Boparan Holdings: announces Q4 and FY 2014/2015 results

Birmingham / UK. (2sfg) Boparan Holdings Limited, the parent company for 2 Sisters Food Group, a leading diversified food manufacturer with strong positions in Protein, Chilled and Branded categories, announces its consolidated results for the 13 and 52 weeks ended 01 August 2015 (compared to the 14 and 53 weeks ended 02 August 2014). Financial highlights:

	Q4 2015	Q4 2014	Change
Total sales	756.8 million GBP	874.5 million GBP	(13.5 percent)
LFL sales	773.6 million GBP	797.2 million GBP	(3.0) percent
Operating Profit	22.2 million GBP	30.3 million GBP	(26.7) percent
Operating profit margin in percent	2.9 percent	3.5 percent	-60 bps
LFL operating profit	22.8 million GBP	28.6 million GBP	(20.3 percent)
LFL operating profit margin in percent	2.9 percent	3.6 percent	-70 bps
Profit / (loss) after exceptional items, before interest and tax	16.6 million GBP	8.8 million GBP	+7.8 million GBP
Retained profit / (loss) for the quarter after exceptional items, interest and taxation	5.5 million GBP	(75.2) million GBP	+80.7 million GBP
Net debt	716.6 million GBP	664.6 million GBP	+52.0 million GBP
LTM Adjusted Ebitda in millions GBP	164.5 million GBP	185.6 million GBP	-21.1 million GBP
Net Debt: Adjusted Ebitda	4.36 times	3.58 times	0.78 times

1. Like for like (LFL) sales and operating profit are based on the 13 weeks ended 01 August 2015 compared to the 14 weeks ended 02 August 2014, excluding the impact of the 14th week, discontinued operations and the impact of exchange translation.
2. Operating profit is calculated pre-exceptional items and includes profit / (loss) on the Group’s share of joint ventures.
3. Adjusted Ebitda excludes the one-off costs reported at the second quarter relating to Avian Influenza (AI) outbreaks and the costs associated with a problematic IT system implementation, which totalled 17.4 million GBP, the impact of the 53rd week and the impact of exchange translation.

Q4 Highlights

• Performance in line with guidance, in spite of continued price deflation headwinds
• Like-for-like sales down 3 percent to 773.6 million GBP
• Like-for-like operating profit was down 20.3 percent to 22.8 million GBP
• Positive trends experienced in Q3 continued through Q4
• Drive for greater operating efficiency and innovation across all areas of the business
• Continued focus on prudent cost control and tight management of working capital
• Investment to drive industry leadership in animal welfare
• Deepening and strengthening relationships with major customers

Investment Programme

Substantial and targeted investments to drive productivity and efficiency across the business over the next three to four years:

• Major 150 million GBP investment in UK poultry business
• 55 million GBP in Meal Solutions
• Ongoing focus on increasing frozen pizza capacity in the Branded division following four million GBP investment
• Continued investment in reducing campylobacter

Chief Executive’s Commentary

Ranjit Singh, 2 Sisters Food Group CEO, said: «Our aim is to build a better business. During 2015 we focussed on costs, efficiency, investment, innovation and deepening customer relationships. The operating environment for our industry remains tough, but we have seen a consistent improvement in our performance across all our divisions, with a 17.5 percent increase in life-for-like operating profit to 22.8 million GBP from Q3 to Q4».

«We are making a number of important investments with the aim of providing our customers and consumers with innovative products, better value and reduced waste. Today we can announce that we are launching a major 150 million GBP investment programme in our poultry business that will completely revolutionise our supply chain end-to-end. We are aiming to further align our poultry business with the needs of our customers, creating world class facilities utilising state of the art technology, and driving efficiency».

«Our investment plans also include a further 55 million GBP development project for our Meal Solutions division, which will create further capacity across all four sites and put us at the forefront of developing the next generation of ready meals. These investments are in addition to our announcement in Q3 of 4 million GBP to increase our frozen pizza capacity».

«We continue to focus on measures to reduce campylobacter, where we have invested ten million GBP to date. Our efforts have been praised by the Food Standards Agency and have won the approval of major customers».

«We have also put increased emphasis on ensuring we are producing the right quality and volume at the right cost. During the year, we restructured Biscuits and Food-to-Go to reduce costs and improve efficiency and have streamlined our UK poultry processes and supply chain».

«Our business transformation continues at pace and with a number of investment programmes in place, I am confident we have the right strategy to meet the needs of our major customers who increasingly demand long-term, dedicated partnerships with their suppliers».

