• H1 profit falls almost 29% - in forecast range
  • Sales dip 0.9%
  • Premier to start new cost-cutting programme
Commodity costs and major delisting hit Premier profits

Commodity costs and major delisting hit Premier profits

Shares in Premier Foods plc, the UK's largest food manufacturer, fell this morning (5 August) after the Hovis bread and Branston Pickle maker reported an expected fall in half-year profits.

The company, which warned in June that its first-half profits could plummet by over 30%, said today that trading profit from its ongoing business was GBP67m (US$109m) in the six months to 25 June, down 28.7% on the year. Its June profit warning said profits would reach between GBP65m and GBP70m.

Premier said its profits had been hit by a 14% jump in commodity costs, the delisting of a "significant number" of products by a major customer - believed to be Tesco - and an "unprecedented" decline in the categories in which it operates. Premier said the grocery and bread markets were down 4%.

The company also pointed to falling profits at troubled own-label business Brookes Avana, which saw earnings hit by the impact of key customer Marks and Spencer ending a pie contract with the business.

Last year's first half included an extra trading day and Premier said pro-forma sales from its ongoing business, which excludes the recently sold meat-free and canned food operations, fell 0.9% to GBP974m.

CFO Jim Smart said: "This was a challenging period not only for Premier Foods but also for the food industry as a whole. We faced a combination of reduced consumer spending and significant raw material inflation. We were further hampered by a temporary pricing dispute with one of our major customers which has since been resolved and by underperformance at Brookes Avana."

On a brighter note, Premier's net debt fell GBP225m to GBP1.14bn and its pre-tax losses narrowed from GBP58m last year to GBP3m.

Premier, meanwhile, said its margins improved in the second quarter as its price increases came into effect. The company said it saw a "substantial improvement in trading results" in the second quarter compared to the first three months of the year.

Smart pointed to some positive achievements during the first half of 2011, including the success in securing a "majority" of price increases, the sale of the meat-free and canned food divisions and the reduction in debt. He added that the company would embark on a fresh round of cost cuts, which will look to save the business GBP20m.

Premier's shares, which had fallen by over 9% in early trading, were down 2.39% at 15.5p at 09:11 BST.

Click here for the complete statement from Premier and check back later for coverage of the company's meeting with analysts.