Zetar counts the cost of snacking...

By Ben Bouckley

- Last updated on GMT

Related tags: Snack food

Zetar counts the cost of snacking...
Confectionery and snacks group Zetar has described the last year as a ''difficult period'' for its snacks division, as sales flatlined and commodity costs rose.

In a trading statement released ahead of its full year results for the year to April 30 2011, Zetar revealed snack sales of £49m, unchanged from 2010.

However, confectionery sales rose 4% to £86m (£83m: 2010), raising Zetar’s overall turnover to £135m. Pre-tax profits are yet to be revealed (£4.3m in 2010), but chief executive Ian Blackburn said the full-year results were “pleasing given the the level of increases in raw material costs”.

Zetar blamed raw material cost inflation that “severely inhibited”​ its performance in ‘natural snacks’ and overshadowed improved performance in earnings for added-value and branded products in the division.

Lower margins

However, the firm said it managed to recoup costs and improve margins in the second half of the year to around 4.6% (as against 2.6% in the first half), although it added that margins still fell below historic norms.

Accordingly, Zetar said it had relinquished “some commodity-based contracts where we have been unable to obtain sufficient price increases to generate an acceptable margin”​, but expected to increase margins by growing sales of new branded and added-value products.

These relate to brand licenses signed for product launches later in the year that include Branston nuts, Sharwoods ‘savoury clusters’, Ambrosia custard-coated fruit pieces and Tango orange-flavoured chocolates.

Zetar said multiples Tesco, Sainsbury and Asda had already listed some of the products, and the firm said it expected to deliver the first products in May.

Sweet success

The company’s bottom-line uplift was driven by increased confectionery sales, in particular own-branded and private-label products, while lower margin third-party business had fallen.

Strong seasonal sales over Christmas, Easter and more year-round product sales paid dividends for Zetar, as did initiatives to cut costs at production level.

The group said its future strategy involved integrating its recently acquired Derwent Lynton chocolate business, achieving cost savings and extending its chocolate range.

Zetar will also launch more ‘all year round’ confectionery products, as well as an ‘affordable luxury’ chocolate range under its Lir brand.

Blackburn said Zetar’s “solid financial base”​ would also allow it target “small bolt-on acquisitions”​ - he told this publication in April ​that the company was "looking at a number of opportunities"​ - and sustain investment in NPD and existing production sites.

Well-managed business

Rollits corporate finance partner Julian Wild told FoodManufacture.co.uk that he thought Zetar was a "very well-managed business. Ian Blackburn is a very able chief executive and they've got a very good team for a mid-sized business".

But didn't Zetar's move into economy and budget chocolate lines (after the recession hit in 2008) make it difficult to make money given rising input prices for staples such as cocoa and sugar? "Inevitably, the sectors Zetar is active in -- chocolate, snacks, fruit and nuts, are always subject to cost pressures.

"But they're very efficient operators, and run a business very tightly, so they can manage to operate in difficult parts of the market well," ​Wild said.

Tipping Zetar for further small "if not bigger"​ acquisitions, he nonetheless said that AIM-listed companies such as it, Finsbury and Glisten (before its takeover last year by Raisio) were finding times tough on the M&A side compared with a few years ago [after 2005, for instance, when Zetar made its first acquisition in the Kinnerton Group] due to tighter cash flows and fewer potential deals out there.

Related topics: Ambient foods, Confectionery

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