Zetar: adjusted profit up ten percent in H1/2011

London / UK. (zt) Confectionery and snack foods group Zetar PLC announces its Interim Results for the six months ended 31 October 2010. «We are pleased to have continued to grow our business organically and deliver profit before tax ahead of last year by ten percent», says Ian Blackburn, Zetar´s Chief Executive, in a statement.

Financial Highlights

Turnover up six percent to 60,3 million GBP (2009: 57,1 million GBP)
Adjusted Ebitda up three percent to 4,0 million GBP (2009: 3,9 million GBP)
Adjusted profit before tax up ten percent to 2,4 million GBP (2009: 2,2 million GBP)
Adjusted diluted earnings per share up nine percent to 0,138 GBP (2009: 0,127 GBP)
Net borrowings at 31 October reduced to 26,0 million GBP (2009: 27,0 million GBP)
New bank facilities in place until September 2014

Operational Highlights

Continued organic growth consolidates last year´s strong recovery
Sales of everyday products drive revenue and profit in Confectionery Division
Snacks Division margin impacted in short term as market adjusts to significantly higher commodity costs

Outlook

Sales for the eight months to 31 December 2010 up five percent to 84,0 million GBP (2009: 80,0 million GBP)
Indications for Easter support the Board´s view that full year earnings will be in line with market expectations

CEO Ian Blackburn: «We are pleased to have continued to grow our business organically and deliver profit before tax ahead of last year by ten percent. This is particularly good in view of rising raw material costs impacting our Snacks business, and demonstrates the value of the business´s continued focus on innovation and product development. The second half of the year has started well. Christmas sales of our products from retailers to consumers appear to have been robust and relatively unaffected by the well-documented adverse weather impact in December. Based upon the current indications of trading at Easter, the Board expects the Group to deliver earnings for the full year in line with market expectations».

Overview

Following last year´s strong recovery the company is pleased to report another period of good organic growth with the Group´s first half sales and adjusted operating profits both ahead by six percent. This good performance has been achieved in a market facing the strong headwinds of rapidly rising raw material costs and an industry-wide uncertain consumer market.

The progression in financial performance in the period has been underpinned by the Confectionery Division which is realising the benefits of its past capital investment and strategic focus on everyday impulse chocolate and also enhancing its market leading position in the novelty licensed character sector. A sales increase of eleven percent to 36,6 million GBP has generated a 0,9 million GBP increase in adjusted operating profit to 2,3 million GBP.

In a market that has experienced unprecedented raw material cost increases in the period, the Natural Snacks Division has implemented a series of customer price increases across its range of products. In the short term this cost inflation has reduced the Division´s margins and resulted in an operating profit of 0,6 million GBP on sales of 23,7 million GBP. The company expects a stronger performance in the second halfyear. The sales of added value premium snacks, which in the long term should provide a more consistent margin, have increased by over 50 percent since last year, albeit from a low base, and are expected to grow significantly in 2011.

The Group´s adjusted operating profit of 2,9 million GBP (2009: 2,7 million GBP) is six percent ahead of last year.

Business Review

Confectionery Division: The Confectionery division is one of the UK´s largest independent chocolate manufacturers. In previous years Zetar has invested significantly in improving the capacity and quality of its two newest factories, one near York and one in Ireland, with a commensurate increase in their infrastructure to support higher sales. The company is pleased, therefore, that the Confectionery Division´s 3,5 million GBP incremental sales, with a higher proportion of everyday sales and a lower proportion of contract production for third parties, plus a number of cost-saving initiatives, have helped generate an additional 0,9 million GBP operating profit in the period, resulting in an improved operating margin of 6,1 percent, returning to Zetar´s expected longer-term levels. Turnover growth emanated from a combination of strong sales growth in both the UK and Irish businesses.

Natural Snacks Division: The Division has had to contend with continually rising commodity costs throughout the period due to increasing demand from developing nations, some supply shortages, the continuing weakness of Sterling against the US Dollar and, according to the media, some impact from financial speculators. This situation has affected the cost of both raw materials and packaging, with the cost of nuts in particular reaching unprecedented levels and still rising. Some of this has been passed on to customers, and the month-on-month margin progression is being restored which will benefit the second half, but inevitably there is a lag before price increases can be achieved. Further price increases are required to restore margins but the company is experiencing some resistance in the face of a very competitive marketplace and we need to accelerate the business sales mix towards added value products.

Outlook

The second half of the year has started well. Sales for the eight months to 31 December 2010 increased by five percent to 84,0 million GBP (2009: 80,0 million GBP). Christmas sales of Zetar´s products by retailers to consumers appear to have been robust and not impacted by the well-documented adverse weather in December. The Natural Snacks Division has a strong pipeline of new products expected to come to the market during 2011 but in the short term the division retains a cautious outlook on the impact of commodity costs. Based upon current trading indications for Easter, the Board expects full year profits to be in line with market expectations. The company is focussed on delivering strong organic growth and, in addition, the company is currently evaluating a number of small acquisitions in the UK.