A troubled Canterbury sees hope in BSE rule change

The company is open to selling its meat division as a means of reducing its significant debt burden.

The adverse publicity due to BSE, foot and mouth disease and the Sudan 1 food scare affected sales of the company's meat products, as it has other players in the UK market. The trend towardshealthier eating and away from frozen and heavily processed products has also affect sales.

The UK government's decision last week to relax its rules on BSE will make more beef available to the UK processing market, and potentially the rest of Europe. The government agreed to allowdomestic cattle aged over 30 months to be slaughtered and used for human consumption.

These cattle were previously banned from the human food supply. The move is expected to lower prices.

Canterbury, the UK's largest supplier of frozen burgers, has suffered four years of losses. The release yesterday of results for the first six months of this year shows that the company has plungedfurther into trouble with an operating profit loss.

Canterbury yesterday welcomed the expected relaxation of the BSE rules on 7 November as a ray of optimism in otherwise dismal results.

"Hopefully we will see an easing of our input prices, removing some of the pressure on our margins in our meat products business,"​ the company stated.

A 20 per cent rise in meat prices, which Canterbury Foods said it was unable to pass on to buyers of its burgers and sausages, led to increased losses in the first half of the year.

The company cited depressed meat product sales and margins as continuing to set back the company's efforts to become profitable.

The company has been forced to gain an agreement with banks to waive interest cover on debt totalling £19.1m as at 30 June, an increase from the £15.4m reported previously. In addition thecompany has negotiated a temporary increase of £500,000 in its overdraft facility.

In the second half the company further cut costs and attempted to boost productivity. It was actively negotiating a sale of the meat business with an unnamed company earlier this year, but thatdeal fell through.

"The final offer from the prospective purchaser was unacceptable,"​ reported the company's chairman Christian Williams. "Unfortunately, this also meant that a plannedacquisition was aborted."​

A review of the business resulted in a additional £8.9m impairment charge against the value of the business. Williams reported management is conducting a review of what course to take now,including the sale of a number of business lines.

"It is clear that we need to significantly reduce debt and your board is actively looking at ways of so doing,"​ he stated.

The comany reported an operating loss of £1.121m in the first half of 2005, compared to an operating profit of £517,000 during the same period last year.

Management blamed rising input prices, reduced market demand and continued pressure on selling prices for the problems. Overall sales fell by £2.8m to £20.66m.

Canterbury manufactures sausages, pastry products and beefburgers for the food service and fast food markets. The company also has a growing food ingredients business, supplying cooked sausages,bacon, stuffing and pastry to UK customers, including retailers.

Sales in the pastry division rose by 13 per cent, continuing growth seen over the past year. The company's food ingredients business suffered from the slow down in development and trade by itsmajor clients following the Sudan 1 crisis.

The company lost a contract to supply cooked ingredients but said its underlying food ingredients business was a long term gainer.

Sales in July and August have confirmed the trends Canturbury's business is facing, Williams stated. Gains in pastry products, including sausage rolls, continue. He expects meat product volues tocontinue to be lower than the previous year, although the company has won some new contracts.

The group has 400 customers across the UK and manufactures about 1,000 products. The company believes its target market is worth £850m.

Last week the UK government agreed to allow domestic cattle aged over 30 months to be slaughtered and used for human consumption.

A ban on such cattle entering the food chain was imposed nine years ago after the outbreak of BSE or "mad cow disease". The move comes after the country's food regulator advisedgovernment that the country has developed an effective system to test cattle aged over 30 months for BSE.

The rule change would bring the UK into line with the rest of the EU, where a testing system for cattle over thirty-months-old has been operating since 2001.

The changes could eventually lead to the European Commission relaxing restrictions on exports of UK beef to the rest of the bloc's market. Earlier this year the European Commission proposed liftingthe additional restrictions the bloc put on imports of most live cattle and beef products from the UK.

The Commission cited the steep decrease in the incidence of BSE within the UK and throughout the rest of the EU, as reasons why the ban might be lifted. A testing system, as proposed by the UKgovernment would go a long way to opening up the market.

The release of more cattle for food consumption would be important for the EU market. For the first time in 20 years consumption of beef and veal surpassed EU production in 2003 and is expected togrow further by 2012, according to a forecast report by the European Commission.