Year-to-date, the development of the market for frozen pouches has continued to disappoint. Since we do not expect a clear improvement for the remainder of 2013, our US subsidiary ABC is expected to incur a loss for the full year. The decline of the frozen pouches segment has resulted in lower volumes at Daily's, under-utilisation of production facilities and inventory write-downs. Immediate short term corrective actions have been initiated to improve profitability and we have started a reassessment of ABC's business model, including lowering the cost base in line with reduced volumes.
With its Daily's brand ABC has been at the forefront in the development of the frozen pouches segment of the premixed ready-to-drink category. Following two years of strong growth, all market participants had equal positive expectations for continued market growth, in our case based on our consumer research and extensive discussions with wholesalers and retailers. This expected strong market growth has attracted higher competition from both direct competitors and substitute products.
After a subdued start to the year, the premixed frozen pouches market has not picked up during the important summer season. Year-to-date, the market has lost over 20% in both volume and value. Based on the latest consumer off-take data, we do not foresee a meaningful market improvement for the remainder of the year
To further build on Daily's strong position, we introduced six new flavours during spring 2013, expanding the range to 13 flavours and we ran a new campaign including TV, print and online activation. We have also further grown our distribution coverage. Notwithstanding these efforts, Daily's has underperformed the broader ready-to-drink market year-to-date, although Daily's has maintained its clear leadership share position in the pouch segment.
The consequent substantial volume short fall versus the 2013 budget and the prior year has resulted in under absorption of fixed production and overhead costs. In addition, we have taken write-downs on aged inventory and packaging materials.
On the other hand, ABC's leading fruit drinks brand Little Hug continues to perform well, showing sustained revenue growth and increased market share. We continue to invest in brand activation and the introduction of new flavours such as Berry Blend and Apple Orchard are showing promising initial results.
As a result of aforementioned, ABC's operating result for H1 2013 amounts to US$(1.4) million which compares to US$6.5 million for the comparable period last year.
Based on our current market trend projections, the operational gearing of our US operations and the risk of further obsolete inventory, we expect ABC to show a full year 2013 operational loss (EBITE) of US$5-10 million. For 2014, we expect ABC to be profitable again, based amongst others on our immediate corrective actions.
In Europe, our three businesses continued to perform well and in accordance with our plan. During the first half of 2013, our two core segments - Grocery and HFS - both showed an increase of normalised operating results to €15.6 million (H1 2012: €10.0 million) and €2.8 million (H1 2012: €(0.5) million) respectively, while at IZICO the normalised operating result has doubled to €1.5 million (H1 2012: €0.7 million).
For Wessanen, the second quarter 2013 operating result (EBITE) amounts to €4.8 million versus €6.2 million last year. Exceptional items in the second quarter amount to €(1.3) million, of which €(1.0) is attributable to Grocery, €(0.2) million to HFS and €(0.1) million to ABC.
The full Q2 results and semi-annual report will be published on Thursday 25th of July.
Conference call for analysts, investors & media
At 8h30 CET, a conference call for analysts, investor & media will be hosted by Piet Hein Merckens (CEO) and Ronald Merckx (CFO). The dial-in number is +31 (0) 20 794 8504 (toll free 0800 265 8528). The press release and presentation will be available for download at www.wessanen.com.
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Carl Hoyer (VP Corporate Communications)
Phone +31 (0)20 3122 140 / +31 (0)6 12 35 56 58