction
due to the increased underlying tax rate in H1 2023, with the impact of this
partially mitigated by the Group's continued control of capital spend, which
has reduced invested capital.
The Group continues to expect an improvement in ROIC in the medium-term as
previous investments deliver an increase in returns. With the Group's ongoing
focus on managing cash, we expect the level of capital investment to remain in
line with previous guidance at c.£50m for FY23.
Pensions
Under the IAS 19 valuation principles, the Group recognised a surplus of
£18.4m for the UK defined benefit scheme as at 1 July 2023 (31 December 2022:
surplus of £12.8m). The plan assets largely maintained their value whilst the
defined benefit obligations decreased due to increased bond yields, resulting
in higher discount rates.
The Group and the Trustee agreed the triennial valuation of the UK defined
benefit pension scheme as at 31 March 2022 in May 2023, which resulted in a
funding shortfall of £2m. This funding shortfall increased in the following
months due to the volatility in gilt rates which resulted in investment values
falling by more than the reduction in liabilities. As a result of the increase
to the funding shortfall, recovery plan for payments of £2.5m p.a. were
agreed to be made through to 31 March 2025, with an extension through to 31
August 2025 if the scheme is in deficit at the end of December 2024 and the
end of January 2025.
Capital allocation
We maintain a disciplined approach to capital allocation, with the overriding
objective to enhance shareholder value. The allocation of capital is primarily
split across capital investment, debt reduction to reduce financing costs
given recent increases to base rates, and dividends. Inorganic opportunities
are 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 79
to 86 of the 2022 Annual Report and Accounts, published on 17 March 2023. The
principal risks themselves remain unchanged as at 1 July 2023, and 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 pandemic, IT
systems and cyber risk, climate change and sustainability, disruption to Group
operations, treasury and pensions, and legal and regulatory. Developments
through the first half of the year have, however, resulted in the risk profile
of two of our principal risks reducing in likelihood and impact as outlined
below:
Principal risk Likelihood Impact Description
Strategic growth and change programmes ↓ ↓ Major UK investment projects are nearing completion and strategic investment
in the US has been paused as we focus on delivering sustainable profits
Covid pandemic ↓ ↓ In China, the removal of the government's zero-tolerance Covid policy has
facilitated a return to more normal behaviours
Condensed Consolidated Income Statement
26 weeks ended 1 July 2023 (Unaudited) 26 weeks ended 25 June 2022
(Unaudited)
£m Notes Underlying activities Exceptional items(1) Total Underlying activities Exceptional Total
items(1)
(Note 4)
(Note 4)
Continuing operations
Revenue 3 1,090.4 - 1,090.4 1,010.2 - 1,010.2
Cost of sales (802.5) - (802.5) (738.7) - (738.7)
Gross profit 287.9 - 287.9 271.5 - 271.5
Distribution costs (42.8) - (42.8) (42.1) - (42.1)
Other administrative costs (201.7) 1.5 (200.2) (188.4) - (188.4)
Profit on disposal of associates - 1.4 1.4 - - -
Share of results of associates after tax - - - 0.1 - 0.1
Operating profit 43.4 2.9 46.3 41.1 - 41.1
Finance costs 5 (13.3) - (13.3) (8.9) - (8.9)
Other gains and (losses) 6 (0.4) - (0.4) 0.3 - 0.3
Profit before tax 29.7 2.9 32.6 32.5 - 32.5
Tax 7 (7.5) - (7.5) (7.0) - (7.0)
Profit for the period 22.2 2.9 25.1 25.5 - 25.5
Earnings per share
Basic 8 4.4p 4.4p
Diluted 8 4.3p 4.3p
(1)The Group presents its Condensed Consolidated Income Statement with three
columns. The Directors consider that the underlying activities are more
representative of the ongoing operations and key metrics of the Group. Details
of exceptional items can be found in Note 4 and include material items that
are non-recurring, significant in nature and are important to users in
understanding the business, including restructuring costs and impairment of
assets. In addition, the Group uses further Alternative Performance Measures
which can be found in Note 21.
