It has been a troubled time for Banham Poultry, which went into administration this autumn following a “perfect storm” of internal and market pressure. Michael Barker reports on what went wrong and what happens next.
A tough market for producers claimed a high-profile casualty this summer when Banham Poultry fell into administration and stared down the barrel of closure, but the Norfolk business believes its year to forget is ending on a positive note after it was sold to Chesterfield Poultry.
Attleborough-based Banham had actually been on a growth curve until its recent problems. Its parent company, family-owned Banham Group, was set up in 1965 to process chickens for local farmers under the name Banham Poultry, and the group had seen turnover growth in its latest accounts, posting sales of £200.8 million in the 18 months to 31 March 2017, up from £126.4 million in the 12 months to 3 October 2015. Profitability had also improved, having turned a £234,225 loss in the previous period into a £3.1 million profit.
There was investment taking place too. In July last year, the group kicked off a multi-phase redevelopment of its Station Road site, a £15 million investment that aimed to increase processing capacity by up to 500,000 birds per week. The first phase of the project, which was completed this summer, included the installation of a new CO2 gas stunning line, upgrades to on-site water and electricity systems, the construction of a new bespoke box freezer to convert by-products, and the conversion of the factory refrigeration system to a more environment-friendly ammonia-glycol system.
The redevelopment, however, caused operational disruption and reduced production capacity, which in turn led to cash flow pressure that was compounded by a rise in feed costs driven by the hot summer weather. In the context of tight returns due to the supermarket price war, the group found itself losing over £1 million a month in both July and August and was operating in an unauthorised overdraft position. That led to administrators Duff & Phelps being called in, with joint administrator Allan Graham describing this summer’s combination of issues as the “perfect storm”.
One creditor of Banham Poultry, told Poultry Business the £15 million redevelopment had been a misjudgement that left the business ‘totally overstretched’.
Unsurprisingly, a business of Banham’s size and scope attracted substantial interest from prospective buyers, with a total of 29 parties expressing interest, however that only led to two firm offers: one, from Chesterfield Poultry, to take on the business and assets with the preservation of all jobs, and a second one, from Bernard Matthews, for selected assets but which would have involved the closure of the processing facility.
Although the Bernard Matthews offer was of higher monetary value, administrators, in consultation with major creditor Lloyds Bank, opted for Chesterfield as it would preserve jobs in the local community and also offered more immediate certainty for all involved.
Duff & Phelps said a pre-pack sale was the best option as it safeguarded against animal welfare issues which could have arisen from ongoing uncertainty over the company’s future. It also meant there would more likely be cash for creditors than if the group was wound up, and meant jobs were saved. “The sale of the business – covering all assets, employees on permanent contracts, a hatchery and farms and processing plants at Banham – is a success,” said Graham. “The swift conclusion of this sale has enabled Duff & Phelps to secure the future of over 1,100 employees, ensuring no break in processing and animal husbandry, guaranteeing the continued supply of high-quality poultry to the UK food industry.”
Directors Sarah, Michael M and Michael B Foulger, as well as chief executive Martyn Bromley, are understood to have been retained following the sale, giving the business continuity of management under its new ownership.
Banham Group was sold for £5.2 million and Banham Poultry for £4.4 million, meaning Chesterfield Poultry paid just shy of £10 million for a business that produces as much as 7% of the nation’s chicken.
Neither Banham Poultry nor Chesterfield Poultry responded to requests from Poultry Business to comment on the future direction of the business, but in a statement at the time of sale Banham Poultry’s managing director Michael Foulger said: “The Foulger family are very pleased to have secured a deal with Chesterfield Poultry to ensure the long-term future of Banham and the continued employment of a very loyal workforce, which was always at the forefront of any negotiations.”
Chesterfield Poultry’s chief executive Nadeem Iqbal added: “We are delighted to welcome Banham into the Chesterfield family and look forward to continuing the legacy of the brand and quality poultry production in Attleborough.”
Derbyshire-based Chesterfield Poultry may not be the most publicity-hungry business in the industry, but the firm, which processes 1.2 million birds a week and supplies halal chicken to UK customers including grocery stores and small supermarkets, is sizeable in its own right. The business has been on a growth spurt in recent times, having increased turnover by 26.2% to £75.5m in the year to 30 June 2017 on the back of increased volume sales, according to accounts filed at Companies House. Pre-tax profits were £2.4 million in the latest period.
As a much-enlarged business, Chesterfield can expect considerable industry interest in what it does next with Banham Poultry. Recovering from a pre-pack sale can be a challenge, given previous clients and customers may be cautious about continuing to trade with the business, and bridges will need to be built. But with major production clout, newly redeveloped facilities and a clean slate, the new owners will be optimistic about what can be achieved.
What happened to Banham?
Banham Group Ltd and Banham Poultry Ltd went into administration this summer, with Duff & Phelps appointed as administrators. The company cited cash flow pressure compounded by a rise in feed costs and supermarket price pressure as key reasons for its problems.
How much did the company owe?
At the time the administrators were appointed the group owed £19.8 million to Lloyds Bank relating to an invoice financing agreement, a term loan, an overdraft and other facilities, and over £21 million to other creditors, including trade suppliers.
Who was owed money?
Creditors fall into a number of categories. Lloyds Bank is a secured creditor, and while it will see money back it is not expected to be repaid in full. Then there are preferential creditors, who are mainly employees, but as staff were transferred to the new ownership, no pay-outs were expected. Finally there are non-preferential creditors – essentially everyone else – which includes suppliers, directors and the pension fund.
So will there be any cash for suppliers?
A big advantage of a pre-pack purchase for the buyer is that many of the previous owner’s debts are left behind. Insolvency laws state that a certain amount of a company’s net property value must be made available to non-preferential unsecured creditors, so they should see something, but it will only be a fraction of what is owed. A fund of just under £1 million is likely to be made available to them in the case of Banham.
Who falls into that category?
It’s a long list. They include everyone from well-known trade businesses such as Noble Foods, Aviagen, ForFarmers and PD Hook to retailers Aldi and Morrisons and even industry bodies like Assured Food Standards and the British Poultry Council. Administrators have not publicly revealed how much is owed to each creditor, but one creditor told Poultry Business they were left owed hundreds of thousands of pounds and their insurers were making it hard to claim for their losses.
Investigations ongoing into industrial accident
Banham Poultry’s turbulent year took a tragic turn on 4 October when two men died in what is understood to have been a chemical spill.
The two subcontractors from a pest control company, aged in their 30s and 40s, were found dead in the early hours of the morning, with police and firemen called to make the scene safe.
A Health & Safety Executive spokesperson confirmed the department is looking into the accident, telling Poultry Business: “Norfolk Constabulary retain primacy for this fatal accident investigation with forensic, scientific and technical support being provided to the police by HSE inspectors and scientists.”
A spokesman for Norfolk Constabulary added that investigations are continuing into the circumstances of the tragedy.
Key facts about Banham
Banham Group’s agricultural division operates 16 breeder farms across East Anglia, producing around one million eggs per week, which are then sent to two hatcheries
Banham Poultry processes around one million birds per week from its production facility at Station Road in Attleborough, Norfolk
The facility comprises 210,000 sq ft of buildings on a 12-acre site
The company supplies major supermarkets, as well as other UK stores and wholesalers, and operates its own transport department
The business employs over 1,000 staff