The aftereffects of Horsegate continue to make themselves felt in the ready meals sector, with Boparan Holdings – the parent of 2 Sisters Food Group – today announcing a loss of £27.5m in the wake of falling profits in its chilled division.
Although total sales for the group increased by 3.9% on a like-for-like basis during the 13 weeks to 25 January 2014 – reaching £647.2m – operating profit was down by 42%, from £26.2m to £15.3m.
The company blamed its chilled division – which makes ready meals and food-to-go products – for the fall in profits. It did not refer to the horsemeat scandal explicitly today, but it has talked in the past about the negative impact Horsegate had on consumer confidence in the ready meals sector, and beef-based ready meals in particular (none of 2 Sisters’ products tested positive for horsemeat).
Boparan said today it had had to invest heavily in NPD to bring consumers back to the category, launching about 100 new products last autumn.
“This has been a very challenging quarter, but we delivered a creditable performance in Q2 despite the tough and competitive market conditions,” said 2 Sisters CEO Ranjit Singh. “We delivered for our customers over the key Christmas trading period, but in line with expectations, this impacted profitability in chilled due to the significant investment made in product launches and disruption costs of new ranges.”
The new product launches helped boost sales in ready meals but total like-for-like sales for 2 Sisters’ chilled business were nevertheless down by 5.5% year on year as higher ready meals sales were offset by lower sales in the food-to-go division.
Sales and profitability had also been hit by “operational disruption” as a result of the proposed closure of 2 Sister’s Corby and Avana sites, the company said, adding “we are investing in capacity at our four meal solution sites and our specialist bakery site to meet customer growth and improve efficiency”.
Brands & proteins
Meanwhile in the branded division – which includes Goodfella’s frozen pizza and Fox’s biscuits – like-for-like sales fell by 3.6% year on year, as a result of lower biscuit sales as the company “addressed sales and promotion mix”. Performance in frozen was better, however, with “pizza driving improvement”.
There was also “further improvement” in the profitability of the branded division, “with frozen showing significant recovery and biscuits stabilising”, Boparan Holdings said, although it did not disclose any figures.
In its protein division – which now includes parts of the former Vion UK poultry and red meat operations – like-for-like sales were up by 13.8% thanks to “business gains” and annualised inflation, although this was partly offset by lower volumes and promotions. Like-for-like operating profit for the division was also up on Q2 last year, “driven by the business gains and improved efficiency through investment in sites”, although Boparan Holdings did not quantify by how much.
The company’s total sales - including the former Vion UK divisions - stood at £848m at 25 January 2014, up 35.3% on the £626.5m recorded this time a year ago. Operating profit including the new divisions was £13.3m, down £12.8m on Q2 2013.
Looking ahead, Boparan said it remained “cautious” in light of challenging market conditions. “We continue to adapt to changing retail and consumer environments. And we believe we are taking the right actions in the long term to address these challenges to support recovery and invest for future growth.”
Boparan Holding’s net debt stood at £572.3m at the end of Q2 2014 – including cash balances of £132.5m – up £47.8m from £524.5m a year ago. The company said its long-term funding continued to be in place and its £40m revolving credit facility remained undrawn.
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