UK: Poor harvest eats into Premier Foods profit
15:05 21 February 2013
HOVIS and Mr Kipling group Premier Foods served up an 11% rise in annual earnings as swingeing cost cuts helped offset a near-halving in profits across its troubled bread division.
The surplus at the Hovis business slumped 48% to £26.9million after the worst wheat harvest for 35 years in 2012 compounded already tough trading.
But efforts to slash costs by £48m helped increase underlying trading profits to £123.4m in 2012 and the group said it hopes to make “further progress” this year in the face of challenging markets.
In October last year, Premier said it had conditionally agreed the £92.7m sale of its sweet pickle and sauces arm at Bury St Edmunds, which employs 367 staff, to Mizkan, a leading vinegar maker
The following month, it announced plans to axe its distribution plant at Mendlesham, near Stowmarket, where 45 were employed, as part of major cutbacks.
New boss Gavin Darby said he would continue the work laid down by his predecessor to get the business back on track.
The former Cable & Wireless Worldwide chief executive took on the top job earlier this month following the shock departure of Michael Clarke.
He said Premier’s management “did a great job in 2012 to lay the foundations for future growth”.
“It’s important now to maintain continuity and focus on executing our existing strategies,” he added.
Mr Darby joins after a tumultuous year for Premier following a pivotal £1.4 billion refinancing deal, a raft of asset sales and a shake-up of its bread business.
St Albans-based Premier has been struggling to reduce a £1.3billion debt mountain following a spending spree which included Mr Kipling owner RHM.
Under Mr Clarke, net debt reduced to £951m and Premier has been undergoing a turnaround to focus on eight “power brands”, including Ambrosia and Bisto.
He offloaded Sarson’s vinegar and Haywards pickles to Japanese firm Mizkan last year while the group has also announced it will close two bakeries and a flour mill with the loss of more than 900 jobs, having just lost a major £75m bread contract with a supermarket.
Mr Clarke’s exit to pursue other business opportunities came as a shock to the City last month, with fears his departure would throw the restructure off course.
But Mark Moran, chief financial officer at Premier, said: “While it’s clear that markets will remain challenging in 2013, we believe we have the right strategies in place, including the delivery of further overhead cost savings, to make further progress this year.”
Another £20m in savings are due in 2013, while Premier said it was also looking for more opportunities to cut costs.
But the group has moved to downplay speculation that it was planning to offload Hovis, with bosses saying further major asset sales were unlikely.
Figures showed sales of its so-called power brands rose 2.1% in 2012, although grocery profits - down 5.5% - were hit as it ploughed £39.4m into marketing after launching new television advertising campaigns.
Shares lifted 4% after the results came in marginally ahead of expectations.
Investec Securities analyst Martin Deboo said Premier’s outlook was “a decent, reassuring statement in the light of the shenanigans that preceded it”.
“But plenty of challenges remain - the trading environment is tough and marketing investment remains low by peer standards,” he added.