Pre-tax profit 7.4 million GBP in 2004
- Growth in continuing operations 17%
- Pre-tax profit £4.3 million
- Net income £3.1 million
- EBITDA £6.2 million - 17,2% of turnover
- EBIT £5.3 million -14,6% of turnover
- Working capital from operations £5.1 million ,10.5% increase
- The Group acquires 20,03% shares in Geest Plc.
- Bonds issued of nominal value £34.2 million
Operations in the second quarter
The Group’s operations in the second quarter were in line with managements expectations. Growth in sales were consistent with the Group’s plans with sales amounting to £36.3 million, an increase of 17% in continuing business year on year. Sales in ready meals and accompaniments have been strong this summer with sales in ready meals and accompaniments increasing by 33% and 51% respectively.
The Group’s pre-tax profit was £4.3 million in the quarter. The Group’s EBITDA amounted to £6.2 million compared with £5.9 million for the same period last year. The EBITDA ratio was 17,2% compared with 15,3% the previous year. Operating profit (EBIT) amounted to £5.3 million in comparison with £4.8 million last year, an increase of 11.1% year on year. Net income for the period amounted to £ 3.1 million compared with £3.3 million last year excluding the profit from the discontinued business.
Income statement
Operating income for the first six months of the year increased by 17% in continuing operations and amounted to a total of £70.3 million. Operating expenses have decreased in the period by 3,7% and amounted to £60.8 million.
The Group’s pre-tax profit amounted to £7.4 million in the first six months. The Group’s EBITDA amounted to £11.4 million compared with £10.8 million for the same period last year. The EBITDA ratio was 16,2% compared with 15,0% the previous year. Operating profit (EBIT) amounted to £9.5 million compared with £8.5 million last year and increased by 11,6% year on year. Net income for the period amounted to £ 5.3 million compared with £5.2 for same time last year.
The income statement was impacted by the Group’s acquisition of shares in Geest Plc. Since Bakkavör Group increased its share in Geest to a total of 20,03% on the 16th of June, Geest has been considered an associated company to Bakkavör Group. Following that the Group has included a proportional part of Geest’s expected income for the period 16-30 June, 2004 into the Group’s accounts amounting to £229k. The income statement also shows dividend received at £284k for the period prior to Geest becoming an associate. Shares in Geest are valued at historic cost. The purchase of the shares was financed by proceeds from the bonds issued last year and with long-term financing provided by KB Bank and Landsbanki. The income statement carries the interest that could be allocated to the purchase of shares which is estimated at £566k. Compared to 2003 the financial expenses have increased significantly due to the cost of carrying cash relating to the acquisition of shares in Geest.
Balance sheet
During the second quarter the balance sheet changed considerably. Bakkavör increased the bond loan by £38 million (ISK 4.5 billion) and obtained a bullet loan with KB Banki and Landsbanki of £42 million. During the same period the Group acquired 20.03% share in Geest Plc. On the 30th of June the Group held cash available for future projects of £39 million. Furthermore the Group has unused committed credit lines in excess of £8 million.
Total assets have increased by 30% from £214 million to £278 million at year end. Equity increased from 72 million GBP at year end 2003 to 80.4 million at the end of the period. The equity ratio is 33% including subordinated loan. Earnings per share were 98,6% in the period. Current ratio is 2,47 but was 2,76 at year end 2003.
Strong cash flow
Working capital from operations remained strong in the period and increased from £7.7 million to £9.0 million or by 16%. Cash flow fom operating activities strengethened significantly and increased by 39% from £5.8 million to £8.0 million in the period. Capital expenditure was low in the first six months of the year amounting to £1.6 million compared with £3.1 for the same period last year. The Group's cash position remains strong despite the Group's recent acquisition of shares in Geest and amounted to £39.2 million at the end of the period.
Bond offering
Bakkavör Group issued an additional £34.2 million of bonds in the period. The bond category BAKK 03 is now £80.4 nominal value. The bonds are indexed bullet bonds maturing on 15th of May 2009 and are listed on the Iceland Stock Exchange. The purpose of the increase was as before to raise capital for further developmet of activities on Bakkavör Group's core markets and thereby encourage the profitable growth of the company.
Products
New product development activities have been strong in the first six months of the year with over 80 new or improved products launched from the beginning of the year. The Group’s main sales period is in the last four months of the year with sales peaking in December and many new products have already been approved for launch and are in the final stages of development.
The Group’s products are divided into four categories and income from each category in the first six months was as follows:
Ready meals 32%
Accompanments 24%
Snacks 18%
Dips and dressings 26%
The product category which has grown most significantly in the period is accompaniments which has grown by 52% compared with last year. Ready meals grew by 15% and dips by 9%. Sales in snacks remain the same as last year. Sales in snacks increase most significantly during the last few months of the year when more new products are launched in that category than during the rest of the year to meet market demand for party food.
Customers and trading environment
The trading environment in the UK has been characterised by increased competition on the retail market in the period. Philip Green attempted to take over Marks & Spencer and Morrisons issued its first profit warning in 35 years. Sainsbury’s changed management in an attempt to turn their fortunes around. Tesco, Bakkavör Group’s principal customer continued to increase its market share. The Group continues to benefit from Tecso being the market leader in food retail in the UK with sales to the retailer accounting for 63% of the Groups overall sales in the period. The Group has not been affected by the changes in the trading environment which is partly due to Bakkavör Group being well positioned in the market with its focus on premium products where retailers compete in choice and quality rather than price. Sales of premium products accounted for 42% of overall sales of the Group and increased by 35% compared with the same period last year.
Bakkavör Group’s acquisition of 20,03% in Geest Plc.
Bakkavör Group acquired 20,03% share in Geest Plc. in June. Geest is the second largest manufacturer of fresh prepared food in the UK with approximately 30% market share. Geest’s operations are mainly in the UK but the company has operations in Europe and South Africa and employs over 10,000 people. The company’s customers include all the major retailers in the UK and the company manufacturers under retailers own label like Bakkavör Group. After the acquisition, Bakkavör Group is the biggest individual shareholder in Geest. Ownership of Geest is dispersed and is primarily held by institutional investors and individuals.
Geest issued a trading statement on the 2nd of July in which it states that profit expectations would be hard to meet. Geest had already stated in announcements following their annual general meeting in May that profits would not meet expectations for the first half of the year. The reason for this is twofold, on the one hand cost inflation of raw materials and on the other price deflation of the company’s products to some of its customers. The company estimates that the negative impact of these factors will amount to £15-20 million. Geest also announced that it had taken measures to improve overall efficiency in the company’s operations by £15-20 million by year end 2004 to offset the negative impact of the above mentioned factors. The company expects these measures to take full effect in the latter part of the year The company had already achieved £6 million improvement in cost savings in May. Bakkavör Group continues to fully support Geest management.
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.
Financial statement 1st Jan - 30th of June 2004
For further information please contact:
Įgśst Gušmundsson Executive chairman
Tel: +44 7900 901 384
Lżšur Gušmundsson Chief executive officer
Tel: +44 7900 901 385
