Shares in Bakkavor (BAKK) softened 2.1% to 77.15p on Friday after the supermarket pizzas-to-salads supplier warned the outlook for the second half of the year was fraught with ‘significant’ uncertainty.

This caution overshadowed a fairly positive trading update from the fresh prepared food play, in which it assured investors sales volumes have stabilised and are ‘showing early signs of recovery in all markets’.

ABOUT BAKKAVOR

For the uninitiated, Bakkavor is a major provider of freshly prepared food in the UK with a growing presence in the US and China. It supplies meals, salads, desserts, pizza, bread and also hummus to Tesco (TSCO)Marks & Spencer (MKS), Sainsbury’s (SBRY) and Waitrose.

As coronavirus and associated lockdowns hit, Bakkavor’s business in China was ‘severely impacted’ towards the end of January and its UK and US businesses experienced ‘a sharp reduction in sales volumes in the last week of March and into April’. Bakkavor’s UK like-for-like sales slumped 19% in April and 13% in May compared with the same period last year.

TASTY RECOVERY SIGNS

Since then however, ‘sales volumes in all three regions have stabilised and are showing early signs of recovery’, said Bakkavor, explaining that group like-for-like sales for the five months to the end of May were down around 5% versus last year.

Shopping visit frequency has plummeted to historically low levels in the UK. Yet Bakkavor, whose big rivals include Greencore (GNC), believes it has increased its UK market share thanks to its ‘very strong’ UK customer relationships.

Performance across Bakkavor’s meals, pizza, bread and desserts categories has steadily improved, although with office workers plying their trade from home, the salads category and food to go products ‘continue to be impacted’.

‘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,’ said the London-headquartered company, which is restarting production at the two factories it temporarily closed in March and has entered into a consultation process at one of its UK salads sites.

SIGNIFICANT HEADROOM

‘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,’ commented chief executive Agust Gudmundsson.

‘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.’

Turning to the US and China operations, Gudmundsson insisted both businesses have ‘managed incredibly well through the turmoil, and we continue to support our customers as they reopen their stores and restaurants.’

Having taken measures to reduce costs and preserve cash since the start of the outbreak, Bakkavor assured it ‘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’.

Bakkavor, whose back-story and business model Shares explored in depth here, also believes it will continue to ‘operate comfortably’ within its existing financial covenants.

READ MORE ABOUT BAKKAVOR HERE

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Issue Date: 12 Jun 2020