Premier Foods plc has identified three further ways to lower costs that the UK food group said will “reduce complexity” within its business.
Speaking after Premier booked an increase in first-quarter sales today (23 April), Gavin Darby, the company’s recently-appointed CEO, outlined areas he believed the Hovis and Bisto manufacturer could target.
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“My early impressions are that we still have too many flavours, ingredients, packaging variations and sometimes SKUs, and we will be working on this in this quarter and talking about those cost opportunities when we get to our half-year results in August,” Darby said.
However, he insisted there was “an opportunity” for Premier to reduce the number of suppliers that work with the company.
“We’ve done quite a good job there but we are going to be working with our suppliers to hopefully simply reduce our supplier base, which will be to the benefit of those suppliers that remain with us and obviously for us will make it simpler to work.”
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In addition, Darby, who joined Premier in January, said the company would be looking to simplify some of its internal operations.
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By GlobalData“We have to mention the complexity, which might be new to you, in terms of internal like price files and things like company statutory legal units, which are a result of all the acquisitions and mergers. Those are the three complexities – suppliers, internal complexity and those associated with SKUs and packaging – and if you round those up there’s an important opportunity there for us.”
Darby did not disclose what cost savings the company was looking to make through the elimination of the complexities. “We need to quantify that and that’s work in progress. There is definitely a cost benefit as most people looking at the business from outside may have always believed.”
The plans follow a previously-announced GBP20m of cost savings Premier said today it is on track to deliver this year.
In the two years, Premier has sold a swathe of non-core assets in a bid to pay down the group’s high debt levels and refocus the business. In November, it also announced a range of measures to reshape its bread operations, closing two bakeries and making around 900 job cuts.
Shore Capital analyst Clive Black, however, believes Premier’s debt remains “considerable”.
In today’s update, Premier said its financial position and net debt expectations for 2013 remain unchanged.
Black said: “We estimate 2013 year-end debt of around GBP850m. Despite credible efforts with the trading strategy … we continue to believe that Premier Foods should seek to refinance potentially through both the use of the corporate bond and equity markets.
“Indeed, Shore Capital believes that Premier Foods can only incentivise its colleagues and deliver for shareholders in the long-run by structurally adjusting its balance sheet burdens and commitments. As such we would not be surprised to see work on this front feature hereon.”
Black, did however, offer positive commentary on the group’s results for its “power brands”, which saw a sales increase of 3.3%, growing for a fifth consecutive quarter. He noted the brands were “trading effectively against more challenging comparatives”.
Summing up the call today, Darby said the group’s performance was “encouraging in a difficult environment”.
“We feel comfortable that we are getting traction out of our strategy and focusing on our power brands, working closer with customers, reducing costs and rebuilding the value of bread. What Premier really needs is now a period of steady trading performance after three years of acquisitions and two years of disposals. We need to focus on marketing, selling successfully and generating cash flow. This quarter feels like the first of those.”
