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Profits plummet and debt rises at Baxters

FOOD group Baxters has lost its appetite for acquisitions after rapid expansion led to profits plunging 61.2% in its last financial year and debts soaring.

FAMILY FIRM: Audrey Baxter took over the business from her father Gordon in 1992. Picture: Gordon Terris
FAMILY FIRM: Audrey Baxter took over the business from her father Gordon in 1992. Picture: Gordon Terris

Pre-tax earnings at WA Baxter & Sons (Holdings), the parent company of Baxters Food Group, amounted to £1.8 million for the 12 months to June 1, 2013.

This was down from £4.6m in the 2012 financial year and just over a quarter of the £7.1m it recorded in 2011.

However, turnover for the year at the Moray firm increased by 14.8% to £157m.

In their report in the company's accounts, Baxters' directors attributed the profit drop to exceptional expenses as it digested purchases including canned meat pie brand Fray Bentos which it agreed to buy in 2011.

This was the start of an acquisition drive under executive chairman Audrey Baxter that included the £4.5m purchase in January last year of Australian company Jensen's Choice Food and a £1.5m deal for Staffordshire-based Manor Vinegar a month later.

Baxters, which is based in Fochabers, had a £45.2m debt pile at the end of its financial year to June 1, up 16.4% on the £38.8m it had on June 3, 2012. This is more than double the borrowings of £20.6m it had two years earlier.

The company's directors said: "As we have taken the opportunity to grow our business through acquisition, we have increased the level of gearing in our balance sheet.

"We are now activating a significant deleveraging exercise over the next two years, bringing our balance sheet indicators back to a normalised level by the close of our financial year 2014/2015.

"This is a reflection of our continued prudence in the management of free cash and the desire of our shareholders to keep that cash within the business.

"This strategy will inhibit our desire to acquire during this time frame as our focus will be to drive core operations and derive benefits from the new shape of our business."

The company said that its ability to make the purchases was a reflection of the "excellent quality of debt" currently available due to the Bank of England's Funding for Lending Scheme, which encourages banks to hand out loans by offering them cheap funding.

Baxters said the deals done last year were "opportunistic", but that 2013 had been "a year of transformation" for Baxters.

The company booked £6m of exceptional items in its last financial year after taking £3m of one-off charges in 2012.

Around £3.5m of the items for the most recent year are related to what its directors described as the "very difficult" integration of Fray Bentos and the shift of its operations north of the Border. This included £1.2m in the cost of sales and £2.3m in administrative expenses.

Exceptional items also included £1.3m of marketing spend above normal levels. It made a £1.5m exceptional charge for the same purpose the previous year.

"We expect these exceptional items to shrink considerably this year as we continue the final stages of integrating all our acquisitions," Baxters said.

On an underlying basis, Baxters said its pre-tax profit was up 3.5% to £7.8m.

The company said that the 2012 horse meat scandal continued to weigh on the industry.

"During the year, there have been a number of significant issues affecting the food manufacturing industry, making for difficult trading conditions.

"In particular, food inflation has settled above 5% whilst customer and consumer expectations continue to push for deflation and deep promotions.

"The horse meat scandal of 2012 and the ongoing interrogation of the global supply chain created a lack of confidence in suppliers and brought in, rightly, a raft of diligence measures not previously demanded."

Revenues at Baxters' UK operations grew 14.4% to £98.4m while its Canadian business saw income rise 14% to £42.9m. Australia expanded 30.9% to £11.2m while its retail division shrank slightly to £4.5m.

The group said it was confident it would grow in a similar manner in the current year.

Baxters' directors said: "The year ahead will be challenging but we are confident we will rise to those challenges."

Gordon Baxter, one of the driving forces behind the growth of the business before passing it on to daughter Audrey in 1992, died in early 2013 at the age of 95.

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