Pre-tax profits £4.8 million in first quarter 2005

? Net income £4.2 million – up by 94%
? Growth in continuing operations 14%
? EBITDA £8.1 million, 21% of turnover (16% without income from associates)  compared with 15% in the first quarter 2004, up by 58%
? Cash generated from operations £7.2 million – up by 79%
? Free cash generated by operating activities £4.0 million – up by 207%
? Earnings per share increase from 0.21 to 0.39
? Return on equity 19% compared with 12% in the first quarter 2004
? The takeover of Geest Plc is going according to plan. The company is expected  to become a part of the consolidated Group on 13 May
? Financial reporting is for the first time in accordance with International  Financial Reporting Standards (IFRS)

Bakkavör Group’s operating results in the first quarter were strong and in line with managements expectations. Operations continue to be characterised by good organic growth and strong cash flow.  Comparison with the same period last year is affected by the impact of the associated company Geest Plc on the Group’s financial statements.  Bakkavör Group submitted a binding offer for Geest Plc on 8 March for all of the issued share capital of Geest. Shareholders have approved the offer and it is expected that Geest Plc will be a part of the consolidated Group from 13 May.

Effects of implementing the International Financial Reporting Standards

Bakkavör Group is now reporting according to IFRS for interim financial statements. The effects of implementation were previously announced on 26 April 2005 on the Iceland Stock Exchange. The effects relate in particular to the way the financial statements are presented.  Net income and equity for 2004 are unchanged.  The main effects for the quarter are as follows:

? The balance sheet is now presented on one page.
? The notes are more detailed.
? Income from associates is presented with cost items instead of financing items as  before. The effects are that the EBIT is £7.1 million instead of £5.4 million before IFRS  implementation. EBITDA is £8.1 instead of £6.4 million before IFRS implementation.
? Depreciation of fixed assets is presented with related cost items instead of being a  specific item as before IFRS implementation. The main effects are that gross margin  decreases to  £9.3 million from £10.2 million.  

Operations in the first quarter 2005

Bakkavör Group’s financial performance in the first quarter 2005 was good and to managements expectations.  Organic growth was 14.0% compared to the same period last year with net sales amounting to £38.8 million. Cash generated from operations amounted to £7.2 million compared with £4.0 million in the same period last year which is an increase of 79.4%. Free cash generated by operating activities was £4.0 million compared with £1.3 million which is an increase of 206.7%.

EBITDA amounted to £8.1 million compared with £5.2 million last year, increasing by 57.5%. EBITDA margin was 20.9% (16.4% if the affects of the associated company are left out) compared with 15.1% same period last year.  EBITDA margin is generally the lowest in the first quarter.

Financial expenses amounted to £2.3 million which is an 102.9% increase due to Bakkavör Group’s acquisition of Geest Plc. Taxes amounted to £599 thousand and decreased by 34.9% compared with the same period last year. Due to taxation of income from associates, the effective tax rate was 12.4%. Net income was £4.2 million compared with £2.2 million for same period last year which is an 94.0% increase. 

Products and new product development

Sales were strong in all product categories during the period. In January and February special emphasis was placed on increasing the supply of healthy options in line with consumers expectations. In March the supply of ethnic snacks was increased for Easter.  Ready meals continue to show the most significant growth in sales, increasing by 18%. Sales in dips, dressings and sauces were also strong and increased by 17% compared with last year. Sales in meal accompaniments and ethnic snacks increased by 11% and 6% respectively.  Turnover split between product categories was as follows in the period:
Ready meals   34%
Meal accompaniments  25%
Dips, dressings and sauces 24%
Ethnic snacks   17%

Sales to the Group’s major customers grew during the period and the Group has especially strengthened  its position with Waitrose in the first three months of the year.  Although Waitrose currently has a relatively small share of the ready meals market at 4%, sales have grown by 15% in the first quarter and we expect this trend to continue. Waitrose appeals to the same customer base as Marks & Spencer and all of their products are marketed as of premium quality.  Tesco is the Group’s largest customer as before, with 68% share of the Group’s turnover.

Bakkavör Group continues to focus on manufacturing products that meet customers demands for quality and the Group’s strong product development is the key to continued success on the chilled convenience food market.

Balance sheet

Changes in the Group’s balance sheet were insignificant during the period. Non-current liabilities amounted to £167 million at the end of the quarter compared with £165 million at year end 2004. Current liabilities decreased from £19 million at year end 2004 to £16 million at the end of the quarter. Inventories decreased from £4.2 million at year end 2004 to £3.2 million at the end of the quarter or by £1 million. Current assets decreased from £26.4 million at the end of year 2004 to £24.5 million at the end of the period.

Equity increased from £88 million at year end 2004 to £92 million at the end of the quarter. The equity ratio is now 38.3%, if the subordinated loan is included. Return on equity was 18.8% during the period compared with 11.6% in the same period last year. The current ratio is 3,6 but was 2,8 at year end 2004.  Bakkavör Group cash position is strong with £29 million in funds at the end of the period.

Cash flow

Cash flow was strong during the period.  Cash generated from operations was £7.2 million compared with £4.0 million in the same period last year and increased by 79.4%. Free cash generated from operations increased substantially in the period from £1.3 million to £4.0 million at the end of the quarter. As before the Group’s profits generate strong cash flow from operating activities.

Future prospects

Shareholders of Geest Plc approved Bakkavör Group’s offer of 8 March for all of Geest’s issued share capital.  It is expected that Geest will become a part of the consolidated Group from May 13 and payment for shares will be on  27 May.  Following the Group’s acquisition of all outstanding shares in Geest the company will be delisted from the London Stock Exchange on 16 May 2005.

Bakkavör Group’s main project for the year is to integrate the operations of both companies in order to utilise their combined strength.  The Group’s operating prospects are generally good for the year and as before, the continued growth of the company is based on strong product development, motivated and committed employees, effective project management and strong customer relations with retailers in the UK.

Results approved and presentation of results

The Board of Directors of Bakkavör Group approved the results for the first quarter at a board meeting on  28 April. Bakkavör Group’s financial statements can be viewed at the Group’s offices at Sudurlandsbraut 4 and at the Group’s website www.bakkavor.com

Bakkavör Group’s next presentation will be held on 27 May where the takeover of Geest Plc and changes to Bakkavör Group following it, will be presented as well as the Group’s future vision. The presentation will be held at 16:30 at Ársal, Radisson SAS, Hotel Saga.  

To view full announcement issued to the Iceland Stock Exchange please click here.

To view financial statements for Q1 2005 please click here.

For further information please contact:

Lýdur Gudmundsson CEO
Tel: +44 79 0090 1385

Hildur Árnadóttir Financial Director
Tel:  +354 858 9706