Rising input cost and slowing consumer demand blamed
Vion Foods UK, parent company of Hall's of Broxburn meat processing plant, has reported a loss of £39.6 million for the 2011 year – more than double the £14.9 million loss posted the previous year.
The company announced yesterday plans to close its Broxburn, West Lothian, site, which would see 1,750 people lose their jobs.
A 90-day consultation process with unions and workers was launched on Thursday.
UK chairman Peter Barr said the company had “strenuously tried to avoid” closing the plant for the past four years, adding “huge losses being incurred mean we believe we have no alternative".
The UK subsidiary of Netherlands-based Vion NV, said turnover for the year was £1.17 billion, down from £1.21 billion the previous year.
Losses were mitigated by a tax credit of £7.2 million from previous years' losses, which reduced a pre-tax loss of £46.5 million to £39.3 million.
Vion UK also increased its bank overdraft facility from £30 million in 2010 to £106.9 million last year.
Staff costs rose to £104.5 million from £100.2 million the previous year, though costs rose as a result of redundancies from the closure of sites in Sheffield and North Wales.
In annual results filed to Companies House, Vion UK said its business, “like the wider UK economy, has faced a challenging year in 2011, with results behind target".
It added: “In 2011, food companies found themselves being squeezed between input cost volatility, with record grain prices, unprecedented livestock prices for beef and lamb, and continued fuel and packaging price inflation, and consumers whose household budgets were under relentless and growing pressure.
“These pressures impacted heavily on UK financial performance.”
Vion said its UK poultry business, which had in previous years outperformed other divisions, had delivered a “disappointing” performance in 2011.
This was put down to “significant increases in key input costs” and bad weather towards the end of the year “further exacerbating tensions in the supply chain”.
The 2011 accounts show a reduction in raw material and consumables costs from £987.4 million in 2010 to £939.3 million last year.
However, “other operating charges” rose more than 11 per cent to £142.7 million.
Consumer demand for poultry stagnated in 2011 and retailers “sought to maintain value offer and mechanics included some reduction in pack sizes to avoid higher prices".
Last year, Vion consolidated its poultry processing operations, closing a chicken processing facility at Thorne in Doncaster with the loss of 255 jobs.
Processing work was then transferred to sites in Coupar Angus and Sandycroft in North Wales.
Vion said its red meat business has also suffered in the past year, with UK consumption static as a result of higher prices, though Vion added the full impact of livestock inflation has not yet been passed on to the consumer, “in effect masking the true market conditions”.
However, Vion said the pork business has seen an upward trend in growth last year, though consumers were buying cheaper imported pork.
Cost inflation has created additional pressure for farmers, and “changing retail strategies have added processing capacity to a sector already burdened with over-capacity".
Vion said it had transferred sausage production from its Sheffield site to Broxburn last year as part of a wider strategy to consolidate the business.
The Sheffield site was closed with the loss of 205 jobs.
Vion said it conducted an interim valuation of its real estate holdings last year, which had last been performed in 2008, which gave a valuation of £112.1 million, up from £72.4 million in 2008.
A revaluation of plant and machinery also saw those assets gain in value from the 2008 valuation, from £19 million to £42.2 million.
Vion Foods bought the Broxburn plant in 2008 from the Grampian Country Food Group, which itself had amassed debts of more than £300 million.
Grampian Country Food Group, then one of Scotland's largest companies, was sold to Vion in a deal thought to be worth around £400 million.
Hall’s of Broxburn currently employs 1,150 permanent and 595 agency staff at its pork processing facility, which handles 8,000 pigs a week.
Last year, First Minister Alex Salmond announced a near £2 million funding package to Vion, which he said would safeguard jobs at the Broxburn site.