Boughey Distribution saw profits fall last year in the face of volatile demand patterns for ambient grocery products.
Operating profit for the year to 31st May was £2m – down from £3.1m the year before despite a 4.7 per cent rise in sales to £44.2m.
Boughey, which is part of NWF Group, said the supermarkets had “significantly increased the amount of promotional activity as they are concerned that real consumer incomes are under pressure and are trying to maintain overall prices and value with the backdrop of increasing input commodity prices.
“The result for our business has been significant variability in loads per day which has been exacerbated by shorter lead times with Tesco and Sainsburys. Customers have held more stock to maintain service levels as a result of the volatility which necessitated the use of external warehousing, albeit on a flexible basis.”
Storage overall was at an average of 108,000 pallets (2010: 100,000 pallets) – more than the 105,000 working capacity. Storage peaked in October with an average of 118,000 pallets in stock during the month.
“Demand, measured in outbound loads, was similar to prior year, which highlighted the overall robustness of the ambient grocery market in difficult economic conditions. The increased volatility of demand reduced the fleet availability for backloads.”
However, the group said that the result in the second half demonstrated an improvement in underlying performance as a result of a number of actions taken by management. These included optimising the customer base to fit within its own warehouse space; sub-contracting more haulage, and introducing more flexible shift arrangements to cope with increased volatility of demand.
“These actions, in conjunction with changes in our pricing structure demonstrated a return closer to previous levels of profitability by the year end. In spite of the increased volatility service levels were maintained at an average of 99.5 per cent and service bonuses were earned from a number of accounts.”
NWF has two other divisions – one produces animal feed and the other is a fuel wholesaler. They faced less taxing market conditions than the Boughey business.
As a result, overall the group showed a 3.3 per cent rise in operating profit to £9.3m while sales were up 22.1 per cent to £463.8m.
Chairman Mark Hudson said: “I am pleased to report another record year in the continuing development of the Group. We have delivered an excellent result demonstrating the resilience of the Group during a period of significant volatility in key commodity markets.”