Premier Foods is ahead of target on cutting suppliers and product lines, according to ceo Gavin Darby, reporting on third quarter (Q3) financial results yesterday.
Premier Foods is growing its core power brands
"During the quarter we made good progress in pruning the number of lower margin products (SKUs) in the grocery business by over 270, representing a reduction of more than 15% since the beginning of the year," the firm said in a statement.
"In addition, the company is tracking ahead of its plan to halve the number of suppliers by the end of 2014 with 83% of total procurement expenditure now with just 250 lead suppliers."
Darby said progress was also being made on extracting better terms from suppliers, claiming this could deliver benefits of £10–20M for the business.
"We will continue to drive down the number of our suppliers," he said in an analysts call based on the results.
The efforts to consolidate and thus simplify the business had also extended to cutting the number of its distribution centres from three to two during Q3. Further opportunities were being reviewed, said Darby.
Restructuring in Premier Foods' bread business had resulted in closing its Greenford bakery, stopping production at its Barry Mill site and total costs of £28M, as expected.
'Better margins'
The restructuring of the milling business was already delivering benefits, Darby told analysts. "The definite signs are this is leading to better margins in the milling business."
The company said sales in its bread business were 1.5% behind Q3 figures last year, with the hot July hitting performance.
However, despite the loss of a Cooperative Group contract to Allied Bakeries earlier this year, the situation improved through the period, supported by space expansion within major supermarkets' convenience store formats and larger stores.
Reports earlier this year of Hovis lines facing delisting in Tesco Express stores had proved inaccurate, said Darby, and they had enjoyed strong support in these outlets, he said.
However, Shore Capital analyst Darren Shirley believed Premier would have had to invest in retailers' pricing strategies to increase its bread share and predicted value sales for Hovis would face further pressure.
"Indeed, given the global wheat price, we expect category deflation to be a feature of Hovis's reported sales over the forthcoming 9–12 months, though we will not be overly concerned by negative sales as we would expect margins to be more robust."
Flagging brands
Flagging brands included Oxo, which achieved "softer sales", according to the firm; Sharwood's; Batchelors and Homepride, sales of which had also been stifled by the hot summer and competitors' promotions.
Lower margin, non-branded sales fell "due to contract withdrawals in desserts and powdered beverages", Premier Foods reported.
Winning brands included Ambrosia, which had grown share, driven by school promotions and success in discount retailers, and Mr Kipling, which returned to growth in the period. Sales of Bisto were also ahead of last year, partly as a result of new listings.
Darby said the company had signed a 10-year partnership with Swire Foods to distribute Ambrosia in China and it was "talking to them about other brands".
Premier Foods' underlying sales for the three months to September 30 decreased by 3.2% to £283M, while sales of its core grocery power brands rose by 2%.
Net debt levels for the company remained largely unchanged over the period and Investec analyst Martin Deboo pointed out the performance represented a "slowdown" on the first half of its financial year.
In the first nine months of its financial year, total branded sales had actually risen by 0.5%, while non-branded sales had dropped by 12.2%. However, that still meant total sales, excluding milling, had fallen by 1.6%.
