Boparan - disappointing poultry margin

All,

Boparan’s Q1 numbers this morning are slightly exceeding our expectations, although we are disappointed with margins in the Protein - now called “Poultry” division - mostly made up by stronger margins in the now called “Bakery” division.

Still, this is alarming, given our thesis of significant margin improvement in this division over the coming quarters. The start of such improvement is not easy to determine, but it would have been comforting to see it set in with the start of the financial year.

Reshuffled divisions:

There have been some reclassifications between the other two segments, but the company provides a reconciliation in the appendix. Regardless, we are surprised to see Meals sales significantly higher than model - with virtually no impact on EBITDA. More work to be done on that.

Deviations (in GBP):

Poultry: Sales were 10m higher than model, but EBITDA lagged by -4m. EBITDA is up YoY, but below recent quarters.

Meals: Sales were 31m higher than model and EBITDA was 1m higher. Both figures are adjusted for the segment reshuffle.

Bakery: Sales were -7m lower than model, but EBITDA was 3m higher. Both figures are adjusted for the segment reshuffle.

WC was better than expected. The company had guided for flat to +10m in annual CF for 2020, but the benefit was supposed to be towards the end of the year. So our assumed WC outflow for Q1 did not materialise and instead WC was 20m better than model. The company’s figure also seems to include an amount for Matthew Walker, which we had netted against financing cash flow.

Thus Cash is 9m higher than model after slightly higher outflows from cash restructuring and pensions, disposal fees and FX.

Overall, the results are on target, but the low margin in the poultry deserves further scrutiny.

Wolfgang