Summer heat sours RHM's sales forecast

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The Independent Online

RHM unsettled investors yesterday by warning that the hot summer had knocked it off course by putting cooks off using its Bisto gravy granules or Sharwoods pickles and sending wheat prices sharply higher.

Its shares dipped 4 per cent after the food group said the impact would skew its profits "even more" to its second half than last year, although it still expects to hit City forecasts.

RHM is negotiating with supermarkets over the price rises it needs to recoup a 13 per cent increase in the cost of flour, which the maker of Mr Kipling cakes and Hovis bread uses in half its products. Wheat growers had a bad harvest after record temperatures and drought.

The group's 2 per cent rise in sales in the four months to August was below expectations after its culinary brands division underperformed.

Jan du Plessis, RHM's chairman, blamed lower turnover and margins in its most profitable division on "the exceptionally hot summer, some retailer destocking and an increasingly competitive environment". The division also makes Paxo stuffing and a range of ethnic sauces under its Sharwoods brand.

Offsetting the weakness of its main brands, the group said that its cakes arm was recovering more quickly than many analysts had expected - particularly given that Inter Link Foods, a cake maker, issued a profit warning on the back of the hot weather in July.

Industry data showed that Manor Bakeries, RHM's cake maker, grew sales by 17 per cent in August, lifting its share of the market to 25 per cent from 21 per cent. Mr du Plessis singled out the Mr Kipling brand, relaunched this year with no artificial flavours, for delivering "encouraging like-for-like sales and market share gains".

But not all analysts were convinced that the recovery could be trusted. Graham Jones, at Panmure Gordon, said: "The seasonality of RHM means September is a bad time to predict how the full-year is going to transpire. Nevertheless, [the] trading statement highlights a number of concerns, and it seems clear that little progress is likely to be made at the first half stage."

Shares in the group, which has struggled to impress the City since it floated a year ago, closed down 4 per cent at 271.75p.

The company said it had also increased its marketing spend, hitting first-half profits. It is promoting a new crustless version of Hovis, aimed at children, in an attempt to keep its arch bread-making rival, Associated British Foods, at bay.

Analysts at Citigroup said the update was "slightly bearish" given the disappointing performance of culinary brands, its "jewel". They added: "What will be the next division to creak?"