Food firm premier in profit warning
Friday 07 October 2011
The UK's largest food manufacturer today issued a profits warning as it revealed a slump in sales across well-known brands including Hovis.
Premier Foods, which also owns brands such as Indian foods label Sharwood's and Batchelor's soup, said sales volumes had fallen 8% in the three months to September 30. Hovis saw volumes drop 13.5% in the period.
The heavily indebted group, which also owns Ambrosia and Bisto, said it would sell off a number of businesses to focus on eight "power brands" in a bid to drive future growth.
Michael Clarke, Premier chief executive, who took the top post in August, said the trading performance was "significantly below expectations" and the company will not meet last year's profit in the second half as previously expected.
Premier said it was holding talks with lenders to prevent it from breaching agreements - which will be tested at the end of the year - over its debt.
Mr Clarke, who joined the business from Kraft, said he hoped the discussions would "reach a successful conclusion in due course".
Premier said full-year profit expectations were between £214 million and £232 million - but it no longer expected to meet that range. Trading profit in the year to December 31 was £311 million.
The St Albans-based manufacturer also said its net debt would be higher than the £850 million forecast for the full year.
Mr Clarke refused to identify brands which would be up for sale but would not rule out any of the labels outside the so-called "power eight".
Meanwhile, Mr Clarke said a previous price spat with Tesco - which saw the supermarket pull a number of its brands, including Hovis - was still hurting business.
Shares in Premier Foods slumped more than 30% following today's update and have fallen more than 80% since May.
Martin Deboo, analyst at brokers Investec Securities, said: "Now the question is one of whether this company can survive."
He said: "To say that all this adds up to a baptism of fire for new chief executive Mike Clarke feels like the understatement of the year.
"His mettle is going to be strongly tested in the run-up to Christmas."
Consumer goods firm Unilever saw its shares slide in the aftermath, as did Associated British Foods.
Premier built up its debts in a buying spree last year that saw it snap up the likes of Hovis owner RHM. It recently moved to alleviate some pressure by selling off its canning business and meat-free division Quorn.
The company said plans to reduce the scope of its business would see it exceed its cost savings target of £20 million by 2013.
The grocery division, which includes brands such as Branston pickle, Hartleys jam and Birds custard, saw sales volumes fall 6.6%.
Its Brookes Avana business, which makes own-label ranges for supermarkets, saw sales decline 13.2%, after losing a significant pie contract at its site in Leicester.
Mr Clarke said the overall performance of the group depended on the crucial fourth quarter, when many of Premier's brands enjoy strong Christmas sales.
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