Pricing wrangles take a slice out of Premier's profits

PREMIER Foods has seen its profits slump by a third as food costs soar and sales of key brands such as Mr Kipling, Batchelor's and Oxo take a tumble.

The group raised prices but a time lag before they came into effect cost the firm 15 million. It lost a further 10m when a major customer - said by analysts to be Tesco - refused temporarily to stock the repriced products.

Results yesterday showed that operating profits in the six months to 25 June had fallen to 42m from 63m a year earlier after food costs rose by 150m.

Sales of Mr Kipling cakes fell by 4.5 per cent to 59m, Loyd Grossman sauces slumped 6m to 15m, Batchelor's soup fell 5m to 45m and Oxo dropped 22 per cent to 14m.

The firm said Ambrosia, Sharwood's and Loyd Grossman sales were particularly affected by the customer dispute, while Loyd Grossman and Mr Kipling sales to other customers were also affected by lower promotional spending.

Highly indebted Premier cut its borrowings by 225m to 1.14 billion as it completed the sale of its canning businesses and Quorn meat-free brands.

The group, which issued a profits warning in June, said the customer dispute was now settled and higher prices agreed but the disruption hit a number of brands. Sales of these brands and another big seller Hovis should improve over the remainder of the year though Hovis is now facing pressure on milling margins, it added.

Premier recently appointed Mike Clarke, currently the manager of Kraft's European business, as its new chief executive, to start in September.

Panmure Gordon analyst Graham Jones said: "A key worry likely to overhang the shares for a while is whether the new CEO … will decide that the balance sheet is still too stretched and will embark on another painfully dilutive rights issue."

Premier shares have halved in value over the past three months.