Divisional performance

Protein: Like-for-like sales in our Protein division in Q4 were in line with our expectations at 549.9 million GBP, six percent lower than the same period last year. In the period, we have been working hard to mitigate the effects of the Avian Influenza outbreaks, negative consumer sentiment following FSA campylobacter reporting and the impact of deflation throughout 2015 and we are encouraged by the positive trends which continued in Q4, where our share of the UK poultry market grew by four percent versus Q3. Like-for-like sales for the full year in the Protein division were down 3.2 percent to 2’208.8 million GBP. We continue to build our leadership in UK poultry and this has been further demonstrated by our award winning ten million GBP campylobacter reduction programme launched last November. With the further use of our new factory interventions, we anticipate an even greater removal of campylobacter, reducing its presence to significantly less than the industry target. The success of these trials means we are now looking at rolling this initiative out to a wider customer base. We have continued to cement our strong position with leading customers as well as securing major business wins in poultry and in red meat with new customers.

Chilled: The turnaround of our Chilled division has continued at pace, and Q4 like-for-like sales were up 3.2 percent and operating profit significantly ahead. The chilled business has also seen good contract wins during the year, resulting in like-for-like sales for the full year being up 1.9 percent to 596.5 million GBP. Building on this success, we have focused on improving efficiency and investing in our innovation capability. We continue to see further opportunities to grow our Ready Meals business, and have recently announced a 55 million GBP investment to support our growth strategy. On average the «Chilled Ready Meals» sector is growing at roughly three percent per annum and our business in this sector is already outpacing that growth. This investment will give us sufficient capacity to enable us to support future growth.

Branded: The Branded division continued to perform well over Q4 with like-for-like sales up 8.4 percent to 92.8 million GBP, resulting in like-for-like sales for the full year up 1.9 percent at 391.8 million GBP. Our frozen business has seen growth across the UK and Ireland. We have successfully launched a number of new products including Deli Di Lusso and Little Fellas in the UK, and Sweetfellas + Gluten Free pizzas in Ireland. Holland’s Pies confirmed its position as the number one individual pie brand in frozen pastry and we have secured new contracts in pastry and fish, which will contribute in the new trading year. The biscuit market has been under pressure for some time due to intense competition and during the period, we have continued to invest in marketing and promotions which has resulted in a positive impact on our market share and out performance against the market. Fox’s considerably outgrew the market in Q4 with strong like-for-like growth in both sales and volumes, up 5.3 percent and 17.1 percent respectively. We have recently launched «Frozen» and «Star Wars» Disney licenced brands and are encouraged by initial customer response.

Investment Programme

As outlined at our Q3 announcement, we continue to focus on building a better business, a key part of which includes a targeted investment programme. As we continue to improve our UK poultry footprint, we are launching a major multi-year 150 million GBP investment programme to further align our poultry business with the needs of our customers, creating world class facilities with state of the art technology, driving efficiency and revolutionising our supply chain end-to-end. In addition, our investment plans include a multi-year 55 million GBP development project for our Meal Solutions division to overhaul our manufacturing facilities. The programme includes rebuilds and upgrades to four factories, including Pennine in Sheffield, where we will develop best in class commercial and operational processes to support continued innovation, expand capacity and drive further profitability.

Board Changes

On 01st August 2015, two new non-executive directors were appointed to strengthen our Board and provide additional expertise to help the Group become a better business. Susan Murray, a non-executive director of FTSE 20 Compass Group PLC, and chair of its corporate social responsibility committee and former Chairman of Farrow and Ball, was joined by Ros Rivaz currently non-executive director of Rexam PLC, the FTSE 250 global beverage can maker. Both Susan and Ros will become members of the Audit and Remuneration Committees.

Debt funding and cash flow

Our long term funding includes the senior notes, 250 million GBP 5.25 percent notes due 2019; 330 million GBP 5.50 percent notes due 2021 and 300 million EUR 4.375 percent notes due 2021, which provide the principal funding for the Group. In addition the Group has a 60 million GBP Revolving Credit Facility (to 2018) which remains undrawn. We continue to focus on cash and working capital management, and this resulted in a net cash inflow from operating activities for the year of 78.7 million GBP before interest, tax and capital expenditure (2014: 79.2 million GBP). Our Net debt:adjusted Ebitda ratio increased to 4.36 times (2014: 3.58 times) and Net debt at 01 August 2015 was 716.6 million GBP, including cash balances of 118.7 million GBP (2014: Net Debt 664.6 million GBP; Cash 168.3 million GBP).

Outlook

We expect the operating environment to remain difficult for the grocery industry in the face of continued food price deflation, and a highly competitive grocery market. Against this background, our investments across our Protein, Chilled and Branded divisions will continue to improve our performance. We have a clear sense of direction and a strategy that is already delivering results and we remain confident of the outlook for our business as we go into the new financial year.

About Boparan Holdings

Boparan Holdings is the parent company for 2 Sisters Food Group headquartered in Birmingham, UK. The Group is a leading diversified food manufacturer with strong market positions in Protein, Chilled, Bakery and Frozen categories. The Group focuses on delivering the highest quality products to its customers at the lowest cost.