click a Logo below to discover how we help our clients

Growth question hangs over Premier Foods

Premier Foods plc, the UK food group, appears to have a solid strategy in place - but whether it can succeed in eking out top-line growth in a tough trading environment is, at present, less than certain.

Shares in the Ambrosia and Sharwood's owner tumbled today (23 October) after the company warned it now expected its annual profits to be at the "lower end of market expectations". Analysts at Shore Capital said today they expect to take their forecast for Premier's trading profit down to a range of GBP130-133m.

The change to its outlook came after another challenging quarter - and one in which sales of its portfolio of "power brands" continued to fall.

Looking at Premier's entire portfolio of brands - including what the company calls its "support brands" like Homepride cooking sauces - the sales results from the third quarter were an improvement on the first six months of the year. Total branded sales were down 4.1% in the third quarter, compared to a 6.1% drop in the first half.

However, the decline in power brand sales was steeper in the third quarter than in the first six months of the year. Premier's power brands - which include Ambrosia and Sharwood's, as well as the likes of Bisto and Mr Kipling – fell 5.1%. In the first half of 2014, sales of those brands declined 4.1%.

Premier said "unprecedented structural changes in the industry" had been "increasingly demanding" during the quarter.

The company is not alone in finding the going tough in the UK, where the grocery market has seen deflation set in, as the major supermarkets sharpen their pricing pencils in response to the continued rise of Aldi and Lidl and growing consumer interest in the high-street discounters.

However, that sales of Premier's core brands fell faster in the third quarter is a concern. The company has said it believes its work on NPD will help sales and CEO Gavin Darby today sought to make reassuring noises about the prospects for Mr Kipling, Premier's top-selling brand.

"The initial response to the relaunch of our biggest brand, Mr Kipling, has been encouraging and we are implementing a strong programme of new product introductions and consumer marketing in the fourth quarter of the year to coincide with the important Christmas trading period," Darby said.

In recent the 18 months since Darby joined the business, there have been encouraging moves from Premier on product development, marketing, using its second-tier brands in adapting to the rise of price-focused retailers in the UK and a more joined-up international strategy.

Darby has also made moves to reshape Premier's portfolio further with Hovis and powdered foods assets placed into stand-along joint ventures.

And Premier has also carried out work on its balance sheet, including an equity raising.

However, the success of new products is not guaranteed, Premier needs to do more in targeting the discounters and it remains very early days for its businesses outside the UK.

The acceleration of the sales decline from Premier's power brands was a surprise and it does not just reflect the tough trading conditions in the UK. It is a warning as these brands are the company's top sellers and ones which it believes will be central to its future growth. After a raft of recent welcome initiatives across the business, it is clear there is still a lot for Premier to do try to revitalise its top line.

Source: - 23 October 2014