Premier Foods posts sharp gain in trading profit

by Eric Schroeder
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LONDON — The Bread division of Premier Foods P.L.C. posted profit of £14.3 million ($21.9 million) in the first half ended June 30, down 24% from £18.7 million in the first half of fiscal 2012. Despite the decline in the division, overall trading profit at Premier Foods was still sharply higher.

Total sales in the Bread division, excluding milling sales, fell narrowly to £240.6 million ($369.1 million) from £242.3 million. Milling sales during the first half totaled £115.3 million ($176.9 million), up 33% from the same period a year ago.

“Following the previously announced loss of a branded and non-branded bread contract, the Bread business is undergoing a year of major restructuring, which is progressing well ahead of plan,” Premier Foods said. “In the first half of the year, the Eastleigh and Birmingham bakeries and Glasgow mill have all closed.

The bakery in Greenford, West London, is expected to close in August. Additionally, the reconfiguration of our logistics network is now complete with the implementation of significant simplification of our direct-to-store delivery network.

“The lost volume and margin from this contract is expected to be offset by manufacturing and distribution cost savings from the site closures and reconfigured logistics network. The full-year cash costs associated with our restructuring program are expected to be approximately £28 million, of which £15.9 million was incurred in the first half of the year. The Group expects to receive total cash proceeds relating to these site closures of £10 million to £15 million in 2014.”

Premier said its Bread business now has a focused and dedicated organizational structure and has been relocated to High Wycombe offices. Additionally, the company is reconfiguring its Milling business unit to establish a separate business unit focused on free trade customers, which will be serviced by the company’s Southampton, Manchester and Newbridge mills. Alongside this, Premier Foods is integrating its mills at Andover, Gainsborough, Selby and Wellingborough into its Baking and Grocery businesses.

“In this year of restructuring, marketing investment is more focused, with the imminent launch of new Hovis packaging formats and improved Best of Both recipe formulation,” Premier said. “Additionally, we have recently announced a five-year licensing agreement for Hovis Breakfast Bakes, as we seek to build the Hovis brand in adjacent categories.

“We are also delivering significant improvements in our plant capability through the roll-out of a major refurbishment program, resulting in increased capital investment levels per bakery.”

Overall, Premier Foods posted trading profit in the first half ended June 30 of £47.4 million ($72.7 million), up 50% from £31.6 million in the first half of fiscal 2012. Sales totaled £621.2 million ($953.1 million), down 1% from £626.8 million.

“A 50% increase in trading profit is a very encouraging result given the highly competitive environment,” said Gavin Darby, chief executive officer. “This shows that our turnaround strategy is delivering at the bottom line. We have now grown sales in our Grocery Power Brands for six consecutive quarters as we continue to build partnerships with our customers, deepen our understanding of consumers and invest more effectively in supporting our brands.

“We have already completed the actions to deliver the promised £20 million of overhead cost savings for 2013 and continue to keep a tight control over costs. The restructuring of our bread and milling business is ahead of plan, and we are taking the decisions necessary to create a more sustainable platform for this business.

“The second half will see further plans to grow our Power Brands, in addition to a new £10 million of cost savings that we have now identified from our efforts to reduce complexity. As a result, we now expect full-year trading profit to be around the top of market expectations.

“Looking further forward, we will continue to drive profitable top-line growth by focusing on growing our categories supported by ongoing cost savings from reducing complexity. At the right time, we will address our capital structure — from a position of growing strength given the delivery of our turnaround plan and the performance of our Power Brands. I am excited by the potential offered by Premier Foods in the longer term.”

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