With healthy eating trends placing RHM's top-selling cake brands under increasing pressure Hovis and Bisto sales have helped buoy profits at the UK food company, which reported an increase in underlying annual profits yesterday (29 June).

Operating profit, before restructuring costs, lifted by 9.7% in the 52-weeks ended April 2006 to GBP173.5m (US$318.73m) from GBP158.2m in 2005. Turnover from continuing operations increased by 2.1% from GBP1,528m reported last year to GBP1,559m.

RHM said that product launches had tapped into healthy eating trends such as an increased demand for low-fat and high-fibre food, with Healthiest Ever Hovis, leaner cooking sauces and reduced-calorie cakes.

The company's full year branded turnover was up 3.1% after impressive second half growth of 5.4%, driven by Hovis and Bisto sales.

Despite a "much improved" second half cakes performance, boosted by the launch of 'healthier' cakes, Mr Kipling cake sales fell and RHM's overall cake profits decreased by more than 27%. After noticing the decline of the Mr Kipling brand last year, RHM chief executive Ian McMahon said, an action plan was formulated.

In an attempt to revive the household name, RHM handed out samples of Mr Kipling to 350,000 homes, removed artificial colourings and flavourings from the ingredients list and introduced clearer labels. This has stabilised sales in the past two-months, the company said, adding that planned television advertising campaign is expected to further reinvigorate the 40-year-old brand.

"We have made a sound start to our new financial year. Although we are still at an early stage, we are encouraged by the initial consumer response to our branded Cakes initiatives," McMahon observed. "We are increasing investment behind our brands. We have a wide range of new products under development across all business areas, with Hovis, Bisto, Sharwood's and Cadbury's Cake products all due to appear in store in the first half of the financial year."

The company also reported GBP53m in benefits from cost saving initiatives in the period, although it did incur substantial one-off restructuring costs, which helped reduce operating profit from GBP182.2m last year to GBP140.6m this year.

"We are confident that by maintaining our focus on profitable top line growth and cost saving opportunities we will create significant shareholder value," McMahon concluded.