Price hikes on some of the most iconic grocery brands on the supermarket shelf helped Premier Foods post a 43.5% sales jump to £1.29bn – but its gigantic debt is worrying investors.
Britain’s biggest food manufacturer, which owns Hovis, Mr Kipling and Branston, announced it had exceeded the £1bn turnover mark in its half-year sales results this week. Price rises, forced through to shoppers because of spiralling raw ingredient and energy costs, also boosted Premier’s operating profit by 10% to £121.5m.
But shares in the group dropped 7% after it declared restructuring costs had increased its debt mountain to more than £1.8bn by the end of June – up from £1.6bn at the end of 2007.
Despite the increase, chief executive Robert Schofield insisted he was comfortable with the level of debt and that factory closures and divestment of old stock would save the company tens of millions of pounds.
“We have reached the apex of spending and everything will now be geared towards generating cash,” Schofield told The Grocer.
However, Clive Black, an analyst at Shore Capital, said the group would need a strong second half to ease market fears. “Premier has no room for error for the rest of 2008 and it has not sufficiently explained how it will reduce its debt burden,” said Black.
“It would have to dispose of some of its subsidiaries, like RF Brookes ready meals and Avana Bakeries. But prices at which these companies are being sold is falling, and it will be challenging for Premier to sell them without reducing its earnings per share.”
Britain’s biggest food manufacturer, which owns Hovis, Mr Kipling and Branston, announced it had exceeded the £1bn turnover mark in its half-year sales results this week. Price rises, forced through to shoppers because of spiralling raw ingredient and energy costs, also boosted Premier’s operating profit by 10% to £121.5m.
But shares in the group dropped 7% after it declared restructuring costs had increased its debt mountain to more than £1.8bn by the end of June – up from £1.6bn at the end of 2007.
Despite the increase, chief executive Robert Schofield insisted he was comfortable with the level of debt and that factory closures and divestment of old stock would save the company tens of millions of pounds.
“We have reached the apex of spending and everything will now be geared towards generating cash,” Schofield told The Grocer.
However, Clive Black, an analyst at Shore Capital, said the group would need a strong second half to ease market fears. “Premier has no room for error for the rest of 2008 and it has not sufficiently explained how it will reduce its debt burden,” said Black.
“It would have to dispose of some of its subsidiaries, like RF Brookes ready meals and Avana Bakeries. But prices at which these companies are being sold is falling, and it will be challenging for Premier to sell them without reducing its earnings per share.”
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