Premier Foods in ‘constructive dialogue’ with M&S over RF Brookes and Avana Bakeries
Premier Foods, which posted a 6.4% rise in pre-tax profit to £166m on sales down 3.5% to £2.57bn in the year to December 31 - ahead of City expectations - said it was confident that it would work with key customer M&S to return the sites to profitability in 2011.
"We are in constructive dialogue with our main customer, Marks and Spencer, which we believe will result in an amended product range and revised pricing and supply arrangements which we believe will return the business to profit in 2011."
A 4.7% slump in sales at the division to £203m were blamed on contract losses and lower volumes sold on existing contracts, while the collapse in profits was blamed on lower volumes, lower prices, poorer mix and higher commodity costs, said the firm.
"The business operates in an industry characterised by overcapacity and, consequently, by decreasing margins. In addition, substantial escalations in the market cost of key commodities such as wheat, dairy products and packaging could not be recovered."
Next candidate for disposal?
While Panmure Gordon director of equity research Graham Jones has argued that Brookes/Avana "should be [Premier's] next candidate for disposal”, it has not in the past attracted sufficiently attractive offers to make a sale worthwhile, and Premier boss Robert Schofield today stressed that there was "no need" for further disposals and that he was not fielding offers for Brookes/Avana.
However, with Greencore potentially on the lookout for fresh acquisition opportunities if Ranjit Boparan scuppers its bid to merge with Northern Foods, things could change, suggests Jones.
The deal would also enable Greencore to build a relationship with M&S (its key customers are Asda, Tesco, the Co-operative Group, Morrisons and Sainsbury's).
Branston Beans down 8%, Hartley's up 8.7% and Loyd Grossman up 7.2%
Elsewhere, Premier Foods reported mixed fortunes, with stronger sales of Loyd Grossman (+7.2%), Hartley's (+8.7%), Sharwood's (+4.5%), Mr Kipling (+3.3%), Ambrosia (+2.9%) and Hovis (+2.8%), but weaker performances from Branston Beans (-8%), Oxo (-4.8%), Batchelor's (-1.1%, Bisto (-1.5%), Cadbury cakes (-3.4%) and Branston pickles and relishes (-0.6%), said the firm.
"Batchelors and Oxo faced strong competition in their markets and Branston beans and Bisto had a lighter promotional programme. Cadbury cakes sales fell reflecting lower promotional activity."
Operational efficiency
Meanwhile, procurements savings from the supplier rationalisation programme added £16m to trading profits in grocery, while grocery manufacturing costs were reduced by 8% through a variety of initiatives including reduced waste and better scheduling (which reduced the need to use overtime or third party manufacturing).
Grocery profits were up fractionally from £255m to £256m, while Hovis posted a 26% surge in profits to £39m, despite surging wheat prices.
Investec Securities analyst Martin Deboo said it looked like Premier may have turned a corner. “Critically for us, the trading profit result [£311m – ahead of the £300m consensus] has been achieved on the back of manufacturing and SG&A [selling, general and administrative] cost savings rather than a reduction in marketing.”
Datamonitor analyst Mark Whalley added: “Premier will primarily have to focus on revitalizing the likes of Hovis to drive growth, leveraging prominent trends such as health and nostalgia.”
