Zetar eyes up bite-sized deals and warns firms on high commodity prices
The firm, which operates seven factories making chocolates, sweets, dried fruits, nuts and seeds in the UK and Ireland, was launched on the Alternative Investment Market (AIM) in January 2005 with a mission to build a pan-European confectionery and snacks business.
While it has been focusing on organic growth over the past year, bosses were currently evaluating a number of small acquisitions in the UK, chief executive Ian Blackburn told Food Manufacture.co.uk.
"We had a strong recovery last year and we're now in a position to make acquisitions in the £1-3m range of small businesses with complementary products that we could incorporate into our own production facilities."
Unprecedented price hikes on nuts
Zetar delivered a 10% rise in pre-tax profit to £2.4m in the six months to October 31 on sales up 6% to £60.3m on the back of strong sales of chocolates.
However, adjusted operating profits in its smaller natural snacks division slumped 54% with sales down 1% as the firm grappled with rising commodity costs, said Blackburn.
“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. Peanuts are up 25%, apricots are up 60-70%, and we've also seen rises in cashews, walnuts and so on."
Resistance from customers
While further price increases were needed to restore margins, Zetar was experiencing some resistance from customers, said Blackburn, who told delegates at Food Manufacture's business leaders' round table debate last week that there were two phases to commodity cost inflation.
“First, you’ve got the normal commercial cycle, which we had last year, but what I think we've had from the back end of 2010 and going forward is adjusting to a permanent increase in the base price of commodities. We're now entering the phase when we're trying to get our fourth, fifth or sixth price increase from customers at a time when they are struggling to get any volume increases."
Recent commodity price rises are structural, not cyclical
He added: "Retailers have access to the same commodity price data as we do, and they know this is happening, but when you are talking about prices up 5%, then up 5% again, that's one thing. When you're talking about prices up 20%, then 20% again, it's a whole different ballgame.
"We've got to the stage now where the whole market, retail buyers, consumers, suppliers, have got to get used to the fact that some of these commodity price rises are for ever, that is, they will remain at 25-30% higher than they have been historically."
Added value products
The long-term solution lay with increasing the proportion of added-value products and brands, both of its own, and through licensing deals with third parties, he said.
"Whilst still small, sales of added value premium snacks, bolstered by the launch of licensed nuts Marmite and Reggae Reggae, increased by more 50% since last year.
“They are expected to grow significantly again next year as a number of new licensed brands have been signed up for 2011. Furthermore, despite the market for fruit snacks being flat in the period, our Fruit Factory brand has grown by 33% year-on-year.”
City reaction:
Shore Capital analyst Darren Shirley said: "Whilst the input price movements at the moment remain a cause for concern, we believe the group is at least covered on cocoa until July."
