Bakkavor Finance (2) plc Full Year Results for the 52 …2014/02/14 · 1 14 February 2014 Bakkavor Finance (2) plc Full Year Results for the 52 weeks ended 28 December 2013 Unless

1

14 February 2014

Bakkavor Finance (2) plc

Full Year Results for the 52 weeks ended 28 December 2013 Unless otherwise stated, the results for 2013 and comparative data for 2012 have been adjusted to exclude the impact of discontinued activities, being the French and Spanish leaf businesses which were sold on 3 April 2013.

Highlights • Once again we outperformed the fresh prepared food market4 with 4% revenue growth

over the year

• Margin impacted by raw material inflation, although partly offset by the efficiencies

generated from further growth in volumes

• Strong cash generation reduced our net debt by £44 million, supporting further investment

in capacity and productivity enhancements

Commenting on the results, Agust Gudmundsson, Chief Executive Officer said:

“The Group made excellent progress delivering on our key strategic objectives in 2013. We

completed a successful refinancing, exited a number of overseas operations and restructured

certain low margin businesses. This was achieved whilst still growing our revenues ahead of

the market, protecting our margin from significant raw material inflation and delivering double

digit growth in free cash generation.

We expect trading conditions to remain challenging, particularly due to inflationary pressures,

however we enter the new financial year with good momentum in our business and we remain

confident in our strategy for the future”. Key 1. Like-for-like results exclude the impact of acquisitions, disposals, closures, and foreign exchange translation but include the Group’s share of

revenue generated by associates.

2. Adjusted EBITDA - The Group manages the performance of its businesses through the use of ‘Adjusted EBITDA’. EBITDA is generally defined

as operating profit / loss before share of results of associates, depreciation, amortisation and asset impairments. In calculating Adjusted

EBITDA, we further exclude restructuring costs and those additional charges or credits that are one-off in nature and significance. Adjusted

EBITDA margin is calculated as Adjusted EBITDA divided by total revenue from continuing operations.

3. Free cash flow is defined as the amount of cash generated by the business, after meeting all its obligations for interest, tax and pensions, and

after investments in tangible assets.

4. UK fresh prepared food market grew 3.3% – Kantar World Panel, 52 weeks ended 5 January 2014

£ million Q4

2013 Q4

2012 FY

2013 FY

2012

Revenue 416.3 399.6 4% 1,649.8 1,588.6 4%

Like-for-like Revenue1 421.5 403.9 4% 1,665.6 1,599.3 4%

Adjusted EBITDA2 27.4 27.6 (1%) 111.6 110.9 1%

Adjusted EBITDA margin2 6.6% 6.9% (30bps) 6.8% 7.0% (20bps)

Free cash flow3 25.3 19.5 5.8 32.3 23.5 8.8

2

Business Performance

Performance by Division

UK

£ million Q4

2013 Q4

2012 chg LFL

1

chg FY

2013 FY

2012 chg LFL

1

chg

Revenue 369.7 354.1 4% 4% 1,463.6 1,407.0 4% 4%

Adjusted EBITDA 25.5 25.4 - 106.0 104.2 2%

Adjusted EBITDA (%) 6.9% 7.2% (30bps) 7.2% 7.4% (20bps)

Our UK division generated revenue of £1,463.6 million in 2013, an increase of 4.0% on the

prior year. This growth, which was ahead of the fresh prepared food market, was

predominantly volume-driven despite promotional support remaining at similar levels to 2012.

Underlying consumer spending on food also remained subdued, further compounded by a

sharp downturn in demand for ready meals following the horsemeat scandal earlier in the

year.

Despite these factors we continued to invest in our customer relationships and innovation, and

were pleased to secure a number of new business wins. These included exclusive supply

arrangements for a second major retailer at our pizza business, material wins in both our leaf

and dressed salads categories and continued success in our desserts business.

The second half of 2013 saw the return of significant inflation to our raw material cost base.

Poor weather earlier in the year, combined with greater emphasis on local sourcing,

particularly affected prices for dairy, flour, produce and meats. However, we were able to limit

the impact on Adjusted EBITDA margin to just 20 basis points, helped by efficiency benefits

from higher volumes through our factories and cost savings from ongoing productivity

investments.

International (continuing)

£ million Q4

2013 Q4

2012 chg LFL

1

chg FY

2013 FY

2012 chg LFL

1

chg

Revenue 46.6 45.5 2% 4% 186.2 181.6 3% 2%

Adjusted EBITDA 1.9 2.2 (14%) 5.6 6.7 (16%)

Adjusted EBITDA (%) 4.1% 4.8% (70bps) 3.0% 3.7% (70bps)

Sales performance in our International division was mixed, with trading conditions in Europe

remaining challenging. However, once again we saw revenue growth in the United States and

Asia, and the chilled convenience markets in those regions continue to offer exciting

opportunities.

As in the UK, Adjusted EBITDA margin in Europe was impacted by the effect of raw material

inflation, which, when combined with generally weak sales, affected overall profitability. We

continue to take assertive action to address the decline in margin through a number of

restructuring initiatives, whilst also investing in both the United States and Asia to support

future growth.

3

Strategic Developments

We remain focused on strengthening our core UK operations and targeting long-term growth

opportunities in the United States and Asia. In line with this strategy, we exited several non-

core markets in 2013. We disposed of our French, Spanish and Czech companies and closed

our loss-making Canadian facility. We have continued with this strategy in early 2014 with the

restructuring of our UK operations and the sale of Spring Valley Foods, our South African fruit

business.

We strengthened the Group’s capital structure in 2013 through a successful refinancing of the

Group’s debt. The new funding package considerably extends the maturity of the Group’s

available finance, diversifies the sources of funding and secures our liquidity for the future.

Management Structure

Over the past year we have made a number of changes to our management structure. At the

start of 2013 we welcomed Pippa Greenslade, Group HR Director, to the Management Board

reflecting the strategic importance of HR to the Group.

