Premier Foods: total sales down 3,6 percent in Q3/2011

Michael Clarke, Chief Executive Officer, comments:

«I have covered a lot of ground during my first weeks with Premier Foods and am convinced that there are substantial opportunities here but there are also significant challenges that we have to overcome. We have brands that consumers like and talented, passionate people who are determined to turn the business around».

«While the current trading performance continues to be disappointing and significantly behind our expectations, we have already identified a number of steps to build a more profitable business. These include focusing on eight ‘Power Brands’, strengthening our sales and marketing execution and reducing our cost structure».

«Our immediate priority is to conclude discussions with the banks to revise our banking covenants and put in place refinancing facilities. This process is well underway and we are hoping to reach a successful conclusion in due course. I will share further details about our key priorities at our Full Year results presentation, early in 2012».

New CEO Key Priorities

The company has established five key priorities for the business in the short-term:

• Agree re-financing plan: The company is in constructive dialogue with the banks both to maintain appropriate headroom against its banking covenants and put in place refinancing facilities beyond their current maturity of December 2013.
• Invest behind eight ‘Power Brands’: The company has identified eight ‘Power Brands’ that it feels has the best growth prospects going forward. These are Ambrosia, Batchelor´s, Bisto, Hovis, Loyd Grossman, Mr.Kipling, Oxo and Sharwood´s. By focusing own resources behind these brands, the company will drive the future growth of the Group.
• Improve sales and marketing execution: The company will move away from concentrating too much on short-term tactical trading activities. The company will work more collaboratively with its customer partners to deliver category growth through greater and more focused product innovation, improved in-store marketing, promotional planning and other brand-building initiatives.
• Reduce the size of its portfolio: To enable the company to focus own resources on its eight Power Brands, Premier will actively seek to dispose of businesses. This will also allow the company to de-leverage.
• Right-size and reduce the cost base: As a consequence of reducing the scope of its business, the company will significantly exceed the 20 million GBP cost saving target by 2013 that Premier announced at the Half Year. Further details about future plans will be shared in early 2012 at the Full Year results presentation.

Q3 Trading Update

The performance in Q3/2011 has been significantly below expectations. While market trends have improved, the company has under-performed versus the market. Premier´s volumes have yet to fully recover from the slower than expected re-building of in-store presence following a customer dispute earlier in the year. Additionally, the Q3/2011 promotional programme has not delivered the results expected, reflecting an intensely competitive consumer environment. In the three months to 30 September 2011, Group sales were 477 million GBP, down 3,6 percent on the prior year. Volumes were down 8,0 percent in the quarter with price and mix contributing 4,4 percent. This represents a loss of market share of around 1,9 percent in value and 2,1 percent in volume. Premier Foods´ non-branded sales were up 1,2 percent, whereas branded sales were down 6,0 percent reflecting a market shift towards non-branded products.

Grocery

While market volumes have improved compared to the trends seen earlier in the year, Grocery sales were down 5,0 percent in the quarter and, within this, branded sales were down 6,0 percent. The benefits of pricing earlier in the year were absorbed by higher promotional costs and adverse mix effects. Additional promotional activity failed to deliver the volume momentum anticipated and branded volumes declined by 6,6 percent in the quarter. Volume share also fell by 2,3 percent in the period reflecting the continued loss of momentum from our first half pricing negotiations and consequent customer dispute.

Hovis

The bread market declined by 1,8 percent in volume terms in the period but, in value terms, the market is improving versus the steep first half decline. Bakery sales were, however, down 7,6 percent in the period, with Hovis down 6,2 percent driven by intense competition. Hovis volumes declined 13,5 percent and margins suffered as a result of higher promotional activity, industry-wide pricing pressure and customer mix. Sales in Milling increased 27,2 percent on the same period last year, largely due to inflationary effects as volumes declined 4,3 percent year on year.

Outlook

The continued trend in performance in Q3/2011 shows that the consumer environment remains challenging. In Grocery, the Q3/2011 performance will mean that Premier Foods will now not meet last year´s profit in the second half as previously expected. The loss of volume and margin pressure in Hovis is likely to mean that the rate of profit decline year on year will accelerate in the second half. Brookes Avana´s trading is not improving as previously expected and the loss in the second half is likely to be similar to that in the first half. Q4/2011, in which the Group traditionally makes half of its annual profit, will continue to be influential in determining the year end out-turn. Nevertheless, based on Q3/2011 trading performance, the company now expect that Full Year trading profit will be below the range of market expectations with the extent of the shortfall dependent on the Christmas trading period.