Premier Foods returns to growth in sales of Bisto and Mr Kipling

First half results from Premier Food were boosted by the first quarterly increased in branded sales for two years as investment decisions paid off and margins spiked at the ’Sweet Treats’ business.

The Bisto, Oxo Cubes and Mr Kipling owner reversed last year’s interim loss with an operating profit of £23.3m, as branded sales increased 0.1% in the 26 weeks ended 3 October, with the second quarter up 1.6%.

Adjusted profits before tax rose 21.6% to £28.1m and adjusted earnings per share increased 21.9% to 2.7p.

Analysts said overall the results were ahead of expectations, though EPS was in-line with forecasts.

International sales grew by 22% at constant currency in the first half, with a growth rate of 38% in the second quarter.

Chief executive Gavin Darby said the improvement reflected “the clear benefits from our continued commitment to brand investment and innovation”, which in the second half will include an 'exciting' new range of wholesome oat, fruit and nut based snack pack slices from Mr Kipling, to appeal to more healthy consumers.

Against a backdrop of cut-throat competition in the grocery sector, Premier has grown market share impressively in the cake and flavourings & seasonings categories with its focused investment strategy in the last twelve months.

As a result, the group has seen volume, value and share gains in each of the main brands: Bisto, Oxo, Mr Kipling and Cadbury cake.

On the downside, there was a £7m loss from associate businesses, £6.8m of which was from share of loss from its 49% stake in Hovis bread, which suffered operating losses and was hit by restructuring costs as the UK break market endures an ongoing challenge for producers.

“The industry backdrop remains a challenging one,” Darby said of the wider food market, “but with strategies which are delivering tangible results and significantly higher marketing spend planned for the second half, our profit expectations for the year remain unchanged."

For the full year, Darby said the Sweet Treats business was on track to deliver double-digit margins, which was a year earlier than previously expected.

Looking further forward, he set guidance for deliver branded sales growth for the group of 1-2% for the medium term and the following year.

Net debt is reported at £585.3m, in-line with expectations, but expected to ‘reduce significantly’ in the second half.

Broker Shore Capital said the return to branded sales growth was "an important milestone for the group’s recovery story" but that it would not changing profit forecasts post the update, due to management guiding that marketing spend will be weighted to the second half and the third quarter in particularly.

ShoreCap currently forecasts a trading profit of £132.4m, pre-tax profit of £87.4m and EPS of 7.6p.

Shares in Premier Food were up 20.3% to 43p by 1145 on Tuesday, while the wider food sector was down on the release of disappointing BRC-KPMG retail sales data.