Blog: Dean BestPrice hikes "inevitable", warns Premier Foods boss

Dean Best | 4 August 2010

Following on from yesterday's blog on wheat prices, news emerged today from Premier Foods plc that higher wheat prices meant the UK's largest food maker and owner of Hovis bread, was sure to up the price for its bread.

"We do see wheat prices rising significantly and inevitably you will see an increase in pricing from us," Premier chief executive Robert Schofield said as he announced the group's first-half numbers.

Competition in the UK bread sector is particularly fierce and Schofield will no doubt be hoping that his competitors will also be forced to up prices to deal with soaring wheat costs.

As Investec analyst Martin Deboo noted today, the last major spike in wheat costs (in 2008 when commodity costs broadly went up), Premier suffered.

"Were the current price spike in wheat to persist after the summer harvest, we think Premier would have a c. £120m gross cost recovery challenge on a full- year run-rate basis. A similar challenge in 2008 proved their undoing, so we are inclined to remain highly cautious around H2 and beyond until the wheat cost issue gets more clarity," Deboo wrote in a note to clients.

Deboo, however, said Premier's first-half numbers were "the first positive surprise from [the company] in a while" after trading profits came in higher than expected and the group slashed its debt pile.

Deboo warned that Premier's "sales momentum ... remains negative" but said the company had "more or less held margins in a negative growth environment, which is an improvement on past performance".

At the close of trading, Premier's shares, which fell by more than 3% yesterday, had jumped 9.7% over the day to hit 19.7p.


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