Condensed Consolidated Statement of Comprehensive Income
£m 26 weeks ended 26 weeks ended
1 July 2023 (Unaudited) 25 June 2022
(Unaudited)
Profit for the period 25.1 25.5
Other comprehensive income/(expense)
Items that will not be reclassified to the income statement:
Actuarial gain/(loss) on defined benefit pension schemes 4.5 (0.7)
Tax relating to components of other comprehensive (expense)/income (1.1) 0.2
Items that may be reclassified to the income statement:
Exchange differences on translation of foreign operations (11.9) 13.8
(Loss)/gain on cash flow hedges (2.5) 6.4
Hedging (gains) reclassified to profit or loss (3.1) -
Tax relating to components of other comprehensive income/(expense) 1.6 (2.0)
Total other comprehensive (expense)/income net of tax (12.5) 17.7
Total comprehensive income 12.6 43.2
Condensed Consolidated Statement of Financial Position
£m Notes 1 July 2023 31 December 2022 (Audited)
(Unaudited)
Non-current assets
Goodwill 10 652.6 655.1
Other intangible assets 9.6 8.8
Property, plant and equipment 11 531.5 548.1
Interests in associates and other investments 0.1 3.7
Deferred tax asset 12.4 12.9
Retirement benefit asset 18.4 12.8
Derivative financial instruments 1.7 9.9
1,226.3 1,251.3
Current assets
Inventories 12 79.4 86.2
Trade and other receivables 13 162.4 161.0
Cash and cash equivalents 15 24.7 40.2
Derivative financial instruments 6.2 2.7
272.7 290.1
Total assets 1,499.0 1,541.4
Current liabilities
Trade and other payables 14 (436.7) (430.0)
Current tax liabilities - (1.1)
Borrowings 15 (27.2) (13.1)
Lease liabilities 15 (11.5) (11.3)
Provisions (10.6) (22.0)
Derivative financial instruments (1.7) (0.3)
(487.7) (477.8)
Non-current liabilities
Borrowings 15 (264.5) (309.2)
Lease liabilities 15 (86.4) (85.9)
Provisions (16.3) (15.0)
Derivative financial instruments (0.1) -
Deferred tax liabilities (37.7) (35.7)
(405.0) (445.8)
Total liabilities (892.7) (923.6)
Net assets 606.3 617.8
Equity
Called up share capital 17 11.6 11.6
Own shares held 17 (3.1) (3.1)
Merger reserve (130.9) (130.9)
Hedging reserve 4.5 9.5
Translation reserve 32.6 44.5
Retained earnings 691.6 686.2
Total equity 606.3 617.8
Condensed Consolidated Statement of Changes in Equity
£m Share capital Own shares held Merger reserve Hedging reserve Translation reserve Retained earnings Total
Balance at 1 January 2023 11.6 (3.1) (130.9) 9.5 44.5 686.2 617.8
(Audited)
Profit for the period - - - - - 25.1 25.1
Other comprehensive (expense)/income for the period - - - (4.0) (11.9) 3.4 (12.5)
Total comprehensive income for the period - - - (4.0) (11.9) 28.5 12.6
Reclassification to inventory - - - (1.0) - - (1.0)
Purchase of own shares - (0.1) - - - - (0.1)
(Note 17)
Share-based payments - 0.1 - - - (0.1) -
(Note 17)
Dividends (Note 9) - - - - - (24.0) (24.0)
Credit for share-based payments - - - - - 1.0 1.0
Cash-settlement of share-based payments - - - - - - -
Balance at 1 July 2023 11.6 (3.1) (130.9) 4.5 32.6 691.6 606.3
(Unaudited)
£m 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
£m Notes 26 weeks 26 weeks
ended ended
1 July 25 June
2023 2022
(Unaudited) (Unaudited)
Net cash generated from operating activities 18 63.3 59.2
Investing activities
Interest received 0.3 -
Dividends received from associates 1.6 -
Purchases of property, plant and equipment (22.0) (21.2)
Proceeds on disposal of property, plant and equipment 1.6 -
Purchase of intangibles (0.9) (2.3)
Proceeds on disposal of associates 3.2 -
Net cash used in investing activities (16.2) (23.5)
Financing activities
Dividends paid 9 (24.0) (22.8)
Own shares purchased 17 - (2.7)
Increase in borrowings 1.3 13.8
Repayment of borrowings (32.1) (2.1)
Principal elements of lease payments (6.6) (7.8)
Net cash used in financing activities (61.4) (21.6)
Net (decrease)/increase in cash and cash equivalents (14.3) 14.1
Cash and cash equivalents at beginning of period 40.2 31.1
