Premier Foods shares hit by bread sales decline

By Dan Colombini

- Last updated on GMT

Related tags: Premier foods, Premier

Premier's bread division, which includes Hovis, reported a £230M loss last year
Premier's bread division, which includes Hovis, reported a £230M loss last year
Tumbling bread sales in the UK and an over aggressive acquisition strategy from previous management has significantly contributed to Premier Foods’ share price plummeting more than 90% since its purchase of Hovis in 2005.

City analysts confirmed that Premier was still reeling from consumers’ decisions to switch to healthier alternatives to bread, since the firm overpaid for Rank Hovis MacDougall (RHM) under the previous regime.

Since the £1.2bn takeover, which was completed in December 2005, Premier’s share price has plummeted from nearly £3 to 11.5p today (March 20).

The news also follows the announcement from Premier on March 19 that its bread division had reported a loss of £230M last year.

Started to slip

Jeff Stent, an analyst at Exane BNP Paribas, told FoodManufacture.co.uk: “The problem was that Premier overpaid for a not-great business, which was RHM. The firm had too much debt and trading had started to slip.

“At the time Premier bought Hovis it was trading with double-digit margins, now it is trading with nowhere near that. This is worsened by the fact that the amount of bread being consumed in the UK is declining. Ask people if they brought a sandwich to work today​.”

His thoughts were supported by Julian Wild, food group director at law firm Rollits. He told FoodManufacture.co.uk that the previous management at Premier had left current ceo Michael Clarke’s team with a mountain to climb.

He said: “Clearly the management has inherited a tremendous sort-out. This was off the back of the previous regime’s acquisition strategy, in which they made too many expensive acquisitions while the market was stronger. 

“The market dropped and this was reflected in the share price. This problem went on for a number of years, which ultimately lead to the old team departing.​”

Potential recovery

Wild praised Clarke and his new management team. He also stressed that he thought Premier’s recent deal with its banks will be a key factor in its potential recovery.

I think the new team has done a pretty decent job​,” he said.

They have secured the refinancing, which is a very important step. But I’m sure it will have come with some pretty big costs and would not have been cheap.”

 Premier has long stressed the importance of its eight Power Brands, which include Hovis, in its battle for stability.

Earlier this week, the firm announced the appointment of two new advertising firms to oversee the “creative execution​” of the all-important plan.

The move sees the firm part company with current advertising firms 101 and Dare, as its downsizes its marketing roster.

As a result, the McCann London agency has assumed control of the promotion for Power Brands Batchelors, Bisto, Loyd Grosman and Sharwood’s.

The Hovis, Ambrosia, Mr Kipling and Oxo brands will be now managed by Kensington-based firm JWT.

Grocery and bakery md at Premier, Iwan Williams said: “Both 101 and Dare have continued to deliver excellent advertising for our brands and I would like to thank them for their work.  As we reviewed our future plans, we decided to focus on a smaller number of agencies that have the breadth, scale and resources to manage our Power Brand portfolio.”

The move follows the firm’s announcement in January that it plans to double marketing spend in 2012 to more than £50M.

Related topics: Chilled foods

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