23/10/2012 07:59 BST | Updated 23/10/2012 08:01 BST

Premier Foods Reports 2% Sales Increase, But Hovis Loses £75m Retail Deal

Underlying sales for the three months to 30 September 2012 at Premier Foods increased by 2.0%, thanks to the continued strong performance of its 'Power Brands' of Mr Kipling, Bisto, Ambrosia and Loyd Grossman sauces.

However, Premier also revealed it had been unable to agree renewal terms with a £75 million retail contract - believed to be with a supermarket - for its bread brand Hovis, following a decision to put profits before sales volumes.

Bread has been a tricky product for Premier for some time - it is separating its bread business into a different division as intense competition and soaring wheat costs, caused by poor weather in the UK and overseas, affects Hovis' profits.

Gary Sharkey, head of wheat procurement for Premier Foods, was reported on Bloomberg on 8 October as saying: "This is the worst harvest we’ve ever known. All flour millers have been importing wheat since early July from different origins, whether it be increased volumes from North America or other European wheat from France, Germany or some of the Baltic states.”

Premier also warned there may be a "small number" of job losses as part of another £20m in cost savings.

The group has been selling non-core businesses to bring down its£1.3 billion pounds worth of debt built up before the 2007 banking crisis - it has saved £40m so far this year.

Michael Clarke, chief executive officer of Premier Foods, said the third successive quarter of growth for the 'Grocery Power Brands' underlined the substantial progress the team had made in stabilising the business in a challenging consumer environment.

"We intend to build on this progress as we continue to drive momentum behind our Grocery Power Brands particularly through capturing opportunities in the growing convenient meals and snacking segments," he continued.

"We are also continuing our work to unlock the value in our bread business, through taking the necessary decisions to improve sustainable profitability. We have a solid programme in place for the important Christmas trading period and our full year expectations are unchanged."