Effect of foreign exchange rate changes (1.2) 1.1
Cash and cash equivalents at end of period 24.7 46.3
Notes to the condensed CONSOLIDATED INTERIM financial statements
1. General information
Bakkavor Group plc is a company limited by shares, incorporated and domiciled
in England, United Kingdom. Its registered office and principal place of
business is Fitzroy Place, 5(th) Floor, 8 Mortimer Street, London, W1T 3JJ, UK
(Company number: 10986940). Its Ordinary shares are listed on the London Stock
Exchange.
The principal activities of the Group comprise the manufacture of fresh
prepared foods and fresh produce. These activities are undertaken in the UK
and US where products are primarily sold through high-street supermarkets and
China where products are primarily sold through foodservice operators.
The Condensed Consolidated Interim Financial Statements ("Interim Report") for
the 26 weeks ended 1 July 2023 ("H1 2023") and 26 weeks ended 25 June 2022
("H1 2022") do not comprise statutory accounts within the meaning of section
434 of the Companies Act 2006. Statutory accounts for the year ended 31
December 2022 were approved by the board of directors on 7 March 2023 and
delivered to the Registrar of Companies. The report of the auditors on those
accounts was unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under section 498 of the Companies Act 2006.
The Interim Report has been reviewed, not audited.
The Interim Report has 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 Interim Report 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 53 weeks ended 31 December 2022, which have been
prepared in accordance with UK-adopted International Accounting Standards, and
any public announcements made by the Group during the interim reporting
period.
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). 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).
Seasonality of operations
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.
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 retirement benefit
plan assets (which are stated at fair value).
2. Significant accounting policies (continued)
Accounting policies
The accounting policies adopted are consistent with those of the previous
those in the Group's Annual Financial Statements for the 53 weeks ended 31
December 2022 except as described below:
Amendments to IAS 12 'Income Taxes' - Deferred tax related to assets and
liabilities arising from a single transaction
On 7 May 2021, the IASB issued amendments to IAS 12, 'Income Taxes' relating
to deferred tax on assets and liabilities arising from a single transaction.
The amendments require companies to recognise deferred tax on transactions
that on initial recognition give rise to equal amounts of taxable and
deductible temporary differences. This amendment has been adopted by the Group
from 1 January 2023 and there are no such temporary differences to be
recognised.
Amendments to IAS 12 'Income Taxes' - Pillar Two Income Taxes
The Organisation for Economic Cooperation & Development ("OECD") has
published proposals for a global corporate minimum tax rate of 15% ("Pillar
Two"). On 20 June 2023, legislation in respect of Pillar Two was substantively
enacted in the UK, Finance (No.2) Act 2023, for financial years beginning on
or after 31 December 2023. Taxation balances are adjusted for a change in tax
law if the change has been substantively enacted by the balance sheet date.
However, the IASB issued narrow-scope amendments to IAS 12 'Income Taxes'
Pillar Two which provide a temporary exemption, which can be applied
immediately, from the requirement to recognise and disclose deferred taxes
arising from enacted or substantively enacted tax law that implements Pillar
Two model rules. These amendments were approved for adoption by the UK
Endorsement Board adopted on 19 July 2023. The Group has applied this
exception.
