Bakkavor warns coronavirus to hit annual profit

(Sharecast News) - Bakkavor warned the impact of the coronavirus could reduce earnings by up to £10m in the current financial year as the fresh foods business reported a 19% fall in annual operating profit.
The FTSE 250 company, which employs more than 2,000 people in China, said its Chinese business had been hit by a sharp drop in demand, big production declines at all sites and the temporary closure of operations in Wuhan and Taicang.

As a result, adjusted annual earnings at Bakkavor's international business could be £6-10m lower than in 2019, the company said. The international division, the company's main source of growth, increased earnings by 10.3% to £5.4m in 2019 as UK earnings were little changed at £147.1m.

The company's shares fell 5.3% to 118.05p at 10:20 GMT amid a wider drop in equity markets as investor concerns about the coronavirus threat mounted.

Operating profit for the year to the end of December dropped to £69.4m from £85.6m as revenue rose 1.5% to £1.9bn. Operating profit fell because of £20.3m of exceptional costs and £15.5m of startup losses for new sites. Adjusted earnings were flat at £153.5m.

Bakkavor makes own-brand food products for grocery retailers in the UK and the US and supplies food service operators in China, where it has traded for more than 10 years. The company joins other UK businesses such as Burberry, Diageo and John Menzies in warning about the effect of the virus on performance as fears grow about the impact on the global economy.

Chief Executive Agust Gudmundsson said: "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."

Gudmundsson said Bakkavor maintained profitability in the UK in 2019 despite rising labour costs and weak consumer confidence. UK labour costs will increase by more than 5% in 2020 but sales volumes will rise after recent business gains, leading to "progressive" UK earnings for the year.