Hovis maker Premier loses dough

Premier made a £259.1m pre-tax loss in 2011 after its Hovis brand was hit by raw materials rises and competition from supermarket own brands.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Hovis has become something of a poisoned chalice for Premier. The brand has been plagued by rising wheat prices, driven by droughts and wildfires in Russia, and price wars with the supermarkets. Tesco reportedly refused to stock some Hovis products when Premier attempted to hike up wholesale prices last year.

Last year, profit in Premier’s bread division fell by more than 90% to just £3.4m. And bread sales are down nearly 3% to £500.5m as Hovis struggles to compete with supermarket own brands and baking rivals Kingsmill and Warburtons.

Chief executive Michael Clarke has now decided to write down the value of the whole bread arm of the business, worth an estimated £282m. And cost-cutting is now taking place across the board. Around 600 staff will lose their jobs as part of a package of cuts.

And elsewhere in Premier, the news isn’t much better. Mass discounting has taken trading profit at the grocery division down 19.1% to £170.3m. Overall sales fell 7.4% to £1.1 billion. Plus, the company has been overloaded with debt ever since its leveraged buy-outs of Campbells UK and Rank Hovis McDougall in 2006 and 2007.

But last week, things were finally looking up for Premier. Its bank granted the firm a last-minute reprieve, extending its repayment deadline for £1bn in loans from 2013 to 2016. But is it too little, too late? As MT columnist and serial entrepreneur Luke Johnson predicted back in December: ‘Premier Foods, maker of Hovis bread, is deeply unloved by investors and is likely to be broken up before long’.

Clarke has attempted to gloss over the plight of Premier, saying he wants to ‘draw a line under the performance of 2011’. But, with shares down 4.2% in early trading, that will be easier said than done. Suffice to say, it’s hard to make a crust in the bread trade these days…

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