25 May 2012

Zetar warns of tough Easter

24/01/2012 Ben Jaglom

Confectioner Zetar (ZTR) has warned that sales for Easter are likely to be lower than last year.

The AIM-quoted venture declared adjusted pre-tax profits of £2.8 million (2010: £2.44 million) on sales of £61.8 million for the six months to October. A maiden dividend of 2.25p was paid in November for the year to April while net borrowing stood at £24.4 million (2010: £26 million). It noted that new distribution agreements had been signed for both Irish stout Guinness from alcohol giant Diageo and fizzy orange drink Tango from British soft drinks heavyweight Britvic.

The group's confectionery division was said to have had a 'strong first half'. The division sells a range of chocolates using licences from brands such as Bailey's or its own brand (Lir). Zetar added that Lir had received an 'encouraging response from consumers' following a relaunch under new packaging.

However, the results were less encouraging in its natural snacks operation, which sells a range of healthy treats such as fruit and nuts – sales declined by 13 per cent from £23.7 million to £20.6 million. Zetar remarked that what it described as the 'prolonged period of raw material cost inflation' had made it 'increasingly difficult' for both manufacturers and retailers to recover the cost increases.

Looking ahead, the group remarked on its recent entrance into the French and Benelux (Belgium, the Netherlands and Luxembourg) markets through the launch of its Zetar France subsidiary, something it said would help provide a 'low-cost entry' to the French and Belgian markets.

In an interview with Growth Company Investor, chief executive Ian Blackburn remarked that 'consumer confidence is lower than this time last year', something that he said was reflected by retailers' level of confidence in ordering forwards.

He noted that the group was 'cautious' for this year's Easter, though he suggested that the deals for chocolates and snacks using the Guinness and Tango brands held the potential to bolster sales.

Analysts at house broker Liberum lowered their forecasts following the announcement from pre-tax profits of £7.1 million (EPS: 42.1p) to £6.6 million (EPS: 38.7p) on sales of £129.6 million for the year to April 2012. Its dividend per share forecast for 2012 was lowered from 2.5p to 2.3p.

Last recommended by Growth Company Investor last July at 216p, the shares have since slipped 17 per cent to 179p. Operating in a challenging market in which consumers' incomes have fallen under considerable pressure, the decline in its natural snacks division is a potentially worrying sign, as is the warning of lower Easter sales. We therefore downgrade the shares from buy to hold.

Tags: Confectionary group, Doing business in France, Food producers on AIM, Maiden dividend, Natural snacks

Sector: Food Producers

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