Changes in mix hurt bread unit at Premier Foods

by Eric Schroeder
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LONDON — The Bread division of Premier Foods P.L.C. posted profit of £26.9 million ($41.1 million) in the year ended Dec. 31, 2012, down 48% from £51.7 million in fiscal 2011. The decline reflected adverse customer mix, wheat quality affecting manufacturing efficiencies and higher costs to serve. Total sales in the Bread division eased 0.7% to £497.1 million ($759 million).

“During the year, Hovis maintained its value market share in a highly competitive market, where promotional activity levels remain high,” Premier Foods said. “However, changes in the customer and product mix during the course of the year, as a result of a number of contract gains and losses, have adversely impacted divisional contribution. Additionally, some of the contract gains require higher costs to serve. Continued collaboration with our retail customers in 2013 is expected to result in an improved mix impact year on year.”

Premier also said adverse wheat quality following the worst harvest for 35 years affected manufacturing efficiencies and negatively impacted divisional contribution in the second half of the year. Meanwhile, price increases were achieved in the baking and milling businesses in the third quarter of 2012 to offset wheat price inflation following the lower quality harvest seen during the year.

“While the company has taken the decision to diversify its sources of wheat in the short term, it remains committed to supporting British farming,” Premier Foods said.

As previously announced, Premier Foods said it will lose a branded and non-branded bread contract with a retail customer in the second quarter of 2013, equivalent to approximately £75 million of annual sales.

“The lost volume and margin from this contract is expected to be offset by manufacturing and distribution cost savings from the previously announced closures of the Birmingham, Greenford and Eastleigh bakeries and distribution centers at Mendlesham and Plymouth,” the company said. Additionally, the company recently announced the proposed closure of its Glasgow Mill to optimize capacity in its milling business in light of reduced volumes.”

The cash costs associated with the restructuring are expected to be approximately £28 million in 2013.

Looking ahead to 2013, Premier Foods said it plans to re-build value in its bread division “through focusing on reducing costs to serve, improving profitability and targeting capital investment to enhance flexibility, efficiency and customer service.”

Overall, Premier Foods posted trading profit in the year ended Dec. 31 of £123.4 million ($188.4 million), up 11% from £111.6 million in fiscal 2011. Sales totaled £1,353.8 million, up 3% from £1,311.7 million.
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