Patties Foods, the Australian manufacturer of pastry products, has posted a 35% drop in first-half profit after tax as increased advertising spend, pay-outs to former senior executives and higher administration costs more than offset a slight rise in sales. The small lift in sales was driven mainly by growth in the Foodservice channel.

Retail Market
Retail sales were down 1.4% compared to the corresponding period in the prior year, due primarily to supply constraints causing some out of stocks and deletions.

“Whilst Patties remains the market leader (47%) in the Frozen Savoury Category, there has been slippage in market share,” the company said in a statement. “Patties remain the market leader (54%) in the Fruit Pie segment of the Desserts category, however with increased price competition our overall share has declined.”

“The Frozen Fruits category continues to grow significantly with new competitors offering heavy discounts to build share,” the brand owner of Four ‘N Twenty and Nanna’s added. “The company’s Frozen Fruit sales have grown slightly in the six months, against new entrants and increased competition. The Creative Gourmet brand continues to be market leader at 52%.”

Foodservice Market
Foodservice sales continued the strong growth across the Frozen Pastry business, with first-half sales 14% above last year’s. The key Four’n Twenty and Herbert Adams brands continue to drive this growth. “New business gains and wider distribution of key products and brands are major contributors in first half growth,” they advised.

Marketing
Advertising, mainly media expenditure, was up on the corresponding period last year by $1.344m, with the Four ‘n Twenty Magic Salad Plate promotion behind the rise. To provide maximum impact, this expenditure was brought forward from the second half, Patties said. Full year marketing spend is, however, expected to fall in line with previous year.

New Product Development
The company said they would continue to look at options for innovation within their different pastry categories.

“A number of exciting new products based on current consumer trends, will be launched under our brands in the second half of the fiscal year,” they stated.

Business Outlook

The company has now paid mutually agreed sums that were made by the company to former senior executives and related costs in connection with their departure from the Company. In September last year CEO Dr Michele Allan resigned, with their Chairman and CFO following suit in November. They have since found suitable replacements for the positions of CEO and CFO.

The company now believes that with the new management team in place they could push into a  second-half with a lot more confidence.

“Initiatives have been negotiated with major customers for the remaining half year which will result in increased promotional activity, improved ranging, space gains, reintroduction of temporarily deleted lines and acceptance of new products,” Patties reported. “New supply contracts have been signed with major non supermarket retailers. The total sales represented by these contracts will be at least $8.0m on an annualized basis. These contracts will impact on the fourth quarter and the full benefits will be experienced in the next fiscal year.”

“As was stated by the Board at the November 2008 AGM, the Directors are still of the opinion that no quantified forecast should be released. The remedial actions (emanating from their internal strategic review), and the improvements initiated by the new CEO who commenced in late September, lead the Directors to anticipate a significant improvement in the second half,” they concluded.

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