Premier Foods beats profit expectations

A SLIMMED-down Premier Foods revealed yesterday that its debt mountain was set to fall below �1billion – and posted better-than-expected annual profits.

The Hovis bread and Mr Kipling cakes company reported slightly improved trading profits of �311million for the year to December 31 – against City expectations of a 3% fall – on sales down 3.5% at �2.6billion, reflecting a decline in supermarket own label revenues.

Premier, the UK’s biggest food manufacturer, has recently sold its Quorn meat-free business and its canned grocery operation, including the Crosse & Blackwell brand, for a combined sum of �387m in order to cut its debt burden.

Last June, the group’s debt stood at �1.4bn, the result of a takeover spree, including Hovis group RHM, in the years before the recession hit.

Yesterday, however, Premier said the total had fallen by �103m to �1.261billion by the end of the year, and that proceeds from the two recent disposals would reduce the figure further to below �900m

Premier, whose manufacturing sites include a factory in Bury St Edmunds producing lines including Branston pickle and Loyd Grossman sauces, saw its shares fall in value by nearly half last year as investors were scared off by the debt pile.

Premier also said yesterday its own-label bakery business, Brookes Avana, had seen its profits collapse from �15m to zero during the year as it struggled to pass on price rises.

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During the year it was involved in a spat with Tesco which refused to stock some Hovis products due to price rises driven by the soaring cost of wheat. The group said it was now “in constructive dialogue” with Brookes’ biggest customer, Marks & Spencer, about changing its pricing and bringing in new ranges.

However, Premier added yesterday that Hovis, Mr Kipling, Ambrosia and Hartley’s had all gained market share in the year, while sales of Loyd Grossman sauces increased by 17% in the second half, following the launch of the Loyd for One range.

Julian Hardwick, an analyst at Royal Bank of Scotland, said Premier had made excellent progress in paying down its debt and its repayments to date had been higher than it forecast.

He said the reduced debt level gave the group a comfortable balance sheet and would enable it to find cheaper interest rates.