Slimming margins at Premier hit profits despite good growth

BRITAIN'S biggest food manufacturer, Premier Foods, yesterday warned its full-year pre-tax profit would be at the lower end of market expectations after its margins were hit by price cutting.

Premier, which makes Hovis bread, Branston pickle and Bisto gravy, said it expected to make a pre-tax profit of 165 million in 2009. Market expectations had ranged between 161m and 175m.

Shares in the company have lost nearly 80 per cent of their value over the past two years on the back of debt concerns. Last night they closed down 10.4 per cent at 33.51p.

The firm said sales of its branded products, which account for nearly two-thirds of its revenue, increased by 8.2 per cent in the fourth quarter, showing an improving trend, with sales across the full-year up by 5.3 per cent.

Hovis performed particularly strongly, with sales rising by 13.3 percent during the year.

However, Premier added that promotional costs had risen as it reacted to price cuts by competitors. That, together with rising input costs, had left gross margin down year-on-year. As a result, Premier said trading profit at its grocery division would be flat.

Royal Bank of Scotland analyst Julian Hardwick said: "A strong improvement in Hovis profitability has been partly offset by higher than expected grocery promotional costs, leaving 2009 profit towards the bottom end of market expectations."

Premier said Ambrosia desserts, Loyd Grossman sauces and Batchelors soup and noodles were strong performers while sales were also boosted by new product launches such as Mr Kipling Christmas puddings and Loyd Grossman pizzas.

The company has benefited from Britain's supermarkets enjoying a bumper Christmas.

Premier, whose products were bought by more than 99 percent of British households last year, said it expected to report a trading profit of around 320m, up 3.5 per cent on the previous year.

The company, which renegotiated its banking facilities and raised 379m in an equity fundraising last March, said its net debt stood at 1.4bn at the year end.

Rival Northern Foods – Britain's biggest maker of Christmas puddings – said trading over the festive period had been "solid" and in line with expectations.

However, the launch of Premier's Mr Kipling Christmas puddings had impacted sales volumes in its bakery division.

Northern, which makes Goodfella's pizza and Fox's biscuits, said sales at its chilled division were up 5.4 per cent, with bakery up 1.4 per cent but frozen sales down 10.5 per cent.

Northern's shares closed down 0.25p at 66.6p.