Walkers Shortbread profits hit by surge in butter prices

As featured on BBC News website on the 18th July 2018 Link: HERE.

Profits at Walkers Shortbread crumbled last year after the company was hit by rocketing wholesale butter prices.

The Moray-based producer of shortbread, biscuits, cakes and oatcakes saw pre-tax profits fall by 60% to just over £5m.

This was despite sales increasing by 3.2% to £143.1m.

In accounts filed with Companies House, Walkers said it had been one of the most challenging years the firm had faced since it was founded in 1898.

Last year, wholesale butter prices rose to record highs as a result of a supply shortage combined with rising demand.

That contributed to a sharp increase in the Aberlour firm’s sales costs, which climbed by nearly £12m to £131.8m.

In its accounts, Walkers said export revenues grew from 43% to 44% as a result of an “improving economic outlook” in many of its markets and the fall in the value of sterling following the Brexit referendum in 2016.

However, it added that its financial performance had been “significantly impacted by a surge in the wholesale price of butter, only part of which has yet been recovered through improved customer pricing”.

The company said: “The burden placed on the group by this increase in costs has, without doubt, made this one of the most challenging years in our long history, and, while the business remains robust, with a very strong balance sheet, our operating profit fell by 60%.

Walkers also reported that the downward pressure on prices in the UK private label sector had continued “unabated”, which it expected would “limit the extent to which our domestic margins can ultimately recover”.

The firm also said it expected to see its margins, at forecast butter prices, to “remain significantly below historic norms”.

It added: “Customer resistance to the unavoidable price increases could result in the loss of some private label volume in 2018 especially given the intense competition in the sector from competitors prepared to buy market share.

“However we continue to believe that the quality and provenance of our products, together with the enduring nature of our customer relationships, equip the business to meet current challenges.”