Business focus: Will furore over hygiene cost UK’s Chicken King his crown?

2 Sisters chief turns to bond markets while battling crisis at the supplier
Michael Bow11 October 2017

Standing on stage in a turquoise gown with gold trim, food tycoon Ranjit Singh Boparan looked the epitome of establishment success.

The man they call the “Chicken King” for his sprawling 2 Sisters poultry empire was on stage dishing out words of wisdom to graduates at Nottingham Trent University in 2015.

“The fear of failure is the single biggest drive to success,” he said, vowels dripping in a treacle-thick Black Country accent. “Treat work as a hobby. And get paid loads of money doing it.”

It’s an apt motto for the former butcher’s boy, who rose from a 16-year-old assistant grafting on the meat stalls of Wolverhampton to the upper echelons of the corporate food chain.

With his wife and business partner Baljinder, the 51-year-old has reaped the riches of Britain’s love of chicken, amassing an £850 million fortune and giving him a seven-bedroom house in leafy Lichfield, just north of Birmingham.

His empire supplies the nation’s biggest retailers including Tesco and Marks & Spencer.

But, for all its consumer hallmarks, 2 Sisters is as much a creature of the City as a tentacle of the supermarkets.

High finance helped make Boparan a rich man after fuelling 2 Sisters’ rapid expansion but an investigation has exposed possible hygiene breaches and led to the temporary closure of a plant in West Bromwich.

The scandal - in which film footage appeared to show workers picking up chicken from the floor and relabelling boxes to change the date the birds were killed - has rocked investor confidence at the very moment Boparan needs to start building support for a crunch refinancing.

Could those same financiers that made him now break the Chicken King?

The chairman 

Charles Allen

Media kingpin Lord Allen of Kensington was drafted in in 2011 after helping advise on 2 Sisters’ takeover of Northern Foods, which created the UK’s fourth largest food producer. He has run a range of big-name groups, from ITV and Granada to EMI. He was also a nonexecutive at Tesco and once worked as a senior adviser to Goldman Sachs.

Over the past two decades, 2 Sisters has gone from a small chicken processor in Smethwick with 100 people to a 7000-strong empire churning out six million birds a week — thanks largely to a dealmaking binge between 2007 and 2011.

Boparan clinched six takeovers during that time, including the £342 million swoop for Northern Foods, driving net debt at 2 Sisters’ parent Boparan Holdings from £27.5 million to £785 million in four years.

Today, the company has about £800 million in the form of junk bonds, a staggering amount for a firm with earnings of £168 million last year.

That’s left it sensitive to everything from the rising cost of importing chicken feed due to the weak pound to bird flu abroad and the looming crunch on consumers.

The Guardian and ITV News exposé has thrown a further spanner in the works, unsettling the bond market, where 2 Sisters holders include Schroders, BlackRock and Old Mutual.

Shutting the West Bromwhich plant — closed since October 1 — is expected to cost £500,000 a week and ratings agency Moody’s said the closure would be “negative” for the bonds.

Analysis by Barclays suggests the shutdown could cost up to £10 million, with a £2 million to £4 million hit to earnings in a division that makes £83 million a year.

That’s a big problem for a company that makes money by being faster and more efficient than competitors.

“Boparan always has to run faster and faster in production to keep costs to a minimum for its customers,” says Stephen Baines, a fund manager at Kames Capital who decided to pass up buying Boparan bonds.

“The company is quite weakly positioned versus its large supermarket customers and that’s essentially why this scandal has happened.

The finance boss

Richard Pike

Pike is the newest addition to the 2 Sisters empire. He joined in July from Primark owner ABF, where he was managing director for British Sugar. He was finance chief Stansted owner at MAG and glassmaker Pilkington before that. He replaced Stephen Leadbeater, who was finance boss for three years and left due to ill health.

There are plenty of signs of unrest. The price to buy insurance against a 2 Sisters default swelled after the exposé.

Investors must pay €638,000 (£570,000) to insure against a default on €10 million of Boparan’s five-year debt, according to Markit.

Before the exposé, the price was €490,000.

The yield on Boparan’s flagship £330 million bond, which rises as prices fall, has jumped to 7.2% from 6.1% a month ago, meaning there’s significantly less demand for its debt.

Those are bad omens for a highly indebted company that is under pressure to remortgage £850 million of IOUs before they expire.

“The problem for Boparan is because the leverage is so high, paying a higher coupon starts having a detrimental effect on cash flow,” says Standard Life Aberdeen’s Julien Martin.

The fund manager was a big bondholder until this summer when it sold its entire position over fears risks were too high.

Full-year results on November 7 may be used to trigger momentum for a refinancing of the bond. Goldman and JPMorgan, who led the deal last time, are in the frame.

But any momentum may be choked off by what analysts expect to be an underwhelming set of results.

Analysts at Barclays predict this year’s earnings will fall to £164 million. Bank of America Merrill Lynch pencils in £162 million due to poor operational performance.

Rob Orman, an analyst with Janus Henderson, expects the firm to postpone a refinancing for “at least six months” to let the dust settle. That would push a bond launch to March — offering a smaller window to tee up refinancing if it wants to signs off its accounts in July, its usual year end.

“Given the suppliers’ pressure and high leverage of the balance sheet, refinancing will be more tricky,” Baines says.

2 Sisters declined a request for an interview, saying: “As a private company, we keep our investors fully updated each quarter. We don’t comment publicly on corporate finance matters.”

The co-founder

Baljinder Boparan

Boparan founded the company with her husband in 1993 and they own 50% each. 2 Sisters is named after Baljinder and her sister, Surinder, who both hail from Walsall. With her son Antonio, she runs Boparan Charitable Trust, which was set up to help disabled children. Antonio was convicted over a crash which left a baby brain-damaged.

The revelations come as inflation and a wave of deals shake up the grocery industry — rival Bakkavor yesterday revealed plans for a £1 billion float.

Boparan already looks to be exploring options to ease the pressure.

In January, he received a £350 million bid for Fox’s. The food mogul is now reportedly examining plans to merge the biscuit brand with Wagon Wheels owner Burton’s and spin the combined group off on the London stock market.

Another option for Boparan is his personal wealth.

The Midlander is a significant landlord to farmers who raise chickens from hatch to broilers for use by 2 Sisters factories.

Amber Real Estate Investments, his property company, last year boasted assets at more than £200 million. But these sit outside his corporate structures, meaning bondholders have no rights to the assets.

Boparan could sell the property and pump in the money if the debt headache becomes a major issue, which would give the firm some breathing space.

Whatever happens, the Chicken King is likely to keep on clucking.