In an exclusive interview with James Ball, Bakkavör chief executive Ágúst Gudmundsson says the business’s worst times are behind it


Until 2008, the UK was in danger of being overtaken by Icelandic businesses. Baugur controlled half of Britain’s high street, with stakes in House of Fraser, French Connection and, appropriately enough, Iceland. And a string of acquisitions made ready meals giant Bakkavör - once a mere fish egg reseller - one of the five biggest food manufacturers in the UK.

Then came the big freeze. As Iceland’s banking system collapsed, many of its business empires followed. But, however tenuously until now, Bakkavör has held on and in an exclusive interview CEO Ágúst Gudmundsson tells The Grocer that the company’s turmoils are almost over.

The £156m loss reported last year resulted in a painful restructuring in the latter part of 2008 and early 2009, but it is beginning to pay off. Third-quarter sales grew 5.6% year-on-year, and cost cutting meant operating profits were up 85%. Gudmundsson says Bakkavör has also moved £500m of business around its facilities, meaning factories are better utilised, and the company has exited some low-margin fresh produce contracts.

This means the company’s profits will cover repayments on its debt with little difficulty, says Gudmundsson. This quarter, debt repayments totalled £26.3m versus operating profits of £33.7m, but the company insists only £19.2m of this represents long-term repayments the rest is restructuring costs. This means profits will cover debt if the company can reach settlement with its creditors, he says.

Settlement is not a foregone conclusion. As recently as three months ago, Bakkavör’s half-year accounts warned that a missed repayment to bondholders in May cast doubt over the group’s viability as a going concern. Even now, the company’s share price held in stasis as Iceland’s meltdown continues is a fraction of what it used to be, valuing a business with annual sales in excess of £1.5bn at just £14.4m, less than a fiftieth of its former worth.

The concerns on debt, however, will soon be over, says Gudmundsson. Bakkavör this week revealed it has an agreement “in principle” with holders of 70% of its parent company’s £300m borrowings that will extend the loans until 2014.

“We’re very confident we’ll reach an agreement that is very good for our creditors,” he says. “We expect this will be on similar terms to current borrowing. I have a lot of confidence the renegotiation will be done and dusted by Christmas.”

If this proves to be the case it will represent a considerable coup for the group, which has already renewed debt held by its operating companies until 2012. Investors will also be reassured by the settling of a long-running questionmark over ownership.

Gudmundsson and his brother Lýdur owned the largest shareholding in Bakkavör through their financial services holding company Exista which was also the largest shareholder in failed Icelandic bank Kaupthing. In October 2008 as lenders and shareholders worried whether, as Gudmundsson admits, Exista “would go bust” the company announced it would sell its stake in Bakkavör to B Food Invest a company entirely owned by Ágúst and Lýdur. After several months of delays by regulators and creditors, the sale completed two months ago.

“We decided the Exista board decided to sell to me and my brother to secure the future of the business. The announcement calmed things down and let everyone get on with business as usual,” says Gudmundsson. “Nothing has really changed, the company is in firm hands and it never affected anything operationally.”

Gudmundsson is also keen to quell any rumours of impropriety around loans from Kaupthing to Bakkavör. A document posted to the whistleblowing site Wikileaks earlier this year revealed large loans from Kaupthing to its major shareholder Exista and to Bakkavör, attracting ire in the Icelandic and UK press.

“I would like to make it clear there is no investigation of any kind taking place on transactions between Bakkavör and Kaupthing or about me and my brother and our transactions with Kaupthing,” he says, “and I don’t think any such thing will take place.”

Gudmundsson now believes the business can go forward in better shape. Bakkavör’s biggest customers not to mention its 20,000 employees are hoping he’s right.