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September 4, 2007

UK: Premier warns of potential price rises as profits fall

First half profits at Premier Foods have fallen by a half despite a significant rise in turnover as the group integrated two significant acquisitions and sold off underperforming businesses.

First-half profits at Premier Foods have fallen by a half despite a significant rise in turnover as the group integrated two significant acquisitions and sold off underperforming businesses.


The company also warned that it may be forced to raise bread prices again, as wheat costs reached “unprecedented levels”.


Profit before tax on continuing operations reached £13.9m for the period with earnings per share at 3.1p. This compared to £27.6 and 6.6p respectively for the same period last year.


Turnover meanwhile reached £899.1m compared to £366.5m in the period last year as the company gained from the acquisition of Campbell’s and RHM.


Despite the result Robert Schofield, chief executive of Premier Foods plc, said: “We have had a good start to trading for the second half where a combination of a strong programme of new product launches, improved promotional strategies across the enlarged Group and cooler weather has helped to drive sales growth. We remain confident that we will deliver underlying sales growth for the year in line with our 1.5-2% target.”


However he warned: “Wheat prices have seen an unprecedented level of increase over the last few weeks and we are pleased to have been able to implement price rises across our bread and flour products from the start of September. However, if current wheat prices persist additional bread and flour price increases will be required. Other raw material cost inflation is also significant, making price increases across many of our products necessary.”


However of concern for the group will have been news that pro forma sales in its bread bakeries segment decreased by £4.4m to £398.4m, which reflected lower bread volumes, partly offset by higher prices. Pro forma trading profit for the bread bakeries segment decreased by £18.9m to £19.0m.


The company said that this was a result of significantly higher wheat prices in the first half of 2007 compared to the same period in 2006, increased distribution costs and overheads and reduced contribution from the lower bread volumes, partly offset by increased prices. The decreased volumes were a result of a general decline in the consumption of bread in the UK and increased competitor activity.


“Over the summer the price of wheat has seen an unprecedented level of increase, rising in a matter of weeks to a level approximately double that of 2006. This is a significant issue for the whole of the food industry, not just bread baking. We are pleased to have achieved price increases from the start of September which should recover a significant part of the cost increase. If wheat prices remain at or above the current levels, then further increases in our bread and flour prices may be required,” a statement explained.


Looking forward, Schofield said: “Whilst mindful of the turbulence that we have seen in the bread market over the last few months, we anticipate that we will be able to meet our sales and trading profit growth targets for the year.”

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