Chilled food group Uniq's huge Midlands desserts operation is in big trouble, it has revealed.
The setback came despite the firm saying its recovery was on track after its annual results saw a return to profit for the UK and French operations.
The company, which supplies sandwiches and ready meals to Marks & Spencer and desserts to Tesco, reported a UK profit of £5.9 million last year, against a £2.8 million loss in 2006 amid an overhaul launched two years ago.
Gerrards Cross-based Uniq, whose Shropshire-based desserts factory is at Minsterley, said it still had work to do in turning the business around and would face a tougher year ahead.
The firm revealed that despite attempts to return its desserts business to profitability last year, the division’s performance remained "unacceptable".
Uniq said it had seen a drop in sales of desserts as it stuck to a robust pricing policy and revealed a £31.1 million hit on Minsterley, despite spending £36 million on upgrading the site last year.
The company said it continued to "review all options" for the desserts arm.
It added that it was renegotiating the terms of its contract with major client M&S – which accounts for 27 per cent of group sales – in a move which could have a "significant impact" on its UK arm.
Uniq said that it had been appointed by M&S as supplier for its three core "food to go" offerings – fish, deli and premium desserts – and hoped that the contract discussions would lead to a greater share of M&S business.
Uniq’s recovery plan has so far seen the firm sell off its French spreads business and its Belgian salads operation, while it has also launched a group-wide restructure and cost cutting regime.
It reported a narrowing in group-wide operating losses by £7.3 million to £3.6 million in the year to December 31 and said sales rose 2.9 per cent to £736.1 million despite soaring food price inflation and doubts over consumer spending.
But Uniq signalled further challenges in 2008.
Geoff Eaton, chief executive of Uniq, said: "In the UK, the tough economic environment and the lag in inflation recovery has increased the challenge of maintaining profit at last year’s level."
Uniq employs around 2,900 staff in total, with UK operations including a sandwich and wraps business based in Northampton, the Pinneys smoked salmon processing business in Annan, Scotland, as well as desserts and cheese operations at Paignton in Devon and Evercreech in Somerset.