Premier Foods renegotiates bank debt and cuts dividend as wheat prices hit profits
Wednesday 05 March 2008
Premier Foods, the Hovis bread and Mr Kipling cake maker, has slashed its final dividend and renegotiated its banking facilities as it struggles with soaring wheat prices.
The group, which bought the bread business RHM for £1.2bn last year and has a debt mountain of £1.6bn, plunged into the red with a pre-tax loss of £73.5m for 2007, compared with profits of £59m the year before.
Analysts were expecting Britain's biggest food maker, which has Branston pickle, Oxo stock cubes and Angel Delight among its stable of brands, to pay a 13p a share total dividend, but instead this has been cut to 6.5p.
Borrowing facilities with banks have been rejigged to increase Premier's "financial headroom" amid an explosion in food commodity prices and general economic uncertainty. The group is taking an additional £125m loan and swapping a £100m acquisition facility to a working capital facility.
The chief executive, Robert Schofield, said yesterday that the measures were enough to keep the company stable and Premier would not need to look at selling assets. "We have now covered it," he said. "We have been pretty rigorous in the way that we have looked at our financial structure. We don't need any disposals to help our balance sheet."
Mr Schofield said that Hovis lost market share last year after the company raised bread prices due to higher wheat costs while rival companies waited 10 weeks before making their move. Market share has since partially recovered, and the company's strategy for Hovis, which had been "previously mismanaged", was starting to pay off, he said. Hovis White brand had not been competing effectively due to concerns about its taste and quality, which have now been addressed, he said.
Shares in the group rose 6 per cent as investors breathed a sigh of relief that the company was not likely to overstep its banking agreements in the short term.
Premier's debt levels largely result from the acquisition of RHM and its £450m deal for the UK arm of Oxo and Homepride company Campbell's Soup in 2006. The deals saw Premier's net interest payments rocket to £149.6m last year, compared with £41.5m in 2006.
Clive Black, an analyst at Shore Capital with a sell rating on the stock, said: "The release of the results brings with it some clarity, which understandably to some degree carries with it a sense of relief." However, he added that he does not believe Hovis is a "wonder brand". "Going forward, Hovis needs even more advertising support, putting even greater pressure on a sales recovery," he said.
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