Restructure to help ride the economic storm, say key firms

Some of Britain's biggest food manufacturers believe the restructuring they have undertaken over the past year or so means they are better placed to cope with the economic downturn expected in the year ahead.

In a trading statement issued last month, Premier Foods' chief executive Robert Schofield reported that the manufacturing phase of the company's transformation programme was now complete. This, he added, had resulted in "significant improvements in operational efficiency across the supply chain"

Meanwhile, in an interim statement, Northern Foods reported 3% increased sales for the third quarter of 2008, thanks primarily to successful recovery of higher commodity cost increases.

"Northern Foods is now a different company than two years ago; it is both financially and operationally stronger," said chief executive Stefan Barden. "While we share the market uncertainty over consumer spending going forward into 2009, this seems less pronounced in food than other sectors."

During 2008, Premier continued the integration of the RHM and Campbell's businesses it had acquired, with nine manufacturing sites being closed since November 2007, culminating in completion of the rationalisation programme in November 2008. Premier has also been rolling out SAP enterprise resource planning systems across the group. This project is expected to be completed this year, with an installation at the Manor Bakeries cake business. Premier also plans to open a new group-wide shared service centre in Manchester and reorganise its grocery logistics network.

"We anticipate group trading profit for 2008 will be between £315M and £320M, reflecting a stronger second half performance [for the year ended December 31]," said Schofield. "The full year increase has been driven by integration synergies [projected to deliver £113M in cost savings by 2010] partly offset by delayed recovery of cost inflation and lower Hovis volumes in the first half of the year, and the additional investment behind the relaunch of Hovis."

Premier is examining ways to accelerate the reduction in its debt burden, which stood at £1.78bn at the end of 2008, partly reflecting higher commissioning costs on its new factory network, working capital movements and financing fees.