In January 2014 we restructured the management of our UK operations to provide greater

consistency in our category approach and reinforce our focus on customers. As a result of

these changes Steve Broadbent, Managing Director Convenience Foods, has left the

organisation. Steve joined Bakkavor in 1997 and held various senior roles within the Group.

He has made a huge contribution to the organisation over the years.

We also announced the appointment of Mike Edwards as Chief Operating Officer, UK,

reporting to Agust Gudmundsson. Mike joined Bakkavor in 2001, becoming a member of our

Management Board in 2011 and has over 25 years of experience in the food sector.

Innovation

We believe that leading the field in innovation is critical in developing long-lasting customer

relationships, maintaining our market-leading positions and accelerating our sales growth.

In 2013 we launched almost 2,000 products across the Group and received over 30 external

accolades, including eight supplier awards from customers and ten food quality awards. We

were particularly delighted to be named Chilled Own-Label Supplier of the Year 2013 by The

Grocer, a UK trade publication.

Our ongoing investment in Centres of Excellence further strengthens our core capabilities and

has allowed us to develop unique products and improve manufacturing efficiencies. This in

turn has led to gains in market share in a number of categories, including chilled pizzas,

dressed salads and desserts.

Investing in our business

We continued our focused capital investment programme in 2013 to drive efficiencies and

increase capacity to meet growing demand. These investments included an extension to our

highly successful dedicated nut facility to allow for a wider product range; additional assembly

lines at our pizza sites to cater for significant business wins and new facilities in China to

support a wider customer base.

4

Outlook

In a tough trading environment with the return of significant raw material inflation, the Group

made solid progress in 2013, increasing revenues, market share and cash generation.

While overall UK economic conditions are improving, there has yet to be a positive impact on

the UK grocery retail market. We remain cautious about both the general underlying trading

environment and further raw material inflation. Our strategic priorities of targeted capital

investments, close partnering with our customers, technical excellence and outstanding

product development have proved successful, and remain our key focus in 2014.

5

Results of Operations

Revenues and Expenses

Consolidated Statement of Income

£ million Q4

2013 Q4

2012 %

chg FY

2013 FY

2012 %

chg

Revenue 416.3 399.6 4.2 1,649.8 1,588.6 3.9

Cost of sales (308.1) (292.0) (5.5) (1,208.8) (1,160.6) (4.2)

Gross profit 108.2 107.6 0.6 441.0 428.0 3.0

Administrative and distribution costs (92.9) (92.3) (0.7) (376.3) (366.6) (2.6)

Exceptional items (0.2) (2.0) (1.7) (4.4)

Parent royalty/management charge (1.2) - (1.2) (0.5)

Impairment of assets (21.2) (0.1) (21.7) (1.0)

Profit on disposal of subsidiaries 1.8 - 1.8 0.4

Share of results of associates 0.5 0.3 1.2 0.9

Operating (loss)/profit (5.0) 13.5 43.1 56.8 (24.1)

Net finance costs (14.2) (13.6) (4.4) (58.9) (61.1) 3.6

Other net gains/(losses) 0.4 1.4 (1.8) 8.4

(Loss)/profit before tax (18.8) 1.3 (17.6) 4.1

Tax 4.1 (5.4) 6.0 (2.8)

(Loss)/profit for the period from continuing operations (14.7) (4.1) (11.6) 1.3

Discontinued operations

Profit for the period from discontinued operations 0.9 0.9 19.4 0.8

(Loss)/profit for the period (13.8) (3.2) 7.8 2.1

The information contained in the table above should be read in conjunction with the

consolidated financial statements and the related notes. A more detailed analysis of our

financial performance is included within the review of Business Performance.

Gross Profit

Gross profit margin for 2013 was 26.7%, representing a year-on-year decrease of 20 basis

points. The Group benefited from increased efficiencies as we delivered volume growth,

however this was offset by raw material inflation both in the UK and overseas. Management

have implemented actions to reduce the effect of these inflationary pressures through a

combination of price increases, reconfiguring our products, hedging against further inflation

where possible and productivity enhancements.

Administrative and Distribution Costs

Administrative and distribution costs increased by £9.7 million, or 2.6%, against sales growth

of 3.9%. Whilst we continued to invest to support volume growth and product innovation, we

also benefited from cost savings following the recent restructuring of our European ready

meals business and the closure of our Canadian facility.

6

Exceptional Items

Exceptional items are those that, in management’s judgement, should be disclosed by virtue

of their nature or amount. Exceptional items in the period comprised:

£ million Q4

2013 Q4

2012 FY

2013 FY

2012

Restructuring costs (0.3) (1.9) (2.5) (2.8)

Temporary site closure and insurance recovery 0.1 (0.1) 0.8 (1.6)

Total (0.2) (2.0) (1.7) (4.4)

During the year we incurred one-off costs of £2.5 million (2012: £2.8 million) as a result of a

restructuring programme to improve long-term operating performance, particularly in our

International division. These costs mainly related to the closure of our Canadian facility and

the restructuring of our European ready meals business. We also received £0.8 million in

respect of an insurance claim following the temporary closure of a UK manufacturing site in

2012.

Impairment

Each year the Group is required to assess the appropriateness of its goodwill carrying value

by comparing the asset values with future cash flows expected to be generated from those

assets. An impairment charge of £21.2 million (2012: £nil), representing a write-down of less

than 5% of our goodwill carrying value, was recognised due to adverse trading conditions

impacting certain of our international businesses. A further impairment charge of £0.5 million

(2012: £1.0 million) was recognised in respect of property, plant and equipment.

Operating Profit

The Group generated operating profit of £43.1 million (2012: £56.8 million). This reduction on

the prior year was caused by the one-off impairment charge to assets of £21.7 million (2012:

£1.0 million). After stripping out the effect of this, the Group’s operating result improved by

£7.0 million, reflecting increased sales volumes and factory efficiencies.

