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BAKKAVOR ANNUAL REPORT AND ACCOUNTS 2012 business review 2012 WAS A GOOD YEAR FOR THE GROUP, PARTICULARLY OUR PERFORMANCE IN THE LAST QUARTER WHICH GAVE THE BUSINESS MOMENTUM GOING INTO 2013. Although the economic climate remains tough we are confident of our strategy and are well positioned in the fresh prepared foods market. Agust Gudmundsson Chief Executive Officer WE ARE A LEADING INTERNATIONAL MANUFACTURER OF FRESH PREPARED FOODS, EMPLOYING OVER 19,000 PEOPLE WORLDWIDE ACROSS 58 OPERATING FACILITIES. LIKE-FOR-LIKE SALES 2 (£m) £1,718m REVENUE BY DIVISION 5% (£1,629m: 2011) United Kingdom 83% International 17% SALES REVIEW In a very challenging economic environment, Bakkavor has retained its market share and extended its market-leading positions in key categories. We continue to grow ahead of the total foods market and we have benefited from our leading positions within this sector. Coupled with business wins enjoyed over the year and high levels of promotional activity, we continued to see good volume growth. This was achieved despite a number of adverse factors, including subdued consumer spending and exceptionally poor weather throughout the spring and summer. Our North American and Asian businesses continue to build on their strong customer relationships to drive International revenues. Our Asian business, in particular, benefited from a renewed capital investment programme that allowed us to increase capacity in line with our customers’ rapid growth plans. INFLATIONARY PRESSURES Whilst we benefited from deflation in raw material pricing in 2012 we are expecting that to reverse later in 2013. At this stage, however, we do not anticipate inflation reaching the levels seen in 2011. CONTINUED EXCELLENCE IN INNOVATION Raising the benchmark for innovation within the industry is core to our Group as we focus on attracting new customers and increasing sales. During the past year alone, we created and launched over 2,000 products across the business, received three supplier awards for excellence and won 11 industry food awards. INVESTING IN OUR BUSINESS Throughout 2012 we have focused on a series of capital projects to consolidate our market-leading positions and support our growth objectives. These investments have included: capacity enhancements to leverage the increasing demand for our products, such as chilled soups in the UK; product differentiation, which included water-only washing for our leaf based products; and efficiency investments as we continue to automate our production facilities. SALE OF FRENCH AND SPANISH BUSINESSES The Group has reached formal agreement to sell its French and Spanish produce businesses for €33 million debt-free cash-free. Completion of the transaction is subject to clearance by the Competition Authorities, which is expected by the end of the first half of 2013. The disposal of these businesses marks an important step in reshaping our portfolio to focus on our core fresh prepared market. FOOD INTEGRITY In January 2013 incidences of horsemeat contamination in the food supply chain affected a number of retailers and producers in Europe and weakened consumer trust in the food they buy. We maintain strict controls regarding product authenticity and quality control and are subject to regular inspection by food safety and other authorities for compliance with food laws such as traceability and food hygiene. We comply with strict national and international regulations and routinely inspect our production facilities and audit our suppliers. We remain committed to the highest standards of food safety and integrity and continue to work with customers, suppliers and the authorities on rebuilding consumer trust. 2 Like-for-like sales: exclude the impact of acquisitions, disposals, closures, foreign exchange translation, but include the Group’s share of revenue generated by associates. PAGE 23 VIEW THE FULL REPORT AT ANNUALREPORT12.BAKKAVOR.COM
