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Grampian chief blasts supermarkets

By Ian Fraser

Sunday Herald

April 2nd, 2006

FRED Duncan, chairman of Scotland’s largest privately owned company, has hit out at the practices of UK supermarket groups in their push for lower and lower prices from suppliers.

He said: “They’ve been so spoilt over the past decade or more, and they’ve only seen prices go in one direction, and the government is very supportive of that because it helps its inflation figures.” He said chains including Asda are showing little sign of ceasing to “screw their own-label suppliers” and that the relentless pressure they are putting on prices is “unsustainable”. He said his own firm, Grampian Country Food Group, has meetings with Tesco, Asda, Sainsbury’s and Morrisons “every day”.

But he does not believe the supermarket groups are getting the message: “No. They don’t want to hear.” Duncan was speaking ahead of the release of financial results for Grampian, which reveal that it has gone into the red in the year to May 2005. He said he expects the group, which has annual sales of more than £1.8 billion, to remain loss-making during its current financial year.

Duncan, who has a near 70 per cent stake in the business which he founded in 1980, said the losses largely stem from the closure of six factories during the year. “Our execution in closing these factories could have been better.

“We are under huge pressure on margin and huge pressure on fuel cost increases.” He also said energy, packaging, transport and waste disposal costs have all “escalated dramatically over the past two years”.

Accounts at Company’s House show a pre-tax profit of £1.3 million on revenue of £1.85bn. Profit was wiped out by a £4.1m tax charge, however, bringing an overall loss of £2.8m, down from the £12m profit the year before. A dividend of £9.8m has also been paid to the company’s owners. The group’s overall borrowings, understood to be mainly with minority equity partner Bank of Scotland, grew by £32m to £308m.

Grampian also suffered £19m of exceptional costs – the result of restructuring and the closure of plants in Buckie in Scotland, and Driffield, Robertsbridge and Uckfield south of the Border.

Duncan said: “You never do these things without a lot of pain – With hindsight we tried to do too many things in a year.” All the closures were announced in the year to last May but some fell into the current financial year.

Duncan added that Grampian has been investing in surviving sites, including £17m investment at its Hall’s unit in Broxburn. He said there was also investment in plants in Suffolk, Thorne, Coupar Angus and Portlethen.

But he warned that there may be further pain ahead, indicating that there is still a need for further rationalisation, with the possibility of up to five further plant closures.

Grampian has 21,000 staff, and payroll costs increased from £302.7m to £336.8m, including a £5.3m increase relating to its defined benefit pension schemes. Duncan believes payroll costs will fall in the current financial year. Gross deficit in Grampian’s pension schemes has risen to £132.4m from a surplus of £40m four years ago.

It currently has about 30 plants, including poultry plants, meat plants, seed mills and hatcheries, including four plants in Thailand. Duncan said it is the biggest in its sector in sourcing meat from overseas locations, such as Thailand, Brazil, Argentina and all over Europe. Duncan also warned of a risk to supply as certain geographic markets closed because of health scares.

Duncan was guarded about the exit of former chief executive David Salkeld, who departed last September, and dismissed suggestions that he had been forced out after head office costs surged by around £25m without any noticeable effect on the bottom line.

But Duncan did admit that he had realised during 2005 “that budgets were not being met, by a long chalk”.

He added: “We’ve seen how the textile industry disappeared, we’ve seen how shipbuilding disappeared, and you could go through a whole list of things that are now produced in China that were at one time produced in the UK.” He said he believes that UK agriculture will survive long-term but it will become “less intensive”.

Duncan also revealed that he would be happy to welcome other shareholders on to the group’s roster, but said that speculation he is considering a float was “ridiculous”.

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