Shares in Premier Foods, the maker of Mr Kipling cakes, Ambrosia rice pudding and Oxo stock cubes, have fallen sharply after it warned profits would be hit by rising costs linked to the fall in the pound since the Brexit vote.
After a tough quarter in the run-up to Christmas, Premier said annual trading profits would be 10% lower than previously expected. City analysts had pencilled in trading profits of £130m and adjusted pre-tax profits of £86m.
The food producer blamed rises in commodity prices in the past 12 months. This was exacerbated by the slide in sterling since the June referendum, which had further driven up the cost of key ingredients such as sugar, cocoa, butter, wheat and palm oil, many of which are imported from abroad. Sugar is mainly priced in euros and much of the butter made in the UK is exported, which has also driven up prices.
Premier shares ended the day down 11% at 42.75p (last April it rejected a £1.5bn takeover offer from US food group McCormick worth 65p a share).
Premier reiterated it would have to pass on some of the cost increases to retailers by pushing through “limited price increases where these cannot be avoided”. For months it has been haggling with big supermarket groups such as Tesco and Sainsbury’s about price hikes of 5-6% on some ranges. Those discussions could carry on into the spring.
Its sales have been hit by shoppers switching to cheaper, non-branded products and by supermarkets running fewer multi-buy offers. Premier’s overall sales dipped 1% to £251m, with branded sales down 3.8% while non-branded sales rose 11.6% in the 13 weeks to 31 December. The company unveiled a cost cutting plan, which aims to save £10m in each of the next two years.
Outsourcing firm Mitie also blamed Brexit-related issues on Wednesday as it issued its third profit warning since September. Mitie shares were the second-biggest loser on the FTSE-250, falling 4.7% to 195.8p.
The company now expects to make an underlying profit of £60m to £70m in the year to 31 March, a 30% downgrade. It said clients were continuing to defer decisions on new contracts and delaying investment plans in the wake of the Brexit vote, in particular in its property management and technical facilities management divisions. Mitie’s cleaning division is also struggling.
The firm brought in a new chief executive, Phil Bentley, who used to run British Gas and Cable & Wireless Communications and started at Mitie in early December. He has held crisis meetings over the last two days to discuss strategy and reshuffle of senior management.
In November, Mitie said it would pull out of its healthcare business, which provides home care for elderly people. The £128m cost of writing off the business plunged Mitie into a £100m pre-tax loss for the first half of the year.
Brexit has been partly blamed for the threat to 280 jobs out of a workforce of 781 at the Pizza Factory in Nottingham, owned by food giant 2 Sisters. The Unite union held crunch talks with the company on Wednesday, before planned industrial action next week.
The union said the company’s new year message to employees was: “As [I] am sure you all know, we are in an extremely challenging economic environment following Brexit. We are facing very significant commodity and utility inflation on top of the national living wage increases. At the same time, retailer competition is intensifying, with growth harder to come by and value a key theme.”
