Losses almost tripled at UK chicken giant 2 Sisters last year as rising commodities costs and labour shortages hit its bottom line.

Newly filed accounts at Companies House show 2 Sisters Food Group fell to a £95.5m loss in the year to 31 July 2021 and a pre-exceptional loss of £44.9m, from respective losses of £34.3m and £4.6m the previous year.

The expanded losses were posted despite a 10.3% rise in revenues to £1.4bn, driven by customer wins and new product launches.

However, a drop in gross margin from 8.8% to 6.4% was driven by labour constraints, which led to “production inefficiencies”, along with rising commodity costs, especially feed prices.

The rapid rise in inflationary inputs meant the group had not been able to mitigate all cost increases in a timely manner during the period.

“The UK poultry business has been through a challenging trading period with extensive headwinds in the year,” the accounts stated. “Significant labour shortages caused by Brexit and Covid-19… present an ongoing structural challenge for all manufacturing businesses in the UK and has hit the UK poultry business particularly hard.”

Parent group Boparan Holdings saw sales edge back 3.1% or £82.5m to £2.6bn, largely due to the disposal of non-core assets during the year, primarily its sale of Fox’s Biscuits to Ferrero in October 2020.

Headline profits before tax for the parent group rose to £52.6m from £1.8m due to a £137.8m gain from the disposal of businesses. However, EBITDA dropped by £52.4m to £76.3m as the business unit sales and lower profitability across key segments hit trading.

Outside poultry, sales in meals and bakery fell 19.7% to £150.6m with pre-exceptional operating profits falling to £19.4m from £21.9m after the sale of Fox’s, closure of its Pennine ready meals facility and prior disposal of its Matthew Walker Christmas pudding business.

During the year it refinanced its capital structure, issuing £475m of loans due in 2025 and agreeing a new £90m revolving credit facility.

The accounts warned of a potential “material uncertainty” over its trading as a going concern in the event of a downturn in conditions resulting in breaching group lending covenants.

However, the accounts were signed off in November 2021 and no such breach has occurred subsequently, despite the accounts warning of continued labour shortages and accelerated costs inflation since year-end.

A Boparan spokesman commented: “Our accounts were finalised and shared with financial stakeholders last year, and while the environment continues to be challenging, we have met all banking covenants.”

The group said it was working on measures to mitigate labour issues, including improving its staff retention and agreeing new pay rates.

The accounts state: “We are working hard to simplify our operations and our product offering, which alongside automation benefits coming online throughout 2021/22, will reduce the impact of labour shortages by enabling us to better utilise the workforce we have.”

Since year-end Boparan has continue to restructure, including launching a consultation process at its Uttoxeter biscuits site, and securing additional funding with lenders and bondholders.

 

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