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UPDATE 3-Premier Foods to focus on costs after tough year
May 16, 2017 / 9:54 AM / in 7 months

UPDATE 3-Premier Foods to focus on costs after tough year

* Sets new target for debt/EBITDA below 3.0 times

* Sees profits, sales rebounding in current year

* CEO says greater focus on profit needed in uncertain times

* Shares down 1.7 pct (Adds analyst comment)

By Martinne Geller

LONDON, May 16 (Reuters) - Premier Foods reported lower full-year sales and earnings on Tuesday due to a weaker pound and the rising price of raw materials and said it will focus more on cutting costs and generating cash.

The maker of Mr Kipling cakes and Bisto gravy said the change in strategy was to ensure Premier can continue to work toward its ultimate goal of reducing its debt in an uncertain economic environment.

“You’re always much more certain when it comes to things like cash and costs, because they’re within your control,” Chief Executive Gavin Darby told Reuters in an interview.

He said sales will get a boost this year from the new distribution of Nissin products and expanded licence from Mondelez International to sell Cadbury cakes, while job cuts and restructuring should help profit. He declined to give a specific forecast, except to predict sales and profits will grow.

Premier remains under pressure to deliver growth after rejecting a takeover proposal last year from U.S. rival McCormick.

“It’s all still tight, tight, tight, but the application of managerial cool heads, in the wake of the nadirs of Q2 and Q3 might yet see Premier prevail,” said Jefferies analyst Martin Deboo.

Premier said group underlying sales fell 1.4 percent to 790.4 million pounds ($1.02 billion) in the year that just ended, as a drive by retailers to reduce the number of multi-buy promotions they run hurt demand for Premier’s products.

Adjusted profit before tax fell 11.8 percent to 74.2 million pounds, and adjusted earnings per share fell 12.2 percent to 7.2 pence.

The company warned in January that profit would be 10 percent lower than previously thought, due to the trouble it was having negotiating price increases with British retailers.

The company, which also makes Ambrosia custards and Batchelors noodles, has raised prices, on average, by a low to mid-single digit rate across its ranges to offset rising costs due to the fall in sterling after Britain voted to leave the European Union and soaring prices for commodities such as wheat, butter and sugar.

If exchange rates stay where they are, the worst price increases should be over, Darby said.

Premier expects to save 20 million pounds over the next two years. Half of that will be from combining the logistics operations of its grocery and desserts businesses and half from a restructuring that included cutting its executive team to seven people from 10 and cutting 50 jobs at its head office.

Premier also announced a new target to get its net debt to EBITDA ratio below three times in the next three to four years. That would be down from 3.9 now and more than 7 when Darby took over as CEO.

The company said the progress it plans to deliver this fiscal year will be weighted more to the second half of the year.

Its shares were down 1.2 percent at 42.56 pence by 1155 GMT.

$1 = 0.7743 pounds Reporting by Martinne Geller; Editing by Mark Potter and Louise Heavens

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