Uphill struggle for Premier sees food giant forced to axe 600 jobs

Premier Foods linked the announcement with a warning that 2011 profits will be at the lower end of market forecasts of between £170m and £197m.

The job cuts effectively speed up an existing Premier Foods cost-cutting plan. Premier said they amounted to 5 per cent of its 12,000 workforce, and would be spread across the St Albans head office, and various UK factories and support sites.

The redundancies will double the group’s cost reduction target from its original plan for £20m of savings by 2013.

New chief executive Michael Clarke, who joined the business from Kraft, said: “While decisions to reduce the workforce are always difficult, I’m convinced we are taking the right steps in the long- term interests of the business, employees and our stakeholders.”

The group said it aimed to plough the savings behind eight identified “power brands”: Ambrosia, Batchelors, Bisto, Hovis, Loyd Grossman, Mr Kipling, Oxo and Sharwood’s.

It is to double marketing spend behind the brands this year, starting with television adverts for Sharwood’s and Loyd Grossman next month.

Premier, struggling with interest payments on £850m of debt after a buying spree and a worsening trading backcloth, cheered the City by saying it expected talks with its banks over rescheduling its loan repayments were continuing and agreement was expected soon.

The group reduced in size recently, with disposals such as Quorn and its canning operation, and said yesterday it was considering further non‑core business sales.

Earlier this month speculation rose that Premier planned to sell its Hartley’s jams and Haywards pickles businesses to cut debt further and help meet its bank borrowing covenants.

Shares in Premier have collapsed over the past year from a high of 34p, but the market focused on the deeper cost cutting and refinancing yesterday, leading the stock to close up 11 per cent at 6.37p. The stock hit 288p five years ago.

Charlie Mills, a food production analyst at Credit Suisse, commented: “The group is making the right noises but has a long way to go to tempt shareholders back. Details of the re-financing will be crucial.”

Food analysts say the business has been hit by consumers increasingly switching to cheaper supermarket own-label brands, and that it has been forced to cut prices in response.

Premier said trading over Christmas had been in line with its expectations.

Martin Deboo, an analyst with brokerage Investec Securities, said: “While arguably jam tomorrow, the jam feels reasonably sweet to us… but we continue to think the share price will be driven by the terms of any prospective refinancing rather than retrospective trading.”