Critical accounting judgements and key sources of estimation uncertainty
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 53 weeks ended 31 December 2022.
Impairment
At 1 July 2023, a review of indicators of impairment of goodwill was performed
at the cash generating unit ('CGU') level. Based on this assessment, the Group
concluded there was an indicator of impairment in the US CGU and as a result a
value-in-use assessment was performed. The key assumptions that can impact the
value-in-use calculation are changes to the growth rates applied to derive a
three-year forecast and / or a movement in the long-term growth rates and
discount rates applied to the future cash flows. The Group has considered the
impact of the assumptions used in the US CGU calculation, with the long-term
growth rates and discount rate assumptions updated in this review, and also
conducted sensitivity analysis on the impairment test of the CGU carrying
value with the impact set out below:
· US operating cash flows are primarily driven by adjusted EBITDA. This
could be negatively impacted by loss of revenue or from lower operating
margins. If operating cash flows were 22.1% lower and no mitigating actions
were taken, this would result in no headroom.
· The perpetuity growth rate included in future cash flows is 2.1%. If
this was to decrease to nil there would still be headroom.
· The pre-tax discount rate is 9.5%. Increasing the pre-tax discount
rate by 3.1% to 12.6% would result in no headroom.
The conclusion of this was that no impairment was required. At the year end,
the US CGU impairment review will be reassessed, along with the UK and China
which are subject to an annual impairment review under IFRS.
2. Significant accounting policies (continued)
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 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
Interim Report.
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 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 21.
The following table provides an analysis of the Group's segment information
for the period 1 January 2023 to 1 July 2023:
£m UK US China
Total
Revenue 913.7 117.6 59.1 1,090.4
Adjusted EBITDA (Note 21) 71.8 5.6 1.5 78.9
Depreciation (25.1) (5.3) (2.9) (33.3)
Amortisation (0.9) (0.2) - (1.1)
Share scheme charges (1.0) - - (1.0)
Loss on disposal of property, plant and equipment - - (0.1) (0.1)
Adjusted operating profit/(loss) (Note 21) 44.8 0.1 (1.5) 43.4
Exceptional items (Note 4) - - 2.9 2.9
Operating profit 44.8 0.1 1.4 46.3
3. Segment information (continued)
The following table provides an analysis of the Group's segment information
for the period 26 December 2021 to 25 June 2022:
£m 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(1) projects (1.4) - - (1.4)
Exceptional items (Note 4) - - - -
Operating profit/(loss) 42.3 3.1 (4.3) 41.1
(1)Software-as-a-Service ("SaaS")
Major customers
For the 26 weeks ended 1 July 2023, the Group's four largest UK customers
accounted for 75.1% (26 weeks ended 25 June 2022: 75.7%) of total Group
revenue from continuing operations. These customers accounted for 89.7% (26
weeks ended 25 June 2022: 90.1%) 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
1 July 25 June
2023 2022
Customer A 32.4% 33.1%
Customer B 22.7% 22.3%
Customer C 12.9% 12.0%
Customer D 7.1% 8.3%
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: 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.
4. Exceptional items (continued)
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 26 weeks ended 26 weeks ended
1 July 25 June
2023 2022
Profit on disposal of property, plant and equipment 1.5 -
Profit on disposal of associates 1.4 -
Total exceptional items 2.9 -
Tax on exceptional items - -
Total exceptional items after tax 2.9 -
In H1 2023, the Group has recognised £2.9m of exceptional income all of which
relates to the China segment. Of this, £1.5m is profit on disposal of
property, plant and equipment following the sale and leaseback of one of the
properties the Group operates from within the China segment.
There is also £1.4m profit on disposal of associates, following the Group's
sale of its 45% share in each of its two associate companies, La Rose Noire
Limited and Patisserie et Chocolat Limited on 8 May 2023. The net
consideration received from this sale was £4.6m and the carrying amount of
the investments before the sale was £3.2m.
