UK

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Feed prices hit protein profitability at 2 Sisters

“Substantial” commodity headwinds hit margins at 2 Sisters Food Group’s protein division in its first quarter financial results.

It marks 4 successive quarters of losses posted by the business division which accounts for poultry processing in the UK and Europe, alongside added-value poultry production.

It is by some way the largest division in the group.

Profitability has not recovered since the Guardian/ITV investigation into standards at the company’s Site D facility, which saw it closed for a month between 1 October and 6 November last year.

Strong sales growth

This is despite strong “volume growth” over the past 12 months, as 2 Sisters’ upgraded Scunthorpe facility drove efficiencies and increased overall capacity.

A slim profit for protein in the first quarter of 2017/2018 was followed by an operating loss of £9m in Q2 and £5.8m in Q3.

And in the final, fourth quarter reporting period of last year, the company said “unrecovered inflation and cost inefficiencies in our UK protein business continues to hinder total protein margins”.

Sales growth in that quarter was largely delivered by the European business, it added.

The latest results cover the 13 weeks to 27 October and show a £3.1m loss for the first quarter of the 2018/2019 reporting period for protein – with “significant feed inflation” cited as a pressure on finances.

‘Delay’

2 Sisters said there would be a “lag” between the turnaround programme it is executing and a return to profitability for the group as a whole, but that by the third quarter it expects “margin improvements”.

It added that it would continue to dispose assets to raise cash and reduce cost, with its red meat division, the Goodfella’s pizza brand and sandwich firm Manton Wood (subject to competition authority ruling) all sold in 2018.

And a refreshed senior management team headed up by ex-Arla boss Ronald Kers had “strong momentum” to push through the turnaround.

Mr Kers said: “We have made it clear that the size of the turnaround challenge is substantial, and to achieve success on this scale will take time. We have diagnosed the fundamental operational issues and the management team know what levers to pull to drive change through the organisation.

“We are in [a] stabilisation phase with our poultry business, and it is critical we make further operational efficiencies and improve margin as the financial year progresses to address ongoing input cost inflation.

“We will also make targeted investments that deliver real, tangible financial returns, for example in our Polish poultry and Meals businesses.”

Full Q4 report can be found here