It’s supposed to be in the middle of a turnaround, but Bernard Matthews has gone backwards, slumping back into the red in its latest full-year results, out this week.

Pre-tax losses of £20.4m for the 12 months to 30 June 2013 compared with a profit of £2m for the same period in 2012. Operating losses stood at £11.7m compared with a profit of £5.3m in 2012, while group sales were up marginally, coming in at £346.4m compared with £341.4m last year.

So what’s gone wrong? And what’s the plan?

Chairman David Joll’s assessment is sober: the results are “very disappointing” but do not come as a surprise, as the business has struggled for years. (Pre-tax losses since 2007 have totalled £134.2m.)

Lost control

Joll attributes the disappointing performance to a combination of external and internal factors. This year’s losses also included £4.3m in exceptional charges related to the restructuring of its Hungarian operations.

“Costs had spiralled in the business,” he says. “We got heavy on the management side and had multiple advisers, a lot of whom we’re now shedding. Then there were planning errors - we’re a vertically integrated business and that requires very careful control and planning.”

Last year’s poor grain harvests and high feed prices - particularly for wheat and soya - also pushed up production costs, and the company has not been able to recover those entirely from customers, Joll says. “Feed accounts for about 65% of the cost of producing a whole bird, and although our customers in the main have been very understanding, these things take a long time to negotiate. Where we have been able to recover costs, it’s been many, many months after the fact.”

Wheat and soya prices have recently started to fall from 2012 levels, but Joll says Bernard Matthews typically forward-buys feed many months in advance so continued to be hit by high feed prices in 2013.

The harsh winter in 2012 and the wet spring this year also required Bernard Matthews to increase the quantity and quality of feed rations - driving up the cost of producing birds.

Changes

So how has the company been fighting back? Importantly, Joll insists the company has a plan that will return it to profitability for 2013/14.

Bernard Matthews has undergone significant change since he took over as chairman in May, and especially since turnaround specialists Rutland Partners invested over £20m in the business in September. Bernard Matthews today is a very different company, he says.

Aside from driving efficiency across the business and investing in new infrastructure at its sites, it recently rebranded its branded cooked meats range, stripping the name back to Bernard Matthews (rather than Bernard Matthews Farms) and revamping the packaging. Reactions have been positive, and the company plans to roll out new packs for its frozen and fresh skus - in line with the changes on cooked meats - after Christmas, Joll says.

The immediate focus for the brand is to increase its presence in the mid-size stores of the mults, particularly for breaded products. “We don’t have all the space we used to have,” he says. “We have got to prove that we deserve that space.”

A consumer press ad campaign for the Bernard Matthews brand is under way, and Joll says TV is being considered for 2014. As for Christmas, Joll is tightlipped beyond saying Bernard Matthews has seen strong business on the fresh turkey side, where volumes are up roughly 10% year on year, as consumers continued to move from frozen to fresh. Crowns are also doing very well, he adds, while frozen has seen a marginal “single figures” decline.

A good Christmas will be crucial if Joll is to deliver on his promise of a return to profitability in 2014. Extenuating market conditions and issues inherited from previous management decisions make for a convincing explanation of the losses this year. They won’t next time.

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