BOPARAN HOLDINGS has revealed that labour challenges and rapid input inflation has hit operating profits in its poultry division in recently published financial results.
Despite operating profits dropping, the division was able to grow sales by 3.5%, from £1.92bn to £1.99bn in the year to 31 July 2021.
The higher segment sales were down to winning new customers, launching new products, and charging higher prices. Boparan Holdings is the parent company of 2 Sisters Food Group.
The operating loss before exceptional items declined by £31.4m from a profit of £18m a year earlier to a loss of £13.4m.
Boparan Holdings’ strategic report detail significant labour challenges caused by both Brexit and Coronavirus, in particular in the final quarter of the year.
“[Labour challenges] present an ongoing structural challenge for all manufacturing businesses in the UK, and have hit the UK poultry business particularly hard, leading to reduced throughput in our sites, customer supply challenges and a reduced contribution to our fixed overheads.”
The group is working to simplify operations and product offerings and introduce automation into processing.
Rising commodity costs, mainly feed, also hit profitability. “The timing and speed at which we have seen inflation hit has meant we have not had the opportunity to mitigate all these cost increases within the year.”
Feed ratchet agreements
The report explains that the group has poultry feed price ratchet agreements with major customers, but they do not cover the entire customer base or other areas that have seen significant inflation, such as labour, energy or CO2.
Target price increases would therefore be required “in the context of a widespread reset of food prices in the market, and it is essential that customers commit to the programme of price increases to facilitate cost recovery”.
The European poultry business also suffered from covid-related lockdowns, particularly in the first half of the year with food service closures.
‘Strong end to the year’
But the second half was more positive with a “strong end” to the year.
Overall the group reported turnover down 3.1%, to £2.6bn over the year the drop was put down to the disposal of “non-core” assets, as part of a strategy to focus on poultry production.
There was also a 53rd week in the previous year.
Group EBITDA was £76.3m, £52.4m lower than the year before, a reduction of 41%.