Protein powerhouse Boparan Holdings has signalled a dilution in margins in the second half of the year as horsemeat and other factors conspire to take their toll on the market.

Boparan Holdings – the parent company of 2 Sisters Food Group – posted a 1.6% increase in operating profit (before exceptional items), to £26.1m in the second quarter (the 13 weeks to 26 January). Total sales were up 9.6%, to £626.5m, and like-for-like sales increased 5.4% to £597.4m.

However, the company said it remained “cautious” about the outlook. It anticipated continued food commodity inflation, volatile feed prices, high levels of promotions and considerable volume impact in the ready meals sector during the second half of the year following the horsemeat scandal.

Those factors, together with the acquisition of the loss-making Vion operations (which completed on 8 March for circa £30m), would dilute margins in the second half, it added in a statement. “Reflecting these challenges, we will need to invest with our customers to maintain sales growth for the remainder of our financial year.”

The company’s poultry division saw a 2.2% increase in like-for-like sales over the period.

“Looking forward we also expect considerable volume reduction in our ready meals business during the second half year following media coverage of horsemeat issues” - Ranjit Singh Boparan

Sales in chilled food were up 9.7% whilst like-for-like operating profit margin was down during the quarter. “This reflected the impact of inflation, investing with customers to maintain sales growth in a competitive market and the poor weather during January, as many customers stayed at home,” the statement added.

In branded foods – including Fox’s Biscuits and Goodfella’s pizza – like-for-like sales were up 6.2% although operating profit margin was broadly flat.

Net debt fell by £106.3m over the period, to £524.5m and EBITDA ratio improved to 2.69 times – it stood at 2.77 times at the end of the first quarter. Net debt is expected to increase slightly during the current period, as a result of the Vion acquisition, but Boparan Holdings expects to remain on target for a net debt ratio of between 2% and 2.5% by 2015.

Boparan Holdings had delivered a “solid” performance in Q2 and made good progress to recover higher feed costs by the end of the second quarter, said 2 Sisters CEO Ranjit Singh Boparan, adding that feed prices remained volatile. “Looking forward we also expect considerable volume reduction in our ready meals business during the second half year following media coverage of horsemeat issues.”

Total sales are expected to be 5% up over the full year even though the percentage margin will take a hit.

Boparan Holdings has not found any horsemeat in any of its products but its ready meals sales may well be impacted by loss of consumer confidence in the category as a whole.

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