Premier Foods strategy pays off in sales, margin boost

By Ahmed ElAmin

- Last updated on GMT

Related tags Cent Premier foods Marketing

Premier Foods' strategy of acquisitions and price increases helped
boost first half operating profits by 12.7 per cent and margins by
almost one percentage point.

Like-for-like grocery sales were up 3.1 per cent in the first half of 2006, the company reported today. Like-for-like trading profit was up 4.6 per cent. Trading profit from grocery sales rose by 6.7 per cent compared to the same period last year. Meanwhile trading profit margins, rose to 11.1 per cent from 10.3 per cent over the same time period.

Premier has been on the prowl for acquisitions for the past four years, a strategy meant to increase market share and consolidate brands. It is one of the strategies taken by food processors in an environment where food sales are generally stagnant and retailers have pricing power.

Last week Premier foods announced the purchase of Campbell's UK and Irish businesses for £450m (€667m) - making it the firm's sixth acquisition in under four years.

In its latest financial report the company reported a net profit of £20.6m in the first half of 2006, compared to £13.1m during the same period last year.

Total sales from continuing operations increased by 18.4 per cent to £430.5m (€638.5m) in the first half of 2006, compared to the same period last year. Operating profit from continuing operations increased by 12.7 per cent to £41.7m (€61.8m).

Trading profit is defined as operating profit before exceptional items, amortisation of intangible assets and other financial movements are considered in the accounts.

"The increase in both sales and operating profit is primarily due to healthy trading in our core grocery business and a full six months contribution from our Quorn and Cauldron businesses, which were acquired in June and October of 2005 respectively,"​ the company stated.

Grocery sales, which exclude fresh produce, increased by 20 per cent during the same period. Like-for-like grocery sales, which also exclude the effect of the Quorn and Cauldron acquisitions, increased by 3.1 per cent.

Premier said the price increases across the majority of its product portfolio helped boost returns and helped to offset the significant increases in utility and energy-related costs.

Branded sales now represent 61 per cent of the company's grocery product sales, up from 54 per cent in the first half of 2005.

The majority of this increase is due to the inclusion of the new Quorn and Cauldron businesses. Growth in sales from the new businesses accounted for one per cent of the increase. However, this was offset by the effect of the termination of the Cadbury license and the transition to the new Cadbury co-manufacturing agreement at the end of May.

The company will classify future sales under the new arrangement with Cadbury as "own label" sales.

"All of our principal brands continued to show strong growth with Quorn, Branston, Loyd Grossman and Ambrosia all performing well,"​ Premier stated.

Trading profit £10.0m or 26.6 per cent to £47.6m. The increase was due to the inclusion of a full six months contribution from the Quorn and Cauldron businesses, which amounted to a total of £8.8m, compared to £0.5m in the first six months of 2005. An increase in trading profit for the core grocery business amounted to £2.4m, offset by the reduction in trading profit at the company's fresh produce business.

Cash from operating activities includes £18.3m of insurance proceeds in relation to a final settlement relating to the fire at one of the company's processing plants earlier this year.

Premier expects to complete its acquisition of Campbells category-leading brands -- including Oxo, Batchelors, Homepride and Fray Bentos -- later this year. The acquisition will take Premier's total branded sales mix to 69 per cent.

Since 2002, Premier has acquired Nestle and Unilever's British ambient food businesses, Kraft's UK desserts business, Gedney's fresh vegetable supplier and more recently meat-free convenience brands Quorn and Cauldron Foods.

Quorn is made from mycoprotein, a fungi like mushrooms, truffles and morels. Since the product was launched in 1994, it has become the UK's largest meat alternative brand.

Quorn provides Premier with a category-leading established brand with high growth prospects to add to its portfolio, the company said. The UK accounts for 75 per cent of Quorn's sales. Sales to Sweden, Switzerland, Belgium and Holland, where it is the brand leader in its category, account for another 21 per cent of sales. Quorn is the number two meat alternative brand in the natural foods sector in the US.

Quorn has a 60 per cent share of the £155m meat alternative category in the UK and a 15 per cent share of the broader £640m meat free category.

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