Pre-tax profit of 11.5 million GBP in the first nine months 2004
Third quarter 2004
? Growth in continuing operations 21%
? Pre-tax profit £ 4.1 million - 43% increase
? Net income £ 3.4 million - 66% increase
? EBITDA £ 6.0million – 16,6% of turnover
? EBIT £ 5.1 million -14% of turnover
? Working capital from operations £ 4.2 million
? Board decides to expand into Asia
? New factory in London
? Financial offices transferred to Iceland
Operations in the third quarter
Third quarter earnings in 2004 were good and in line with management’s expectations. Like for like sales increased by 21% and amounted to £ 36.2 million in the quarter. Sales have increased in all product categories, although most significantly in ready meals and meal accompaniments. Sales in these two categories have benefitted from the poor weather during the summer in the UK with sales in ready meals increasing by 28,4% and sales in meal accompaniments increasing by 50,8% compared with third quarter last year.
The Group’s pre-tax profit was £ 4.1 million in the quarter and increased by 43% year on year. The EBITDA amounted to £ 6,0 million compared with £ 5.3 million last year and the EBITDA ratio was 16.6% compared with 17.6% last year. Operating profit (EBIT) amounted to £ 5.1 million which is an increase of 16 % year on year. Net income for the period amounted to
£ 3.4 million compared with £ 2,0 million last year which is an 66% increase in profit compared with the third quarter in 2003.
Income statement
Operating income for the first nine months of the year increased by 4,9% amounting to a total of £ 106.6 million. Growth in underlying operations increased by 18%. Operating expenses were £ 92 million and increased by 3,7% compared with last year.
The Group’s pre-tax profit was £ 11.5 million in the first nine months. EBITDA amounted to £ 17.4 million compared with £ 16 million for the same period last year and increased by 8,5% year on year. Operating profit (EBIT) increased from £ 12.9million to £ 14.6 million year on year and increased by 13%. Net income from ordinary activities amounted to £ 8.7 million compared with £ 7.3 million same time last year which represents a 19,6% increase in profit.
With the Group’s acquisition in Geest plc in June 2004, the company is now considered an associate company of Bakkavör Group as previously reported. As a result the Group now incorporates a proportional part of Geest’s estimated income into its accounts in accordance with the equity method of accounting. Income from the associate amounted to £ 1.7 million pounds since the 16th of June.
Balance sheet
During the first nine months the balance sheet has changed considerably. Bakkavör increased the bond loan by £ 55.6 million (ISK 6,5 billion) and the bond category is now £ 97.9 million (ISK 11,5 billion). The purpose of the increase was as before to raise capital for further development of activities on Bakkavör Group’s core markets and thereby support the profitable growth of the company.
Total assets have increased from £ 214 million at year end 2003 to £ 303 million and equity increased from £ 72 million to £ 83.8 million in the period. The equity ratio is now 32% including subordinated loan. Earnings per share were 1,08 in the period. Current ratio is 3,08 but was 2,7 at year end 2003.
At the end of the nine month period the Group held cash available amounting to £ 59.4 million and has unused committed credit lines in excess of £ 9.5 million.
Strong cash flow
Working capital from operations remained strong in the period and increased from £ 11.9 million to £ 13.2 million or by 10,9%. Cash flow from operating activities decreased from £ 15.1 million to £ 10.4 million in the period with the sale of the seafood business last year resulting in lower working capital. Capital expenditure decreased amounting to £ 2.1 million compared with £ 4.3 million for the same period last year. The Group’s cash position remains strong and amounted to £ 59.4 million at the end of the period.
Products
The benefits of new product development activities become apparent in the last months of the year which is the Group’s main sales period. Many new products will be launched in the coming months and in September 50 new products were launched.
Income from product categories in the first nine months was as follows:
Ready meals 33%
Meal Accompaniments 23%
Ethnic snacks 18%
Dips and dressings 26%
Sales in meal accompaniments have grown most substantially in the period or by 49%. Ready meals grew by 21%, dips and dressings grew by 9% and snacks by 2%. Sales in snacks increase most significantly during the last few months due to increased demand for party food over the Chrismas period.
Customers and trading environment
The Group’s trading environment continues to be characterised by uneasiness with the Group’s main competitors returning declining profits. Supplier’s declining profits come as a result of increased competitiveness in the retail market where retailers have fought to maintain their share in the market. Many of them have announced in recent weeks a declining market share, most notably Marks & Spencer and Sainsbury’s. The Group’s main customer, Tesco, however, continues to increase its market share at the expense of it’s competitors. Not only is Tesco the market leader in food retail but it is also the market leader in chilled convenience food. The Group thus continues to benefit from Tecso’s strong market position and the unfavourable trading environment has not had substantial affects on the Group’s earnings which is clearly demonstrated in the Group’s results for the first nine months of 2004. Sales to Tesco were 62% of total sales in the period.
Bakkavör Group expands into Asia
The board of Bakkavör Group has decided to begin operating in Asia. The Group has in recent month been working in co-operation with its customers towards outsourcing labour intensive work as well as sourcing raw materials from the continent. The results of this project have been positive for the Group and its customers alike. As a result a decision has been made by the board of Bakkavör Group to establish a company called Bakkavör Asia. The purpose of Bakkavör Asia will be to manufacture and launch products in co-operation with its customers onto the Asian market and thereby take advantage of the significant growth potential which the rapidly growing consumer market in Asia has to offer. Secondly, the intention is to increase the Group’s competitiveness in its main market, the UK by transferring labour intensive production from the UK to Asia. In addition the Group also intends to source raw materials from Asia to a greater degree for the Group’s production. A managing director has been hired to the company and will start on the 1st of January 2005.
New factory in London in the pipeline
The Group has signed an agreement to build a new factory in London. The estimated size of the factory is approximately 15,000 squaremeters and operations are expected to commence in the third quarter 2005. With the opening of a new factory it is possible to shut down the Group’s oldest factory in London which is uneconomical in operation. The old factory will cease operations in 2006. With these changes the Group’s capacity in London will double and production efficiency will increase significantly. The preliminary estimates for costs relating to this project is £ 20 million pounds.
Extraordinary General Meeting on 28th of October
An extraordinary General Meeting has been announced on the 28th of October as previously announced on the 19th of October. The board has called an extraordinary general meeting to seek authorisation to increase the company´s share capital by up to ISK 790 million nominal value. The increase will be through pre-emptive subscription rights for up to ISK 750 million in nominal value. The increase will also be through the sale of new shares to employees of the Group or parties related to the Group for up to ISK 40 million. The Group intends to utilise the increased share capital to further strengthen the profitable growth of the Group and finance it´s advance into new markets in Europe and Asia. The extraordinary general meeting will be held on 28th of October at Vikingasalur, Hotel Loftleidir, 101 Reykjavík, at 8:15.
Financial offices transferred to Iceland
The Group has decided to close its financial offices in Copenhagen and move it’s operations to Reykjavik to it’s new headquarters at Tjarnargata 35. Along with the closing of the offices in Copenhagen a number of positions will be moved from the Group’s offices in London to Reykjavik.
Future prospects
Bakkavör Group’s operating prospects for the remainder of the year are good. The Group’s management expects the company to continue its rapid growth and is working towards projects which will support the profitable growth of the Group.
Annual General Meeting - Change of announced date
The Group’s annual general meeting will be held on the 25th of February 2005 instead of the 18th of February as previously announced.
For further information please contact:
Ágúst Guðmundsson Executive chairman
Tel: +44 7900 901 384
Lýður Guðmundsson Chief executive officer
Tel: +44 7900 901 385
