Premier blow as it loses £75m bread contract

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Mr Kipling and Hovis group Premier Foods has revealed more pressure on its bread business with the loss of a £75m supermarket contract and soaring wheat costs.

Premier also warned there may be a small number of job losses as part of another £20m in cost savings.

The St Albans-based group will lose the bread contract with an undisclosed major grocery chain from the middle of next year, accounting for £75m in annual sales. Premier said it was unable to agree renewal terms as it put profits before sales volumes in an effort to improve performance at the Hovis division.

It is separating its bread business into a different division amid intense competition and a surge in wheat price inflation caused by poor weather in the UK and overseas.

Premier has hiked the price of its bread to offset the higher wheat costs, pushing through a “single digit” increase.

But the group said its eight frontline brands – including Mr Kipling, Bisto, Ambrosia and Loyd Grossman sauces – delivered a 2 per cent sales hike in the third quarter to September 30.

Its key grocery brands have seen sales rise by 4.1 per cent in the year to date, helped by marketing campaigns including the launch of Mr Kipling ‘Great British Fancies’ earlier this year for the Queen’s Diamond Jubilee.

Premier said the £20m in additional cost savings would come on top of the £40m already earmarked to be stripped from the business.

It revealed in January it planned to axe 600 jobs, or 5 per cent of its workforce, as part of cost cutting to improve performance and reduce a debt pile that stood at £1.3bn in June.

The group is also on the brink of completing the £200m sale of its sweet spreads and jellies business to US firm Hain Celestial, offloading well-known breakfast table brands including Robertson’s marmalade, Hartley’s jam and Gales honey.

The firm built up its borrowings following a spending spree that included Mr Kipling owner RHM, although it is now on the mend after recently securing a £1.4bn refinancing deal.

Chief executive Michael Clarke said sales growth for its power brands showed the progress made so far in “stabilising” the business.

And shares rose 6 per cent yesterday as Premier stuck by full-year profit expectations.

Analysts at Shore Capital Stockbrokers said Premier’s bosses had “brought in necessary and commendable control to the business”.