Rising costs hit profits at Walkers despite hike in turnover

RISING flour prices and other “record” raw material costs will squeeze this year’s profits at Walkers Shortbread, the biscuit and cake maker has warned.

The Aberlour-based firm, which has been making shortbread since 1898, posted a 9 per cent fall in pre-tax profits for 2010 to £8.9 million as poor weather drove up food prices.

The firm’s operating margins fell to 8.2 per cent from 9.9 per cent, leading to a drop in operating profits to £8.7m from £10m, according to accounts filed at Companies House.

But turnover rose by 6 per cent to £106.3m as “the major economies around the world emerged from recession”.

Exports accounted for 40.9 per cent of revenues, up from 38.6 per cent following the upturn in the global economy.

Overseas sales were also boosted by the first full year of contributions from Top Food, a German distributor bought by Walkers last year for £1.5m.

Australia, Canada and the United States have always been important markets for the firm, but inroads are now also being made into China and Japan.

Writing in the company accounts, joint managing director Jim Walker said: “Given the nature and scale of the cost pressures now faced, we anticipate that our margins will weaken further and it may be some time before a recovery is secured.

“However, we believe that the strengthening of management structures and investment in manufacturing capability over the past few years leaves us well placed to meet the challenges of the post-recessionary environment, competition, food inflation and continued weakness in sterling.”

Walkers – which was founded by Joseph Walker and is now run by his grandchildren and great-grandchilden – said the rise in revenue was down to both developments of its eponymous brand and with “private label” products for clients.

The company makes biscuits for Duchy Originals – the brand set up by Prince Charles to use ingredients grown on his Highgrove estate – and products for diet management company WeightWatchers. Supermarket chains Sainsbury’s and Waitrose are also customers.

Other products baked by Walkers include fruit cakes, oatcakes and meringues.

Falling profits led to a drop in the interim dividend paid to shareholders, who are listed as members of the Walker family, with the payout decreasing to £2.9m from £3.7m. Charitable donations also fell, down to £29,000 from £54,000.

The highest-paid directors – understood to be Jim Walker and his brother, Joseph – received a pay rise to £990,000 from £987,000. Staff numbers rose to 1,224 from 1,155, with employment costs increasing to £25.9m from £23.8m.

Lower returns from corporate bonds meant that the tax-adjusted deficit in the company’s pension fund was reduced by just £500,000 to £1.7m, despite asset values rising by £2.6m.