Bakkavor says coronavirus is hitting international sales

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Bakkavor has announced 1.7% like-for-like growth in group revenue in the past year – but warned the coronavirus outbreak was having a “significant” impact on its international business.

The company, which supplies fresh food including desserts, pizza and bread to retailers such as Tesco, Marks & Spencer, Sainsbury's and Waitrose, reported £1,885.9m revenue in the year ended 28 December 2019.

Its UK division generated £1,652.5m of reported revenue in 2019, down 0.2%, while like-for-like revenue (excluding closures, disposals and acquisitions) rose 0.2% to £1,559.8m.

Bakkavor said underlying UK volume growth had been hit by weak consumer confidence, while retail price inflation had prompted shoppers to reduce their total spend by buying less frequently and substituting products for less expensive ones.

“Recognising the difficult market conditions, our clear focus during the year was on protecting profitability and winning further market share to ensure long-term success,” it stated. “As such, we are pleased to report that, in a volatile environment, the strength of our offer saw us achieve more business wins than losses.

“Our disciplined approach to profitable growth has been particularly focused on winning additional business with our four strategic customers, with whom we believe our commercial relationships have never been stronger.”

In April last year, the company closed its loss-making Freshcook meals facility at Holbeach, Lincolnshire.

UK adjusted EBITDA fell slightly to £147.1m, while adjusted EBITDA margin remained at 8.9%. Operating profit for the UK division dropped by £10.2m to £89.6m, mainly due to an increase of £6.4m in exceptional items following the closure of Freshcook.

Bakkavor has strengthened it desserts operations, in June acquiring Blueberry Foods, now Bakkavor Desserts Leicester. This follows the acquisition of Haydens Bakery – now Bakkavor Desserts Devizes – in 2018.

Innovation in the past year included the creation The Pizza Company with Tesco, which is Bakkavor’s largest customer. This meal deal concept includes a range of sides and desserts, and has been highly successful and driven incremental sales, reported the supplier.

Like-for-like revenue in the company’s international division rose 12.8% to £227.4m, and was up 15.8% on a reported basis.

In the US, Bakkavor has launched its first nationally available first ready meals range and a new range of artisan breads that can be distributed nationally across the US.

The company has recently invested in three factories in China, which it described as a “highly attractive growth market”.

Bakkavor warned, however, that after strong momentum into January, its China business had been impacted by the coronavirus outbreak, resulting in a sharp decline in demand, significantly reduced production levels and the temporary closure of its sites at Wuhan and Taicang.

“The ongoing uncertainty regarding the extent and duration of the coronavirus crisis will clearly have a material impact on the group’s international performance this year,” stated the business. “However, we are confident that the demand for our products in China remains and we will restore production levels as soon as market dynamics normalise.”

Bakkavor CEO Agust Gudmundsson described 2019 as “another solid year for Bakkavor”.

“In the UK, against difficult market conditions, and with further labour inflation and low consumer confidence, we successfully protected EBITDA margins and held our underlying profitability.

“In our international businesses, we continue to develop our operations to take advantage of the long-term potential in both the US and China. Volumes are accelerating across our new sites, the demand for our products is growing, and interest in our fresh prepared meal offer is gaining traction, particularly with US regional retailers.

“Looking further ahead, we have strong foundations and the skills and expertise in place to deliver on our long-term strategy. We are confident that the strength of our business model, customer strategy and category excellence will enable us to capitalise on further growth opportunities.”

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