Premier Foods has avoided the “unmitigated disaster” of losing its lucrative Cadbury licence, but City concerns have emerged that Premier may have had to up its royalty fees to secure the contract.
Speculation had been rife that Mondelez could pull the contract to make Cadbury cakes when it expires in June after it bought back Cadbury biscuits from Burton’s Biscuits last year.
Analysts said the new agreement - worth £60m in sales, or 8% of total Premier revenues - removed uncertainty from the under-pressure supplier.
Commercial terms for the renewal, which will run to 2022, with an option for a further three years, were undisclosed.
City insiders questioned whether Premier had to increase its royalty fees or concede margin to keep the Cadbury brand.
However, Jefferies analyst Martin Deboo said Premier’s bargaining power should not be underestimated. “Retaining the contract was important for Premier financially and reputationally, but while I’m sure the negotiations were tough, there would have been limited alternative places to go for Mondelez with the requisite capacity,” he said.
Shore Capital’s Clive Black, who previously said losing the contract would have been an “unmitigated disaster”, added: “With its dedicated facilities to cake production, Premier did not have a blank negotiating card with Mondelez. Not every factory can easily produce one million Mini Rolls per day.”
The deal will allow Premier to make use of the full range of Cadbury brands for the first time, including Flake, Caramel and Crunchie, as well as Mondelez’s flagship biscuit brand Oreo.The renewal comes ahead of next week’s full-year results for Premier, which warned in its third-quarter update in January that increasing costs would drag trading profits down by 10% and result in lower revenues. Its sweet treats division has boosted group sales, led by rapid growth in the Cadbury range, during the year but failed to offset declines in the gravy, stocks and sauces brands.
Jefferies cut its full-year trading profits forecasts by 11% to £115m and revenues by £11m to £789m after the third-quarter results were issued.
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