Premier Foods plc CEO Michael Clarke has claimed the UK food manufacturer is a more financially sustainable business, with less “short-term trading” that “propped up the numbers”.
Clarke, who joined Premier last September from Kraft Foods, has set about refocusing the business on eight “power brands”, selling off assets and cutting costs.
Speaking to analysts after Premier reported its half-year results yesterday (7 August) Clarke said the company was “delivering against every single one” of those strategies.
However, Clarke said the “most important priority” for Premier was “sustainability in everything we do”.
He said: “It goes beyond the fantastic work our organisation already does from an environmental and a health and wellness point of view. It’s about delivering sustainability in the financial results.
“We’ve talked about how in previous years there was a lot of short-term trading to prop up numbers. We have in the last year done no short-term trading, no loading of the retailers. We’ve taken the pain in the first six months of this year to clean up the business. When you look at the comparison of our first six-month results from this year with last year, you should keep in mind that last year’s numbers were inflated because of the short-term trading. We feel good that we’ve gone through taking that pain to clean up the business and get this into a more sustainable business.”
The Sharwood’s sauces and Ambrosia custard maker yesterday (7 August) reported higher underlying sales and profits for the first half of the year. It also said it would meet its target of cutting GBP40m (US$62.4m) in costs from the business earlier than expected.
Shares in Premier rose as the City welcomed the announcements from a company that has at times reported poor trading results and has been pressured by debt.
Clarke said a “significant investment” in marketing had boosted the performance of Premier’s power brands, which also include Loyd Grossman sauces and Batchelor’s soups.
The Premier chief said the company’s power brands were “taking share from our competition”. He said: “We have consistently grown value share. This is the first time we have seen share growth across our power brands for in excess of 18 months. In a tough consumer environment, our actions are delivering and we’re taking share from the competition consistently.”
Last year, Tesco delisted a raft of Premier lines after a dispute between the two companies. Clarke was asked if the share gains from Premier’s power brands in the first half of this year reflected a comparison of the effect of the Tesco delisting last year.
Clarke insisted Premier’s power brands had gained share without yet regaining the shelf space it had lost.
“We’re still in the process of rebuilding that availability following those delistings. What’s pleasing is we’re hitting these growth rates and gaining share and there still is the opportunity to still rebuild the availability,” Clarke said.
“Part of the reason for that delay is retailers do shelf re-sets once or twice a year. We want to make sure that we do those relistings in a way where it is sustainable. We don’t want to buy the space and do it in a way where we will stay on the shelf and not just be in three weeks and come back off again.”
In a note issued after Premier’s results were announced, Investec analyst Martin Deboo said he could see signs of recovery from the company’s grocery business.
“The Tesco dispute erupted in Q2 last year. The superficial impression is therefore of a soft comp effect in Q2/H1. But the reality is that the impact didn’t really make itself felt until H2,” Deboo wrote.
“Aside from the natural soft comp effect, Premier shared data from reputable market analysts IRI that suggested that they have grown share in Power Brand categories in 17 out of the most recent 18 weeks. We think the most recent ten weeks or so have benefited from the soft comp of the Tesco dispute. But the numbers also reflect bread, where share is flat. So we detect what looks like a genuine turnaround in Premier’s grocery portfolio.”
Nevertheless, Deboo said Premier faces a key challenge – absorbing the increasing price of grain.
“Premier think that analysts over-obsess on wheat prices. No wonder when it represents c. £150m of annual cost, excluding milling. We think wheat prices are going up and Premier will need a price increase in H2. With that comes risk,” he said.