Wheat costs leave Premier kneading dough

Stock up on your bread and soup. Premier Foods will put up prices after sinking firmly into the red...

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Last Updated: 06 Nov 2012

Premier Foods said today that it made a loss of £73.5m last year – well down on the £59m profit it made last year. The major problem has been the soaring costs of commodities like wheat and sugar, which have taken a huge bite out of margins at Britain’s biggest food-maker. It reckons that it’s lost about £225m as a result – which means that it’s going to have to increase the price of products like Campbell’s soups Mr Kipling cakes, Bisto and Branston Pickle.

In particular, the price of wheat has almost doubled in the last year – which is not what you need when you’ve just bought Britain’s biggest bread maker. Premier’s acquisition of RHM in December 2006, which brought the Hovis brand under the Premier umbrella, was widely acclaimed by the City at the time. But with margins shrinking (profits in the bread business were down 48%) and competitors like Warburton’s eating into its market share, it’s starting to look like a recipe for disaster.

Premier has had to take some drastic action to try and stop the rot. It’s slashed its dividend by almost half, and refinanced its existing debts to give itself a bit more financial wiggle room for the coming year (some extra dough, you might say). This seems to have reassured shareholders slightly – though since the share price has fallen by about two-thirds in the last year and a bit, we can’t imagine that any of them will exactly be jumping for joy.

This morning chief executive Robert Schofield bemoaned the ‘exceptional level of cost inflation’ and admitted that it had pretty much wiped out any cost savings made from the integration of RHM and Campbell’s. And he wasn’t very positive about the coming year either – apparently Premier will be too busy with internal restructuring to do much promotional activity, while there’s still no sign of prices easing. Although it does have a new Bread Strategy, which sounds like fun.

Still, the good news is that we can all pitch in to help. Get yourself to the shops and stock up on Mr Kipling – not only are they exceedingly good cakes, but you’ll also be doing your bit for British industry.

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