Brookes Avana: a likely candidate for disposal

Brookes Avana is Premier Foods’ private label chilled bakery subsidiary. The business has struggled to claw back sales after losing a major pie contract with retailer Marks & Spencer earlier this year. In the group’s interim management statement issued last Friday, it reported that Brookes Avana’s sales declined 13 per cent compared to the same quarter last year, despite a market-wide shift towards private label products.

“Although we have seen some new business wins since this time, these gains have been smaller contracts at lower margins,”​ said Premier Foods. “Brookes Avana’s trading is not improving as previously expected and the loss in the second half is likely to be similar to that in the first half.”​

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According to RBS analyst Iain Simpson, this makes Brookes Avana the most obvious candidate for disposal.

“It’s the only chilled business they have, and given the economies of scale you can get from a chilled distribution chain, Premier Foods is not the most natural owner of that asset,” ​he told BakeryAndSnacks.com today.

In a statement issued last Friday, the group warned its full-year trading profit was expected to fall below expectations. It had been looking at a profit of between £214m and £232m, but said current trading was ‘disappointing’ and ‘significantly behind our expectations’.

Sales in the third quarter fell 3.6 per cent on the same period a year ago, while the group's value market share declined by 1.9 per cent.

While the company said its immediate priority was to conclude refinancing discussions with the banks, its longer term strategy is to focus on eight power brands: Ambrosia, Batchelor’s, Bisto, Hovis, Loyd Grossman, Mr Kipling, Oxo and Sharwood’s.

“By focusing our resources behind these brands, we will drive the future growth of the group,” ​said the company.

While Premier Foods declined to disclose which parts of the business it was looking to sell off, it confirmed that any disposal would come from outside these eight power brands.

“Not all challenger brands will be up for disposal, and the company is more likely to sell businesses than brands as it doesn’t make commercial sense to sell brands,”​ a spokesman told BakeryAndSnacks.com.

Even the brands that have been assigned ‘power’ status aren’t exactly motoring along.

Sales of Hovis products were down 6.2 per cent in Q3, with volumes declining by 13.5 per cent and margins squeezed by promotional activity and price pressure. Going forwards, the company predicts that the loss of volume and pressure on margins are likely to mean that the rate of profit decline year on year will accelerate in the second half.

While the company couldn’t provide any Q3 sales data for its Mr Kipling cake brand, a spokesman told BakeryAndSnacks.com that in the first half of 2011, which ended 25 June, sales were down to £59m, compared with £62m on the previous year.