31st Oct 2013 11:44
LONDON (Alliance News) - Shares in British food producer Premier Foods PLC dropped 13% in early trading Thursday after the firm said its third quarter total underlying sales decreased 3.2%.
Premier Foods said underlying sales were down to GBP283.2 million from GBP292.5 million last year, though notes that these figures do not include milling sales which were up 15.1% in the quarter, reflecting higher pricing points.
The firm said growth in its Grocery Power Brands line continued, up 2% during the third quarter and 3.3% for the year-to-date, helping to drive overall growth of branded sales, up 0.5% year-to-date.
Support brand sales decreased by 9.8% and lower margin, non-branded sales were down 11.4%. Premier said it expects the decline to be mitigated in the future through further focus on this part of the portfolio across all channels.
A hotter-than-average summer significantly impacted a number of Premier's core competitive categories, as the quarter got off to a slower start. The firm says that Ambrosia products performed well due to an effective 'back-to-school' campaign, as Mr. Kipling sales returned to growth, delivering its highest share position for more than two years, supported by the continued interest in 'snackpack' products.
Sales of Sharwood's and Batchelors were impacted by a combination of hotter weather in July and early August and competitive market conditions, said Premier. Sales of 'support' brands, such as Homepride were generally lower during the period, which was in particularly impacted by strong competition in the cooking sauces space. Premier said it will focus on driving total category growth; "we are beginning to build distribution for our support brands across all channels including the growing discounter channel."
The retailer said that non-branded sales were generally down due to a number of contract withdrawals in desserts and powdered beverages during the period.
Bread sales were down 1.5% on last year, which Premier said reflects a slower start to the quarter with the hotter-than-usual July weather. Performance improved through the quarter, supported by progressively stronger customer partnerships, said the firm. Premier has implemented a restructuring programme in its bread division this year, including the closure of three bakeries, two mills and a reorganised logistics network. Restructuring costs associated with this programme are expected to be approximately GBP28 million in the full-year.
As part of the firm's broader category approach, the company initiated a number of strategic measures during the quarter. In order to focus on the Premier-identified GBP10 million of incremental cost savings, the firm has reduced the number of lower margin products in its Grocery business by 15%, over 270 products. Premier also plans to halve the number of its suppliers by the end of next year, with 83% of total procurement expenditure now with just 250 lead suppliers.
The company has already consolidated the logistics arm of its Grocery operation, taking on a regional distribution centre approach and reducing the number of hubs from three to two.
In order to continue its wider and ongoing expansion strategy beyond existing channels and markets, Premier has recently signed a ten year partnership agreement with Swire Foods Holdings Ltd, to distribute Ambrosia rice pudding pots in China. This agreement, while initially focusing on Ambrosia, may extend to other Power Brands in the portfolio in due course, said the firm.
The food producers net debt expectations for 2013 remain unchanged, with recurring free cash flow generation during the year expected to be in the range of GBP50-70 million.
Gavin Darby, Chief Executive Officer said that the firm retains its expectations for the full-year. "Overall, I'm encouraged by the progress we are making in what continues to be a highly competitive market. The intensity of promotional activity in our markets remains high while our categories were significantly impacted by the hotter weather in July and early August.
"We continue to make good progress against our strategic priorities supporting our category based approach. We have grown our Grocery Power Brands for a further quarter, completed a major restructuring of our Bread supply chain and our plans to reduce complexity across the business remain on track," he adds.
Premier Foods shares were down 12.31% Thursday morning, trading at 157.85 pence per share.
By Alice Attwood; [email protected]; @AliceAtAlliance
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