Premier Foods battles for survival after Tesco row

(GETTY IMAGES)

Mr Kipling may bake exceedingly good cakes but his parent company put out an exceedingly bad trading update yesterday. Premier Food's shock announcement prompted a 40 per cent collapse in its share price and raised questions over its future.

Sales in the three months to the end of September fell 3.6 per cent to £477m, it announced. The market had expected full-year profits to be between £214m and £232m, but Premier said it would miss those targets after its performance. A stock that peaked at 287p in early 2007 fell as low as 6p yesterday.

The owner of brands including Hovis and Oxo has struggled as British consumers have tightened their belts, and its rivals have ratcheted up the price wars. Premier has also suffered from a spat with Tesco, its largest customer.

The company's new chief executive, Michael Clarke, said: "Unfortunately trading has not been good; we lost momentum from the beginning of the year."

Martin Deboo, an analyst at Investec, said the announcement amounted to a "significant profit warning" and added: "Now the question is whether this company can survive."

He expects consensus forecasts for full-year earnings before interest and taxation to be slashed by 10 per cent to below £200m and added: "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."

Its Hovis bread brand was under particular pressure in the third quarter, with sales slumping 6.2 per cent "driven by intense competition". Volumes fell 13.5 per cent and margins were hit by higher promotional activity.

Premier was set up in 1981 when Hillsdown Holdings bought Lockwood and continued to grow over the next three decades with a series of acquisitions. Yet the £1.2bn acquisition of RHM, which brought in brands including Hovis, Bisto and Mr Kipling, shortly before the credit crunch in 2007, saddled it with debt.

The company has also been hit by a dispute with Tesco. In the spring the grocer pulled a quarter of Premier's products from the shelves after a row over Premier's proposed price rises.