Premier recovers commodity costs through price rises
recovering commodity inflation as price increases passed onto
retailers offset high ingredient costs.
The UK's biggest food group said in an interim management statement on Tuesday that trading for the 17 weeks to 26 April was in line with expectations. "We have made good progress...through a combination of price increases and cost savings," chief executive Robert Schofield said in a statement. Bakery firms across the globe are suffering from soaring costs due to the rocketing price of wheat, blamed on a variety of reasons including a pull from emerging economies on already depleted global stocks, and a global rise in biofuel consumption. The soaring prices for edible commodities impacted cash flows at Premier Foods earlier this year in March when the baker cut its annual dividend in order to increase "financial headroom". But the statement from Premier Foods suggests the firm is finding tools to cope with the rising costs. "We are offsetting the impact of this [overall cost inflation] through planned pricing and cost reduction action," stated Schofield on Tuesday. Group sales for Premier rose 6.3 per cent, while sales at its baking and milling segment came in 14.4 per cent higher in the first four months compared to the same period in 2007. Displaying a pattern starting to emerge in the food industry as price increases become a necessity for survival, the UK firm stated that higher prices in the baking and milling segment were "partly offset by lower volumes." The baker added on Tuesday that it was "pleased by the consumer response to our new Hovis white bread" and that sales volumes for Hovis had stabilised during the first four months of 2008. Premier Foods leapfrogged into the top three UK bakers' league last year when it acquired RHM for £1.2 billion (€1.76bn). But the acquisition for Premier fell at a difficult time within the context of the global commodities market. In the summer following the RHM purchase, the price of wheat doubled, in a matter of weeks, to that of 2006, presenting an "unprecedented challenge" for the new owners. Wheat prices for the firm rose to £150m (€196m), while overall cost of sales increased by a massive 163 per cent, the company estimated in its annual report for 2007. In a bid to see increased supplies of wheat at a local level, Premier Foods' CEO Robert Schofield recently called on the British government to encourage more wheat planting to help restore the balance between supply and demand. Speaking in a recent interview with The Financial Times, Schofield said that wheat prices were unlikely to fall "any time soon", as "demand for wheat was greater than supply." He advocated that "more land needs to be put under the plough so the supply side is balanced out against the demand."
