The firm today (January 17) announced that, in order to hit its cost reduction target of over £40M by next year, it will be cutting 5% of its 12,000-strong workforce.
Premier said it would double its cost saving objective of more than £20M, but was unable to confirm what areas of the business would be hit by the job losses. An announcement was expected later in the year, the firm revealed.
Chief executive, Michael Clarke said: “We continue to deliver on our plans to stabilise the business and invest in our recovery and future growth.
"While decisions to reduce the workforce are always difficult, I’m convinced we are taking the right steps in the long term interests of the business, employees and our stakeholders.”
The announcement follows a tough year for Premier, which has included huge debt problems and a botulism outbreak. The firm was also forced to defer a covenants test with its banks in December, with another now due in March.
Experts expressed disappointment at Premier’s performance for the period, describing it as “encouraging headlines but disappointing trading”.
Clive Black, analyst at Shore Capital, said: “At surface level, Premier Foods’ unexpected statement appears hunky dory. However, as one’s eyes scan down the page the news flow becomes less encouraging.”
The key Christmas trading period also brought little joy for the firm, according to Black.
He added: “Accordingly, we see the need to bring down our 2011 trading profit expectation of £180M by about £5M.
“We cannot deny that this is yet another discouraging trading outcome tagged onto a long line of such disappointment.”
Graham Jones, analyst at Panmure Gordon, described Premier’s cost reductions as “a sensible move”, as the ultimate fate of the business will be decided by its ability to “put trading back on an even keel”.
Jones echoed Black’s assessment of Premier’s figures for the year and said he was “concerned” that the shrinking cash generative base of the firm, through recent disposals, would struggle to cover future liabilities.
He said: “While there may be some relief in Premier’s comment that it continues to gain momentum against each of its priorities, the reality is this statement results in another significant fall in market expectations.”
Premier set out five priorities in October last year, including a focus on its eight power brands, divesting selected businesses and agreeing a refinancing package with its lenders.
Meanwhile, earlier this week, Premier boss Michael Clarke received resounding backing from some city analysts as he continues the plan to guide the firm out of trouble.
Black confirmed Clarke’s positive impact on the firm but he remained “somewhat cold” on the firm’s stock, as a result of subdued current trade, downgrades to trading costs and potential redundancy expenses.
“A large rump of still less than awe inspiring products remains with the Premier stable”, he added.