Soaring Costs May Leave Branston in a Bit of a Pickle

Branston Pickle-to-Oxo group Premier Foods yesterday said it was on track to meet profits targets, but warned of higher interest charges and rising wheat costs.

Premier’s shares came under pressure as it said rising interest rates would increase the cost of servicing its pounds 1.8 billion debt, although the company said it was "confident" of meeting full- year profits expectations.

It said it had derivative instruments in place that would cap its exposure to rising interest rates.

The company also said that sales of Batchelor’s soups had recovered during the wet weather of May and June after being hit by an exceptionally hot April.

The news came just a week after Premier announced plans to close six factories with the loss of nearly 600 jobs as part of a plan to concentrate production on five sites.

Among the sites earmarked for closure are a factory at Ledbury in Herefordshire which employs about 180 people making jam, suet and mincemeat products.

The others are at Bristol, Droylsden near Manchester, Middlewich in Cheshire, Reading and Wythenshawe in Manchester.

Premier, which makes Hovis bread, added that trading profits for its bakeries division would be lower in the first half of the year as it absorbed higher wheat costs and increased competition from rivals such as Associated British Foods and Warburtons.

The company plans to lift the price of its loaves to compensate.

But the firm said it was on track to make cost savings of pounds 113 million from its recent acquisitions of Mr Kipling firm RHM for pounds 1.2 billion and the UK arm of Campbell’s Soup for pounds 460 million.

Premier became the UK’s largest food supplier – ahead of Mars, Nestle and Northern Foods – following the two deals.

It also confirmed yesterday that it would sell the low-margin frozen food business bought with RHM, which accounts for around pounds 50 million in sales and makes frozen pies, ready meals and desserts.

Overall revenues for the first half will be higher following the two acquisitions, although like-for-like sales are set to fall after Premier quit a number of low margin own-label contracts.

Premier said sales of Mr Kipling had seen a "particularly strong performance" over the period with good growth from Branston pickle and Lloyd Grossman cooking sauces.

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