Boparan Holdings: Q1 Results 2017-2018

Birmingham / UK. (2sfg) Boparan Holdings Limited, the parent company for 2 Sisters Food Group, a leading food manufacturer with strong positions in Protein, Chilled and Branded categories, in December 2017 announced its consolidated results for the 13 weeks ended 28 October 2017.

	Q1 2017-18	Q1 2016-17	Y-o-Y
Total sales	849.0 mio.GBP	818.3 mio.GBP	3.8%
LFL sales1	849.0 mio.GBP	823.3 mio.GBP	3.1%
Operating profit2	8.4 mio.GBP	19.8 mio.GBP	(57.6%)
Operating profit margin%	1.0%	2.4%	(140)bps
LFL operating profit1’2	8.4 mio.GBP	20.1 mio.GBP	(58.2)%
LFL operating profit margin% 1’2	1.0%	2.4%	(140)bps
Profit after exceptional items, before interest and tax	8.4 mio.GBP	18.7 mio.GBP	(10.3 mio.GBP)
Retained (loss) / profit after exceptional items, interest + tax	(6.6 mio.GBP)	0.1 mio.GBP	(6.7 mio.GBP)
Net Debt	823.6 mio.GBP	777.6 mio.GBP	46.0 mio.GBP
LTM Adjusted Ebitda3	151.3 mio.GBP	183.4 mio.GBP	(32.1 mio.GBP)
Net Debt: LTM Adjusted Ebitda3	5.44 x	4.24 x	1.20 x

1. Like for like (LFL) sales and operating profit are based on the 13 weeks ended 28 October 2017 compared to the 13 weeks ended 29 October 2016, with the prior period adjusted to exclude the impact of exchange translation.
2. Operating profit is calculated pre-exceptional items and includes (loss) / profit on the Group’s share of joint ventures and defined benefit pension scheme administration costs.
3. Ebitda is stated before depreciation, amortisation and pension scheme administration costs and includes (loss) / profit on the Group’s share of joint ventures.

First quarter headlines

• Revenues continue to grow against tough market backdrop; total sales up 3.8 percent to GBP 849.0 million despite production suspension at a poultry cutting site for part of the period
• Like-for-like sales up 3.1 percent year-on-year
• Operating profit at GBP 8.4 million
• Margins affected by further commodity inflation and disruption at a poultry cutting site as previously reported

Chief Executive’s summary

Ranjit Singh, 2 Sisters Food Group CEO, said: «Despite the tough market environment, we have grown revenues during the first quarter and have worked hard to deliver for customers. As well as commodity inflation, our results have also been affected by the temporary suspension of operations at our poultry cutting plant (Site D). We are taking action now to improve margin performance and we should see the results of this coming through in the second half of the year, as we work through our plans to strengthen our business in all areas.»

Divisional performance

Protein: Like-for-like sales in our Protein division in Q1 were up 3.7 percent at GBP 578.8 million (Q1 2016/17: GBP 558.4 million). However, like-for like operating profit was down by GBP 4.9 million to GBP 1.2 million (Q1 2016/17: GBP 6.1 million), driven primarily by the temporary suspension of operations at Site D. This quarter, the UK poultry business has benefited from strong volume growth underpinned by the substantial upgrade of our facility in Scunthorpe. Cost reduction exercises in our Red Meat business are now delivering and we have begun to recover some of the commodity inflation impacts seen in the previous quarters. However, this has been more than offset by further inflation in other areas and the impact of the temporary Site D suspension.

Chilled: Our Chilled division saw like-for-like sales fall to GBP 151.7 million (Q1 2016/17: GBP 156.8 million) and like-for-like operating profit fall to GBP 1.8 million (Q1 2016/17: GBP 3.4 million) due to the previously reported pizza contract losses versus Q1 last year. The business worked closely with its customers to recover some of the commodity inflation impact of prior quarters and also gained market share on core product ranges such as sandwiches. In response to contracts lost in prior quarters, the division has significantly refined its cost base, which has helped improve overall results. However, the division continues to be impacted by further commodity inflation; especially in core ingredients such as dairy, and is looking to recover this in future periods.

Branded: The Branded division reported a Q1 like-for-like sales increase of 9.6 percent to GBP 118.5 million (Q1 2016/17: GBP 108.1 million), but like-for-like operating profit reduced to GBP 5.4 million (Q1 2016/17: GBP 10.6 million), due to further commodity inflation pressures. In Frozen, price recovery, cost reduction efforts and volume growth have not been sufficient to offset increases in dairy and fish prices. Biscuits have benefited from key retailers introducing their Christmas ranges earlier than last year, along with some price recovery and innovation savings. However this has been offset by a further wave of commodity inflation and labour cost increases.

Debt funding and cash flow

Our long term funding includes the senior notes, GBP 250 million 5.25 percent notes due 2019; GBP 330 million 5.50 percent notes due 2021 and EUR 300 million 4.375 percent notes due 2021, which provide the principal funding for the Group. In addition the Group has a GBP 60 million Revolving Credit Facility (to January 2019). Our Net debt at the end of the quarter increased to GBP 823.6 million. Net Debt: adjusted Ebitda ratio is now 5.44 times (Q1 2016/17: 4.24 times).

Site D, West Bromwich

As confirmed in our Q4 announcement, following a comprehensive colleague retraining programme, the site recommenced supply to the majority of customers on 6^th November. In addition, the FSA are now a permanent presence on site, and work on extending CCTV coverage and its continual monitoring is now well underway.

Outlook

Despite progress with price recovery and efficiency programmes, higher commodity prices and continued disruption following the suspension of production at Site D are proving difficult to mitigate in the short term. However, we remain cautiously optimistic that our change programme, coupled with a degree of softening in commodity prices will improve our position as we head into the second half of the year. We re-emphasise our position that our core businesses operate in attractive, growing markets and our broad reach means we can benefit from operational and commercial efficiencies. Our commitment to producing safe and quality food remains at the heart of the business, as does our determination to deliver a stronger overall position as the financial year progresses.