United Biscuits battles to keep market share: Group to concentrate on sales volumes as margins suffer

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The Independent Online
A SHARP rise in promotions and advertising at McVitie and KP, the biscuit and snacks businesses owned by United Biscuits, has helped them maintain market shares, but only at the expense of a steep fall in margins.

The group said that spending on consumer marketing was likely to be increased as the company fought to maintain its sales in the face of fierce competition, particularly from own brands.

John Warren, finance director, said margins of the levels enjoyed in the late 1980s were no longer sustainable, and the group would concentrate on increasing sales volumes by investing in new products and marketing.

He said the group planned a number of product launches in the second half of the year, particularly of count-lines - separately wrapped chocolate biscuits such as Penguin and Hob Nobs, where it is weak. 'We are confident that with product introductions we can continue to drive our market share growth.'

McVitie increased its spending on special offers and advertising by pounds 4m, or 20 per cent, and KP by a slightly smaller proportion. That helped McVitie's sales to increase by 1 per cent to pounds 312m, despite price cuts in many of its products, but meant that operating profits dropped 10 per cent to pounds 32.5m. Its market share increased slightly to 43.8 per cent.

At KP, profits were static at pounds 15m while sales rose 4 per cent to pounds 208m. Market share held at 34.1 per cent. Mr Warren said that marketing costs were likely to continue to rise in the second half, as new products were launched.

The lacklustre performance in Britain was offset by strong advances in Europe and the US. Underlying profits, excluding last year's exceptional profit on the sale of Terry's, rose 12 per cent to pounds 80.1m on sales 3 per cent lower at pounds 1.8bn in the six months to June. Earnings per share rose by a similar proportion to 10.7p, but the dividend was held at 5.5p.

Keebler, the US business which had been performing poorly, increased its profits to pounds 19m, compared with pounds 16.4m, despite a 6 per cent drop in sales to pounds 585.7m.

United Biscuits attributed the sales decline to last year's decision to stop chasing sales with promotions and said that sales were now back on an upward path. It added that the benefits of a pounds 72.2m reorganisation programme would be evident in the results until 1996.

Eric Nicoli, United Biscuits' chief executive, said it should be possible to double margins from 3.3 per cent, which would mean increasing profits from the US despite the market being flat.

In Europe, profits rose 5 per cent to pounds 15.5m, with biscuits performing particularly well.

Borrowings rose from pounds 455m to pounds 467m and are expected to rise further, because of the recent acquisition of a Dutch snack business and spending on rationalisation. That will put gearing above 61 per cent at the end of June.