City Snapshot: Bakkavor sales ‘showing signs of recovery’ despite May sales drop

Top story

UK ready meals player Bakkavor has said its sales volumes have stabilised and show “early signs of recovery in all markets” after weakened trading during the early stages of the coronavirus lockdown.

Ahead of its AGM this morning, Bakkavor said the coronavirus outbreak had created “significant operational challenges across our business”.

While colleagues, supply chain and infrastructure responded “exceptionally well” to the crisis, its business in China was severely impacted towards the end of January and its UK and US businesses saw a sharp reduction in sales volumes in the last week of March and into April.

However, since that time, sales volumes in all three regions have stabilised and are showing early signs of recovery, with group like-for-like revenue for the five months to the end of May down around 5% compared to the same period last year.

In the UK, the market remains volatile, as frequency of shopping visits has reached historically low levels and consumer shopping habits continue to adjust and evolve, it said.

UK like-for-like revenues were down 19% in April and 13% in May compared with the same period last year. Performance across its meals, pizza & bread, and desserts categories has steadily improved, although its salads category and food to go products continue to be impacted, with significantly lower volumes year on year.

“Although there remains significant uncertainty around trading levels for the second half of the year, we are seeing overall demand for fresh, healthy and convenient food steadily increase, albeit from a lower base,” Bakkavor stated.

Bakkavor said it has increased our market share during the crisis and is working closely together with retail customers to drive growth back into categories and to expand ranges that were simplified at the start of the outbreak.

In the US it took actions to review products and adjust capacity to adapt to the current lower demand, which has limited the financial impact to the business.

In China, the external environment has improved in recent weeks as restrictions on movement are lifted and consumer confidence slowly returns. Foodservice customers have reopened the majority of their restaurants and stores and Bakkavor said it is supporting them as they resume service and broaden their product offering.

Bakkavor said it has taken a number of actions since the start of the outbreak to lower its cost base and preserve cash, with all discretionary expenditure and non-essential capital investment currently on hold.

The group continues to operate with significant headroom against available facilities of £562.5m and therefore we have not seen any requirement to access government supported debt funding.

CEO Agust Gudmundsson: “In the UK, consumer behaviours continue to adjust, and while it will take time for sales to return, I have been encouraged by the recent increase in volumes. Current events have also reinforced my confidence in the vital role we play in partnering with our customers to deliver the fresh, healthy and convenient food that consumers look for every day.

“In the US and China, both businesses have managed incredibly well through the turmoil, and we continue to support our customers as they reopen their stores and restaurants.

“We are a robust, balanced and well capitalised Group and the steps we are taking to protect our business, combined with the current improvement in trading, gives us every confidence for the future.”

Bakkavor is down 2.3% to 77p in early trading. 

Morning update

The Office of National Statistics has announced that UK GDP GDP fell by 20.4% in April compared to March – the biggest single drop in GDP in history.

The slump has higher than economists had predicted, with Reuters polled analysts expecting an 18.4% drop.

On a year-on-year basis, the UK economy contracted by almost a quarter (24.5%) as UK-wide lockdowns froze large portions of the economy.

Jonathan Athow, deputy national statistician for economic statistics, said: “April’s fall in GDP is the biggest the UK has ever seen, more than three times larger than last month and almost ten times larger than the steepest pre-covid-19 fall. In April the economy was around 25% smaller than in February.

“Virtually all areas of the economy were hit, with pubs, education, health and car sales all giving the biggest contributions to this historic fall.

“Manufacturing and construction also saw significant falls, with manufacture of cars and housebuilding particularly badly affected.

“The UK’s trade with the rest of the world was also badly affected by the pandemic, with large falls in both the import and export of cars, fuels, works of art and clothing.”

The services sector fell by 9.9%, production by 9.5% and construction by 18.2%.

For the three months to the end of April GDP fell by 10.4%.

Elsewhere, PubCo Mitchells & Butlers has renegotiated its lending facilities after the coronavirus crisis saw it furlough over 99% of its workforce amid the wholesale closure of its estate.

It announced this morning its has reached agreement on a number of new arrangements which provide a platform of both additional liquidity and improved financial flexibility for the group in order to meet the challenge presented by Covid-19.

It has agreed with our main relationship banks to the provision of committed unsecured liquidity facilities totalling £250m through to 31 December 2021. This comprises extension to the term of our existing £150m facilities plus the provision of additional facilities totalling £100m. The £100m additional facilities are structured under the Government-backed Coronavirus Large Business Interruption Loan Scheme.

The group currently has cash balances of £130m, having fully drawn down the existing facilities of £150m. During closure, the EBITDA loss in a four-week period has stabilised at about £15m, including rent.

Meanwhile, a number of technical breaches would have occurred under the group’s secured financing arrangements as a result of the enforced period of closures and so, in order to prevent such breaches, certain amendments and waivers have been agreed.

These waivers included amending a 30-day suspension of business provision, a six month debt ratio test, and a minimum capex spend clause.

“These waivers and amendments are required to provide stability and flexibility to the group in order to manage the Secured Financing structure through the closure period and the rebuild of sales on re-opening, including the provision of additional liquidity facilities against debt service costs of £50m per quarter,” the group stated.

Its current expectation is for the commencement of reopening of sites from early July this year.

On the markets this morning, the FTSE 100 is down 0.5% to 6,047.3pts after dipping back blow 6,000pts in early trading.

Early fallers include Coca Cola European Partners, down 5.8% to €33.62, Hilton Food Group, down 2.7% to 1,128.5p, and Greggs, down 1.9% to 1,652p.

Risers include stocks bouncing back from falls yesterday, with Marks & Spencer up 4.1% to 107.2p, SSP Group, up 3.3% to 279.6p and McColl’s up 2.4% to 44.6p.

Yesterday in the City

The FTSE 100 slumped 4% to 6,076pts yesterday after the US Federal Reserve signalled the economic recovery from the coronavirus crisis could be slower than recent encouraging jobs data had suggested.

Consumer retail and food to go stocks were hit hard in the sell-off, with major fallers including McColl’s, down 10% to 43.6p, Marks & Spencer, down 8.2% to 103p, Greencore, down 8% to 135.5p, WH Smith, down 7.8% to 1,131p, SSP Group, down 7.6% to 270.8p and B&M European Value Retail, down 7% to 353.2p.

FTSE 100 firms on the slide including Compass Group, down 5.8% to 1,161p, Coca-Cola European Partners, down 5.8% to €33.62, Ocado, down 5.7% to 1,960p and Coca-Cola HBC, down 4.9% to 2,017p.

The few stocks on the rise included Applegreen, up 8.8% to 370p, Science in Sport, up 3.1% to 33p, Naked Wines, up 1.4% to 373p and Premier Foods, up 1.4% to 52.7p to continue its good run this week.