Net Debt and Interest

Net debt at year end totalled £519.8 million (2012: £563.9 million), the reduction of £44.1

million being delivered through strong free cash generation and the proceeds from the

disposal of certain European businesses.

Lower net debt resulted in a reduction in leverage at year end (expressed as a ratio of net

debt to adjusted EBITDA, as defined in our lending facility agreement) from 4.9 times to 4.7

times. The Group remains focused on further leverage reduction.

Net finance costs reduced from £61.1 million in 2012 to £58.9 million in 2013. This decrease

was primarily due to a reduction in interest costs following the maturity of a number of long-

term fixed rate interest swaps in 2012. This was partially offset, however, by the early

amortisation of refinancing fees related to our previous funding structure.

7

Other Gains and Losses (net)

Other net losses for the period amount to £1.8 million compared to net gains of £8.4 million for

the same period in 2012. The losses for the period were primarily due to mark-to-market

losses of £4.1 million on foreign exchange forward contracts and options. Offsetting these

losses was a mark-to-market gain on the Group’s remaining fixed interest rate swap, maturing

in 2016.

Tax

The Group recorded a tax credit of £6.0 million (2012: £2.8 million charge). Of this, £3.0m

related to the release of a prior year provision for overseas tax that is no longer required. The

balance of the credit represented the use of prior year tax losses against UK profits.

Discontinued Operations and Profit on Disposal of Subsidiaries

On 3 April 2013, the Group completed the sale of its French and Spanish businesses for a

cash consideration of €32.9 million (£28.0 million). This transaction resulted in a profit on

disposal of £15.5 million. The profit on disposal, combined with profits after tax generated by

these entities prior to disposal, have been accounted for as discontinued operations and are

therefore shown separately in the Group’s income statement.

In December 2013, the Group completed the sale of its ready meals business in the Czech

Republic for a consideration of €0.3 million (£0.2 million).

Pensions

At 28 December 2013, the surplus on the defined benefit scheme was £2.6 million (2012:

£10.0 million surplus). The reduction in surplus was driven by changes to actuarial

assumptions, in particular an increase to the long term rate of inflation. This had the effect of

increasing the scheme’s defined benefit obligation. The triennial valuation as at 31 March

2013 is currently underway.

Free Cash Flow3

The increase in free cash generated from operating activities resulted mainly from effective

working capital management, leading to an £11.1 million working capital inflow for the year.

This improvement in cash generation will enable further investment in capital into 2014.

£ million Q4

2013 Q4

2012 FY

2013 FY

2012

Adjusted EBITDA2 27.4 27.6 111.6 110.9

Adjusted EBITDA from discontinued operations - 1.5 0.9 4.2

Working capital 20.2 5.9 11.1 (2.6)

Pensions (cash and non-cash) (1.8) (1.5) (5.6) (4.6)

Interest paid (8.2) (1.0) (52.1) (54.3)

Tax paid (0.3) (0.6) (0.8) (1.0)

Capital expenditure (net) (12.0) (12.4) (32.8) (29.1)

Free cash generated from operating activities 25.3 19.5 32.3 23.5

8

Appendices

Reconciliation of Operating Profit to Adjusted EBITDA

£ million Q4

2013 Q4

2012 FY

2013 FY

2012

Operating profit (5.0) 13.5 43.1 56.8

Add:

Depreciation 9.9 10.1 38.2 39.5

Amortisation 2.2 2.2 8.7 8.7

Exceptional items (net) 0.2 2.0 1.7 4.4

Parent royalty/management charge 1.2 - 1.2 0.5

Impairment of assets 21.2 0.1 21.7 1.0

Loss on disposal of property, plant and equipment - - - 1.3

Profit on disposal of subsidiaries (1.8) - (1.8) (0.4)

Share of results of associates after tax (0.5) (0.3) (1.2) (0.9)

Adjusted EBITDA2 27.4 27.6 111.6 110.9

Quarter 4 Continued and Discontinued Financial Performance

Full year Continued and Discontinued Financial Performance

Q4 2013 Q4 2012 £ million Cont. Disc Total Cont. Disc. Total

Revenue 416.3 - 416.3 399.6 25.9 425.5

Gross profit 108.2 - 108.2 107.6 7.6 115.2

Operating (loss)/profit (5.0) 0.6 (4.4) 13.5 1.6 15.1

(Loss)/profit before tax (18.8) 0.6 (18.2) 1.3 1.4 2.7

Tax 4.1 0.3 4.4 (5.4) (0.5) (5.9)

(Loss)/profit for the period (14.7) 0.9 (13.8) (4.1) 0.9 (3.2)

Adjusted EBITDA 27.4 - 27.4 27.6 1.5 29.1

YTD 2013 YTD 2012 £ million Cont. Disc. Total Cont. Disc. Total

Revenue 1,649.8 25.6 1,675.4 1,588.6 105.6 1,694.2

Gross profit 441.0 7.5 448.5 428.0 29.9 457.9

Operating profit 43.1 16.4 59.5 56.8 1.9 58.7

(Loss)/profit before tax (17.6) 16.4 (1.2) 4.1 1.6 5.7

Tax 6.0 3.0 9.0 (2.8) (0.8) (3.6)

(Loss)/profit for the period (11.6) 19.4 7.8 1.3 0.8 2.1

Adjusted EBITDA 111.6 0.9 112.5 110.9 4.2 115.1

9

Analyst and Investor Call

On 14 February 2014 a conference call facility will be available for analysts and investors at

2pm (UK time). The conference call details can be requested from:

[email protected].

Enquiries

Investors/Analysts

Bakkavor Group Tamarin Bibow Tel: +44 (0) 20 7266 6443

Mob: +44 (0) 7720 946129

Email: [email protected]

Media

Hudson Sandler Charlie Jack Tel: +44 (0) 20 7710 8909

Mob: +44 (0) 7717 015754

Bakkavor at a Glance

We are a leading provider of fresh prepared foods, employing close to 19,000 people globally

and producing over 5,000 products in 18 different categories.