The total net cash inflow during H1 2023 in respect of H1 2023 exceptional
items was £6.1m (H1 2022: £nil) in relation to disposals noted above.
The Group incurred no exceptional income or costs in H1 2022.
As shown in Note 18, there is £10.6m (H1 2022: £nil) net cash outflow
related to a decrease in exceptional provisions. This relates to the cash
impact of exceptional items recognised and provided for on the 31 December
2022 Statement of Financial Position in relation to restructuring costs for
the closure of two of our UK sites and the costs of a corporate restructure.
5. Finance costs
£m 26 weeks ended 26 weeks ended
1 July 25 June
2023 2022
Interest on borrowings 11.3 7.1
Interest on lease liabilities 1.5 1.5
Unwind of discount on provisions 0.5 0.3
13.3 8.9
6. Other gains and (losses)
£m 26 weeks ended 26 weeks ended
1 July 25 June
2023 2022
Foreign exchange (losses) / gains (0.4) 0.4
Change in fair value of derivative financial instruments - (0.1)
(0.4) 0.3
7. Tax
The Group's effective tax rate for the period was 23.0% (H1 2022: 21.5%).
Before exceptional income of £2.9m (H1 2022: £nil) the effective tax rate
was 25.1% which is 1.6% higher (H1 2022: 2.5%) than the UK statutory tax rate
of 23.5% (the UK statutory rate in force for 2023 was 19% to 31 March 2023 and
25% from 1 April 2023) (H1 2022: 19%). The increase is mainly due to the
impact of overseas losses not recognised. The tax charge for the period has
been calculated by applying the effective tax rate which is expected to apply
for the year ended 30 December 2023 using rates substantively enacted at 1
July 2023.
The OECD has published proposals for a global corporate minimum tax rate of
15% ("Pillar Two"). On 20 June 2023, legislation in respect of Pillar Two was
substantively enacted in the UK, Finance (No.2) Act 2023, to apply for
financial years beginning on or after 31 December 2023. The Group is in the
process of undertaking an impact assessment. The IAS 12 exception to recognise
and disclose information about deferred tax assets and liabilities related to
Pillar Two income taxes has been applied.
A reconciliation of the expected tax rate to the forecast effective tax rate
is as follows:
£m 26 weeks ended
1 July
2023
Profit before tax 32.6
Expected tax at 23.5% 7.7 23.5%
Impact of:
Non-deductible items (0.1) (0.2%)
Overseas losses not recognised 0.4 1.2%
Non-taxable income (0.7) (2.1%)
UK rate change 0.2 0.6%
Total tax charge 7.5 23.0%
Deduct: Tax charge on exceptional income - -
Tax charge pre-exceptional items 7.5 25.1%
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
£m 26 weeks ended 26 weeks ended
1 July 25 June
2023 2022
Profit for the period 25.1 25.5
Number of shares
'000 26 weeks ended 26 weeks ended
1 July 25 June
2023 2022
Weighted average number of Ordinary shares 576,501 578,426
Effect of potentially dilutive Ordinary shares 9,355 8,978
Weighted average number of Ordinary shares for diluted earnings per share 585,856 587,404
8. Earnings per share (continued)
26 weeks ended 26 weeks ended
1 July 25 June
2023 2022
Basic earnings per share 4.4p 4.4p
Diluted earnings per share 4.3p 4.3p
9. Dividends
Reporting period Dividend per share Date Declared Date Paid Number of dividend rights waived(1) Amount Paid
30 December 2023
Interim dividend(2) 2.91p September 2023 13 October 2023
31 December 2022
Final dividend 4.16p May 2023 5 June 2023 2,886,522 £23,984,025
Interim dividend 2.77p September 2022 14 October 2022 2,492,273 £15,981,053
25 December 2021
Final dividend 3.96p May 2022 30 May 2022 2,439,135 £22,848,663
(1)Dividend rights waived in relation to Ordinary shares held in the Bakkavor
Group plc Employee Benefit Trust.
