Q2 Results 2015/2016

Progress in a tough operating environment;
commitment to investment and innovation continues

Boparan Holdings Limited, the parent company for 2 Sisters Food Group, a leading food manufacturer with strong positions in Protein, Chilled and Branded categories, today announces its consolidated results for the 13 weeks ended 30th January 2016.

* Like for like (LFL) sales and operating profit are based on the 13 weeks ended 30th January 2016 compared to the 13 weeks ended 31st January 2015, excluding the impact of exchange translation.

** Operating profit is calculated pre-exceptional items and includes profit / (loss) on the Group’s share of joint ventures.

*** LTM Adjusted EBITDA excludes the one-off costs reported at Q2 14-15 relating to Avian Influenza (AI) outbreaks and the costs associated with a problematic IT system implementation, which totalled £17.4m and the impact of exchange translation.

Q2 headlines

• ‘Better before bigger’ strategy starting to pay off; encouraging performance in tough markets
• Progress across the business in spite of price deflation and currency headwinds
• Like-for-like sales up 0.4% from £797.0m to £800.1m; further quarter-on-quarter progress from £787.9m (Q1)
• Operating profit up £26.4m to £22.1m
• Like-for-like operating profit up £27.1m to £22.8m; like-for-like profit margin up to 2.9%
• Net debt down to £687.4m; Net debt: adjusted EBITDA ratio down to 3.95x
• Continued focus on prudent cost control and tight management of working capital
• Continuing deepening and strengthening relationships with major customers
• Investment programme continues – poultry footprint programme and Chilled divisions; Continued investment in reducing campylobacter

 

CEO Ranjit Singh comments:

“In this quarter we are seeing signs of our strategy to build a better business starting to deliver. I am pleased to report that the progress we experienced in previous quarters continues with improved performances in like-for-like sales and operating profit, despite the fragile grocery market.

“There have been important successes throughout our business with new wins and new product development, with notable achievements across our Divisions. In our Branded business, our commitment to innovation with the roll out of Goodfella’s gluten free pizza in the UK has been recognised by winning Product of the Year 2016, and our brand extensions for Fox’s biscuits have increased market share.

“Our investment programme is progressing well. In Poultry, we have now identified suitable locations that will help to improve efficiency and delivery, fundamentally changing the supply chain. In our Chilled division, our strategic investment project continues on time and to budget, with capital works at Carlisle and Rogerstone now largely completed. The leasing of the additional site in Derbyshire is also on track with manufacturing scheduled to start later this Spring. This will allow us to facilitate the Protein Footprint Programme quicker and without increased cost.

“The measures we introduced to reduce campylobacter in poultry continue, with innovative factory interventions in Scotland showing very promising early results, and encouraging independent data results for our extensive ‘no thinning’ trials. We have won industry awards for our work, and the Food Standards Agency’s last quarterly review three weeks ago also pointed to further significant progress.

“We have the right strategy in place to deliver and help counter the headwinds that we face from factors we cannot control. A relentless commitment to great food, innovation and efficiency, and great relationships with our major suppliers and customers are helping us to succeed. Our focus on costs, efficiency, investment, innovation and deepening customer relationships will remain paramount.”

 

Divisional performance

Protein

Like-for-like sales in our Protein division in Q2 were broadly flat at £530.7m (Q2 2014/15: £532.9m). Operating profit was up to £7.1m, compared to a Q2 2014/15 loss of £7.7m.

We have continued to cement our strong position with leading customers by offering them new products. For example, we are now producing barbeque products for our Discounter customers for the first time, and will be making sweet chili kebabs utilising our new Derby facility. Other ‘firsts’ include new frozen whole bird lines for customers from our Scottish production facilities.

We continue to build our leadership in UK poultry and this has been further demonstrated by our award-winning £10m campylobacter reduction programme launched in November 2014.

