Avara Foods - image

Source: Avara Foods 

The processor said price hikes did not fully offset its overall increase in production costs

Poultry giant Avara Foods slid to an £11.4m operating loss last year amid a continuation of the “tough trading climate” faced by the poultry sector.

The business also saw turnover increase by 19.8% to £1.51bn in the year to 31 May 2023, driven by inflationary price increases, according to its latest accounts.

But the related inflationary hike in production costs means the business has now posted combined operating losses of £32.7m over the past two years, following a £21.3m reverse in 2022.

Avara’s accounts additionally showed am 18% increase in costs of sales to £1.40bn, while distribution costs rose by 12.9% to £76.3m.

The business also spent £11m on one-off restructuring costs as it implemented a turnaround strategy that has seen it announce the closure of two factories, in Abergavenny and Newent, in Gloucestershire, over the past year. 

Avara CEO Andy Dawkins said the results were “in line with expectations”, despite its higher turnover “not fully offsetting the overall increase in production costs”.

The cost of living crisis had “led to more cautious purchasing behaviour by consumers, leading to short term oversupply in the market”, he added.

This had prompted its turnaround strategy, which saw the business adopt a “pragmatic and flexible approach, focusing on the fundamentals of an optimised supply chain, that is able to better offset inflationary pressures through productivity, efficiency and dependable customer service”, he added.

And despite the challenges faced by the business, Dawkins stressed Avara had continued progress on its sustainability objectives during the accounting period.

It completed full assessments of the potential impact of climate change on its business in alignment with the UN’s Task Force on Climate-related Financial Disclosures.

Avara also established a detailed understanding of its own (Scope 1 and 2) carbon emissions, as well as those of its wider supply chain (Scope 3).

As a result, it was reducing carbon emissions ahead of target and was the first business in its sector to join the Mondra consortium – a product-level carbon footprinting project, led by the BRC.

“We have worked hard with our customers to navigate the balance of covering costs while maintaining an affordable product for consumers,” Dawkins added. “In the face of almost unprecedented inflation, it is perhaps unsurprising that not all costs have been recouped.”

In the year ahead, Avara said it anticipated conditions would remain difficult, but it was “confident” its plans would yield benefits.

“We’re very confident that fresh poultry will remain a staple in shopping baskets and that demand will remain strong,” Dawkins said. “The actions that we have started to put in place will put us in a stronger position financially and able to meet demand for our increasingly popular portfolio.”

The supplier’s results come a week after Dawkins told The Grocer conditions at producer level also remained challenging.

“Margins [for producers] have increased over the past year with processors now recognising the real financial stress faced by them,” he said. “Chicken is still too cheap and all of us will need to pay more to keep agri-supply chains sustainable. Shoppers are not yet seeing the true end-to-end cost at the shelf edge.”