A focus on cost control has enabled Premier Foods to post a 2.1% increase in first-half profit despite seeing a drop in sales of its ‘power brands’.
The rise in underlying trading profit for the six months to 30 June was achieved despite an overall drop in underlying business sales of 6.1% to £364.4m.
The company’s ‘power brands’, which include Loyd Grossman, Mr. Kipling and Sharwood’s, were down 4.9% due milder weather and falling price inflation, the company said.
Premier’s rise in first-half profit reflected its concentration on cost control and margins as well as its re-phasing of a chunk of consumer marketing spend to the second half of the year.
During the period the company has continued its efforts to simplify the business. It has spun its powdered business into a joint venture named Knighton Foods and said it is on track to cut the number of product codes to less than 1,100 by the end of 2014 and reduce the number of suppliers.
CEO Gavin Darby said the falling sales “reflect the challenging market conditions in our categories”.
“We are adapting quickly to the changing external environment through retaining a tight control of costs and margins and have a strong programme of consumer marketing and new product introductions planned for the second half of the year. Assuming normal weather patterns, we expect an improved second-half branded sales performance and our trading profit expectations for the year remain unchanged.
“We remain convinced of the medium and long-term potential for our brands to deliver profitable growth. We plan to continue investing in innovation, marketing, our supply chain capabilities and our people to create long-term shareholder value.”
The overall ambient grocery market in the UK decreased in value by 1.3% in the first half of 2014, while the categories which the company participates in declined by 4%.
Innovation
Premier Foods said it “recognises the changing nature of the grocery market” and has planned a number of new product launches and promotions in the second half to build its innovation pipeline.
During the first half of the year the company updated its category plans and has identified its cake category as a particular area of potential investment. As a result, the company is currently investing £20m on a new snack-pack line.
Jefferies analyst Martin Deboo said: “Viewed in the round, this feels a reassuring statement to us that should be positive for the shares, given recent weakness.”
“H1 profit was 7% ahead of our forecast and full-year guidance has been re-iterated. That this has been delivered hot on the heels of a fresh Tesco warning, and amidst some of the toughest conditions in UK grocery for years, is a measure of Premier Foods’ success.”
Premier Foods shares were flat in early trading this morning at 46.5p. The company has seen 75% wiped off its value since October 2013.
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