2 Sisters has pledged to invest £150m in its poultry business in a bid to drive efficiencies as it moves from a period of aggressive acquisition-driven expansion to consolidation.
2 Sisters CEO Ranjit Boparan said the investment, which will be phased over the next three to four years, would “revolutionise” its supply chain as its focus moved from integrating the Vion poultry business it bought in 2013 to streamlining the entire division.
Group CFO Stephen Leadbeater declined to reveal specific plans, but told The Grocer: “We have had real duplication in terms of the slaughtering and processing of the birds across our 12 sites, so we are looking at the whole of that network and how we can optimise this.”
He added: “The protein business is a relatively simple operation but with relatively high fixed costs. The lower we can make that fixed cost base, and the more volumes we can put through it, the more profitable we can become.”
He said the investment would include the modernisation of some processes within its factories and growing capacity in profitable areas.
2 Sisters took the decision to close its poultry factory at Haughley Park in Suffolk in October 2013 and has since shifted that capacity to its other sites.
“Part of this is to make sure we’ve got the right capacity in the right market sectors,” he said. “What we’ve found is that we have capacity constraint in some areas of real growth, and we’ve got surplus capacity in some not growth areas.”
The investment will form a key plank of its annual £80m capital expenditure spend, which will also include a £55m investment in its ready meals facilities.
Leadbeater said it was part of a wider strategy shift – dubbed “better before bigger” – that will represent a “period of consolidation and optimisation of what we have” after aggressive M&A-driven growth.
Acquisitions had driven 2 Sisters’ revenues to £3.42bn in its 2013/14 financial year, having been at £838m in 2010.
2 Sisters’ full-year accounts for the year to 1 August this week revealed an 8.2% fall in revenues to £3.14bn, while overall like-for-like sales fell by 1.7%. This was driven by falls in protein sales, caused partly by increased consumer concern around campylobacter and Avian Influenza outbreaks.
Operating profit plunged 34.3% to £58.8 from £89.5m with operating margin down to 1.9% from 2.6%, but its statutory loss fell to £4.7m from £143.3m last year.
Leadbeater said the investments made during 2014/15 had already bolstered the bottom lineand he expected an improvement in profitability in its next financial year as benefits from its efficiency programmes kick in.
Overall net debt increased to £716.6m from £664.6m last year and it net debt/adjusted EBITDA ratio increase to 4.3x from 3.6x, which Leadbeater said represented a “high watermark”. “We would hope to see a period of steady deleveraging in the business as we move towards our long term aim of having investment grade metrics of 2x to 2.5x leverage,” he added.