Premier Foods Losing Dough

From the Timesonline Website:

Premier Foods today gave warning that further price rises on bread were almost inevitable despite revealing that Hovis, its biggest brand, had suffered a “significant decline” in sales in recent months.

The troubled food group admitted that Hovis was losing the bread wars with fierce rivals Warbutons and Kingsmill as all three battle unprecedented cost inflation in the market fuelled by spiralling wheat prices.
Premier pushed the price of a loaf of Hovis to more than £1 for the first time last September. The recommended retail price is now around £1.15.

Robert Schofield, chief executive, said: “Whilst the retail price of Hovis was increased, the retail prices of our major competitors were not raised until early December.

“This differential in retail prices led to a significant decline in volumes.”

The comments came as Premier plunged into the red, halved its dividend and raised £125 million from bankers to cope with rising raw material prices and increased debt costs.

The group, whose brands also include Mr Kipling cakes and Branston Pickle, reported a pre-tax loss of £73.5 million for the year to December compared with a profit of £59 million in the same period the year before.
Premier said it had suffered unprecedented price pressure on wheat and other commodities while interest payments had more than tripled after it borrowed to fund takeovers of the RHM and Campbell's businesses.
The company said it had amended its banking facilities to increase the financial headroom available and ensure investment programmes can proceed to plan.

Premier has reset its financial covenants and converted a £100 million acquisition line into an additional working capital. It has also agreed an additional £125 million short-term facility with a “small group” of its lead banks.

However, Rob Mann, an analyst with Collins Stewart, warned that Premier's refinancing may not be enough in the face of rising wheat prices: "With cost inflation continuing to constrain the core trading performance, we would not be surprised if the measures taken to alleviate the balance sheet pressure proved inadequate, leading to another round of conversations with the company's bankers.”