Simplot managing director Terry O’Brien.SIMPLOT Australia, the maker of the Chiko roll and a string of big food brands including Birds Eye, Edgell, Leggo’s and John West, squeezed out a 4.65 per cent rise in sales revenue to $1.24 billion in its last full financial year, but its bottom-line profits were eaten into by restructuring costs.
Nanjing Night Net

Simplot Australia is one of the biggest suppliers to supermarket giants Woolworths and Coles, and managing director Terry O’Brien said the company was delivering similar rates of sales growth in the first few months of its new financial year and had kept the momentum going through January and early February.

Simplot Australia is owned by United States giant J.R.Simplot Co and its latest set of financial accounts lodged with the corporate regulator revealed that sales growth had been solid for the 12 months ended August 30, 2014, up 4.65 per cent to $1.24 billion.

But the bottom-line profits for the year were 26 per cent lower, with net profit after tax down to $33.8 million, compared with $45.9 million a year earlier, largely because of restructuring costs.

Mr O’Brien said in the opening months of the firm’s new financial year, the business was tracking at similar sales growth rates, with new private-label contracts with Woolworths helping the momentum.

“Our growth is around the same type of range,” Mr O’Brien said. He said Birds Eye was the biggest brand by volume in the portfolio, but John West was the most profitable and had a stellar year. John West had been the “standout” brand, with its profits buoyed by the strong Australian dollar because it was largely an import brand. Simplot Australia makes about 70 per cent of its products in Australia, with the remainder offshore.

The company operates factories in Tasmania, NSW and Victoria. It had potentially been eyeing a shift of the operations to lower-cost New Zealand before signing a new workplace agreement last month which gives workers a 6 per cent pay rise over three years, less than half that being sought by unions.

Mr O’Brien and his management team pruned the Australian workforce hard and that showed up in the accounts with $22.8 million of termination benefits being booked. There was also a net unrealised foreign exchange loss of $16.5 million. Mr O’Brien said Simplot Australia had been forced to cut costs hard to stay competitive.

“We’ve done a lot of work on the cost side,” he said.

Simplot Australia announced in October 2013 it would cut a total of 228 full-time and casual jobs at its Bathurst manufacturing facility, and at a plant in Devonport in Tasmania, as it pursued cost savings. One of the products made at the Bathurst plant is the Chiko roll.

Rivals Heinz and McCain have already consolidated their food processing operations in New Zealand, citing lower costs. McCain shifted production to New Zealand in 2010, while Heinz shut down plants in the eastern States in favour of utilising a big factory at Hastings in New Zealand.

Simplot Australia, which also makes brands including I&J, Seakist and Lean Cuisine, didn’t pay any dividends to its US parent. The founder of the Idaho-based parent company, J.R. Simplot, died in 2008 at the age of 99.

The company made its first investment in Australia in 1995 with the $500 million acquisition of a large part of the former Pacific Dunlop’s food business and it has both bought and sold other businesses in the past 20 years, adding the John West canned fish business to its portfolio, but exiting meat pie and bakery brands Four’N Twenty and Herbert Adams.

Profit before income tax for 2013-14 was $42.8 million, compared with $61.4 million a year earlier. Simplot Australia paid $9.6 million in income tax, compared with $15.9 million a year earlier.

Steve Razdan, economist with AusVeg, the organisation which oversees the interests of 9000 vegetable and potato growers, many of whom supply Simplot and other food processing firms, said growers were facing consistently declining profits because of higher costs of production at the grower level.

“Labour is the highest cost but electricity costs are rising,” he said.

Growers providing the vital ingredients in the first step of the food production chain were losing out to food manufacturers and large supermarket operators in being able to secure their own price increases.

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