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Premier Foods job cuts and Vion food business sale ‒ in quotes

By Mike Stones , 23-Nov-2012

This week Premier Foods announced plans to axe 900 jobs and to close two bakeries, while Dutch meat group Vion revealed the sale of its UK food businesses ‒ raising doubts about the future of 13,000 employees. Here, we capture a flavour of the debate about both news items, in quotes, from our Linkedin Group, the Food Manufacturing Network, and the views of key players reported by FoodManufacture.co.uk.

Richard S. Food Manufacturing Network : “While on the face of it there are some similarities faced by the two companies (commodity price increases of wheat and protein is genuinely shocking), the processing side of things is quite different. At Premier, Geoff Eaton [chief operating officer] seems to have bitten the bullet and is getting on with some kind of fix. What will be interesting will be how, or if, the other majors (Allied Bakeries, for example) which face the same issues ‒ will respond.”

Dave P. Food Manufacturing Network: “This is indeed a sad trend that is emerging. I’m not at all familiar with the other aspects of running such businesses but I do know that energy costs make up a large part of the ‘pie’. If profits are so slim that they are less than the energy bill, then a business will struggle.”

Garry D. “Premier lost a Co-op contract. Simple, no customers, no work.”

Stephen B. “The issue with Premier may be a desire to sell the RHM bakeries due to low profitability. This will have an impact on the flour milling division unless a supply tie can be negotiated in any sale deal. Margins on plant bread have always been difficult ‒ much depends on the transfer price of flour between milling and bakery divisions. If the price is high to facilitate higher margins in the mills then the bakeries are restricted in the level of margin they can achieve.”

Julian Wild, food group director at legal firm Rollits: The Vion businesses in the UK are, essentially, the old Grampian Country Food Group, which was bust when they bought it. So, the business was not in brilliant shape when Vion acquired it.

“I don’t think Vion has had a clear plan about how it was going to get those businesses into good shape and don’t think they particularly invested behind them either. So, I think it [the closure] was almost an inevitability, given the way the business has performed in Vion’s ownership. Sooner or later, they were going to have to seek an exit.”

Clive Black and Darren Shirley, Shore Capital analysts: “Vion has consistently appeared to be ’on the back foot’, and the announcement [of its decision to sell its UK business] is not a shock although its totality is somewhat surprising.”

Jennie Formby, Unite the union’s national officer for food and drink: “This is just another stage in the disaster story that has been Premier Foods over recent years, which has consistently struggled ever since its decision to buy Hovis in 2006. At the time, this strategy was described as ‘doomed’ by some analysts and it has resulted in the company being saddled with massive debts.”

John Higgins, Bakers, Food and Allied Workers Union: “This is really shocking news [about Premier] that we received when the night-shift ended at 5am this morning [November 20]. Management said we should not have been surprised to hear this news after losing the [Co-operative] bread contract but we expected them to have some plans in place.”

John Hemming, Liberal Democrat MP for Birmingham Yardley: "I would rather see what we can do to protect people rather than just assume it's [Premier’s job cuts are] going to go ahead as planned.”

Graham Jones, analyst with Panmure Gordon: “In our view it [the Premier sale] is much better than the alternative of being more aggressive with pricing in order to regain lost volume, which ultimately could damage margins further.”

Martin Deboo, analyst with Investec Securities: “We see this as a decisive and welcome move to improve long-term profitability and create option value on further rationalisation or an eventual, profitable exit.”

Ed Bailey, National Farmers Union Cymru president: “While these are uncertain times for Welsh farmers supplying the company, our thoughts also go out to the significant number of Vion employees working in Wales who I am sure have concerns over what impact this news will have on their future employment.”