D.E. Master Blends Records 2.2 Percent Sales Increase In Second Quarter 2013

D.E MASTER BLENDERS 1753 announced the financial results for the second quarter and first six months of fiscal year 2013. The company's total segment sales increased 2.2 percent to 705 million euro, on a like-for-like basis, in the second quarter of fiscal year 2013. Volume performance improved to (0.8) percent compared to (2.7) percent in the preceding quarter. This volume improvement was noticeable in various markets in retail, especially in roast and ground, which was partly offset by a slight deterioration in volume performance in out of home (OOH). Pricing and mix/other contributed 1.4 percent and 1.6 percent to overall growth. Acquisitions contributed 1.1 percent to the reported growth and currency translation effects negatively impacted growth by (0.5) percent. Total segment sales increased by 2.8 percent.

First six months results

Total segment sales increased 1.6 percent to 1,344 million euro, on a like-for-like basis, in the first six months of fiscal year 2013.  This performance was driven by a +1.7 percent mix/other growth and a price growth of +1.7 percent, driven by strong performance in retail rest of world.  Volumes declined by (1.8) percent. Acquisitions contributed 1.1 percent to the reported growth and currency translation effects negatively impacted growth by (0.4) percent.  Total segment sales increased by 2.3 percent on a reported basis.

The gross margin increased 140 basis points to 39.7 percent, excluding green coffee export sales.  The increase was largely driven by the substantial drop in green coffee Arabica prices and by mix.

As part of the strategy, the company increased advertising and promotion spend by 20 percent to support its brands and product introductions.  On the other hand, the company kept the level of other selling general and administrative costs stable.  As a result, the underlying earnings before interest and taxes margin increased 100 basis points to 13.5 percent in the first six months of fiscal year 2013.  

Normalized profit and normalized earnings per share amounted to 130 million euro and 0.22 euro, respectively.

“We have lowered our outlook for the first twelve months of fiscal year 2013 as we foresee continued price pressure in Western Europe, especially France, due to lower Arabica pricing,” CEO Jan Bennink said in a prepared statement. “We will have to balance pricing and volumes over the coming period to re-establish our competitive position, which will affect sales.  To build for the future, we are implementing organizational changes in Western Europe to enable us to deliver our growth targets going forward and we intend to continue strong advertising and promotion spending to support our brands.

Bennink continued, “we feel comfortable reconfirming our targets for the mid-term, with sales growth of 5-7 percent and EBIT margins between 15 percent-17 percent.  We believe that we are well-prepared to deliver these results in the mid-term, as our key issues have been clearly defined and work programs are in place to address them.  The OOH segment is currently in a restructuring process, while retail innovations are in execution phase and will be rolled out over the next 18-24 months.  Importantly, the management changes of the Top 150 are nearing completion, allowing us to build toward the future with a strong organization in place and a clearly agreed three year growth plan.  Cost savings plans are identified and are starting to deliver and we are well ahead of our working capital targets, to reach 5 percent of sales by 2015.”

“In conclusion, despite a challenging start of the journey to create a high-growth, high-margin pure play company, we feel confident that we now have the business plans, the management depth and the brands to deliver,” Bennink said.

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