Avara Foods has increased turnover but returned a post-tax loss as the impact of input cost increases, a subdued consumer environment and avian flu damaged the bottom line.
The poultry specialist reported sales of £1.26bn for the year to 31 May 2022, up from £1.19bn the year before. However profit after tax fell from £16.9m in 2021 to a loss of £16.1m in 2022, with EBITDA falling from £53.2m to £5.2m.
The company said that cost increases in the UK and globally, particularly for feed, fuel and utilities, put pressure on the business as cost inflation has been slow to pass through the supply chain. “Although customers have supported Avara with double-digit price increases, given year-on-year inflationary costs of nearly £85m, the lower level and delayed timing of increases received have materially impacted earnings performance and revenues by c.£(24m) during the trading year,” directors noted in the annual report.
Tough consumer environment
Reduced consumer spending also followed the peaks of Covid shopping, while earnings were further impacted by operating complexities and interruptions to exports due to the AI outbreaks in the UK. The impact of AI hit the business to the tune of £5m across its chicken and turkey supply chains.
Labour has also been an issue, as a shortage of key skills and a tight recruitment market post-Brexit resulted in a short-term fall in throughput. That negatively affected Avara’s margin mix until staff levels could be increased.
Responding to the tough trading environment, management focused on investment in critical capital projects and ensuring the company exited the year with low gearing and full headroom in working capital facilities.
Avara Foods said that cost pressures and supply disruptions are expected to remain until the Ukraine conflict is resolved, with inflationary pressure coming in the form of higher pay settlements, increased interest rates and ongoing high commodity and energy costs. The continued squeeze on household incomes is also expected to subdue demand.
“In the longer term, we believe that fresh poultry will continue to hold an important place in consumer diets as a sustainable, healthy, versatile, affordable protein, but the current economic stresses on the consumer during a period of high inflation and high cost of living are creating a market to which Avara needs to respond,” wrote chief executive Andy Dawkins.