In the UK, we continue to be the number one producer by value in 12 of the 16 categories of

chilled food we supply to the UK market. Products include ready meals, pizzas, salads,

desserts, soups and sauces.

Our customers include some of the UK’s best known grocery retailers, including Tesco, Marks

& Spencer, Sainsbury’s, Waitrose, Asda and Morrisons, who sell our products to consumers

under their respective retailer brands.

We also have operations in Continental Europe, United States and Asia, supplying fresh

prepared food products to both retail and foodservice customers.

Forward-looking statements: This announcement may contain certain forward-looking statements with respect to Bakkavor’s expectations and plans, strategy, management objectives, future developments and performance costs, revenues and other trend information. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Certain statements have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Any forward-looking statements made by or on behalf of Bakkavor speak only as of the date they are made. Bakkavor does not undertake to update forward-looking statements to reflect any changes in Bakkavor’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. Nothing in this announcement should be construed as a profit forecast. Past performance cannot be relied on as a guide to future performance. This report, the most recent Annual Report and other information are available on Bakkavor’s website at http://www.bakkavor.com. Neither the content of Bakkavor’s website nor any other website accessible by hyperlinks from Bakkavor’s websites are incorporated in, or form part of, this announcement.

10


Condensed consolidated financial statements

52 weeks ended 28 December 2013

11


Contents

Condensed consolidated income statement for the 4th quarter 12

Condensed consolidated income statement 13

Condensed consolidated statement of comprehensive income 14

Condensed consolidated statement of financial position 15-16

Condensed consolidated statement of changes in equity 17

Condensed consolidated statement of cash flows 18

Notes to the condensed consolidated financial statements 19-30

12


Condensed consolidated income statement for the 4th quarter

Unaudited Unaudited

13 weeks ended 28 December 2013 13 weeks ended 29 December 2012

£ million

Notes

Before non-

recurring items

Non-recurring

items Total

Before non-

recurring items

Non-recurring

items Total

Continuing operations

Revenue 416.3 - 416.3 399.6 - 399.6

Cost of sales (308.1) - (308.1) (292.0) - (292.0)

Gross profit 108.2 - 108.2 107.6 - 107.6

Distribution costs (20.0) - (20.0) (19.9) - (19.9)

Other administrative costs (72.9) - (72.9) (72.4) - (72.4)

Exceptional items (net) - (0.2) (0.2) - (2.0) (2.0)

Royalty/management charge (1.2) - (1.2) - - -

Impairment of assets - (21.2) (21.2) - (0.1) (0.1)

Total administrative costs (74.1) (21.4) (95.5) (72.4) (2.1) (74.5)

Profit on disposal of subsidiaries 14 - 1.8 1.8 - - -

Share of results of associates 0.5 - 0.5 0.3 - 0.3

Operating profit/(loss) 14.6 (19.6) (5.0) 15.6 (2.1) 13.5

Investment revenue 0.1 - 0.1 0.1 - 0.1

Finance costs (14.3) - (14.3) (13.7) - (13.7)

Other gains (net) 0.4 - 0.4 1.4 - 1.4

Profit/(loss) before tax 0.8 (19.6) (18.8) 3.4 (2.1) 1.3

Tax 3.6 0.5 4.1 (4.6) (0.8) (5.4)

Profit/(loss) for the period from continuing operations 4.4 (19.1) (14.7) (1.2) (2.9) (4.1)


Profit for the period from discontinued operations 7 - 0.9 0.9 - 0.9 0.9

Profit/(loss) for the period 4.4 (18.2) (13.8) (1.2) (2.0) (3.2)

Attributable to:

Equity holders of the parent 4.4 (18.2) (13.8) (1.2) (2.0) (3.2)

13


Condensed consolidated income statement

Audited Audited

52 weeks ended 28 December 2013 52 weeks ended 29 December 2012

£ million

Notes

Before non-

recurring items

Non-recurring

items Total

Before non-

recurring items

Non-recurring

items Total


Revenue 3 1,649.8 - 1,649.8 1,588.6 - 1,588.6

Cost of sales (1,208.8) - (1,208.8) (1,160.6) - (1,160.6)

Gross profit 441.0 441.0 428.0 - 428.0

Distribution costs (80.5) - (80.5) (78.0) - (78.0)

Other administrative costs (295.8) - (295.8) (288.6) - (288.6)

Exceptional items (net) 5 - (1.7) (1.7) - (4.4) (4.4)

Royalty/management charge (1.2) - (1.2) (0.5) - (0.5)

Impairment of assets 6 - (21.7) (21.7) - (1.0) (1.0)

Total administrative costs (297.0) (23.4) (320.4) (289.1) (5.4) (294.5)

Profit on disposal of subsidiaries 14 - 1.8 1.8 - 0.4 0.4

Share of results of associates 1.2 - 1.2 0.9 - 0.9

Operating profit/(loss) 64.7 (21.6) 43.1 61.8 (5.0) 56.8

Investment revenue 0.1 - 0.1 0.1 - 0.1

Finance costs 4 (59.0) - (59.0) (61.2) - (61.2)

Other (losses) and gains (1.8) - (1.8) 8.4 - 8.4

Profit/(loss) before tax 4.0 (21.6) (17.6) 9.1 (5.0) 4.1

Tax 5.5 0.5 6.0 (2.7) (0.1) (2.8)

Profit/(loss) for the period from continuing operations 9.5 (21.1) (11.6) 6.4 (5.1) 1.3


Profit for the period from discontinued operations 7 3.6 15.8 19.4 - 0.8 0.8

Profit/(loss) for the period 13.1 (5.3) 7.8 6.4 (4.3) 2.1

Attributable to:

Equity holders of the parent 13.1 (5.3) 7.8 6.7 (4.3) 2.4

Non-controlling interests - - - (0.3) - (0.3)

13.1 (5.3) 7.8 6.4 (4.3) 2.1

14


Condensed consolidated statement of comprehensive income

Unaudited Audited

£ million

13 weeks ended

28 December 2013

13 weeks ended

29 December 2012

52 weeks ended

28 December 2013

52 weeks ended

29 December 2012

(Loss)/profit for the period (13.8) (3.2) 7.8 2.1

Other comprehensive (expense)/ income

Items that will not be reclassified subsequently to income statement:

Actuarial gain/(loss) on defined benefit pension schemes 5.1 0.4 (13.0) (3.9)

Tax relating to components of other comprehensive income (0.7) (0.2) 3.0 0.9

4.4 0.2 (10.0) (3.0)

Items that may be reclassified subsequently to income statement:

Exchange differences on translation of foreign operations (1.5) 1.5 (0.6) (3.6)

Exchange differences on translation of discontinued foreign operations - - 0.1 (0.1)

Net exchange losses recycled to income statement on disposal of subsidiaries (2.4) - (4.7) -

(3.9) 1.5 (5.2) (3.7)

Total other comprehensive income/(expense) 0.5 1.7 (15.2) (6.7)

Total comprehensive expense (13.3) (1.5) (7.4) (4.6)

Attributable to:

Equity holders of the parent (13.3) (1.5) (7.4) (4.3)

Non-controlling interests - - - (0.3)

(13.3) (1.5) (7.4) (4.6)

15


Condensed consolidated statement of financial position

Audited Audited

£ million

Notes

28 December 2013

29 December 2012

Non-current assets

Goodwill 8 644.4 665.4

Other intangible assets 18.3 26.9

Property, plant and equipment 9 264.7 267.9

Interests in associates 10.0 10.0

Other investments 0.1 0.1

Retirement benefit asset 16 2.6 10.0

940.1 980.3

Current assets

Inventories 10 58.5 61.8

Trade and other receivables 11 189.0 189.2

Cash and cash equivalents 45.0 30.5

Derivative financial instruments 0.3 0.6

292.8 282.1

Assets classified as held for sale 7 7.0 35.2

299.8 317.3

Total assets 1,239.9 1,297.6

Current liabilities

Trade and other payables 12 (315.5) (302.7)

Current tax liabilities (17.7) (22.7)

Borrowings 13 (43.6) (31.9)

Provisions (0.5) (0.9)

Derivative financial instruments (8.0) (10.1)

(385.3) (368.3)

Liabilities associated with assets classified as held for sale 7 (5.2) (24.0)

(390.5) (392.3)

Non-current liabilities

Trade and other payables 12 (0.1) (0.1)

Borrowings 13 (521.2) (562.5)

Provisions (11.5) (10.9)

Deferred tax liabilities (15.1) (22.9)

(547.9) (596.4)

Total liabilities (938.4) (988.7)

Net assets 301.5 308.9

16


Condensed consolidated statement of financial position (continued)

Audited Audited

£ million

28 December 2013

29 December 2012

Equity

Share capital 0.1 0.1

Share premium 315.2 315.2

Merger reserve 45.2 45.2

Capital reserve 4.0 4.0

Translation reserve 14.8 20.0

Retained earnings (77.8) (75.6)

Total equity 301.5 308.9

17


Condensed consolidated statement of changes in equity

Audited

Equity attributable to equity holders of the Company

£ million Share

capital Share

premium Merger reserve

Capital reserve

Translation reserve

Retained earnings Total

Non controlling

interests Total

Balance at 1 January 2012 0.1 302.4 45.2 4.0 23.7 (75.3) 300.1 1.2 301.3

Profit/(loss) for the period - - - - - 2.4 2.4 (0.3) 2.1

Other comprehensive expense for the period - - - - (3.7) (3.0) (6.7) - (6.7)

Total comprehensive expense for the period - - - - (3.7) (0.6) (4.3) (0.3) (4.6)

Disposal of subsidiary - - - - - - - (0.6) (0.6)

Acquisition of non-controlling interest - - - - - 0.3 0.3 (0.3) -

New shares issued - 12.8 - - - - 12.8 - 12.8

Balance at 29 December 2012 0.1 315.2 45.2 4.0 20.0 (75.6) 308.9 - 308.9

Profit for the period - - - - - 7.8 7.8 - 7.8

Other comprehensive expense for the period - - - - (5.2) (10.0) (15.2) - (15.2)

Total comprehensive expense for the period - - - - (5.2) (2.2) (7.4) - (7.4)

Balance at 28 December 2013 0.1 315.2 45.2 4.0 14.8 (77.8) 301.5 - 301.5

18


Condensed consolidated statement of cash flows

Unaudited Audited

£ million

Notes

13 weeks ended

28 December 2013

13 weeks ended

29 December 2012

52 weeks ended

28 December 2013

52 weeks ended

29 December 2012

Net cash generated from operating activities 15 35.6 30.5 48.1 40.7

Investing activities

Interest received 0.1 0.1 0.1 0.1

Dividends received from associates 0.2 (0.1) 0.6 0.6

Purchases of property, plant and equipment (12.1) (12.5) (33.3) (32.4)

Proceeds from disposals of property, plant and equipment 0.1 0.1 0.5 3.3

Payment of deferred consideration - (0.1) (0.1) (0.2)

Disposal of subsidiaries net of cash disposed of 0.1 0.2 27.0 1.4

Net cash used in investing activities (11.6) (12.3) (5.2) (27.2)

Financing activities

Issue of shares - 8.2 - 12.8

Increase in borrowings 1.8 0.3 259.9 0.9

Repayments of borrowings (2.0) (13.4) (285.2) (25.4)

Repayments of obligations under finance leases (0.3) 0.1 (0.5) (0.5)

Net cash used in financing activities (0.5) (4.8) (25.8) (12.2)

Net increase in cash and cash equivalents 23.5 13.4 17.1 1.3

Cash and cash equivalents at beginning of period 24.4 17.8 31.1 30.1

Effect of foreign exchange rate changes (0.4) (0.1) (0.7) (0.3)

Cash and cash equivalents at end of period 47.5 31.1 47.5 31.1

Attributable to:

Continuing operations 45.0 30.5 45.0 30.5

Assets held for sale 2.5 0.6 2.5 0.6

47.5 31.1 47.5 31.1

19


Notes to the condensed consolidated financial statements

1. General information

Description of business

Bakkavor Finance (2) plc (the “Company”) is a Public Limited Company whose ultimate parent company and controlling party is Bakkavor Group Limited, a company registered in the United Kingdom.

