Premier Foods has been forced to issue another profit warning as it continues to wrestle with the fall-out from its dispute with Tesco earlier this year.
Total sales fell 3.6% to £477m for the three months to 30 September, with Premier admitting that “slower than expected rebuilding of in-store presence following a customer dispute” had hit volumes.
Tesco de-listed a quarter of Premier's branded products between 26 March and 24 June, costing the supplier £10m and forcing it to warn investors of the negative impact on profits.
Meanwhile, intense competition in grocery saw volumes fall 8% in the most recent period, with branded sales down 6%,
Sales of Hovis were also down more than 6%, with volumes falling 13.5%. And the troubled Brookes Avana business, which lost a key pie contract with Marks & Spencer earlier this year, saw sales fall by 13.2% compared to last year. New business had been but these were smaller contracts at lower margins, the company admitted.
The bleak assessment came as new chief executive Michael Clarke set out his key priorities for turning around the fortunes of the struggling manufacturer. He admitted the Q3 results were “significantly below expectations” and warned the company would not meet last year’s profits in the second half, as it had previously indicated.
The new boss said his immediate priority would be to conclude discussions with the banks to revise the company’s borrowing terms and secure a refinancing plan.
It was vital to cut back the company's portfolio by “actively” disposing of non-core businesses, Clarke said. Premier will focus investment on eight key brands: Ambrosia; Batchelor’s; Bisto; Hovis; Loyd Grossman; Mr Kipling; Oxo; and Sharwood’s.
“I’ve covered a lot of ground during my first weeks with Premier and am convinced that there are substantial opportunities here, but there are also significant challenges that we have to overcome,” he said.
Shares in Premier fell to their lowest in a year as the City digested Premier's dismal performance.
Clive Black of Shore Capital said the new strategy was “commendable” but warned that “with profitability going backwards apace, we must remain cautious”.
“Hence, until refinancing is complete and the trading performance stabilises – and, indeed, improves – we remain concerned as to the value available to investors," he said.
Michael Clarke and Premier: is it Mission Impossible? (analysis; 3 September 2011)
Editor's Comment: Tesco has run rings round Premier’s flabby conglomerate strategy (2 July 2011)
Delistings by Tesco push Premier into profit alert (1 July 2011)