BAKKAVOR ANNUAL REPORT AND ACCOUNTS 2012 business review united kingdom leader in 13 of our 16 markets OUR UK LOCATIONS * 2 3 5 4 6 8 12 7 9 10 11 14 13 16 15 17 18 19 22 21 24 23 20 1 Caledonian Produce West Lothian 2 Melrow Salads Merseyside 3 Hitchen Foods Wigan 4 Yorkshire Fresh Fruit Selby 5 New Primebake Barton-on-Humber 6 New Primebake Nantwich 7 New Primebake Crewe 8 Welcome Foods Huthwaite 9 Laurens Patisseries Newark 10 Bakkavor Spalding Spalding 11 Freshcook Holbeach St Marks 12 Cucina Sano Boston 13 Bakkavor Meals Sutton Bridge 14 Wingland Foods Sutton Bridge 15 Bakkavor Pizza Holbeach St Marks 16 Bourne Prepared Produce Bourne 17 Bakkavor Meals Park Royal 18 Bakkavor Meals Elveden 19 Anglia Crown Ltd Colchester 20 Tilmanstone Salads Dover 21 Bakkavor Meals Wembley 22 Bakkavor Pizza Harrow 23 Alresford Salads Alresford 24 Isleport Foods Highbridge * 32 facilities based in 24 locations GROWTH IN THE UK FRESH PREPARED MARKET CONTINUED TO OUTPERFORM THE TOTAL FOODS MARKET. WE HAVE BENEFITED FROM OUR MARKET-LEADING POSITIONS WITHIN THIS SECTOR. ADJUSTED EBITDA 1 (£m) 101 11 LIKE-FOR-LIKE SALES 2 (£m) 1,342 11 12 12 £104m 4% £1,416m 6% SEGMENT description Our UK businesses primarily manufacture private label fresh prepared food products on behalf of all major grocery retailers in the UK. Facilities We operate 32 facilities and employ 15,440 people. Market positions We have over 40 years’ experience in the UK and enjoy leading or number two positions in all of the 16 market categories in which we are present. We estimate our consolidated market share across the categories in which we operate in the UK is close to 30% and two times larger than that of our nearest competitor. Sales performance Our UK segment generated revenue of £1,407.0 million in 2012, 83% of Group revenue and a 1.4% increase on 2011. On a like-for-like basis however, we were pleased to deliver 5.5% growth in the year and 10.2% in the final quarter. This level of growth, which was ahead of the market, was due to the successful delivery of a strong seasonal offering and was supported by our capital investment strategy over the past two years and increased spend on innovation. This strong revenue performance also delivered double digit growth in adjusted EBITDA. With regards to the full year, growth was almost entirely driven by increased volumes from promotional activity and new business. This was achieved despite a number of adverse factors, including subdued consumer spending and unusually poor weather throughout the spring and summer which impacted the sale of cold eat products. Adjusted EBITDA performance Adjusted EBITDA for the UK was £104.2 million, compared with £100.6 million in 2011, an increase of £3.6 million or 3.6%. Adjusted EBITDA margin increased by 20 basis points to 7.4% in 2012 as the UK benefited from increased sales and improved factory efficiencies, effective promotional management and factory efficiencies. This growth was also underpinned by the successes of our capital investment strategy in the past two years and increased spend on innovation. KEY INNOVATIONS AND ACHIEVEMENTS IN 2012 Raising the benchmark for innovation within the industry is an integral part of our Group strategy as we focus on attracting consumers and stimulating sales. We created and launched over 1,300 products into the UK market during 2012 and won 11 industry food awards in recognition of our product development expertise. In the UK our innovation pipeline was strong throughout the year as a direct result of targeted capital investments in key categories. In soups we extended our highly successful New York Soup Co range. Investment in our pizza category led to new business, including a major new range for one of our key retailer customers. Our investment in salad leaf processing technology further strengthened our market position. 1 Adjusted EBITDA: excludes restructuring costs, management charges to the Group’s parent company, asset impairments and those additional charges or credits that are one-off in nature and significance. 2 Like-for-like sales: exclude the impact of acquisitions, disposals, closures, foreign exchange translation, but include the Group’s share of revenue generated by associates. page 24 VIEW THE FULL REPORT AT ANNUALREPORT12.BAKKAVOR.COM
Page 1 and 2: Annual report AND accounts 2012
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