The FSA noted in its latest campylobacter data report, published last month, a reduction in the highest rates of campylobacter, and our own data analysis confirms these trends. With the further use of new factory interventions rolling out early in 2016, we are hopeful of an even greater reduction of campylobacter, reducing its presence below the industry target.

We are also driving forward with our £150m investment in the poultry business which will revolutionise the supply chain and position us well for growth in the future.

 

Chilled

Our Chilled division saw like-for-like sales increase by 0.8% to £165.7m (Q2 2014/15: £164.4m) and operating profit up to £3.7m (Q2 2014/15: £2.6m), driven by record Christmas volumes, re-invigorated ranges and new product launches.

Our strategic investment project continues on time and to budget, with capital works at Carlisle and Rogerstone now completed. The Pennine build will progress in sections over the next two years, in order to avoid any disruptions for our customers.

We are focused on improving efficiency, product taste and driving innovation across the Chilled division. An Indian Ready Meals category relaunch has produced large increases in year-on-year sales, with additional new ranges of soups, healthy ready meals and wraps.

Our new range for children under the Disney brand also continues to perform well with improving market share.

Third party endorsements continue to be won: with awards for our supermarket own label ‘Verdure’ pizza, our main pizza facility being awarded an ‘AA’ accreditation from the British Retail Consortium and further customer praise for our hand-stretched pizza ranges.

 

Branded

The Branded division continues to perform well with Q2 like-for-like sales up 4% to £103.7m (Q2 2014/15: £99.7m), with operating profit increasing by £10.5m to £11.3m (Q2 2014/15: £0.8m).

Our investments in quality and new ranges at Fox’s Biscuits have helped us deliver another strong performance with sales and market share up substantially over the quarter. Christmas sales held up well with a 1.5% market share growth year-on-year, and momentum continues with growing sales of Fox’s brand, Own Label and Seasonal ranges. We remain committed to new product developments, with further roll-outs of Fox’s Fingers, Fox’s Cookies, Chocolatey bars and Red Velvet new ranges.

In Frozen, sales in pizza are performing well as we continue to improve product quality and drive innovation. Goodfella’s Gluten Free, launched into the UK, is now outselling the competition two to one and has won the 2016 ‘Product of The Year’ in the gluten free category, independently voted for by 12,000 people across the UK and Ireland. Our Deli Di Lusso range has added £3.2m of retail sales and we have launched another Own Label pizza range in December for a major UK retailer. Holland’s pies growth accelerated in Q2 due to a new distribution operation, in conjunction with a new TV campaign.

 

Debt funding and cash flow

Our long term funding includes the senior notes, £250m 5.25% notes due 2019; £330m 5.50% notes due 2021 and €300m 4.375% notes due 2021, which provide the principal funding for the Group. In addition the Group has a £60m Revolving Credit Facility (to 2018) which remains undrawn.

We continue to focus on cash and working capital management, and this resulted in a net cash inflow from operating activities for the quarter of £65.9m before interest, tax and capital expenditure (Q2 2014/15: £10.5m).

Our Net debt:adjusted EBITDA ratio improved to 3.95 times (Q2 2014/15: 4.4 times) for the quarter and we have experienced a net debt decrease of £15.3m to £687.4m, including cash balances of £151.6m.

 

Outlook

Our ambition to build a ‘better before bigger’ business is progressing well. Encouraging performances across our divisions evidences that our commitment to improve efficiency and to drive profitable sales is starting to pay off.

Our strategy to invest across the business is delivering improved performance and we remain confident as we move into the second half of our financial year.

Enquiries:

Please go to the Investor Relations section of the corporate website

www.2sfg.com/investors

 

About Boparan Holdings:

Boparan Holdings is the Parent company for 2 Sisters Food Group headquartered in Birmingham. We are a leading diversified food manufacturer with strong market positions in Protein, Chilled, Bakery and Frozen categories. We focus on delivering the highest quality products to our customers at the lowest cost.

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