July 15, 2011

 

West Midlands buys Northern Foods for US$552.75 million

 

 

West Midlands food tycoon Ranjit Boparan bought Northern Foods in a GBP342-million (US$552.75-million) deal in April and is merging it with his 2 Sisters Food Group, a major European poultry supplier.

 

The integration of West Midlands and the Yorkshire-based company is going to plan but warned of the tough consumer environment and surging commodity prices.

 

In an update to bondholders, his Boparan Holdings umbrella company said it is likely to hit its target of GBP2 billion (US$3.23 billion) sales for the year to the end of July. Earnings before interest, tax, depreciation and amortisation are likely to reach GBP170 million (US$274.76 million), it added.

 

Boparan has pledged to grow the group's turnover to GBP3 billion (US$4.85 billion) by 2015.

 

The group said that adjusted like-for-like sales grew 4.5% over the year, and 2% on an unadjusted basis.

 

"We have seen a solid financial and operating performance during the period, in what remains a challenging consumer environment and with continued commodity pressures," said Boparan. "The integration work following our acquisition of Northern Foods is progressing to plan and we believe we have the right recipe to become fit for growth and further develop our business in the years ahead. We have received positive feedback from our customers and stakeholders, and we remain fully focused on delivering the highest quality for the lowest cost."

 

Boparan said he plans to soon split the group into five operating divisions – UK poultry, European poultry, chilled, frozen and bakery – "ensuring we have a sharper focus on our performance".

 

Tesco's biggest chicken supplier, 2 Sisters, was hit by surging feed costs during the year. In the UK, it also saw reduced volumes as consumers cut back on waste.

 

Boparan said the poultry business continues to trade in line with expectations across the UK and Europe, and is focusing on recovering the impact of higher feed costs.

 

The branded division, which includes frozen and bakery, has seen higher promotional activity. It is investing in new products, such as Fox's Ambers in the biscuit market.

 

"Like many predominantly UK-focused businesses, we share the cautious economic outlook into our next financial year," he said. "However, we have quality products, strong brands and we will continue to progress our integration programme, both to deliver targeted synergies and to become fit for growth. "

 

No figure was put on the total savings Boparan hopes to make from merging the companies, but these are thought to be less than the targeted GBP40 million (US$64.65 million) synergies from Northern's aborted merger with Irish food group Greencore.

 

Savings so far have included closing Northern's Leeds head office, axing highly-paid staff such as its former finance director, Simon Herrick, and shrinking its supplier base.

 

Greencore this week announced a deal to pay GBP113 million (US$182.64 million) for Uniq, the remainder of the former Unigate.

 

Boparan funded his acquisition of Northern through a high-interest GBP695 million (US$1,123.29 million) bond issue, which he used to repay a short-term loan from his bankers as well as clear Northern's historic debt. It also established a new GBP40 million (US$64.65 million) revolving credit facility.