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Premier Foods warns on profits and unveils cost-cutting plan as sales fall

Mr Kipling cakes firm Premier Foods has warned over full-year profits after falling sales and as it battles to offset soaring costs of ingredients.

The group, which also owns a raft of household brands including Oxo and Batchelors, said profits are now set to be around 10% lower than expected and unveiled a "substantial" three-year cost-cutting plan.

Premier, which last week confirmed it was in talks with supermarket giants and retailers over price hikes, said negotiations were taking longer than expected as it looks to recover surging costs of commodities such as sugar, chocolate, dairy, wheat and palm oil.

It added that group sales fell by 1% in its third quarter despite strong December trading.

Premier will now slash costs in the face of cost and trading pressures, focusing on making savings throughout its supply chain, particularly in warehousing and distribution.

Group sales rose 4.5% in December thanks to strong festive demand for Bisto, Oxo, Loyd Grossman products, Ambrosia and Batchelors, but this was not enough to offset tougher trading earlier in the quarter.

Branded product sales fell 3.8% in the quarter to December 31, with the group blaming major retailers' moves to axe multi-buy promotions.

Gavin Darby, chief executive of Premier, said: "We now expect category performance to remain challenging during the fourth quarter and as a result sales will be below previous expectations.

"Additionally, recovery of significant input cost inflation in certain areas is taking longer than originally foreseen."

The group said last week it was considering ''mid-single digit'' price increases on average across its ranges as rising global commodity costs have been compounded by the Brexit-hit pound.

It said it was looking at a raft of measures to offset these cost increases, with price rises a last resort.

The group's new cost-cutting plan will look to save £10 million from its next financial year.

As well as supply chain and warehousing savings, Premier said it will "streamline processes in all business units".

Shares in Premier tumbled 15% on the profit alert.

The City had been expecting annual trading profits of around £130 million, down from £131 million a year earlier.

Shore Capital analysts described the stock as a "falling knife".

Experts at Jefferies added that Premier's third-quarter sales result was "a disappointing performance", given that it came against weak trading from a year earlier.

Premier's shares have been under pressure after a difficult 2016 for the group, with its management under fire over its rejection of takeover advances from Schwartz spice US owner McCormick & Company, commodity price rises and a knock to sales from warmer-than-expected autumn weather.

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