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BAKKAVOR ANNUAL REPORT AND ACCOUNTS 2012
directors’ report
THE DIRECTORS PRESENT THEIR ANNUAL REPORT ON
THE AFFAIRS OF THE BAKKAVOR FINANCE (2) PLC GROUP
(THE “GROUP”).
This is accompanied by the financial statements
and Auditor’s report for the 52 weeks ended
29 December 2012. Comparatives are for the 52
weeks ended 31 December 2011.
index to principal directors’ report disclosures
Auditor 48
Board of Directors 52
Charitable donations 52
Creditor payment policy 52
Directors’ responsibilities 52
Disclosure of information to Auditor 48
Employee involvement 39
Employees with disabilities 52
Equal opportunities 52
Going concern 51
Political donations 52
Principal activities 51
Profit 51
Dividends 52
PRINCIPAL ACTIVITIES
The Group is a leading provider of fresh prepared food products in the
United Kingdom. Our customers include some of the United Kingdom’s
most reputable and well-known grocery retailers, including Tesco, Marks
& Spencer, J Sainsbury, Waitrose, Asda and Morrisons, which sell our
products to their customers predominantly under their respective private
labels. We have also established a significant presence in development
markets for fresh prepared and private label food products, including
Europe, the United States and China. The subsidiaries principally
affecting the profits or net assets of the Group in the period are listed in
Note 8 to the Company only financial statements.
RESULTS FOR THE YEAR
The results of the Group for the year are set out in the Group income
statement. The profit for the year after taxation and exceptional items
was £2.1 million (2011: loss after tax of £75.0 million). Further details of
the Group’s financial performance are outlined in the Business Review.
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, and believe, based on those forecasts and projections, that
it is appropriate to prepare the financial statements of the Company and
the Group on a going concern basis.
In arriving at this conclusion the Directors considered the Group’s
financing arrangements, which comprise £350 million of seven-year
listed bonds issued in February 2011 and £350 million of bank facilities
committed to June 2014. The Company is in advanced discussions
with its lenders regarding the refinancing of these bank facilities. Both
the Company and its lenders are committed to the refinancing of both
the term loan and revolving credit facility and the Board is confident of
announcing new financing arrangements in the near future.
Importantly, the Group’s liquidity remains particularly strong with
£83.8 million of facilities undrawn as at 29 December 2012.
The existing bank facilities are subject to a series of covenants set by
the lenders. Financial covenants are measured quarterly and include an
assessment of leverage (the ratio of net debt to EBITDA, being earnings
before interest, tax, depreciation and amortisation); cash flow cover (the
ratio of finance charges to cash generated from operations); interest
cover (the ratio of finance charges to EBITDA); and capital expenditure
limits. The key financial covenant is leverage; this was re-set earlier in
the year following the successful restructuring of the Company’s parent.
Under the revised covenant, leverage must be less than 5.75 times at
the 2012 financial year-end and less than 5.0 times at the 2013 financial
year-end. At 29 December 2012 the leverage ratio of net debt to EBITDA
was 4.9 times. 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.
The Group believes it is adequately placed to manage covenant
compliance successfully despite the challenging macroeconomic
environment. In the event that conditions worsen, the Group has the
flexibility to react by accessing additional working capital arrangements
that we have already agreed with key stakeholders. Further actions
available to management may include a reduction to our capital
expenditure programme and further supply chain improvements.
Consequently, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to comply with these
covenants and 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.
FUTURE DEVELOPMENTS
As we enter the new financial year, the ongoing macroeconomic
pressures on consumers and retailers combined with further inflation
on raw material prices remain a challenge for the business. Despite this,
the Directors are of the opinion that the strategic actions implemented
in the current year, coupled with capacity and productivity investments
across the Group, leave the Company in a stronger position to compete
with these economic pressures. Further detail on future prospects are
outlined in the Chairman’s Address and the Business Review.
RESEARCH AND DEVELOPMENT
The main focus of the Group’s research and development expenditure is
product innovation. Research and development expenditure increased by
14.5% to £6.3 million in 2012 (2011: £5.5 million).
PAGE 51 VIEW THE FULL REPORT AT ANNUALREPORT12.BAKKAVOR.COM