The financial information, which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows and related notes, does not constitute full accounts within the meaning of s435 (1) and (2) of the Companies Act 2006. The auditors have reported on the Group’s statutory accounts for the 52 weeks ended 28 December 2013 and 52 weeks ended 29 December 2012 which do not contain any statement under s498 of the Companies Act 2006 and are unqualified. The statutory accounts for the 52 weeks ended 29 December 2012 have been delivered to the Registrar of Companies and the statutory accounts for the 52 weeks ended 28 December 2013 will be filed with the Registrar in due course. The financial information for the 13 weeks ended 28 December 2013 and the 13 weeks ended 29 December 2012 is unaudited.

This financial information 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 Finance (2) plc group (the “Group”) annual financial statements for the 52 weeks ended 28 December 2013, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

Principal activities and seasonality

The principal activities of the Group comprise the preparation and marketing of fresh prepared foods and the marketing and distribution of fresh produce. These activities are undertaken in the UK, Continental Europe, Asia and North America and products are primarily sold through high street supermarkets. 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. The Group’s sales have historically increased during the Easter holiday season and decreased at the end of the summer holiday period. The Group generally have higher gross profit margins during the summer months because the Group is able to source locally produced raw materials during that period, which reduces costs.

2. Significant accounting policies

Basis of accounting

The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The same accounting policies, presentation, and methods of computation have been followed in these condensed consolidated financial statements as were applied in the preparation of the Group’s financial statements for the 52 weeks ended 28 December 2013.

Going concern

The Directors, in their detailed consideration of going concern, have reviewed the Group’s future cash forecasts and revenue projections, which they believe are based on prudent market data and past experience. The Directors considered the Group’s level of liquidity and compliance with its financing arrangements. 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 event that trading conditions worsen, the Group has specific actions available to it to ensure ongoing compliance.

Consequently, the Directors have a reasonable expectation that the Group will have adequate resources to meet their liabilities as they fall due for a period of at least 12 months from the date of approval of the financial statements. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

20


Notes to the condensed consolidated financial statements (continued)

3. Segment information

The chief operating decision-maker 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 as follows:

• UK: The preparation and marketing of fresh prepared foods and fresh produce for distribution in the UK.

• International: The preparation and marketing of fresh prepared foods and fresh produce outside of the UK.

The Group’s segment measure of profit represents operating profit before exceptional items (as presented in note 5), disposals of subsidiaries, associates and property, plant and equipment, impairment of assets, royalty/management charges and share of results of associates.

The following table provides an analysis of the Group’s segment information for the period 30 December 2012 to 28 December 2013:

£ million UK International

Total Group



Revenue 1,463.6 211.8 1,675.4 25.6 1,649.8

Segment profit/(loss) 66.2 (0.6) 65.6 0.9 64.7

Exceptional items (0.1) (1.6) (1.7) - (1.7)

Royalty charge (1.2) - (1.2) - (1.2)

Impairment of assets - (21.7) (21.7) - (21.7)

Profit on disposal of subsidiaries - 17.3 17.3 15.5 1.8

Share of results of associates 0.3 0.9 1.2 - 1.2

Operating profit/(loss) 65.2 (5.7) 59.5 16.4 43.1

Investment revenue 0.1 - 0.1

Finance costs (59.0) - (59.0)

Other losses (net) (1.8) - (1.8)

(Loss)/profit before tax (1.2) 16.4 (17.6)

Tax 9.0 3.0 6.0

Profit/(loss) for the period 7.8 19.4 (11.6)

Other segment information

Depreciation and amortisation (39.8) (7.1) (46.9) - (46.9)

Adjusted EBITDA 106.0 6.5 112.5 0.9 111.6

All discontinued operations relate to the International segment – see note 7.

21



3. Segment information (continued)

The following table provides an analysis of the Group’s segment information for the period 1 January 2012 to 29 December 2012:

£ million UK International

Total Group



Revenue 1,407.0 287.2 1,694.2 105.6 1,588.6

Segment profit 63.1 0.7 63.8 1.1 62.7

Exceptional items (2.9) (0.7) (3.6) 0.8 (4.4)

Bakkavor Group ehf management charge (0.5) - (0.5) - (0.5)

Impairment of assets (1.0) - (1.0) - (1.0)

Profit on disposal of subsidiary - 0.4 0.4 - 0.4

Loss on disposal of property, plant and equipment (1.3) - (1.3) - (1.3)

Share of results of associates 0.1 0.8 0.9 - 0.9

Operating profit 57.5 1.2 58.7 1.9 56.8

Investment revenue 0.1 - 0.1

Finance costs (61.5) (0.3) (61.2)

Other gains (net) 8.4 - 8.4

Profit before tax 5.7 1.6 4.1

Tax (3.6) (0.8) (2.8)

Profit for the period 2.1 0.8 1.3

Other segment information

Depreciation and amortisation (41.1) (10.2) (51.3) (3.1) (48.2)

Adjusted EBITDA 104.2 10.9 115.1 4.2 110.9

All discontinued operations relate to the International segment – see note 7.

