FDBusiness.com

Premier Foods has announced a further step to build value in its Bread business and drive sustainable profitable growth through simplifying its manufacturing and distribution operations to improve efficiency, quality and service levels, so enhancing the performance of the Hovis brand.  Proposals have been developed to close two bakery sites in Greenford and Birmingham during the course of 2013, in addition to the previously announced closure of the Eastleigh bakery, and to consolidate production from these locations into the company’s remaining bread manufacturing sites.

In addition, it is proposed to simplify the bread distribution network by removing approximately 130 distribution routes, taking into account the reduction in volumes from the previously announced loss of a low margin bread contract by mid 2013. As a consequence, Premier Foods is proposing to close distribution operations in Greenford, Birmingham, Mendlesham and Plymouth. It is also proposed to restructure the company’s outsourced logistics operations to optimise the new network. Together, these proposals are expected to result in approximately 900 fewer jobs across the company’s Bread Division.

Michael Clarke, chief executive of Premier Foods, comments: “Having generated solid growth momentum in our Grocery Division, it is critical that we act to assure the long-term future of the Bread Division. By simplifying our cost base, we can increase focus on improving efficiency, quality and service levels to help grow our core Hovis business. We recognise the impact these actions will have for our employees at the sites affected. Decisions will not be taken lightly but they are necessary if we are to build a strong and successful future for the Bread Division and those who remain with our business.”

Charges associated with these proposals are expected to be approximately £28 million and will be reflected in Premier Foods’ 2012 and 2013 financial statements, with the majority of the cash outflows to implement the proposed changes taking place in 2013. The company expects to recover the majority of the cash impact of the proposed changes in future periods through realising site disposals, reduced working capital requirements and lower capital expenditure. On a pro forma basis, the savings from the proposed restructuring are expected to offset the margin forgone from the lost bread contract. These proposals are not expected to have an impact on 2012 trading profit.