Premier Foods: may scrap final dividend

London / UK. (wib) «Is Premier Toast? Premier Foods´ acquisition of RHM was seen as a triumph, but now investors fear the group is choking on debt», the Sunday Times comments the plan of Hovis bread maker Premier Foods to scrap its final dividend to help shore up its balance sheet. Shares in the company have more than halved in the past two months amid concerns about its financial position.

According to several reports Premier Foods has debts of around 1,75 billion GBP and has been faced with soaring ingredients costs as commodity prices rise around the world. The company paid out a 4,3 percent interim dividend last year and rumours now say, that directors will scrap or cut a final dividend when the company announces full year results. Analysts had been expecting the final payment to be an already reduced eight percent.

Management are also expected to announce plans for disposals from the group, as well as their strategy to cope with the debt mountain and details of the company´s banking limits. Last month Premier was forced to issue a statement saying it was not contemplating an emergency rights issue and did not expect to breach financial covenants.

The group´s debt levels largely result from the 1,2 billion GBP acquisition of RHM last year and its 450 million GBP deal for the United Kingdom arm of Oxo and Homepride company Campbell´s Soup in 2006 – which made Premier Foods to UK´s biggest food producer.

The bread baking operation bought as part of RHM has caused problems due to soaring flour costs. Price pressure has continued this year, with wheat prices breaking the twelve USD a bushel mark for the first time last week and quadrupling over the past year. Costs have surged in response to worries that global supply will be unable to cope with growing demand. Premier Food´s share of the bread market has also come under attack from Great Britain´s biggest baker Warburton´s, several sources say.