Bakkavör has not made enough money in the past three months to cover the interest payments on its £1.5bn debt and other liabilities, the latest quarterly results reveal.
The ready-meals maker, which is a major supplier to M&S, made operating profits of £18.2m in the third quarter of 2008, down 39% on the previous year. But it had to spend £22m on interest payments, leaving a net loss of £3.8m. This was before a further £16.3m writedown from the company's sale of its 10.9% stake in Greencore.
"This is a very vulnerable position to be in," commented one credit analyst. "Operating profits need to cover not just finance costs, but a company's other expenditure too, and a return to shareholders. This position puts real strain on cash balance and means there's almost no money to invest in capital expenditure to try to grow future profits.
"In this climate, companies' credit ratings are being assessed based on their cashflow. This is not where you would want to be."
Bakkavör's reported losses earlier in the year had been due to the falling share price of Greencore, as Bakkavör was forced to write down the falls. In the first six months of the year, Bakkavör paid finance costs of £24.8m from operating profits of £36.4m, leaving £11.6m net profits before the £46.2m Greencore writedown.
Because it has sold its Greencore stake, Bakkavör does not face any more losses from this quarter, but finance costs may continue to grow as Bakkavör's debt levels increase.
Shares in the Icelandic company fell from ISK5 (2.4p) to ISK4.4 (2.1p).
The ready-meals maker, which is a major supplier to M&S, made operating profits of £18.2m in the third quarter of 2008, down 39% on the previous year. But it had to spend £22m on interest payments, leaving a net loss of £3.8m. This was before a further £16.3m writedown from the company's sale of its 10.9% stake in Greencore.
"This is a very vulnerable position to be in," commented one credit analyst. "Operating profits need to cover not just finance costs, but a company's other expenditure too, and a return to shareholders. This position puts real strain on cash balance and means there's almost no money to invest in capital expenditure to try to grow future profits.
"In this climate, companies' credit ratings are being assessed based on their cashflow. This is not where you would want to be."
Bakkavör's reported losses earlier in the year had been due to the falling share price of Greencore, as Bakkavör was forced to write down the falls. In the first six months of the year, Bakkavör paid finance costs of £24.8m from operating profits of £36.4m, leaving £11.6m net profits before the £46.2m Greencore writedown.
Because it has sold its Greencore stake, Bakkavör does not face any more losses from this quarter, but finance costs may continue to grow as Bakkavör's debt levels increase.
Shares in the Icelandic company fell from ISK5 (2.4p) to ISK4.4 (2.1p).
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