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Big Prawn Co. profit rockets but tougher times lie ahead

After Brexit, 'things are very different,' MD tells IntraFish.

UK-based shrimp processor The Big Prawn Co. saw its pre-tax profit rocket 140 percent in its latest financial year, ending May 31, 2016, but the picture is very different today in a post-Brexit world, the company's Managing Director Will Rash told IntraFish.

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In the fiscal year ended May 31, the company made a pre-tax profit of £2.4 million (€2.8 million/$2.9 million) compared with £1 million (€1.1 million/$1.2 million) in 2015, led predominantly by an improvement in raw material availability, according to the latest results posted on Companies House.

Turnover for the year amounted to £31.5 million (€36.1 million/$38.5 million), up 47 percent from £21.5 million (€24.7 million/$26.3 million) in 2015.

Rash was unwilling to elaborate on exactly why the results were so buoyant in the period, but did point out the reported year “was a long time ago now” and “things are very different today."

“Lots of things have happened since then and we’re obviously now very focused on this year,” he told IntraFish. "However we have benefits of scale, we are a bigger business today, but things are still tough and we’re now working on this year’s plan."

Cost of sales in 2016 also increased 47 percent, from $17.4 million to £25.6 million (€29.4 million/$31.3 million), while gross profit was up from £4 million (€4.6 million/$4.9 million) to £5.9 million (€6.8 million/$7.2 million).

Operating profit was £2.5 million (€2.9 million/$3.1 million) up from £1.1 million (€1.3 million/$1.3 million) -- a jump of 127 percent -- and total comprehensive income for the year was £1.9 million (€2.2 million/$2.3 million) up from £773,618 (€887,131/$946,568).

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“Turnover and profit from all sectors continues to grow following the improvement in raw material availability, but variance on foreign exchange continues to be a principal risk,” the company said.

However, the principal risks, uncertainties and challenges facing the company continue to relate to the supply of raw materials These include potential quota limitations, climate issues disease problems and supply shortages.

Then Brexit raised its ugly head

Since these results were filed, Brexit has obviously become a major issue facing the company, as it is with many seafood companies in the UK.

"We buy in US dollars, as well as euros, and we’ve had two dramatic cuts in currency valuation since," said Rash. "What makes this singularly very different from previous years is the speed, and the suddenness of those cuts."

With the currency changing from one level to a completely different level one day to the next, the Big Prawn Co. has incurred 20 percent in price increases as a result.

"We’re not the only ones out there, the whole market’s like that," said Rash. "We can’t afford that, that’s the bottom-line -- when a business has that kind of increase, it quickly wipes out any gain."

Although the implication of Brexit is probably the largest challenge facing The Big Prawn Co. at the moment, raw material is always a challenge as well "in one way or another," as is inflation.

"We are seeing inflation at the retail level now, and that’s going to have an impact -- not only are businesses now going to have to get price increases through, but there is also the risk it will slow business down."

Another aspect of Brexit is it also affects working capital, not just prices.

"Suddenly the value of stock goes up and that has a dramatic impact especially for things we’re buying on a seasonal basis," said Rash.

The Big Prawn Co. is currently in negotiations with its customers -- which include the likes of Waitrose, Morrisons, and the discount retailers in the United Kingdom -- about passing on the dramatic price hikes.

"But it is a process that has to be done with mutual understanding and respect from both sides. If we pass it on, then that’s going to hurt our customer who will have to pass it on, so it’s a two way process."

According to Rash, there is a need for a mutual understanding that the Brexit situation is a national issue, and everyone is "doing the best by everyone else to try and manage the best situation, and that’s the approach we are trying to have with our customers."

Self investment and NPD continues

Meanwhile the company is still self-investing, putting its earnings back into the business and expanding its own facilities.

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"This is about continual growth and continual building of the foundations so we can build a very sturdy ship that is capable of taking many more passengers," said Rash.

Likewise the company is continually looking at developing new products, which Rash argues is more important now than ever.

"We have to continue to innovate and develop. The industry will find its base and realign things as every industry has to -- Brexit is a national issue and once that base gets reset, everything will move on again."

And The Big Prawn Co. wants that process to happen as quickly as possible so it can continue "driving a good agenda for our customers and for ourselves and that will always involve NPD and innovation".

"Arguably innovation is even more important today to try and re-engineer value so that everyone is doing everything they can to offset the impact of these increase," said Rash.

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