Premier Foods plc, which is cutting its network of suppliers in half as part of cost-saving plans, has asked firms to sign up to “strategic partnership” deals that could lead companies to invest more in innovation and product development.
The UK food group is reviewing its business for a series of savings, which includes reducing its suppliers from 3,000 to around 1,500 and cutting SKUs, packaging variations and flavours.
Premier had previously announced plans for GBP20m (US$30.7m) of cost savings and, as it announced its half-year results this morning (23 July), said it wanted GBP10m more.
On the plans for its supplier base, chief executive Gavin Darby claimed some of its suppliers are “more committed to growth than others”. He said Premier had asked the ones it is retaining to “sign strategic partnerships so they’re up for the journey”. He revealed the agreements would involve them investing in areas such as “innovation and new ideas”.
The halving of its supplier base, Darby said, is “a big chop” but he said Premier has allowed itself “some time” to complete it. “There are some important opportunities in terms of reducing our suppliers,” he said.
The Mr Kipling and Bisto gravy producer this morning reported an increase in first-half profit and raised its full-year expectations despite lower revenues. In recent months, it has been focused on restructuring its bread business, reducing costs and growing its “power brands”.
Darby said the further GBP10m of annualised costs savings would allow the food group to continue to reduce complexity in the business.
“An additional GBP10m of annualised cost savings are to be delivered in the second half. For instance, we are working at the minute to reduce the number of our suppliers, we are working to rationalise the number of our SKUs and I’m very confident there is more to come in terms of cost savings from further simplification of the business.”
He added: “We have in the first four months of the year, just in our grocery business, had 1,700 SKUs, which is a combination of brands and packages. When we really look at the profitability of those we find some of them are a lot more profitable than others. We see a lot of duplication and there is a lot of complexity that comes from that so we’re starting to reduce those and when you reduce those you make savings in lots of different areas.”
In the first half, Darby said Premier had made efficiency savings from its facilities – “a big area” he said the company sees cost opportunity.
In the six-month period, Premier’s Eastleigh and Birmingham bakeries and Glasgow mill have all closed. Its bakery in Greenford in west London, is also expected to close in August.
Shore Capital analyst Clive Black said Premier’s focus on simplification is “bearing fruit within the context that the business currently operates”.
Black said: “With respect to the trading performance, Premier is doing a decent job and all credit to CEO Gavin Darby for his work. That Premier can guide to full-year trading profit expectations coming in at the top end of market estimates, so probably slightly above our pre-restructuring figure of GBP145m, may make for market upgrades; this out-turn is aided by a further GBP10m of cost savings that is good and welcome news.”
Premier this morning said it now expects full-year trading profit to be around the top of market expectations of GBP146m. In its results this morning, the firm revealed a 0.9% decline in sales, with a 1% fall in grocery revenue owing to a decrease in non-branded sales.
Branded grocery sales, however, were up 1.3%, driven by power brand sales growth of 4%. Sales for Premier’s bread division increased by 8.2%.
Premier’s share price was up 10.9% to 99.44 pence at 10:13 GMT.