United Biscuits hit by tough UK trading

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Currency translation effects and tough trading conditions in the UK
kept first half sales at Britain's United Biscuits in line with
those seen a year earlier, despite an increased share of sales from
added-value branded products. But teh maker of Penguin, McVities
and KP products saw profits slide 5 per cent compared to 2003,
mainly as a result of intense pressure on ingredient prices in the
UK market

In a brief statement issued last week, the tight-lipped, privately held company announced turnover of £652.5 million for the first six months of 2004, a slight decline from the £655.4 million registered in 2003.

UB said that it was pleased with the sales performance, especially given the fact that it included currency translation losses of £7.3 million, but added that profits had taken a knock (£64.7 million, down from £68 million) as a result of particularly poor trading in the competitive UK market, where margins have been impacted by rising raw material costs.

The sale of the loss-making Benelux snacks business in the coming months - the sale was agreed in August - should help strengthen the business in the second half, as will the company's continued focus on branded products: sales of UB brands such as Penguin, McVities and KP, now represent 88 per cent of total revenues, up from 87 per cent in 2003, as a result of increased marketing and promotional investment.

This strategy of focusing on strong brands with the potential for good growth is being pursued aggressively by the company. August saw the completion of the Triunfo group, Portugal's leading biscuit maker with a 39 per cent market share, while in July UB unveiled plans to buy the UK biscuit brand Jacob's from Danone for £228 million.

Malcolm Ritchie, UB's chief executive, described these acquisitions as "central to the company's future, adding proven brands with potential for further development in their existing and UB's other core markets".

Adding to its portfolio of brands has a number of benefits for United Biscuits. Increasing scale allows the company to reduce costs through the bulk buying of ingredients - an important asset in the current high-price ingredient market - and allows for more efficient use of production facilities, although this often also involves the closure of a number of under-performing sites.

It has also helped the company towards its goal of cutting costs, with £100 million in cost savings produced over the last three years and a further £13 million during the first six months of 2004.

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