Deliberate decisions hit branded sales in the first half, Rihko says

Deliberate decisions hit branded sales in the first half, Rihko says

Raisio, the Finland-based group behind Benecol, Fox's confectionery and Sugar puffs cereal, saw branded sales fall in the first half of 2013. However, CEO Matti Rihko tells Dean Best the company is sharpening its portfolio to improve the performance of its branded business - and is eyeing more expansion in the years ahead.

With first-half sales down 8%, the results from Raisio's branded business, which accounts for over half of turnover, was, chief executive Matti Rihko admits, "not as planned".

An improved financial performance from Raisio's agribusiness arm helped boost the company's first-half earnings. Branded sales were lower and EBIT from brands dipped thanks to costs linked to the sale of its non-dairy business to Kavli earlier this year.

However, speaking to just-food, Rihko was comfortable with the performance of its branded division. The fall in branded sales in the first six months of the year was due to some calculated decisions to boost Raisio's branded division, he insisted.

"[Our branded performance] was good if not as planned," he says. "We cut some of the volumes as planned and therefore the profitability's up but the top line is slightly down. By cutting some low-profitable volumes combined with streamlining operations that we have, the outcome is pretty good.

"It's worth emphasising that we are still in the growth stage so therefore cutting the volumes is not the big plan, it's a tactical move to consolidate the units that we have and improve operational performance."

Announcing its first-half results last Tuesday (13 August), Raisio said it had cut some SKUs and participated less in promotional activity in the breakfast cereals and snacks category and in the confectionery sector, moves that hit its sales in both areas.

Rihko says the Honey Monster and Sugar Puffs owner had, for example, stepped away from the "charity-like, not profitable" promotional business in the UK breakfast cereals sector.

"We did not cut all of the promotional activity. The activities that were cut were the promotions that were less interesting for us," he explains. "With regards to promotional activities, I think in the UK market they have been driven to the extreme. It's not beneficial to anybody in the value chain - I'm not just speaking about the industry - even for consumers, there is a limit to how much they can stock low-prices products at their homes. Eventually you can't boost consumption long term with those activities, only short term."

Rihko believes there are signs consumers are becoming more confident, which could lead to the category becoming less acutely driven by promotions. "Consumers are becoming more optimistic. The mentality seems to be improving."

The UK accounts for 40% of Raisio's branded sales. Its confectionery sales in the market were also down in the first half year-on-year as the company reassessed its promotional strategies. Nevertheless, Rihko said the business, "with some exceptions" is "pretty good". He adds: "The remaining businesses generally have a nice, single-digit organic growth."

However, Raisio's reassessement work in the UK also includes changes to its production network. This month, Raisio decided to close a snack bar plant in the UK and relocate production to another factory.

UK subsidiary Halo Foods is switching output from its site in Tywyn in north-west Wales to a "purposely-designed centre of excellence" further south in Newport, where the company has secured a 25-year lease. The transfer will begin in November and around 120 staff will be affected by the move.

Rihko insists Raisio has to try to operate more efficiently. "The retailers and consumers are always looking for cost," he reflects. Could there be more plant closures throughout Raisio's operations? "I couldn't say but we need to manage costs. This is key."

From consolidation of Raisio's current business to expansion. Rihko says the "hottest prospects" for its Benecol business - which saw sales fall 12.5% in the first half - are outside the EU. "Asia and South America are the most interesting. The markets are still very small, the cholesterol-lowering categories are emerging but I think still those markets are pretty exciting."  

The company has made four acquisitions in three years that have doubled the size of its branded business. Last year, Raisio purchased Czech confectioner Candy Plus and Polish pasta company Sulma. The deals followed the 2011 acquisition of UK confectioner and breakfast cereals group Big Bear and the purchase in 2010 of UK snacks group Glisten.

Rihko said the company could look to double its branded business again in the next three years. "It's not a clear ambition but if it materialises it will be driven by M&A."

The Raisio chief is predictably cautious about giving away too much of the company's M&A strategy. He says Raisio's business generally focuses on northern Europe - which he describes as the UK, France, Germany, Austria and markets in the east like Poland. "The UK has been very active and will probably continue to be very active. The recession inside continental Europe is probably more likely to increase the level of activity but we'll see," he says.

Could there be deals in northern Europe in the next 12 months? "If the right deal is there definitely. We are always looking for opportunities. There has been no difference in the first half of the year and we continue to look for opportunities."