Premier Foods (PFD) boss Gavin Darby is weighing up a host of options to mitigate the need to push up the prices of its products as suppliers across the industry battle inflationary pressures caused by the weak pound.

Darby told The Grocer today that the Mr Kipling and Bisto maker was a different proposition to its multinational rivals thanks to 95% of its range being manufactured in the UK, with 89% of its input costs in sterling.

He added that the group had “a broadly neutral” position in regards to buying and selling of US dollars. “While the group uses forward cover contracts for certain commodities and currencies, it expects to employ a range of mitigating actions to recover the effects on any input cost inflation in the coming months,” Darby said.

The pubic rift between Unilever and Tesco, after the consumer goods giant agitated for price increases of its portfolio, including Marmite, has led to food suppliers opening discussions with supermarkets to over who should shoulder the burden of input cost inflation.

Darby said Premier would take a category-by-category approach rather than a broad currency-based strategy. “Wheat, sugar, dairy and edible oils prices have all increased a significant amount so some categories provide bigger challenges than others,” he said. “We will look at price increases but in a more limited territory.”

Manufacturing and supply chain efficiencies, reduction of promotional activity and tweaks to promotional strategy would all play a part in recovering input costs, Darby said. But he added there were no plans to product engineer pack sizes or formats.

However, Jefferies analyst Martin Deboo issued a word of caution about Premier’s prospects. “We continue to feel cautious around the risks from the impending return of cost inflation to UK grocery, where we think Premier will see a mid-single digit percentage impact on input costs of £350m to £400m compounded by pressure on gross margin from own label mix. We expect recovering this to be a challenge.”

Sales at Premier fell 1.8% to £348m in the six months to 1 October as the previously flagged slowdown in the second quarter hurt the supplier. The grocery division recorded a 4% decline in revenues in the half, with a 12.4% slump in branded sales in the second quarter being partially offset by growth in non-branded. The business blamed unseasonably warm weather for keeping customers away from the gravy, stocks and sauces shelves of supermarkets and its Bisto, Oxo and Batchelors brands.

There was better news in the smaller sweet treats arm, where a strong performance of Cadbury cakes helped sales rise 4.1% in the half.

Reported group sales, included consolidated figures from the recently acquired Knighton Foods business, were 2% up for the half at £348m.

The decline in the top line, along with higher financing costs, saw pre-tax losses widen to £8.7m, compared with £5.1m in the same half a year ago. Trading profits also fell 4% – or £2m – to £48m.

Darby forecast that group sales would increase in line with the medium-term outlook of 2-4% during the second half. However, as highlighted in the second quarter trading update in October, sales are now only expected to rise by half that rate (1-2%) for the full year.

And Premier has scrapped the planned £6m increase in marketing spend, taking it back to the previous year’s levels, to keep its profit forecasts for the year in line with expectation.

Darby has pinned his hopes on the tie-up with Japanese food group Nissin, which has a near 20% stake in Premier, after he rebuffed the takeover approach from US suitor McCormick earlier this year.

The plan, expanded on today, includes getting Nissin’s Soba noodles into UK supermarkets, using the Japanese business’ leverage to double the presence of Sharwood’s Indian sauces to 10,000 stores in the US, and launching a rival to Pot Noodle under the Batchelors Super Noodles brand next year.

“The pot noodle category is worth £160m and growing and it feels right to have Batchelors in that sector,” Darby said.

Martin Deboo of Jefferies flagged the latest triennial pension valuation as the “big positive” from the half-year report. It resulted in a fall in the group pension deficit on an actuarial basis to £416m, down from £1.1bn in 2013, which will reduce Premier’s future cash contributions.

Shares in Premier have risen 4% to 47p on the back of the news - still some way short of the 65p-a-share offer McCormick tabled before walking away empty handed.

Net debt increased £21.8m from the previous year end to £556m in the period as a result of the resumption of higher pension deficit contributions. However, the figure was £29m lower than at the end of the first half a year ago.

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