(ZTR) Zetar

24^th January 2012

Zetar Plc

("Zetar", "the Company" or the "Group")

Interim Results for the six months ended 31 October 2011

Zetar Plc, the AIM listed confectionery and snack foods group, announces its Interim Results for the six months ended 31 October 2011.

·   Group revenue up 2.4% to £61.8m, with underlying growth of 7%

·   Group adjusted PBT up 13% to £2.8m

·   Reduced net borrowings at 31 October 2011 of £24.4m (2010: £26.0m)

·   Maiden dividend of 2.25p per ordinary share paid 4 November 2011 in relation to year-ended 30 April 2011

Operational

· Confectionery - growth in revenue and profit with increasing contribution of everyday products

· Snacks - reduced revenue following planned exit from non-profitable commodity business

     - initial portfolio of branded products listed with retailers

·  Exited Derwent Lynton factory and transferred business to HHF in accordance with plan

European expansion

·   Incorporated Zetar France SAS, a low cost route to leverage the UK business in France & Belgium

Current trading

·   Revenue for eight months ended 31 December 2011 in line with last year at £84m

-    underlying sales growth is 5%***

·   Reasonable Christmas despite pronounced fall in consumer confidence

Outlook

·   Declining consumer confidence reflected in retailer caution and potential for lower Easter sales than last year

·   Growth in everyday confectionery to continue with more product launches scheduled

·   Guinness and Tango licences agreed

·   Confidence in strategic direction. In position to capitalise on business opportunities

* Adjusted Earnings before Interest, Tax, Depreciation and Amortisation ("EBITDA") is from continuing activities and is before the effects of depreciation, one-off items, amortisation of intangible assets, share-based payments and the fair value movement on financial instruments.

** Adjusted operating profit, adjusted operating Profit before Tax (PBT) and adjusted diluted Earnings per Share (EPS) are from continuing activities and are before the effects of one‑off items, amortisation of intangible assets, share‑based payments charge and the fair value movement on financial instruments.

*** Excluding the withdrawal from non-profitable commodity business and acquisition of Derwent Lynton

Ian Blackburn, Chief Executive of Zetar Plc, said:

"We are pleased with a good performance in the first half, particularly given the challenging trading environment.

"Innovation remains at the core of our business and the quality of our product development is endorsed by our portfolio of licensed brands, which has recently been strengthened with the additions of Tango and Guinness.

"Whilst the outlook for Easter remains less certain than usual, due to the pronounced fall in consumer confidence, we remain positive about the strategic direction of the business. We believe that the Group's robust business model, combined with its strengthened financial position and progress in extending our portfolio of brands, means that we are well placed to capitalise on future growth opportunities."

Enquiries:

OPERATIONAL REVIEW

The first half of this financial year has been a good trading period for the Group with underlying sales growth of 7%, after excluding the effect of the Derwent Lynton acquisition. This has enabled us to offset the reduction of some £4 million of commodity sales deemed unprofitable resulting in overall sales growth of 2.4% to £61.8m (2010: £60.3m). The improved quality of revenue and a continued focus on internal cost efficiencies has enabled us to improve the Group's operating margin by 0.3% up to 5.1% for the period and to deliver an 8.7% increase in adjusted operating profit to £3.1m (2010: £2.9m) as we made progress towards achieving our two main operational goals:

§ Confectionery division - grow our everyday business by more than seasonal sales; and

§ Natural Snacks - introduce ranges of branded and added-value savoury and fruit snacks.

We are particularly pleased with this result as it demonstrates the Group's resilience against a backdrop of increasing consumer uncertainty amid concern regarding both the global and domestic economic climate.

Business Review

Results by division for the six months period ended 31 October 2011 were as follows:

Confectionery Division

The Confectionery division had a strong first half with sales, including £1.4m from Derwent Lynton, advancing by over 12%, with important contributions from more everyday and boxed chocolate listings. As planned, Derwent Lynton's Derby factory was closed just before this period end and its business transferred to our new and recently-extended York factory with the cost benefits of the integration programme to be realised in the second half.  Excluding the impact of Derwent Lynton, the division maintained its margin at 6.2% despite the high level of promotional expenditure.

The division's UK operation has continued to concentrate on product development and to devote resources to grow and extend its range and distribution of everyday chocolate confectionery. The success of this is borne out in this reporting period during which we gained listings for a wide array of new products under the Kinnerton brand and private label, ranging from chocolate-coated pretzels to cash and carry formats of our children's everyday chocolates.

Our premium quality boxed chocolates have also continued to flourish with the Baileys range growing by a further 10% and our own Lir brand receiving an encouraging response from consumers to its re-launch under new look packaging. Lir's ability to manufacture award-winning quality chocolates at affordable prices has been facilitated by the successful implementation of a major operating efficiency plan which has begun to drive down labour costs, enabling it to win more significant premium private label business with UK retailers. 

Natural Snacks Division

The prolonged period of raw material cost inflation has made it increasingly difficult for manufacturers and retailers to continue to recover these cost increases and resulted in the category's margins, particularly on more commodity products, being squeezed. At the beginning of the year we took a strategic decision to withdraw from non-profitable commodity nut business which has resulted in reduced sales of approximately £4m in the period. Adjusting for this factor, the underlying sales growth is 5%.

However, in accordance with our longer-term strategy for the division, the development of several new added-value licensed snack products was completed and launched. Last year's Marmite and Reggae Reggae products have now been joined by additional Reggae Reggae variants and a range of Branston, Sharwoods and Ambrosia snacks as well as healthier added-value savoury snack alternatives to nuts, such as wasabi peas and baked edamame soya beans, which are sold under our own Humdinger brand. In the period these snacks gained listings with most major UK retailers and, as the period progressed, store distribution increased, resulting in an uplift of approximately 20% in sales of our premium branded range.

