Bakkavor Group PLC: Announces Q3-2022 Trading Update

Reykjavik / IS. (bkg) Island’s Bakkavör Group, the leading international provider of fresh prepared food, updates on trading for the 13 weeks to 25 September 2022 (Q3-2022) and guidance for the full year.

	Q3-2022					9M-2022
Mio.GBP	Rep.Revenue	Growth	LFL Revenue	LFL Growth		Rep.Revenue	Growth	LFL Revenue	LFL Growth
Group	542.5	15.3%	530.5	12.7%		1,552.7	12.0%	1,530.7	10.4%
UK	445.3	11.9%	445.3	11.9%		1,294.8	9.2%	1,294.8	9.2%
US	67.5	46.3%	58.3	26.3%		184.1	44.5%	167.6	31.6%
China	29.7	12.9%	26.9	1.5%		73.8	0.7%	68.3	(7.1%)

Robust Q3-2022 revenue growth in line with expectations

• Robust growth in reported revenue, up 15.3 percent to GBP 542.5m, with LFL revenue up 12.7 percent.
• UK LFL revenue growth largely driven by price. Volumes held up through the Summer and, although pressure on household budgets impacted volumes in September, we outperformed the FPF market and gained market share.
• Strong US revenue momentum reflects sustained demand and price increases also taking effect. Operational performance has, however, remained challenging due to disruption as significant volumes were onboarded.
• Volumes in China have continued to recover, with LFL revenue ahead of FY-2021, and this has supported some margin improvement.
• Ongoing Group-wide mitigation of inflationary headwinds through price recovery, productivity improvements and tight cost control.
• Retained significant liquidity headroom against core debt facilities. Interest rate swaps provide a good level of protection against rate increases through to March 2024.

FY-2022 outlook within the range of market expectations

• The Group has continued to trade in line with market expectations, and preparations for the Christmas period are progressing in line with our plan.
• There has been a recent threat of industrial action at one of our UK sites, and we have now reached an agreement with the offer being recommended by the union to the workforce.
• In the US, a reduction in volume due to a contractual dispute with a customer is expected to impact profits in the remaining weeks of the year.
• As a result, we expect Group adjusted operating profit for FY-2022 to remain within, but at the lower end of the range of market expectations.

Clear plans in place to protect profits against sustained headwinds

• Macro-headwinds will persist through 2023, we are therefore taking decisive action to protect future profits. Our plan is focused on three areas:
  1. Leaner organisation structure: new Management Board and leadership structure with renewed focus and purpose; operationally align UK business to two sectors driving further synergies.
  2. Clear and focused regional priorities:
     • UK – leveraging operational scale through footprint rationalisation, with two proposed site closures; collaborating with customers on inflation recovery and value optimisation.
     • US – a renewed focus on operational performance to support margin improvement.
     • China – rebuilding volume to leverage our well invested platform for growth.
  3. Enhanced focus on managing cash: Reviewing capital plans to target efficiency improvements; remain committed to strategic investments; driving working capital benefits.
• Our plan to protect future profits is expected to deliver savings of GBP 15m in FY-2023, and GBP 25m on an annualised basis. Cash costs of implementation are estimated at GBP 20m. These costs, together with asset impairment charges, will be recognised as exceptional costs in FY-2022, whilst most of the cash outflow will be in FY-2023.

Chief Executive’s Commentary

CEO Mike Edwards: «We continue to operate in an incredibly challenging environment. Bakkavor has proven itself to be a resilient business effectively navigating the turbulence of recent years. We are now taking further decisive action to ensure we deal with the ongoing headwinds and protect future profits. These actions, combined with our strong balance sheet, breadth of capability and products, customer relationships and growing market share, means we are well-placed to deal with the short-term challenges, and deliver our longer-term ambitions for colleagues and stakeholders.»