UK food manufacturer Boparan Holdings has warned stubbornly high commodity costs and increased competition over Christmas has weighed on its margins in recent weeks.
Boparan, the holding company behind UK poultry supplier 2 Sisters Food Group and Fox’s biscuit maker Northern Foods, had seen promotions put pressure on margins, CEO Ranjit Singh said.
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“The second quarter is progressing in line with our plan and we expect our Christmas performance will have been solid, albeit in an increasingly promotionally driven trading environment which will constrain second-quarter margins.”
Input costs remain high, the company said, despite headline inflation falling “slightly”. Boparan added: “We do not expect to see any material easing of the effects of commodity inflation until the end of our current financial year.”
The group issued the cautious note as it reported its financial results for its fiscal first quarter to 29 October – which included a fall in margins.
The group said “investment in growth with our customers” had meant its first-quarter margins were lower on a pro-forma basis.
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By GlobalDataHowever, Singh said Boparan had had a “solid start” to its financial year, with “strong” growth in sales.
Boparan reported first-quarter revenue of GBP565m (US$886.2m), which it said equated to an increase of 10% on a pro-forma, like-for-like basis and when contributions from businesses Northern sold and closed in 2010 were excluded from the results.
Poultry like-for-like sales increased 13.2%, while sales from Boparan’s chilled business were up 9.6%.
Boparan’s branded like-for-likes, which come from the Northern business, increased 4.2% thanks to a recovery in frozen sales. The company said “lower market growth” in the biscuit sector led to “slower sales momentum” from its portfolio. Boparan said it expected that trend to continue in its second quarter.
The group’s EBITDA stood at GBP47m, up 3.3% on a pro-forma basis.
“As we start 2012, we retain our cautious outlook for the year as a whole, reflecting the headwinds of a competitive market, increased promotions, the wider economic challenges, continued high commodity and other input costs, and increasingly cash conscious consumers,” Boparan said. “With a strong sales momentum in the first quarter, we remain in a good position to grow our business over the year.”
Boparan, meanwhile, said it expected to restore Brookes Avana, the Premier Foods plc unit it agreed to buy in December, to profitability within the next two years.
