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July 18, 2012

On the money: Confectioner Zetar targets sales growth

UK confectioner and snack firm Zetar today (18 July) indicated it sees its sales increasing by 20% of the next three years on the back of NPD at home and expansion in Europe.

By Dean Best

UK confectioner and snack firm Zetar today (18 July) indicated it sees its sales increasing by 20% of the next three years on the back of NPD at home and expansion in Europe.

The company, which makes private-label lines for retailers and sells licensed products under brands including Tango and Guinness, reported sales of GBP128m for the year to 30 April. The figure was a 5% fall on the previous year but CEO Ian Blackburn told just-food Zetar believed it could generate growth in the years ahead.

“Looking at 20% over the next three years is what the analysts have focused on and I think we’re comfortable with that,” Blackburn said.

“On margins, it is difficult to say within the group because of the mix but I would expect to see a recovery in the confectionery margins nearer to what we did last year, which was about 6.5% compared to 5.9% this year and snacks should be a significant improvement on where we were this year.”

Blackburn acknowledged Zetar had to live up to those targets but insisted it could offer retailers attractive products that could help them compete against their own rivals. 

“They are targets and they have yet to be delivered [but] we are offering product innovation and we’re offering new brands that help them with margin. In a lower volume environment, they have to differentiate themselves in the marketplace and we do have very strong relationships with all of them,” he said.

Blackburn also said he thinks retailers will look to premium own-label lines to bolster their ranges. “They’ve got to rebuild margins and premium private label is one of those opportunities,” he said.

Underlying sales in the first 11 weeks of Zetar’s new financial year are up 7%, it said today. The company is expecting a “strong uplift” in sales and profits this year. Blackburn said Zetar, which had seen lower orders last Easter hit its annual sales, had budgeted on next Easter to be flat year-on-year. He said the growth would come from new contracts and not just sales from new products.

“The forecasts are not dependent on the recovery at Easter,” he said. “Analysts expecting us to go from GBP128m to GBP140 or even more and that is under-pinned by new contracted business, not just dependent on the success of our new launches,” he said. “The snacks division hasn’t really started. That is only going to be phased in between now and January.” 

Zetar’s snacks business, which includes selling products under brands like Branston and Vimto, saw sales and profits fall last year. Over the last 12 months, Zetar reduced its presence in low-margin commodity snacks to focus on more profitable products. It saw sales of its licensed snacks increase 25%, although the company admitted it did not meet its target for growth in that category, which led to the drop in profits.

Blackburn, however, was upbeat about the year ahead for Zetar’s snacks business. He said the company expected its licensed snack brands to increase their sales at a “double-digit” rate and revealed it had regained some of the “commodity private-label” contracts on different terms. 

“There is going to be a turnaround in the division because we’ve regained some of the commodity private-label business. We’re taking on a different structure, it’s now more of a cost-plus. We’ve agreed what the profit margins should be, we work in conjunction with the customer and agree on the cover and agree on how long and where we buy the raw material from. The price will move with that and we make a fixed profit margin,” he said.

Blackburn, meanwhile, revealed Zetar had secured listings for Christmas products with five retailers in France. In January, Zetar announced the opening of an office in Lille to run its fledgling business in France and Belgium. Blackburn told just-food then Zetar wanted the office to add GBP5-10m to its sales in Europe over three years and today he said the listings made him “more comfortable” about that target.

Analysts at Liberum Capital and Merchant Securities were upbeat about the year ahead for Zetar.

“Zetar still trades on an unwarranted discount to the peer group. [It] is undeserved given a turnaround in the Natural Snacks division, the focus on reducing exposure to seasonal sales – currently circa 35% – and the longer-term growth opportunities that Zetar France offers,” Liberum Capital analyst Patrick Coffey wrote.

Amisha Chohan, an analyst at Merchant Securities, like Coffey holds a ‘buy’ rating on Zetar’s stock. Chohan said: “The launch and development of new everyday products combined with the scope for new licenses and cross-selling opportunities in Europe should enable stronger momentum.”

Shares in Zetar were up 3.91% at 212.5p at 15:00 BST. 

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