Overall, therefore, the operating margin has increased to 3.3% (still well below historic norms) resulting in an 8.8% increase in operating profits.    

European expansion

The Zetar Group was originally established to build a European confectionery and snack foods group. For some years we have aspired to export more of the Group's wide range of added value products, principally to the French and Benelux markets. Over recent years, the Board has reviewed a number of acquisition opportunities before concluding that establishing our own subsidiary was the most cost effective and lowest risk method of entry to the European market.

In January 2012 we set up Zetar France SAS as a wholly-owned French sales, marketing and distribution subsidiary, which is to be conveniently located in Lille (northern France), providing the Group with a low cost entry to the French and Belgian markets. It is headed by a senior manager with considerable experience of both the French licensed confectionery sector and selling to major French retailers. We are recruiting a sales, marketing and administration team to support the new business.

The establishment of French and Belgian distribution capability has already provided the Group with credibility as a European operation and has helped Kinnerton to extend the UK licences for Hello Kitty, Power Rangers and the Simpsons to include France, Benelux and other European markets. Zetar France SAS will also seek to add licences specific to the French and Belgian markets to its portfolio. The initial product range for the French and Belgian markets for Christmas 2012 is currently being formulated and thereafter we will look to add some of the Group's other branded and private label premium added value confectionery and snacks ranges.

We believe that this is an exciting opportunity to leverage the Group's UK business into another large European market.   

Outlook

The Group had a good first half and is confident that its major strategic initiatives for profitable growth remain on track. Despite the pronounced fall in consumer confidence during the late Autumn we had a reasonable Christmas but our customers' ongoing caution about consumer demand has so far resulted in Easter orders being confirmed at lower levels than last year.

The Confectionery division will continue to focus on growing sales of everyday products and the Natural Snacks division will refine and extend the distribution of its added value and healthier product range. In January we reinforced the commercial team of the Natural Snacks division with the appointment of a new sales director and two additional national account managers which will enable us to increase the pace at which we rollout the brand and added-value product portfolio.

The Group's portfolio of brands has been extended with the addition of Tango, under licence with Britvic, and we will shortly be launching a range of orange-flavoured chocolate products. Both divisions will benefit from the recent signing of a new licence with Diageo to utilise the Guinness brand for a range of chocolate and savoury snacks.

As we approach next financial year the Group can look forward to some incremental sales in respect of Kinnerton's London Olympic licence for souvenir biscuits and nuts and, through the formation of our French subsidiary, also additional export sales in France and Belgium.

We remain positive of the Group's business model and into next year we anticipate further progress extending our brand portfolio, increasing third party business and implementing targeted cost efficiencies. The Group's debt continues to reduce and its stronger financial position will enable us to capitalise on future growth opportunities.

Ian Blackburn

Chief Executive

Clive Beecham

Group Managing Director

FINANCIAL REVIEW

Group revenue for the six month period ended 31 October 2011 of £61.8m was 2.4% greater than the prior year (2010: £60.3m). Furthermore, adjusting for the fact that the Snacks division exited approximately £10 million on an annualised basis of non-profitable commodity business at the start of this financial year, the underlying rate of growth was 7%, thereby demonstrating the Group's resilience and ability to grow organically in a difficult economic climate.

The Group's adjusted operating profit grew by 8.7% to £3.1m (2010: £2.9m) and the overall quality of revenue improved as demonstrated by adjusted operating margin increasing to 5.1% (2010: 4.8%).

Adjusted finance costs of £0.38m were 14.3% lower than the prior period (2010: £0.45m), reflecting the underlying reduction in average borrowings.

Adjusted profit before tax increased by 13.0% to £2.8m (2010: £2.4m).

The measures of profit quoted above are after adjusting for share-based payments, amortisation of intangibles, the fair value movement on financial instruments and one-off costs of £0.8m which relate to acquisition and reorganisation costs in the Confectionery division, primarily relating to the integration of Derwent Lynton.

Adjusted profit after tax of £2.0m (2010: £1.8m), arrived at after charging tax of £0.7m (2010: £0.7m), represents a year-on-year increase of 14.9%. The tax charge for the period is 25.7% (2010: 26.9%).

Adjusted diluted earnings per share, based on 13.0m diluted shares (2010:12.9m) which is calculated after adjusting for 522,000 treasury shares (2010: 472,000), was up 13.8% at 15.7 pence (2010: 13.8p) compared to last year.

The Company paid its maiden dividend of 2.25p on 4 November 2011 in relation to the year-ended 30 April 2011, amounting to a total payment of £0.3m and covered 17 times by earnings.

Net debt for the Group at the period end was £24.4m, a year-on-year reduction of £1.6m (2010: £26.0m), continuing its good progress in reducing debt levels. Furthermore, the underlying improvement is approximately £2.6m given the fact that over £1m has been invested in relation to the acquisition of Derwent Lynton (including reorganisation costs). The level of debt at the half-year occurs just after the seasonal peak for indebtedness which arises primarily due to stock-build in advance of Christmas. Debt levels unwind during the second half.

Capital expenditure of £1.9m is lower than the prior year comparative (2010: £2.2m) and we anticipate the full year will also be lower than 2011, approximately £3m compared to £3.8m. Purchase of own shares for the Employee Benefit Trust amounted to £0.1m in the period (2010: £0.5m) and a further £0.4m was purchased shortly after the half-year.

Mark Stott

Group Finance Director