UPDATE: Premier Foods warns on full-year profits

7th Oct 2011 07:19

Premier Foods, the FTSE 250 food manufacturer which has been struggling with rising raw material costs, has admitted that its third quarter results are "significantly below our expectations".As such, the group warned that full-year trading profits will be below market expectations. This follows its disappointing first half in which saw trading profits drop by 29%."Now the question is one of whether this company can survive. Relatively firm statements are being made on the progress of discussions with bankers, but we think the equity is best avoided this morning," suggests Investec analyst Martin Deboo."To say that all this adds up to a baptism of fire for new chief executive officer Mike Clarke feels like the understatement of the year," he said.Premier Foods said that it has underperformed its peers despite market trends improving. "Our volumes have yet to fully recover from the slower than expected re-building of in-store presence following a customer dispute earlier in the year."Sales fell 3.6% to £477m in the three months to 30 September, while volumes were down 8%. As such, the group's market share fell by 1.9 percentage points (pp) in value and 2.1pp in volume."Based on Q3 trading performance, we now expect that full year trading profit will be below the range of market expectations with the extent of the shortfall dependent on the Christmas trading period," the statement said."While the current trading performance continues to be disappointing and significantly behind our expectations, we have already identified a number of steps to build a more profitable business. These include focusing on 8 'Power Brands', strengthening our sales and marketing execution and reducing our cost structure," said Michael Clarke. These Power Brands include Ambrosia, Batchelor's and Bisto.Clarke said that the group's "immediate priority" is to close discussions with banks to revise its banking covenants and put in place refinancing facilities. "We are in constructive dialogue with the banks both to maintain appropriate headroom against our banking covenants and put in place refinancing facilities beyond their current maturity of December 2013."Another priority is an active disposal of businesses in order to focus its resources on the Power Brands.BC