(2)Interim dividend in relation to the 52 weeks ended 30 December 2023 is
payable on 13 October 2023 to Ordinary shareholders registered on the record
date at 5 September 2023.
10. Goodwill
£m
At 31 December 2022
Cost 708.6
Accumulated impairment losses (53.5)
Net book amount 655.1
At 1 January 2023 655.1
Exchange rate difference during the period (2.5)
At 1 July 2023 652.6
11. Property, plant and equipment
£m
At 31 December 2022
Cost 1,207.7
Accumulated depreciation and impairment (659.6)
Net book amount 548.1
At 1 January 2023 548.1
Additions 27.8
Disposals (1.3)
Depreciation charge for the period (33.3)
Exchange rate difference during the period (9.8)
At 1 July 2023 531.5
12. Inventories
£m 1 July 31 December
2023
2022
Raw materials and packaging 67.0 73.0
Work-in-progress 2.8 3.0
Finished goods 9.6 10.2
79.4 86.2
13. Trade and other receivables
£m 1 July 31 December
2023
2022
Amounts receivable from trade customers 130.6 130.4
Expected credit loss (3.6) (3.6)
Net amounts receivable from trade customers 127.0 126.8
Other receivables 15.0 23.2
Prepayments 20.4 11.0
Trade and other receivables due within one year 162.4 161.0
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 1 July 2023 £148m was
drawn under factoring facilities (31 December 2022: £138m) representing cash
collected before it was contractually due from the customer.
As at 1 July 2023, the Group's amounts receivable from trade customers
includes £62.8m (31 December 2022: £62.0m) which could be factored under the
non-recourse trade receivable factoring arrangement.
14. Trade and other payables
£m 1 July 31 December
2023
2022
Trade payables 268.6 287.5
Other taxation 1.2 2.1
Other payables 26.8 26.8
Accruals and deferred income 140.1 113.6
Trade and other payables due within one year 436.7 430.0
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 1 July 2023, trade
payables amounting to £42.7m (31 December 2022: £45.1m) 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
£m 1 July 31 December
2023
2022
Cash and cash equivalents 24.7 40.2
Borrowings (27.2) (13.1)
Lease liabilities (11.5) (11.3)
Total debt due within one year (38.7) (24.4)
Borrowings (264.5) (309.2)
Lease liabilities (86.4) (85.9)
Total debt due after one year (350.9) (395.1)
Group net debt (364.9) (379.3)
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 £430m of its core
debt facilities from March 2025 to March 2026.
16. Financial instruments
The categories of financial instruments are as follows:
£m 1 July 31 December
2023
2022
Financial assets
Fair value through OCI or profit and loss:
Trade receivables 62.8 62.0
Derivative financial instruments 7.9 12.6
Measured at amortised cost:
Trade receivables 64.2 64.8
Other receivables 15.0 23.2
Cash and cash equivalents 24.7 40.2
174.6 202.8
16. Financial instruments (continued)
£m 1 July 31 December
2023
2022
Financial liabilities
Fair value through OCI or profit and loss:
Derivative financial instruments 1.8 0.3
Other financial liabilities at amortised cost:
Trade payables 268.6 287.5
Other payables 26.8 26.8
Accruals 139.0 112.3
Borrowings 291.7 322.3
Lease liabilities 97.9 97.2
825.8 846.4
The fair value of financial assets approximates to their carrying values due
to the short-term nature of the receivables. The fair value of trade
receivables and derivative financial instruments has 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.
The borrowings fair value is £293.1m (31 December 2022: £324.5m).
There have been no changes to fair values as a result of change in credit risk
of the Group or the Group's customers.
17. Share capital and own shares held
Issued share capital as at 1 July 2023 and 31 December 2022 amounted to
£11.6m (579,425,585 Ordinary shares of £0.02 each).
