FDBusiness.com

UK food group Premier Foods has reported a 3.2% rise in underlying business sales to £1.35 billion with underlying trading profit increasing by 10.3% to £123.4 million for the year ended December 31 2012. Underlying business excludes all disposals announced in 2011 and 2012, non-core discrete contract losses and Milling sales. Operating profit for continuing operations was £96.3 million, compared to a prior year loss of £176.3 million.

Premier Foods continued to make progress in line with its revitalisation strategy, increasing sales of its Power Brands by 2.1% during the year to £889.2 million, and exceeded its planned disposal target by £40 million and 20 months early, helping to reduce net debt to £950.7 million.

Premier Foods also exceeded its target to reduce selling, general and administrative costs by £40 million in 2012, achieving total cost reductions of £48 million by the end of the year, contributing to the increase in underlying trading profit. A further £20 million of overhead cost savings are expected to be delivered in 2013.

“In 2012 we delivered against all of our strategic priorities – reducing net debt levels, significantly reducing costs, building more collaborative customer partnerships and generating growth in our Power Brands,” points out Mark Moran, chief financial office of Premier Foods. “While it’s clear that markets will remain challenging in 2013, we believe we have the right strategies in place, including the delivery of further overhead cost savings, to make further progress this year.”

Sales in the Grocery division increased by 5.6% to £856.7 million. Following recent disposals, this business has increased its proportion of branded sales by over five percentage points to 86.6% and retains strong EBITDA margins which the company believes it can build on.

Grocery Power Brand sales, in particular, continued to gather momentum during the year increasing by 4.0%. Marketing investment in the Grocery division increased by 96% compared to the prior year, as consumer marketing spend rose by around £16 million reflecting higher spend across all the Grocery Power Brands. The Grocery divisional contribution (trading profit excluding selling, general and administrative costs) decreased by £11.4 million to £195.5 million during the year, reflecting increased consumer marketing investment partly offset by growth in Power Brand sales.

Sales for the Bread division excluding Milling declined 0.7% to £497.1 million in 2012. During the year, the Hovis brand maintained its value market share in a highly competitive market, where promotional activity levels remain high.

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, adversely impacted the Bread division’s contribution. The Bread divisional contribution declined by £24.8 million to £26.9 million.

Milling sales were £191.4 million in 2012, down 0.9% compared to the prior year, while margins were also affected by the lower wheat quality from the 2012 harvest. In 2013, Premier Foods 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.

New chief executive Gavin Darby, comments: “Premier Foods has many strengths and great potential. The management team did a great job in 2012 to lay the foundations for future growth and I am very excited to be working with them to develop and grow our Power Brands in the coming years. It’s important now to maintain continuity and focus on executing our existing strategies to build further momentum in Grocery while re-building value in Bread.”