Latest financial results released by the Noble Foods Group show that shareholders have enjoyed a bumper pay-out, despite what the company said had been a “very challenging” year for the egg industry.
Annual dividend payments amounted to nearly £18 million, according to Noble’s accounts for the period up to the end of September 2012. The pay-out is more than three times the figure for the previous year. Dividends for the 12 months to September 2011 totalled £4.91 million compared with the £17.86 million paid out for this last financial year. The financial statement also shows that the highest paid director received £1.23 million over the year, compared with £881,000 in 2011. Some £350,000 of the total was made up of performance-related pay.
Pre-tax profits for the year to September 2012 were up by 30 per cent on the previous 12 months. The group made £14.844 million over the last 12-month period compared with £11.422 million in the previous year. The figures come at the end of a period of intense speculation that the business could be up for sale. Latest rumours suggest that such a sale is now off the table, although Noble has consistently refused to comment on any reports of a possible take-over.
Improved profitability was generated on turnover that was flat – sales for each of the last two years has remained consistent at £594.6 million, although the directors have warned that there could be difficulties ahead for the egg industry.
“The year ahead looks no less challenging than 2012,” they said in their annual report. “Feed prices look set to stay at the recently established high levels and chick placings across the EU indicate that the laying flock will expand in 2013.”
Despite these concerns, the directors said that the group, which includes dessert companies Gü Puds and Didier’s Patisserie as well as the core shell egg and egg products businesses, was “well equipped to progress in the future.”
Although profitability improved over the last 12 months, the group says that pre-tax profits are still below the level of the year to September 2010. The directors said in their report that the year covered by the latest set of results had “once again” been a “very challenging one for the egg industry.” They said that the European Union’s Welfare of Laying Hens directive (which enforces a ban on the use of conventional battery cages by egg producers) came into effect on January 1 2012. They said that the directive required that the last battery facilities had to be depopulated in advance of this date and Noble and its producers had made £100 million capital investment in enriched colony facilities to comply with the legislation.
The directors said that, despite the introduction of the ban, there was widespread non-compliance with the regulations in some European Union states. When the ban came into force a total of 13 EU member states with 83 million laying hens were still using battery cages, avoiding the financial burden of the re-investment made in compliant countries. And they said that because the egg industry in the United Kingdom had invested early to comply with the new rules, there was a significant surplus of egg towards the end of 2011 as a result of the overlapping of production between the old cages and the new units.
The directors pointed to more market distortion that arose when countries started to deal with the illegal batery units on the continent. “As countries depopulated flocks in early 2012 significant market distortion was experienced,” they said in the report. “Wholesale market prices escalated sharply as availability decreased and caterers started buying bulk volumes from retail outlets. These market conditions adversely impacted our egg processing business with restricted egg availability and input prices reaching record highs.”
The directors said that rising costs had made for difficult conditions throughout the year. Feed price inflation had “continued unabated during the year as a consequence of both global supply chain factors and continued financial speculation. As a result, the on-farm cost of egg production rose sharply,” they said in the annual report, although they said it had been difficult to secure rises from retailers to cover the increased costs. “Given the intensely competitive retail market place, it was difficult for Noble to immediately secure the necessary price increases required to negate these cost increases, although we were pleased to eventually pass back substantial price rises to producers during 2012. In a market leading move, the majority of these prices were passed back ahead of them being secured from our customers.” Noble indicated in the report that it expected feed prices to remain high over the coming 12 months.
The group’s annual report referred to trends in the free range egg market during the year to September 2012. Noble said that after a number of years of growth in retail sales of free range eggs, the growth of the retail free range sector ceased during 2012 and the cage sector started performing more strongly.
“This trend was attributable to increased retail cage sales to catering customers, a reduction in free range promotions which increased the price premium over value eggs, together with the impact of a tightening economy forcing shoppers to be more price conscious and trade down to cheaper products,” the group said.
However, it went on to say that Noble had invested heavily in brand development and the happy egg free range brand now had an annualised retail value approaching £75 million. “Happy egg producers now benefit from a price premium as a result of the higher on-farm standards required for the brand,” said the group, which said that the brand had also been launched in the United States in October 2012. It said, “Brand and retailer development, together with our ongoing commitment to category management, form key parts of our strategy to drive added value volume growth in the retail shell egg market by increasing both weight and frequency of purchase.”
On another note, it said that its cause related brands – Eggs for Soldiers, which helps to raise funds for the Help for Heroes charity, and One Good Egg, which raises money to help disadvantaged people in Malawi, had received recognition from the International Egg Commission for displaying outstanding corporate and social responsibility.
