TIDMBAKK
RNS Number : 5565L
Bakkavor Group PLC
06 September 2023
The following amendment have been made to the 'Half-year Report'
announcement released on 06.09.2023 at 07.00 under RNS No
4720L.
The dividend record date was stated 5 September, but should be
15 September.
All other details remain unchanged.
The full amended text is shown below.
"The interim dividend will be paid on 13 October 2023 to
shareholders registered on the record date at 15 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 GBP43.4m
-- Operating profit up 12.7% to GBP46.3m, including GBP2.9m of
exceptional income(3) related to China
-- Strong free cash(1) generation of GBP51.6m, up GBP15.0m
-- Leverage(1) improved by 0.1x to 1.8x (31 December 2022: 1.9x)
-- Operational net debt(1) reduced by GBP16.2m (31 December 2022: GBP284.9m)
-- 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 GBP17m savings in FY23, ahead of
initial GBP15m forecast, and GBP25m 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 GBP89.4m, c.GBP4m 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
GBP million (unless otherwise stated) H1 2023 H1 2022 Change
--------------------------------------- ------- ------- -------
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. B ased on company compiled consensus ("Consensus") which
includes all covering analysts. Adjusted operating profit Consensus
for FY23 at GBP84.7m with a range of GBP82.0m to GBP86.3m. 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
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 . 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 .
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 GBP43.4m. 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 GBP46.3m 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 GBP16.2m 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 GBP17m of savings in FY23, ahead of our
initial forecast of GBP15m, and GBP25m 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,
GBP89.4m.
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. B ased on company compiled consensus ("Consensus") which
includes all covering analysts. Adjusted operating profit Consensus
for FY23 at GBP84.7m with a range of GBP82.0m to GBP86.3m. Last
updated on 4 September 2023.
DIVISIONAL REVIEW
United Kingdom: Strong trading performance; continued market
share gains and benefits from restructuring plan materialising
GBP 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 GBP913.7m, 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 GBP1.1m to GBP44.8m (H1 2022:
GBP43.7m). 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 GBP44.8m, up GBP2.5m (H1 2022: GBP42.3m) as the prior year
included GBP1.4m 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 GBP10m 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 GBP91m 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
GBP 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 GBP111.6m. 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 GBP117.6m.
Operating profit of GBP0.1m, down GBP3.0m 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
GBP 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
GBP59.7m up 35.1% against a softer H1 2022 due to regional
lockdowns. Including the impact of currency, reported revenue was
up 34.0% to GBP59.1m.
Increased sales supported an improvement in profitability, with
an adjusted operating loss of GBP1.5m, GBP2.8m lower than H1
2022.
Adjusted operating loss excludes GBP2.9m of exceptional income;
GBP1.5m of proceeds from the sale and leaseback in Hong Kong and a
GBP1.4m 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 GBP1,090.4m (H1 2022:
GBP1,010.2m). LFL revenue, which excludes only the impact of
currency movements, grew by 7.4% to GBP1,085.0m (H1 2022:
GBP1,010.2m). 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 GBP0.9m to GBP43.4m (H1
2022: GBP42.5m), due to the factors outlined below.
Input inflation continued to play a major part in our overall
performance in the first half. We faced GBP91m 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 GBP79m 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 GBP2m.
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 GBP15m 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 GBP46.3m was up 12.7% (H1 2022: GBP41.1m),
with margin improving by 10 basis points to 4.2% (H1 2022: 4.1%).
The combination of exceptional and adjusting items, GBP4.3m, and
the increase to adjusted operating profit of GBP0.9m resulted in
the GBP5.2m improvement in operating profit.
H1 2023 operating profit includes GBP2.9m of exceptional income,
excluded from adjusted operating profit, from simplifying our
operations in China. Of this, GBP1.5m relates to a gain from the
sale and leaseback of a property in Hong Kong and GBP1.4m from the
net gain on disposal on the sale of our two associate
investments.
H1 2022 adjusted operating profit excluded GBP1.4m 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 GBP32.6m (H1 2022: GBP32.5m). This
includes finance costs of GBP13.3m, up from GBP8.9m 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 GBP150m
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 GBP30m 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.GBP28m,
assuming UK base rates reach c.6% by the end of 2023.
Tax
The Group tax charge for H1 2023 was GBP7.5m (H1 2022: GBP7.0m),
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, GBP1.4m related to SaaS in
H1 2022, and the change in fair value of derivative financial
instruments.
Cash flow
Free cash generation of GBP51.6m was GBP15.0m 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.
26 weeks ended 26 weeks ended
1 July 25 June
GBP million 2023 2022
---------------------------------------------------------- --------------- ---------------
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 GBP16.2m to GBP268.7m 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 GBP200m
against our core debt facilities of GBP485m. 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.GBP20m.
Dividend
During the period the Group paid GBP24.0m 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 15 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.GBP50m for FY23.
