The costs of closing the processing plant at West Bromwich have hit profits at 2 Sisters Food Group, according to its fourth quarter results published today.
Boparan Holdings Limited, the parent company for 2 Sisters Food Group, said margins had been severely affected by further inflation and foreign exchange on commodities, plus one-off costs in the 13 weeks ended 29 July 2017.
Revenues remain strong against tough backdrop with total sales up 5.3% to £815.7m. Like-for-like sales up 3.5% to £802.2m. Like-for-like operating profit reached £14.8m; ahead of Q3 at £13.1m
Ranjit Singh, 2 Sisters Food Group CEO, said: “The business continues to face into an extremely tough trading environment with further increases in input costs. Clearly margin performance improvement is a top priority, and this will be underpinned by working hard on the action plans that make the most difference to our core business. Nevertheless, we remain positive about our top line growth and how that positions us with our customers.
“We continue to progress our Poultry footprint changes, which delivers quality, safety and a shorter, leaner, more transparent supply chain. We are investing in our people and our sites, with a view to optimising available capacity.
“Our Meals division has benefitted from rationalisation and investment which will also provide a springboard for further growth. However, as with our Branded businesses, cost inflation has negatively affected margins, and our teams are taking ongoing actions to redress the balance.
“Whilst this will not happen overnight, our management team are focused on delivering our step change plan to enable us to continue on our journey of producing high quality and safe food.”
Profitability has been adversely affected in the quarter by higher than anticipated commodity inflation not being fully offset by price increases and cost reduction efforts.
During the period, the Group has also been affected by several exceptional items including disruption costs relating to the poultry site closure in Q4.
“Our UK poultry business has continued to enjoy strong underlying volume growth, and our European business has stabilised post the avian influenza issues suffered earlier in the year, although there is an ongoing impact from continuing export restrictions. Growth in poultry sales was however offset by lost volumes and lower realised prices in Red Meat due to a change in mix between retail and non-retail customers,” said Boparan.
Management updated investors on developments since the Guardian and ITV undercover investigation, with a conference call on 3 October. The facility at the centre of the undercover investigations, Site D in West Bromwich, suspended operations on 1 October, which will impact our Q1 results. Following a comprehensive colleague retraining programme the site has recommenced supply to customers from 6 November.
“The impact of commodity inflation was particularly acute in the quarter and price recovery, efficiency and targeted investments have not fully mitigated this in the period. This will continue into Q1, which will also be impacted by the above mentioned Site D issues,” said Boparan.
“Nevertheless, we remain a solid business, with attractive growing core poultry and chilled markets with the scale to maximise efficiencies and margin. We remain committed to our step change programme so we can deliver for our customers on safety and quality.
“We have a clear strategy to turnaround each business but recognise that this will take time. Once we successfully negotiate our way through short term issues, we will be in a stronger position to deliver growth.”