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Premier Foods cooks up procurement gains

Premier Foods has said that "procurement gains" and manufacturing efficiencies have helped it reduce operating expenses by 1.6% despite higher pension, marketing and restructuring costs for the first six months of this year.

However, the company, which is the UK's largest food producer, also said that losses after tax went up £17m to £40m reflecting higher mark to market losses on swap contracts.

Commenting on the results, chief executive officer, Robert Schofield said: "Our principal brands are growing in both volume and market share and our gross margins have risen as we have improved product mix and delivered procurement gains and manufacturing efficiencies.

We are controlling costs tightly and have made good progress in strengthening our cash flow and reducing debt. Today we are setting out further details of our programme to diversify and strengthen our financial structure."

The company's result statement added it is aiming to reduce operating costs over the three years such that it can offset inflation and increase marketing costs. In the half year, operating expenses were down £4m and, within this, consumer and in-store marketing increased by £4m.

"Non-branded sales were down £61m or 12.7%. In this period, markets declined 5.9%, which is a steeper decline than in recent years. Our sales volumes were down 9.6% reflecting this market decline and contract losses in H2 2009.

£42m of the decline was in Hovis due to a fall in the retailer branded bread market, wheat price deflation and contracts which were not renewed to free up capacity for branded bread growth. The contract exits in grocery were in order to preserve profitability," the company stated.