Premier Foods plc has faced challenging conditions and weak sales in the first six months of the year. However, CEO Gavin Darby believes a jump in the UK group’s marketing investment and the roll-out of new products in the back half of the year will reverse its fortunes. Katy Askew reports.
In its half-year results, issued this morning (22 July), Premier Foods booked a 6.1% sales drop in its underlying sales. Revenue from its so-called power brands – Mr Kipling, Ambrosia, Oxo, Loyd Grossman, Bisto and Sharwood’s – fell a disappointing 4.9% in the period.
Commenting on the group’s top-line performance, chief executive Gavin Darby said warm weather conditions had the “most material impact” on sales trends.
“Weather was the biggest impact on not just our categories but all savoury categories in the first six months of the year,” he said during a presentation to analysts in London. “Our categories are down about 4%… clearly [we have seen] an unseasonably warm first six months but also cycling an unseasonably cold period last year.”
The UK has also seen slowing food inflation rates, which has taken some of the shine off Premier’s sales trends. However, Darby stressed that, while the country has witnessed a “very significant reduction in food grocery price inflation”, this has largely been in-line with a soft input cost landscape.
“As long as those reductions parallel the input costs this should not be something that worries us,” he suggested.
Darby also played down some of the “very significant change in the retailer landscape” in the UK, with growing sales through discount channels. Premier believes high street discounters such as Poundland represent an opportunity to push its tertiary brands and progress is being made on this front, he stressed. T
During the period, Premier volumes were hit when the group “made choices about the quality of revenue” when it shifted its promotional strategy, Darby said. The move pushed up average unit selling prices in the period, Darby added.
Investec analyst Nicola Mallard warned lower first-half sales could mean the group rounds out the year with sales below levels seen in 2013.
“Revenues were lower overall… Factors behind this include warmer 1H weather, the growth of the discounters (who sell largely private label) and also a reduction in deep discount promotions by Premier. The group has stepped back from its guidance for 2-3% growth in power brands (PB) for the full year and, from this 1H position, achieving an unchanged PB sales figure would be good,” she wrote in an investor note.
However, Darby remained upbeat on Premier’s sales prospects for the second half.
“We feel passionately that the right way to drive this business is to focus on driving the five big categories that we are in for the mutual benefit of our customers but also ultimately our shareholders.”
Premier intends to drive growth in the remaining six months of the year by stepping up its investment in marketing. According to Darby, the group has “close to” twice the marketing budget in the second half.
Premier is preparing to relaunch its biggest brand, Mr Kipling, with a GBP10m (US$17m) marketing campaign that includes a GBP1m digital spend. Packaging across the 74 Mr Kipling SKUs is being refreshed and the relaunch is being supported by a “big PR campaign”.
“The single thing that we could do to drive revenue at Premier is to focus on Mr Kipling,” Darby said. “We have had some fun in social media in the second quarter… We now come to the relaunch. It will be the biggest marketing campaign that Premier has undertaken.”
This recent NPD is expected to start feeding through to the top line in the remainder if the year, Premier predicted.
According to Jeffries analyst Martin Deboo, these actions could well benefit Premier’s top line in the remainder of 2014. However, he added the group remains open to the potential impact of the weather and broader shifts in the operating environment.
“Though there is no sign of respite from the broader market, Premier should get some helping hands on the sales line in H2 from easier comps (Power Brands +0.5% in H2 FY13 vs. +3.9% in H1) and a launch pipeline from Bisto, Batchelors, Cadbury, Oxo & Sharwood’s. The non-controllable factor is the weather, in the context of two thirds of annual profits being made in the second half,” he observed.
For more on Premier’s plans to grow the top line and improve profitability, check back for just-food’s interview with chief executive Gavin Darby.