Let­ter re­veals col­lapse of Mcer­lain’s due to rapid rise in price of but­ter

Trou­bled bak­ery bought for £1.85m

Belfast Telegraph - Business Telegraph - - Front Page - BY MAR­GARET CAN­NING

THE soar­ing cost of but­ter was a key fac­tor in trad­ing dif­fi­cul­ties at Co Lon­don­derry bak­ery Mcer­lain’s, the Belfast Telegraph can re­veal.

The Magher­afelt com­pany was bought two weeks ago by Paul Allen, the man­ag­ing di­rec­tor of crisps gi­ant Tayto, after be­ing put into ad­min­is­tra­tion.

A let­ter seen by this news­pa­per from ad­min­is­tra­tors EY to the sup­pli­ers of the com­pany also re­vealed that Mr Allen’s firm Hatch Bros paid a to­tal of £1.85m for the busi­ness.

The ad­min­is­tra­tors ex­plained in the let­ter that the com­pany had ex­panded rapidly over the last 18 months, in­vest­ing in new ma­chin­ery and staff.

But the peak trad­ing pe­riod of Christ­mas 2017 failed to gen­er­ate ex­pected prof­its for the scaled-up busi­ness, lead­ing to ma­jor losses and cash flow prob­lems.

The let­ter said: “Ad­verse move­ments in the prices of key ingredients such as but­ter (ex­ac­er­bated by for­ward con­tracts at peak prices) con­trib­uted to th­ese is­sues and man­age­ment did not im­ple­ment suf­fi­cient con­trols to mon­i­tor costs dur­ing this pe­riod.”

Con­sumer prices of but­ter hit £4 for 500g last year, an in­crease of as much as 50% on the year be­fore.

The cost growth has also hit food man­u­fac­tur­ers like Mcer­lain’s which rely on but­ter as a key in­gre­di­ent. Prices are now around £3.15 for su­per­mar­ket-own brands, £3.29 for Spar’s own lo­cal brand or £3.75 for brands like Golden Cow.

Michael Bell, chief ex­ec­u­tive of the NI Food and Drink As­so­ci­a­tion, said but­ter sup­ply had tight­ened across Europe as a re­sult of cli­mate con­di­tions.

“De­mand has in­creased and the price has moved up. This is a global cost move­ment and the price has been rel­a­tively sta­ble at this high level for a while,” he said. “His­tor­i­cally, the cost of but­ter has made sharp move­ments up and down, but the next move­ment will be de­ter­mined by sup­ply-and-de­mand fac­tors.”

Dankse Bank is the largest cred­i­tor of the com­pany but agreed to pro­vide fund­ing through­out the sale of the busi­ness, which re­sulted in the res­cue of 260 jobs at the com­pany. Man­ag­ing di­rec­tor Brian Mcer­lain re­mains in his role.

Ac­cord­ing to the let­ter, cor­po­rate fi­nance ex­perts at EY had ap­proached nearly 30 po­ten­tial trade and fi­nan­cial buy­ers for the 50-year-old firm, which has cus­tomers in­clud­ing Waitrose and Marks & Spencer.

A to­tal of 27 were iden­ti­fied and 15 then ex­pressed an in­ter­est.

There were of­fers from two com­pa­nies, with Hatch Bros the only com­pany to make an of­fer based on buy­ing the busi­ness as a go­ing con­cern.

The let­ter by ad­min­is­tra­tors EY to the sup­pli­ers of Mcer­lain’s said the dis­ap­point­ing Christ­mas per­for­mance had led the com­pany to com­mis­sion con­sul­tants to iden­tify ways of im­prov­ing per­for­mance.

That ‘ turn­around’ plan was in­tro­duced in May and was to bring a re­turn to prof­itabil­ity by Au­gust.

How­ever, man­age­ment ac­counts re­leased in July showed the turn­around plan was not work­ing as quickly as it was ex­pected to.

The di­rec­tors then started look­ing for an in­vestor or buyer. EY had been ap­pointed to carry out an anal­y­sis of the op­tions open to the com­pany, with Danske Bank say­ing it would con­tinue to fund the com­pany.

But ac­cord­ing to the let­ter, EY’S process made it clear that the com­pany re­quired more sup­port, while the July ac­counts showed “a ma­te­rial ad­verse vari­ance against fore­cast prof­itabil­ity”.

Ac­cord­ing to the let­ter, EY was then en­gaged to sup­port an ac­cel­er­ated sale, in­clud­ing pre­par­ing for po­ten­tial in­sol­vency.

Ways of keep­ing trade go­ing were then dis­cussed, with dis­cus­sions then in­clud­ing a sale process.

How­ever, the let­ter says that trad­ing the busi­ness in ad­min­is­tra­tion with­out a sale was not in the best in­ter­ests of cred­i­tors be­cause “a num­ber of key con­tracts would ter­mi­nate on in­sol­vency and it was un­cer­tain which cus­tomers would con­tinue or­der­ing prod­uct”.

In ad­di­tion, it was de­cided that shut­ting down the com­pany al­to­gether would re­sult in even greater cred­i­tor claims as em­ployee li­a­bil­i­ties would be in­creased and as­sets would be worth less.

This week the com­pany an­nounced it was re­cruit­ing an­other 40 staff.

There are an undis­closed num­ber of other sup­pli­ers who have been told their debts are not likely to be re­paid, but who have been asked to con­tinue work­ing with the com­pany un­der new own­ers.

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