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Horsemeat scandal still weighing on 2 Sisters Food Group

The maker of Goodfella's pizza and Fox's biscuits said it was still feeling the effects of the horsemeat scandal today after a fall in quarterly profits.

2 Sisters Food Group said sales of ready meals continue to struggle after the scandal erupted in January - even though no traces of horsemeat have been found it its products.

The Birmingham-based company, one of the UK's biggest food producers, saw underlying operating profits fall £11.1 million to £20.3 million in the 13 weeks to the end of April.

Profits were also eroded by rising costs, the tough consumer climate, the exceptionally cold spring and the acquisition of loss-making operations from Dutch food group VION.

But 2 Sisters, which is also one of the UK's biggest poultry suppliers, said like-for-like sales increased 4.5% to £624.6 million as it continues to win business with major retailers in its meat arm.

The company, owned by entrepreneur Ranjit Singh Boparan, said it expects the market to remain tough as inflation continues to squeeze consumers' spending power and shoppers shun ready meals.

2 Sisters said the market saw ready meal sales plunge by 20-40% when the horsemeat scandal emerged, after traces of horse flesh were found in frozen beefburgers sold in Tesco, Iceland, Aldi and Lidl.

The company has been on a debt-funded buying spree in recent years, acquiring Yorkshire-based Goodfella's pizza-maker Northern Foods for £342 million in 2011.

In March it also bought the poultry, beef and lamb processing operations of Dutch food group VION after it decided to quit the UK. The deal, for an undisclosed value, has been cleared by the Office of Fair Trading.

2 Sisters acquired a £1 billion turnover business with 5,500 staff and factories in Perthshire, Glasgow, Aberdeenshire, Anglesey, Flintshire, Essex, Suffolk and Cornwall.

But the VION business is losing money and together with the ongoing drag from the horsemeat scandal, will continue to erode profits for the rest of its financial year, the company said.

It said: "Despite the tough environment, we believe we are taking the right actions to improve margin by addressing product and customer mix and by implementing our turnaround plan for the VION acquisition."

Total sales grew to £764.8 million in the quarter from £603.1 million a year earlier. The company has annual sales of about £3.3 billion and employs around 24,000 staff.

Underlying revenues in its chilled arm increased 2.5% despite falling sales of ready meals.

Its branded division saw like-for-like sales fall 5.5% as consumers switched to own label biscuits and pizza sales struggled.

But its meat division saw underlying sales surge 10.1% as it continues to win business with major retailers.

Net debt was £29.3 million lower at £565.4 million.

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Food and drink

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