Bakkavor shares dive 6% as profits drop 44% in 2019

Bakkavor shares dive 6% as profits drop 44% in 2019

Bakkavor Group Plc (LON:BAKK) have seen their shares dive, as the firm issued a warning over its profit levels.

The FTSE 250 listed company told the market that profits had dropped 44% in 2019, and ongoing issues with the coronavirus are continuing to take a toll on business.

The firm said regarding the coronavirus situation – “In China, whilst 2020 started well, the recent Coronavirus outbreak is now having a significant effect on our business. Volumes are significantly down in February and currently there is no clear visibility as to when more normal trading conditions might resume. It is therefore very difficult to assess the financial impact; however, our current view is that Adjusted EBITDA1 before exceptionals and start-up losses for our international business in 2020 could be £6 million to £10 million lower than 2019. Despite this short-term impact, market fundamentals are strong and we remain excited about our prospects in China.”

The food firm said that pretax profit in 2019 had fallen from £77.9 million to £43.8 million – a worrying statistic for shareholders to note.

Additionally, operating profit also fell 19% to £69.4 million from £85.6 million from one year ago. The firm alluded this fall to higher exceptional costs and start up losses for new sites.

Revenues did rise by 1.5% however, from £1.86 billion to £1.89 billion. This was boosted by growth in international business tied in with solid performances in the UK.

Bakkavor added that the coronavirus is having a significant impact in China, which could affect future results.

Agust Gudmundsson, CEO, said:

“This was another solid year for Bakkavor, in which we delivered further growth, increased market share, and strengthened our operations both in the UK and internationally, whilst reporting performance in line with expectations.

“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. We have significantly strengthened our market-leading position in the desserts category and launched a major new meals range for one of our strategic customers which give us confidence going into 2020.

“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.
“More recently, the Coronavirus outbreak is having a significant impact on our business in China and our key priority is to safeguard the health and wellbeing of our colleagues through this challenging period.  We continue to monitor the situation closely as it develops.

“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.”

Bakkavor’s mixed few months

In September, the firm gave an update saying that they had made good progress despite regression in its earnings fundamentals.

Group revenue growing 1.4% and like-for-like revenue rising 2.0% in a year-on-year comparison of H1, up to £923 million and £977.9 million respectively.

Despite this, Adjusted EBITDA pre IFRS 16 contracted 6.5% to £73.5 million and adjusted operating profit narrowed by 11.5%, from £57.3 million, to £50.7 million.

Even more notable, Bakkavor operating profits dived 45.8% on-year, from £54.1 million to £29.3 million.

Further, the Company’s interim dividend per share remained flat at 2.0p, while their basic EPS contracted by 4.0p and their adjusted EPS narrowed by 1.5p, to 3.0p and 5.9p.

Shares in Bakkavor trade at 116p (-6.11%). 27/2/20 13:00BST.