Premier Foods has revealed that it will not be renewing a £75m bread contract with a multiple retailer from mid-2013, as it looks to focus on more profitable operations.
The firm, which published its interim management statement this morning (23 October) for the three months to 30 September 2012, said the contract, which accounts for approximately £75m in annual sales, has “very low margins”, was costly to service and would not affect its 2012 performance.
A company spokesperson told British Baker that Premier Foods would not disclose details of the individual customer, however, analysts have hinted that the own-label contract is worth up to half of Premier Foods’ own-label bread business.
Premier reported a rise in sales and market share for its Hovis bread brand during the last quarter, as underlying sales increased by 2% to £364.7m. Sales for its Power Brands, including Hovis and Mr Kipling, also increased by 2% to £206.1m.
Damian McNeela, analyst of consumer staples at Panmure Gordon, said: “In bread, overall sales were flat, with Hovis delivering both sales growth and market share gains, although these were not material.
“There is a degree of ebb and flow to the non-branded bread business and although the margins associated with the lost contract are low, it is a larger-than-average contract and hence the company have disclosed it.”
Michael Clarke, chief executive, Premier Foods, said: “I’m delighted that we’ve grown sales of our Grocery Power Brands for a third successive quarter, despite the challenging consumer environment. Following recent divestitures we expect to deliver a further £20m of overhead cost reductions in 2013, over and above the £40m of savings we will deliver in 2012.
“We are also continuing to work to unlock the value in our bread business, through taking the necessary decisions to improve sustainable profitability. We have a solid programme in place for the important Christmas training period and our full-year expectations are unchanged.”
Non-brands sales also grew by 9.7% during the three-month period, which the company said reflected contract gains in its cake division and pricing benefits.
Premier Foods’ Grocery Power Brands delivered year-on-year growth of 4.1% in the nine months to 30 September 2012.