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Profits Plunge at Premier Foods

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Profits Plunge at Premier Foods

Profits Plunge at Premier Foods
March 20
12:58 2012

Premier Foods has reported a 29.3% drop in trading profit for ongoing business to £173.7 million for 2011 on sales down 3.4% to £1.81 billion. The UK food group has been disposing of assets to reduce its debt mountain. The sales of the Meat-free, Canned grocery and Brookes Avana businesses realised total net proceeds of £394 million and helped to cut net debt to £995.1 million at the 2011 year end.

Sales in the group’s Grocery division decreased by 7.4% to £1.10 billion during 2011 and trading profit declined by 19.1% to £170.3 million. Total sales for the Bread division increased 3.4% in 2011 to £711.3 million but trading profit collapsed from £35.3 million in 2010 to £3.4 million. Hovis bread branded market share was broadly flat during the year, while non-branded volumes were lower, partly as a result of a contract loss.

Michael Clarke, chief executive of Premier Foods.

Michael Clarke, chief executive of Premier Foods, comments: “2011 was clearly a challenging year for Premier Foods. Like many others in the industry, we felt the impact of significant commodity inflation and an unprecedented decline in consumer spending. Unfortunately,our price increases were not able to fully recover higher costs and were largely negated by higher promotional spending which affected margins. In addition, as consumers looked for greater value, we were unable to maintain demand for our brands due to reduced marketing investment. Retail customer support for our brands consequently declined in favour of our competitors and own label, a situation that was exacerbated by the effect of customer disputes.”

He continues: “Despite its significant scale, the group has been unable to fully exploit revenue and cost synergies. The business remains complex with insufficient focus and has additionally suffered from a lack of investment behind its brands and a short-term, tactical approach to trading. The need to service significant debt has compounded these challenges.”

Premier Foods has just successfully negotiated a re-financing of the business with banking facilities of £1.4 billion extended to June 2016 and banking covenants re-set to support the new management team’s strategic plan for turning the business around.

Premier Foods’ new growth plan entails concentrating marketing investment behind eight ‘Power Brands’. This investment will double in 2012 with sustainable increases planned in subsequent years. Premier Foods will also focus on building collaborative relationships with key customers to drive mutual growth, while targeting gross 4% year on year supply chain savings and doubling of overhead savings to more than £40 million by 2013.

However, the consumer environment in the UK remains challenging. “Consumers will continue to focus on value and convenience; and competition will again be intense,” Michael Clarke points out. “There is no doubt that we will need to work hard to make our brands stand out. Nevertheless, our performance thus far in 2012 is in line with our expectations. I’m convinced we have the right team to turn this business around and I am very positive about our future.”

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