Pensions
Under the IAS 19 valuation principles, the Group recognised a
surplus of GBP18.4m for the UK defined benefit scheme as at 1 July
2023 (31 December 2022: surplus of GBP12.8m). 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 GBP2m. 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 GBP2.5m 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 Major UK investment projects are nearing
and change programmes 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 25 June 2022
26 weeks ended 1 July 2023 (Unaudited) (Unaudited)
--------------------------------------------------------- --------------------------------------------
Exceptional
Exceptional items(1) items(1)
GBPm Notes Underlying activities (Note 4) Total Underlying activities (Note 4) Total
--------------------- ------ ----------------------- ---------------------- -------- ---------------------- ------------ ----------
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
26 weeks ended
26 weeks ended 25 June 2022
GBPm 1 July 2023 (Unaudited) (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
1 July 2023
GBPm Notes (Unaudited) 31 December 2022 (Audited)
----------------------------------------------- ------ -------------- ---------------------------
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
Share Own shares Merger Hedging Translation Retained
GBPm capital held reserve reserve reserve 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
(Note 17) - (0.1) - - - - (0.1)
Share-based payments
(Note 17) - 0.1 - - - (0.1) -
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)
---------------------------- ------------ ----------- ------------ ----------- ------------ ----------- -------
Share Own shares Merger Hedging Translation Retained
GBPm capital held reserve reserve reserve 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
(Note 17) - (2.7) - - - - (2.7)
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
26 weeks 26 weeks
ended ended
1 July 25 June
2023 2022
GBPm Notes (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:
GBPm 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:
GBPm 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:
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 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 GBP2.9m of exceptional
income all of which relates to the China segment. Of this, GBP1.5m
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 GBP1.4m 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 GBP4.6m and the carrying amount of the investments
before the sale was GBP3.2m.
The total net cash inflow during H1 2023 in respect of H1 2023
exceptional items was GBP6.1m (H1 2022: GBPnil) in relation to
disposals noted above.
The Group incurred no exceptional income or costs in H1
2022.
As shown in Note 18, there is GBP10.6m (H1 2022: GBPnil) 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
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 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)
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 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 GBP2.9m (H1 2022:
GBPnil) 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:
26 weeks ended
1 July
GBPm 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
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 2023 2022
------------------------ --------------- ---------------
Profit for the period 25.1 25.5
------------------------ --------------- ---------------
Number of shares
26 weeks ended 26 weeks ended
1 July 25 June
'000 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
Number of
Dividend dividend rights
Reporting period per share Date Declared Date Paid waived(1) Amount Paid
-------------------- ---------- ------------- ----------- ---------------- -------------
30 December 2023
September 13 October
Interim dividend(2) 2.91p 2023 2023
-------------------- ---------- ------------- ----------- ---------------- -------------
31 December 2022
Final dividend 4.16p May 2023 5 June 2023 2,886,522 GBP23,984,025
September 14 October
Interim dividend 2.77p 2022 2022 2,492,273 GBP15,981,053
-------------------- ---------- ------------- ----------- ---------------- -------------
25 December 2021
Final dividend 3.96p May 2022 30 May 2022 2,439,135 GBP22,848,663
-------------------- ---------- ------------- ----------- ---------------- -------------
(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 15 September
2023.
10. Goodwill
GBPm
-------------------------------------------- -------
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
-------------------------------------------- -------
1.
11. Property, plant and equipment
GBPm
-------------------------------------------- --------
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
1 July 31 December
GBPm 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
1 July 31 December
GBPm 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 GBP148m was drawn under factoring
facilities (31 December 2022: GBP138m) 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 GBP62.8m (31 December 2022: GBP62.0m) which
could be factored under the non-recourse trade receivable factoring
arrangement.
14. Trade and other payables
1 July 31 December
GBPm 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
GBP42.7m (31 December 2022: GBP45.1m) 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
1 July 31 December
GBPm 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 GBP430m
of its core debt facilities from March 2025 to March 2026.
16. Financial instruments
The categories of financial instruments are as follows:
1 July 31 December
GBPm 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)
1 July 31 December
GBPm 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 GBP293.1m (31 December 2022:
GBP324.5m).
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 GBP11.6m (579,425,585 Ordinary shares of GBP0.02
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 GBP000
------------------------------------------------- ----------------- -------
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:
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 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
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 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
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 2023 2022 Change %
------------------------------ --------------- --------------- ---------
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
1 July 25 June
GBPm 2023 2022 Change %
------------------------------------- --------------- --------------- ---------
Statutory and like-for-like revenue 913.7 849.5 7.6%
------------------------------------- --------------- --------------- ---------
US
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 2023 2022 Change %
------------------------------ --------------- --------------- ---------
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
1 July 25 June
GBPm 2023 2022 Change %
------------------------------ --------------- --------------- ---------
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:
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 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:
1 July 31 December
GBPm 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 adjustments) 148.4 146.8
Leverage (Operational net debt/Adjusted EBITDA pre IFRS 16 and including covenant
adjustments) 1.8 1.9
---------------------------------------------------------------------------------------------- -------- ------------
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:
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 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:
26 weeks ended 26 weeks ended
1 July 25 June
GBPm 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
(Tax on Adjusted profit before tax/Adjusted profit before tax) 25.1% 21.2%
----------------------------------------------------------------- --------------- ---------------
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:
53 weeks ended 53 weeks ended
1 July 31 December
GBPm 2023 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
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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END
IR GZGGLRVLGFZG
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September 06, 2023 04:13 ET (08:13 GMT)
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