Premier Foods Profits Drop in H1

Loss after tax was up £17m to £40m reflecting higher mark to market losses on swap contracts. Net debt at 26 June 2010 was £1,365m, down £110m year on year.

Aug 4 2010 --- Premier Foods has reported that brands are trading well in tough conditions with sales up 0.5% in value and up 3.5% in volume on a pro forma basis1 for the six months to 30 June 2010. Volume market share gains in Drive categories, but total sales were down 4.5% on a pro forma basis for the six months to 30 June 2010 owing to own label sales which are down 12.7%.

This reflects:
• non-branded market volumes down 5.9%;
• wheat deflation of 2.3%; and
• 4.5% mainly owing to contracts, primarily in bakery, which were terminated in 2009.

Gross profit margin was up 60bp reflecting product mix, procurement gains and manufacturing efficiencies. Operating expenses were down 1.6% despite higher pension, marketing and restructuring costs. Trading profit was down £7m to £110m reflecting, as previously indicated, £11m of additional pension, marketing and restructuring costs. Operating profit was up £40m to £67m following the completion of exceptional integration expenditure in 2009. Loss after tax was up £17m to £40m reflecting higher mark to market losses on swap contracts. Net debt at 26 June 2010 was £1,365m, down £110m year on year.

Commenting on the results, Chief Executive Officer, Robert Schofield said: “These results reflect the actions we are taking in line with our trading strategy. Our principal brands are growing in both volume and market share and our gross margins have risen as we have improved product mix and delivered procurement gains and manufacturing efficiencies. We are controlling costs tightly and have made good progress in strengthening our cash flow and reducing debt. Today we are setting out further details of our programme to diversify and strengthen our financial structure. With the foundations of the strategy in place and delivery on track, we are looking forward to the rest of the year with enthusiasm.”

Meanwhile Premier Foods warned that a surge in wheat prices in the past month means second half profit at its Hovis division is unlikely to match levels seen in 2009.

Severe drought in Russia, one of the biggest exporters of the grain, has pushed prices up nearly 50%. Gary Sharkey, head of wheat procurement at Premier Foods, told the Financial Times  that the food industry "will be unable to ignore a 50% rise in wheat prices."