4. Finance costs

£ million

52 weeks

ended 28 December

2013

52 weeks ended

29 December 2012

Interest on borrowings 48.4 53.5

Amortisation of refinancing costs 9.4 5.0

Iceland refinancing costs - 1.9

Unwinding of discount on provisions 1.2 0.8

Finance costs from continuing operations 59.0 61.2

22



5. Exceptional items (net)

Exceptional items are those that, in management’s judgement, should be disclosed by virtue of their nature or amount. Exceptional items are as follows:

£ million

52 weeks

ended 28 December

2013

52 weeks ended

29 December 2012

Restructuring costs (2.5) (2.8)

Temporary site closure and subsequent insurance recovery 0.8 (1.6)

Exceptional items from continuing operations (1.7) (4.4)

In 2013 the Group has incurred £2.5 million (2012: £2.8 million) of restructuring costs, of which the majority represents redundancy costs. More specifically, £0.7 million represents closure costs associated with the Group’s Canadian facility and £0.6 million relates to the restructure of our European ready meals business.

During 2012, a malicious act of contamination at one of our sites led to its temporary closure resulting in costs of £1.6 million. In March 2013, the Group agreed settlement of an outstanding insurance claim of £0.8 million in respect of this matter.

6. Impairment of assets

£ million

52 weeks

ended 28 December

2013

52 weeks ended

29 December 2012

Impairment of goodwill 21.2 -

Impairment of property, plant and equipment 0.5 1.0

Impairment of assets from continuing operations 21.7 1.0

The annual impairment review of the carrying value of goodwill and intangible assets has resulted in a goodwill impairment charge of £21.2 million (2012: nil) being recognised in the quarter, all of which relates to continuing operations within the International sector.

During the period, the Group impaired £0.5 million of property, plant and equipment, within the International sector (2012: £1.0 million within the UK sector), being an impairment of £0.3 million from the closure of the Group’s Canadian operations and £0.2 million write down of obsolete and redundant assets in the Czech Republic.

23



7. Assets held for sale and discontinued operations

On 23 November 2012, the Group entered into an agreement with a leading European food co-operative, to sell its French and Spanish businesses comprising Cinquieme Saison Saint-Pol SAS, Cinquieme Saison Macon SAS, Bakkavor France SAS, Crudi SAS and Sogesol SA. As a result these operations were classified as a disposal group. Therefore in 2012, the assets and liabilities of the disposal group were classified as held for sale and presented separately in the statement of financial position. The disposal group also qualified as a discontinued operation and has therefore been presented as such in the income statement.

On 3 April 2013, the Group completed the sale of these businesses for €32.9 million (£28.0 million) debt free and cash free.

The results of the discontinued operations, which represent a separate major geographical area, have been included in the condensed consolidated income statement, are as follows:

£ million

13 weeks ended

28 December 2013

13 weeks ended

29 December 2012

52 weeks ended

28 December 2013

52 weeks ended

29 December 2012


Revenue - 25.9 25.6 105.6

Cost of sales - (18.3) (18.1) (75.7)

Gross profit - 7.6 7.5 29.9

Distribution costs - (2.3) (2.2) (9.4)

Other administrative costs - (4.6) (4.4) (19.4)

Exceptional items - 0.9 - 0.8

Total administrative costs - (3.7) (4.4) (18.6)

Profit on disposal of subsidiaries 0.6 - 15.5 -

Operating profit 0.6 1.6 16.4 1.9

Finance costs - (0.2) - (0.3)

Profit before tax 0.6 1.4 16.4 1.6

Tax 0.3 (0.5) 3.0 (0.8)

Profit for the period from discontinued operations 0.9 0.9 19.4 0.8

Attributable to:

Equity holders of the parent 0.9 0.9 19.4 0.8

During the year, the discontinued operations used £0.6 million cash (2012: contributed cash of £0.3 million) of the Group’s net operating cash flows, paid £0.4 million (2012: paid £1.2 million) in respect of investing activities and generated £0.1 million (2012: paid £0.3 million) in respect of financing activities.

24



7. Assets held for sale and discontinued operations (continued)

As at 28 December 2013, the Group were in final discussions regarding the sale of Spring Valley Foods, a prepared fruit business in South Africa. This sale was completed on 13 January 2014 and as a result the assets and liabilities of the operation have been classified as held for sale in the statement of financial position. The business does not qualify as a discontinued operation as it does not represent either a major line of business or geographical area for the Group.

The assets held for sale as at 28 December 2013 relate to Spring Valley Foods, whilst the assets held for sale as at 29 December 2012 represent the French and Spanish businesses comprising Cinquieme Saison Saint-Pol SAS, Cinquieme Saison Macon SAS, Bakkavor France SAS, Crudi SAS and Sogesol SA.

8. Goodwill

£ million

At 1 January 2012 667.1

Adjustment to consideration on acquisition of subsidiaries 0.1

Exchange rate difference during the period (1.8)

At 29 December 2012 665.4

Impairment (21.2)

Exchange rate difference during the period 0.2


25



9. Property, plant and equipment

£ million

At 1 January 2012 307.7

Additions 31.8

Disposals (4.6)

Disposal of subsidiary (1.5)

Depreciation charge for the period (42.6)

Impairment of assets (1.0)

Exchange rate difference during the period (1.4)

Transfer to held for sale (note 7) (20.5)


Additions 36.1

Disposals (0.5)

Disposal of subsidiary (0.9)

Depreciation charge for the period (38.2)

Impairment (0.5)

Exchange rate difference during the period 1.4

Transfer to held for sale (note 7) (0.6)


10. Inventories

£ million

28 December

2013

29 December 2012

Raw materials and packaging 46.1 49.3

Work-in-progress 2.6 2.2

Finished goods 9.8 10.3

58.5 61.8

26



11. Trade and other receivables

£ million

28 December

2013

29 December 2012

Amounts receivable from trade customers 159.5 159.2

Allowance for doubtful debts (0.8) (0.8)