During the prior and current period, the Company has purchased 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 1 July 2023 was 2,961,522 which represents 0.51% of total called up
share capital (31 December 2022: 2,940,514 and 0.51% respectively).
No own shares held in Bakkavor Group plc were cancelled during the periods
presented.
The table below shows the number of own shares purchased and distributed by
the Trust and the related cost recognised within equity:
Number of shares £000
Balance at 31 December 2022 2,940,514 3,074
Acquisition of shares by the Trust 75,000 71
Distribution of shares under share scheme plans (53,992) (58)
Balance at 1 July 2023 2,961,522 3,087
17. Share capital and own shares held (continued)
The table below shows amounts included in the Condensed Consolidated Statement
of Cash Flows in relation to own shares purchased for share schemes:
£m 26 weeks ended 26 weeks ended
1 July
25 June
2023
2022
Cash paid to purchase own shares (0.1) (2.7)
Cash received from distribution of shares under share scheme plans 0.1 -
Included in financing activities cash flows - (2.7)
18. Notes to the Condensed Consolidated Statement of Cash Flows
£m 26 weeks ended 26 weeks ended
1 July
25 June
2023
2022
Operating profit 46.3 41.1
Adjustments for:
Share of results of associates - (0.1)
Depreciation of property, plant and equipment 33.3 33.2
Amortisation of intangible assets 1.1 0.2
(Profit) on disposal of property, plant and equipment (1.4) (0.2)
(Profit) on disposal of associate (1.4) -
Share scheme charges 1.0 1.1
Net retirement benefits charge less contributions (1.0) (1.0)
Operating cash flows before movements in working capital 77.9 74.3
Decrease/(increase) in inventories 6.8 (9.4)
(Increase) in receivables (1.3) (16.9)
Increase in payables 9.5 23.2
(Decrease) in provisions - (0.6)
(Decrease) in exceptional provisions (10.6) -
Cash generated by operations 82.3 70.6
Income taxes paid (6.3) (3.2)
Interest paid (12.7) (8.2)
Net cash generated from operating activities 63.3 59.2
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, 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 and for each segment:
GROUP
£m 26 weeks ended 26 weeks ended Change %
1 July
25 June
2023
2022
Statutory revenue 1,090.4 1,010.2 7.9%
Effect of currency movements (5.4) -
Like-for-like revenue 1,085.0 1,010.2 7.4%
UK 26 weeks ended 26 weeks ended Change %
1 July
25 June
2023
2022
£m
Statutory and like-for-like revenue 913.7 849.5 7.6%
US 26 weeks ended 26 weeks ended Change %
1 July
25 June
2023
2022
£m
Statutory revenue 117.6 116.6 0.9%
Effect of currency movements (6.0) -
Like-for-like revenue 111.6 116.6 (4.2)%
China 26 weeks ended 26 weeks ended Change %
1 July
25 June
2023
2022
£m
Statutory revenue 59.1 44.1 34.0%
Effect of currency movements 0.6 -
Like-for-like revenue 59.7 44.1 35.1%
21. Alternative performance measures (continued)
Adjusted EBITDA and Adjusted operating profit
The Group manages the underlying 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 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 Adjusted operating
profit by 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 following table provides a reconciliation from the Group's operating
profit to Adjusted operating profit and Adjusted EBITDA:
£m 26 weeks ended 26 weeks ended
1 July
25 June
2023
2022
Operating profit 46.3 41.1
Exceptional items (Note 4) (2.9) -
Configuration and customisation costs for SaaS projects - 1.4
Adjusted operating profit 43.4 42.5
Depreciation 33.3 33.2
Amortisation 1.1 0.2
Share scheme charges 1.0 1.1
Loss/(profit) on disposal of property, plant and equipment 0.1 (0.2)
Share of results of associates - (0.1)
Adjusted EBITDA 78.9 76.7
Less IFRS 16 impact (6.9) (6.4)
Adjusted EBITDA pre IFRS 16(1) 72.0 70.3
(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.
