Bakkavor – UK Business Update & Mid-term Outlook – 6 May 2021

Could you provide an overview of the UK fresh prepared foods industry’s structure? Could you suggest the size of the market pre-coronavirus? How is the market segmented and how do Bakkavor’s key categories match this? Who are Bakkavor’s key suppliers and competitors?

You alluded to Bakkavor as playing in the salad, meals, pizza and bread, and dessert categories, in part because they were some of the fastest-growth categories across fresh prepared or fresh and chilled around the time of the IPO. Do you think growth might have slowed since the pandemic?

At the time of Bakkavor’s IPO, the growth characteristics were pinned around consumers being in favour of health and wellness, hence fresh prepared food and convenience. What changed post-IPO and up to coronavirus, which led to the segment slowing down and perhaps losing market share to alternative segments or occasions?

How has the pandemic impacted this segment, including what happened across consumer habits and channels? Was there supply chain disruption? How does the industry come out of the pandemic? What might be some of the lasting changes?

How might the next 12 months play out for the industry? Could there be any longer-lasting impacts on consumer behaviour, or will it return to how things were pre-pandemic? You can talk about wider industry trends or Bakkavor specifically.

What has happened in the past when this market has faced an inflationary environment? What does the pandemic mean for industry pricing? Do you think it’s an opportunity for cost-efficient market leaders such as Bakkavor to not increase pricing and try and win contracts instead? What might it mean for volumes if pricing is passed on to the consumer?

How might Bakkavor’s products’ annual 40-45% churn rate compare to the industry average? Do you think 40-45% is best in class among the key competitors?

I get the impression from management that it has negotiated Brexit fairly successfully, and I think some of the cost-inflation dynamics alongside Brexit are well-understood. Could you highlight anything else we ought to be concerned about around how Brexit plays out logistically?

What’s your outlook for Bakkavor’s UK’s business and a potential recovery trajectory over H2 2021? Q1 2021 was down 6% or so YoY. I think March 2021 was down less YoY, as things began to become more mobile.

What are your thoughts on Bakkavor’s UK growth strategy? You mentioned that it wants to play in the number one positions in its categories. Could you elaborate on individual strategies within the four categories? What about retailer strategies? How does the company think about playing with either the faster-growth retailers or the retailers where it can operate more profitably?

How can Bakkavor tap into the pick-up in e-commerce vs just being heavily reliant on the retailers’ e commerce strategies which are presumably driven by consumers?

How does the company’s organic growth strategy tie into capacity? You said it would probably try to grow organically in meals. Will that require incremental investment? Does it have capacity in place? Can it buy manufacturing assets, or would Bakkavor rather build itself? How might the company rationalise salad capacity? Can it sell the assets off? Does it come down to writing down these assets? Can they be converted?

How do tender processes work for Bakkavor? What are the key drivers in negotiations around factors such as quality, price and service levels? How do these agreements work? I understand there aren’t actually written contracts in places. How long do these agreements last for? What brings them up for tender?

How well-placed is Bakkavor to gain market share? What are its relative strengths that should enable it to do this? Presumably, this would be organic, just in the categories that it is operating in, rather than moving into new categories.

If Bakkavor were interested in entering new categories, do you think it would do so via M&A or is it more about increasing presence within its current categories? Is coronavirus a likely catalyst for M&A in this market? Does it become an increasingly important part of the equity story? Is it buying a retailer relationship along with buying assets? It is obviously not buying a brand.