FDBusiness.com

Premier Food, the UK’s largest food producer, has reported a 28.7% drop in trading profit to £67m for the first half ended June 25th 2011. Sales from ongoing business, excluding the canning and meat-free businesses, slipped 0.9% to £974m.

Trading profit was affected by four major factors: First, commodity costs increased by 14% year-on-year; equivalent to a £150m increase in costs in a full year. Although Premier Food has successfully repriced its products to reflect this, there was an inevitable time lag before the prices took effect, which led to a one-off cost of £15m in the first quarter.

Second, in addition, as a direct result of the group’s successful repricing exercise, one of its major customers delisted a significant number of Premier Foods’ grocery lines. This cost Premier Foods around £10m in the second quarter but the issue has now been fully resolved and the affected lines have been relisted.

Third, there was an unprecedented decline year on year in the group’s markets, with both the grocery and bread markets falling by 4%, due to the depressed consumer environment exacerbated by unseasonably warm weather. The consequent decline in volumes reduced profit in both the grocery and Hovis bread businesses.

Fourth, Brookes Avana recorded an £11m decline in profit year-on-year in the first half. This includes a £4m charge for restructuring in relation to asset write offs and redundancy costs following the decision from Marks & Spencer to remove a significant pie contract in stages over the next year.

Premier Foods has succeeded in cutting its debt mountain below the £1b mark. The proceeds from the disposal of the canning and meat-free businesses will reduce net debt to £972m.

Premier Foods is also continuing to reduce costs. Logistics and head office restructuring is expected to yield £20m in annual savings by 2013.

“This was a challenging period not only for Premier Foods but also for the food industry as a whole. We faced a combination of reduced consumer spending and significant raw material inflation. We were further hampered by a temporary pricing dispute with one of our major customers which has since been resolved and by underperformance at Brookes Avana,” comments Jim Smart, chief financial officer of Premier Foods. “We were successful in passing on the majority of our higher input costs, completed two significant disposals and reduced our borrowings. We have continued to deliver efficiencies in line with our targets and have now commenced a further cost saving programme.”