21. Alternative performance measures (continued)
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:
£m 1 July 31 December
2023
2022
Group net debt (364.9) (379.3)
Unamortised fees (1.9) (2.6)
Interest accrual 0.5 0.4
Lease liabilities recognised under IFRS 16 97.6 96.6
Group operational net debt (268.7) (284.9)
Adjusted EBITDA (last 12 months pre IFRS 16 and including covenant 148.4 146.8
adjustments)
Leverage (Operational net debt/Adjusted EBITDA pre IFRS 16 and including 1.8 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)
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:
£m 26 weeks ended 26 weeks ended
1 July
25 June
2023
2022
Net cash generated from operating activities 63.3 59.2
Interest received 0.3 -
Dividends received from associates 0.2 -
Purchases of property, plant and equipment (22.0) (21.2)
Proceeds on disposal of property, plant and equipment 0.1 -
Purchase of intangible assets (0.9) (2.3)
Cash impact of exceptional items 10.6 -
Refinancing fees - 0.9
Free cash flow 51.6 36.6
21. Alternative performance measures (continued)
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:
£m 26 weeks ended 26 weeks ended
1 July
25 June
2023
2022
Profit for the period 25.1 25.5
Exceptional items (Note 4) (2.9) -
Configuration and customisation costs for SaaS projects - 1.4
Change in fair value of derivative financial instruments - 0.1
Tax on the above items - (0.2)
Adjusted earnings 22.2 26.8
Add back: Tax on adjusted profit before tax 7.5 7.2
Adjusted profit before tax 29.7 34.0
Effective tax rate on underlying activities 25.1% 21.2%
(Tax on Adjusted profit before tax/Adjusted profit before tax)
Number 000's
Weighted average number of Ordinary shares 576,501 578,426
Effect of dilutive Ordinary shares 9,355 8,978
Weighted average number of Ordinary shares for diluted earnings per share 585,856 587,404
Adjusted basic earnings per share 3.9p 4.6p
Adjusted diluted earnings per share 3.8p 4.6p
21. Alternative performance measures (continued)
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 (treated as an
adjusting item) 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:
£m 53 weeks ended
1 July 53 weeks ended
2023
31 December
2022
Operating profit 43.0 37.8
Configuration and customisation costs for SaaS projects 0.1 1.5
Exceptional items 47.2 50.1
Adjusted operating profit 90.3 89.4
Taxation at the underlying effective rate (21.0) (19.2)
Adjusted operating profit after tax 69.3 70.2
Invested capital
Total assets 1,499.0 1,541.4
Total liabilities (892.7) (923.6)
Net debt at period end 364.9 379.3
Retirement benefit scheme surplus (18.4) (12.8)
Deferred tax liability on retirement benefit scheme 4.6 3.2
Invested capital 957.4 987.5
Average invested capital for ROIC calculation 982.3 987.7
ROIC (%) 7.1% 7.1%
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 26 weeks ended 1 July 2023, and
their respective responsibilities, can be found on pages 92 to 95 of the
Annual Report & Accounts 2022. 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:
Mike
Edwards
Ben Waldron
Chief Executive
Officer
Chief Financial Officer and Asia Chief Executive Officer
5 September 2023
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 Condensed Consolidated
Interim Financial Statements of Bakkavor Group plc for the 26 week period
ended 1 July 2023 (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 1
July 2023;
· 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 Condensed Consolidated
Interim Financial Statements 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 ("ISRE (UK) 2410"). 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 Condensed Consolidated
Interim Financial Statements 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 ISRE (UK) 2410. 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 Condensed Consolidated Interim Financial Statements, including the interim
financial statements, is the responsibility of, and has been approved by the
directors. The directors are responsible for preparing the Condensed
Consolidated Interim Financial Statements in accordance with the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority. In preparing the Condensed Consolidated Interim Financial
Statements, 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 Condensed Consolidated Interim Financial Statements 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
5 September 2023
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