Premier suffers after Hovis woe

The maker of Hovis slumped to a loss today after a price war sliced its bread division’s profits to just £3.4m last year.

Premier Foods, which also owns Mr Kipling, Bisto and Oxo, was pushed to an overall loss of £259.1m in 2011 because of the need to write down the value of the Hovis business on its balance sheet.

Bakery sales were down nearly three per cent at £500.5m as fierce price activity in a market that also includes Kingsmill continued. Tesco also refused to stock Hovis products, although this price dispute has now been settled.

Hide Ad
Hide Ad

St Albans-based Premier said the division’s trading profits slumped 90.4 per cent last year, leading it to slash the value of the bread arm by £282m.

The group, which has been struggling under a near £1bn debt mountain following a spending spree that included Mr Kipling owner RHM, insisted it is on the mend after recently sealing a “landmark” £1.4bn refinancing deal.

Chief executive Michael Clarke said he was “very positive” about Premier’s future, adding that sales growth should return under plans to double market spend on eight core brands this year, which also include Batchelors and Ambrosia.

The high number of special offers in supermarkets and “a protracted customer dispute” also took their toll on the group’s grocery division, which includes Oxo stocks and Branston pickle. Trading profits were down 19.1 per cent to £170.3m and sales fell 7.4 per cent to £1.1bn.

Hide Ad
Hide Ad

But the group said overall gross margins would grow as it continued to cut costs. It recently announced it would axe 600 jobs - five per cent of its workforce - in a bid to reinvest the savings in this year’s marketing push.

Mr Clarke, who joined the business from Kraft last year, said the recently announced refinancing was “great news” for its employees and represents “a strong sign of confidence and support for the business, its strategies and growth plans”.

He added: “We intend to draw a line under the performance of 2011.

“I’m convinced we have the right team to turn this business around and I am very positive about our future.”

Hide Ad
Hide Ad

Current trading was in line with expectations, but the group expected more difficult conditions ahead in 2012, as it battled continued cost price hikes, albeit at lower levels than in 2011.

Shares fell six per cent to just over 11p today, having slumped from peaks of around 300p in 2007 and giving it a market value of £265m.

Related topics: