Strategic Report
Product Quality Product quality is a key strength of the Group and failure to maintain a high standard of food quality and safety would have a severe impact on service levels and customer relationships. Te Group’s quality assurance procedures, managed at site level, are reviewed continuously with improvements made as appropriate. Te Group’s Technical Director helps provide focus to ensure there is continuous improvement across all sites to meet the increasingly high expectations of our customers. Te operating subsidiaries are subject to regular internal and independent food safety and quality control audits including those carried out by, or on behalf of, our customers. Te Group maintains product recall insurance cover to mitigate the potential impact of such an occurrence.
Prices and Supply Increases in the price and volatility of price of raw materials along with increasing utility costs can impact the core profitability of the business and any related shortage in supply of raw materials will impact the business’ ability to maintain its service levels to customers – another of its key performance indicators. Te prices of certain key commodities (e.g. sugar) are tied to the Euro – the relative strength of sterling and future volatility within the Eurozone will, therefore, have an impact on the cost of these commodities.
Affordability for consumers is essential and the Group will focus on internal efficiencies and productivity initiatives to lessen the rising commodity price impact on consumers. Te Group maintains a high level of expertise in its buying team and will consider long-term contracts where appropriate to reduce uncertainty in input prices. Te team also cultivates strong relationships with its major suppliers to ensure continuity of supply at competitive prices. Regular renovation and innovation in our product range can help to manage margin pressures in an effective manner as far as the competitive environment allows. Te Group also purchases forward foreign currency in order to minimise the fluctuation of input costs linked to future currency conversion rates.
Economic Environment Te economic environment remains challenging, with consumer behaviour changing and a shift toward value-oriented discounters. Te Group will continue to focus on quality and value for money in periods of reduced spending. Te Group manages margins through investing in site capabilities such as leading edge robotics to increase efficiency and effectively manage capacity. Innovation and development of products that stand out from the crowd help maintain strong relationships with customers and licensors. We are driven by a passion to meet consumer expectations at affordable quality.
Trading Results Continuing Group revenue for the 52 week period to 28 June 2014 was £175.7 million (2013: £176.6 million).
Gross margin for the financial year was 27.4% (2013: 26.3%). Commodity price inflation began edging back upwards during the second half of the year with escalating costs in chocolate, butter, energy and labour. Te outlook is that some volatility is expected in key ingredients driven by market risks.
Administrative expenses on continuing activities have increased by £1.0 million year on year through increased marketing support, new product development and range support. Inflationary increases and employee pay rises have been offset largely by operational improvements and returns from capital investment.
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