Ratings agency Moody’s has upgraded its debt rating for Premier Foods by one notch on its “resilient performance” and improved margins.

The agency upgraded its rating for Premier’s debt to Ba3 from B1 – three notches below investment grade.

Moody’s said the rating upgrade reflected Premier Foods’ 2021/2022 performance, despite rising input costs and supply chain frictions.

It said the company maintained strong key credit ratios and has built sufficient headroom to withstand continued industry headwinds over the next 12 to 18 months.

Premier Foods’ Moody’s adjusted EBITA margin has reached 17% in 2022 compared to 15.3% in the previous financial year, thanks to a combination of cost-saving initiatives, capital investments and mitigation of higher raw material costs through price increases.

Although the company’s revenue for the same period fell by 5% to £901m from £947m, it noted that the strong prior year comparables reflect a period when people were eating more at home due to pandemic lockdowns and sales remained up by 6.3% compared to the pre-pandemic levels.

Moody’s also highlighted its reduced pensions deficit, down to a “historically low” £194m from a high point of £490m.

The ratings agency said Premier’s sales should grow in low to mid-single digits this year, and believes its EBITDA will be somewhat lower than the very strong levels achieved in fiscal year 2021/22 due to double-digit cost inflation this year.

It said: “The population’s purchasing power and consumer spending will likely be affected, although, more positively, demand for the company’s products may be supported by people eating out less and trading down.”

The rating agency also positively noted some widening of the company’s consumer base during the pandemic, which, coupled with continued product innovation, should help it sustain revenue growth.