Dutch organic food specialist Wessanen has seen its second-quarter profits slide as a result of lower sales volumes and higher marketing spend.
The company today (25 July) booked net profits of EUR3.1m (US$3.8m) in the quarter, down from EUR5.4m last year. Operating profit declined to EUR2.2m, down from EUR2.9m in the comparable period pf last year.
Wessanen said profitability was impacted by marketing investments, which increased year-on-year as the group looked to execute its brand-building strategy.
Nevertheless, in spite of higher investment levels, the food maker said sales were depressed by the weak consumer sentiment in Europe as consumers traded down to cheaper products and own label. Sales dropped 2% in the period, with a 2.6% improvement in price/mix failing to offset a 4.6% volume decline.
The group said it continues to make progress on its strategy to become a more focused player in the European branded organic sector. It said that it has received a "good level" of interest in its ABC drinks unit and the company took full ownership of its Favory frozen convenience business as it prepares to sell off its frozen food interests.
Piet Hein Merckens (CEO) comments: "In the second quarter Wessanen has set further steps inexecuting the strategic agenda in a consistent manner. We continued to invest in the growth of ourcore brands and categories by driving innovation and activation in Grocery and HFS channels Nevertheless this quarter brought mixed results. Reduced consumer confidence and the related reduction of spending impacted our businesses in both channels negatively albeit to a different extent.
In view of the current subdued European economies, we have taken short term measures to lower operational costs in the second half, for example by applying restrictions on new hires.
Our performance in Grocery reconfirmed that we are on the right track to strengthen our brands and categories in this channel. Both revenue and gross profit increased, whereas EBIT was mainly impacted by increased marketing investments.
Our HFS development was disappointing. In the various businesses we have to deal with different challenges which are to be addressed. Shoppers are also economising on their food spending by trading down to supermarkets and cheaper food solutions.
ABC has continued its steep revenue growth path in the quarter which can be attributed to both the Daily's and Little Hug brands. To accelerate category and brand growth we invested significantly in marketing amongst others via in-store promotions and national TV advertising right from the start ofthe season in April. Although it is still early days in ABC's divestment process, we are seeing a good level of interest, reflecting the strength and growth of our brands.
Another important strategic step was obtaining full ownership of Favory Convenience Food Group, enabling us to have total strategic alignment and process integration between both Frozen Foods companies. This will enable us to capture the business improvement opportunities which we identifiedin our strategic review.
I am convinced that our short term measures to further increase focus on the operational costs will help us improve results in all our business areas. In light of changes to the Group's composition, we are also assessing its structure and cost base, on which we expect to have more clarity towards the end of the year."