Net amounts receivable from trade customers 158.7 158.4

Deferred consideration - 0.1

Other receivables 12.9 13.1

Prepayments 17.4 17.6

Trade and other receivables due within one year 189.0 189.2

12. Trade and other payables

£ million

28 December

2013

29 December

2012

Trade payables 203.6 190.6

Deferred consideration - 0.1

Other payables 32.0 32.5

Accruals 80.0 79.6

315.6 302.8

Less amounts due after one year:

Other payables (0.1) (0.1)

Trade and other payables due within one year 315.5 302.7

27



13. Net debt

£ million

28 December

2013

29 December 2012

Analysis of net debt

Cash and cash equivalents 45.0 30.5

Borrowings (35.4) (21.0)

Unamortised fees 3.9 5.3

Interest accrual (11.7) (16.1)

Finance leases (0.4) (0.1)

Total debt due within one year (43.6) (31.9)

Borrowings (530.8) (570.9)

Unamortised fees 11.8 8.7

Finance leases (2.2) (0.3)

Total debt due after one year (521.2) (562.5)

Statutory net debt (519.8) (563.9)

Statutory net debt (519.8) (563.9)

Unamortised fees (15.7) (14.0)

Interest accrual 11.7 16.1

Cash/(debt) included in assets held for sale 2.5 (1.4)

Operational net debt (521.3) (563.2)

28



14. Disposals

On 3 April 2013, the Group completed the sale of its French and Spanish businesses comprising Cinquieme Saison Saint-Pol SAS, Cinquieme Saison Macon SAS, Bakkavor France SAS, Crudi SAS and Sogesol SA for a cash consideration of €32.9 million (£28.0 million) debt free and cash free. This transaction resulted in a profit on disposal of £15.5 million being recorded in the income statement within discontinued operations with £0.6 million of this profit being recognised in quarter 4 arising from a reduction in disposal costs.

The net assets of the businesses at the date of disposal were as follows:

£ million

3 April

2013

Property, plant and equipment 20.3

Inventories 2.3

Trade and other receivables 13.5

Trade and other payables (20.9)

Bank overdraft (0.3)

Obligations under finance leases (2.0)

Deferred tax (0.1)

Net assets 12.8

Disposal costs 2.0

Recycle net foreign exchange gains (2.3)

Profit on disposal 15.5

Total cash consideration 28.0

Net cash inflow arising on disposal:

Total cash consideration 28.0

Disposal costs (2.0)

Net cash consideration 26.0

Disposal costs to be paid 0.1

Disposal costs paid in 2012 0.7

Net cash consideration received 26.8

On 11 December 2013, the Group completed the sale of its Czech business Heli Foods Fresh A.S. for a cash consideration of €0.3 million (£0.2 million) debt free. This transaction resulted in a profit on disposal of £1.8 million being recorded in the income statement.

29



15. Notes to the condensed consolidated statement of cash flows

Unaudited Audited

£ million

13 weeks ended

28 December 2013

13 weeks ended

29 December 2012

52 weeks ended

28 December 2013

52 weeks ended

29 December 2012

Operating profit – continuing operations (5.0) 13.5 43.1 56.8

– discontinued operations 0.6 1.6 16.4 1.9

(4.4) 15.1 59.5 58.7

Adjustments for:

Share of results of associates (0.5) (0.3) (1.2) (0.9)

Depreciation of property, plant and equipment 9.9 10.9 38.2 42.6

Amortisation of intangible assets 2.2 2.2 8.7 8.7

Loss on disposal of property, plant and equipment - - - 1.3

Profit on disposal of subsidiaries (note 14) (2.4) - (17.3) (0.4)

Impairment of assets (note 6) 21.2 0.1 21.7 1.0

Net retirement benefits charge less contributions (1.8) (1.5) (5.6) (4.6)

Operating cash flows before movements in working capital 24.2 26.5 104.0 106.4

(Increase)/decrease in inventories (2.3) (5.2) 2.0 (2.2)

(Increase)/decrease in receivables (2.2) 7.2 (3.8) (10.8)

Increase in payables 26.3 4.1 15.0 11.9

(Decrease)/increase in exceptional creditor (0.7) 0.7 (1.5) (1.6)

Decrease in provisions (0.4) (0.2) (0.9) (1.5)

Cash generated by operations 44.9 33.1 114.8 102.2

Income taxes (0.3) (0.6) (2.8) (1.0)

Interest paid (9.0) (2.0) (63.9) (60.5)

Net cash generated from operating activities 35.6 30.5 48.1 40.7

30



16. Retirement benefit schemes

The Group operates a number of pension schemes in the UK and overseas. The schemes are defined contribution apart from, a UK funded defined benefit scheme that was closed to future accrual in March 2011.

For the defined benefit scheme a full actuarial valuation of plan assets and the present value of the defined benefit obligation for funding purposes is in the process of being carried out as at 31 March 2013. The preliminary results from this valuation were updated for IAS 19 purposes to 28 December 2013 by a qualified independent actuary. Under IAS 19 valuation principles a surplus of £2.6 million (2012: surplus £10.0 million) has been recognised as at 28 December 2013 in the condensed consolidated statement of financial position.

17. Events after the statement of financial position date

On 13 January 2014, the Group completed the sale of Spring Valley Foods, its South African prepared fruit business, to a leading provider of convenient food solutions in South Africa and Brazil. The assets and liabilities of Spring Valley Foods qualify as a disposal group and as such have been shown as held for sale at 28 December 2013. The business does not qualify as a discontinued operation as it does not represent either a major line of business or geographical area for the Group. The proceeds from the sale are in excess of the Group’s carrying value of the company.

Documents

Bakkavor Finance (2) plc Full Year Results for the 52 …2014/02/14 · 1 14 February 2014 Bakkavor Finance (2) plc Full Year Results for the 52 weeks ended 28 December 2013 Unless