Young’s CEO Pete Ward

Exclusive Q&A with Young’s Seafood CEO Pete Ward, discussing the tough trading environment and the supermarket price war; the long-term plans of Young’s PE owners, going on the acquisition trail and what the business is doing to replace the lost Sainsbury’s contract. To read the news story on the latest accounts click here.

What are your impressions of the 2015 financial year for Young’s?

Pete Ward: “We put in a solid and great performance in 2015 really, particularly if take the context of difficult market conditions with little or no growth in retail grocers and the growth of Aldi and Lidl driving prices down. We’ve seen the impact on our retail friends in terms of redundancy programmes, profit drops and balance sheet write offs. So it is a very competitive scenario and we coped well and held our market share even though sales dipped a little bit.”

How are the frozen and chilled divisions holding up?

“Frozen performance relative to chilled has probably been the stronger performance in terms of growth last year. In 2015, chilled was still the bigger part of the profit but in terms of profit growth proportionately frozen grew better. We have certainly stabilised our frozen business. We’re seeing growth in our brands; we’re moving back into driving a bigger own label business and also a bigger foodservice business, as well as looking at other opportunities such as export. We’re very optimistic about the frozen business, albeit the market is still relatively flat. Chilled has probably got more over capacity than frozen in reality and is an area where there is more challenge from customers in terms of better pricing and tendering business.”

Can you go into more detail on the trading environment in the retailers?

“We’re seeing more and more evidence that as the retailers look to rebuild profitability there are far more tenders being commissioned - and significant tenders as well. There are also requests being made for better pricing and what we’re recognising is the reality of the environment and where required we are investing with our customers and we are being very competitive in terms of tender submissions. We want to win and then leverage the scale that any wins give us. If you look at industry profitability, we would be making certainly more cash profit than any competitors and even in terms of quality of profit it is better than most.

“We feel we’re in a reasonable place to defend but it is clearly a difficult environment and that is not just around seafood but anybody supplying grocery to major multiple retailers – and it is likely to remain the case. Everyone faces above inflationary increases in labour through the new national living wage and it is unlikely we’ll be able to pass that on to customers. It is a challenging environment but the good thing about a challenging environment is the strongest businesses will survive.

“The brand is one of the areas where we’ve seen good traction in the past year. The power brands we have, Chip Shop and Gastro, are growing well. Gastro is now worth more than £54m having grown by over 42% in the past year.” [Nielsen: 52 wks to 26 March 2016]

What was the fallout from losing the Sainsbury’s business?

“It has obviously impacted volumes and profitability – or will do in coming year. We then had to look at our cost base and staffing levels at Fraserborough. We are mothballing some areas of factory which would have been sub-scale without losing the capacity or capabilities in longer term as we rebuild contracts. We have also exited the Spey Valley facility because the landlord would not give us the option to purchase the site. We wanted to spend capital to upgrade the site but we weren’t in a position to do that unless we had ownership.

“Sainsbury’s was about £100m out of £600m revenues, so, all things being equal, we expect turnover this year to be around £500m. The profit impact had we done nothing would have been significant, although we would still be a profitable business. The real challenge is now how do we rebuild the top line. We have completed a strategic review, which has the backing of the owners and investors, which has three parts to it through its life. One is rebuilding the top line, two is around ongoing cost control, and three we are keen, as we historically have been, to make acquisitions and to be the industry consolidator.”

Can you give more details of planned acquisitions?

“We’re actively in dialogue with more than one competitor around us looking at being acquisitive and at significant consolidation. We are looking at businesses both of a smaller niche scale which give us capabilities or access to markets we currently under trade in – and we’re also looking at some larger scale players that do similar things to us where we can see the potential for significant synergies and we think we can be a better business on a combined basis. Those discussions are in play and I would expect one will happen this calendar year.

“One of things over time may be competition issues and total market share but we believe there is room for us to acquire more than one business and consolidate the market.”

What are the long-term plans of the private equity owners? Is there an exit in sight?

“The investors are collectively supportive and have agreed and signed off on our longer-term plan, as well as expressing a desire to be acquisitive. At end of the day there is no urgency to sell. We have a funding stream and are a cash generative business. Clearly they want to maximise the return they get from their investment and the best way to do that is to have a business which consistently shows top-line growth and profits growth, both in cash and quality terms, as that will drive the best multiple and enterprise value. But there is no urgency for them to do that at the moment.”