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Premier Foods tries to lessen Brexit impact after half-year losses

Published 15/11/2016

Premier Foods recorded increased losses this year.
Premier Foods recorded increased losses this year.

Mr Kipling cakes maker Premier Foods said it would take action to limit the impact of the Brexit-hit pound on shop prices , as it reported widening losses in the first half of the year.

The owner of Oxo and Batchelors said it would try to reduce the hit to consumers from higher manufacturing costs caused by the slump in sterling.

It came as the firm said its losses had deepened in the first half of the year after warmer weather this year triggered a drop in gravy, soup and stock sales.

Premier said it recorded an £8.7 million loss in the first half of the year, in contrast to a £5.1 million loss for the same period in 2015.

On sterling, the firm said: "While the group uses forward cover contracts for certain commodities and currencies, it expects to employ a range of mitigating actions to recover the effects on any input cost inflation in the coming months."

The pound has dropped nearly 20% against the US dollar and around 15% versus the euro since the Brexit vote, causing manufacturing costs to soar.

While Premier Foods has a "broadly neutral position" when it comes to buying and selling US dollars and 89% of its spending is with UK suppliers, it is exposed to currency fluctuations between the pound and the euro.

Total sales were down 4% to £250.3 million for the 26 weeks to October 1, while underlying sales dropped 1.8%.

Chief executive Gavin Darby said the firm was unable to maintain the momentum of a "good first quarter", but expects group sales to rise between 2% and 4% in the second half of year.

"Following a good first quarter where we saw a number of our brands in growth, the second quarter was much weaker in our grocery business due to warmer weather which resulted in lower sales in the first half overall.

"However, our sweet treats and international businesses continued to demonstrate their strong momentum, delivering against our strategic priorities and growing over 4% and 9% respectively."

The impact of the sterling's slump on food prices came into sharp focus in October when Tesco and Unilever became locked in a Mexican stand-off over the cost of key products, before the dispute was resolved.

Britain's biggest supermarket was left grappling with a shortage of store cupboard staples - including Marmite, Pot Noodle and Persil - after reportedly refusing to bow to Unilever's demand for a 10% price rise following the collapse in sterling.

Premier, which fought off takeover attempts earlier this year by Schwartz spice US owner McCormick and Company, said none of its main grocery brands grew in the second quarter, as the warm weather took its toll on sales.

However, the firm said its Amaze Bites product helped Cadbury cakes deliver double digit sales growth.

The firm said it would use its relationship with Japanese noodle-maker Nissin Foods, which holds a 19.9% stake in Premier, to launch new products under the Batchelors brand and push its Sharwood's cooking sauces into the US.

Shares were up 4% on the London Stock Exchange.

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