Increasing costs hit Premier

Mar 4 2008 Evening Gazette

HOVIS bread maker Premier Foods, owner of the Quorn-making facility on Teesside, today slashed its final dividend and began rescheduling its massive £1.6bn debt as a result of soaring wheat prices.

Britain’s biggest food maker said it needed to “increase its financial headroom” due to unprecedented food inflation and general economic uncertainty.

Earlier this week, nebusiness highlighted the impact record wheat prices were having on a range of sectors, from farming to food processing and biofuels, which feared a shortage of feedstock as 13% more land in the UK was returned to growing grain for food.

Premier posted a £73.5m pre-tax loss for 2007, compared to a profit the year before of £59m.

Premier’s debt levels largely result from the £1.2bn acquisition of Mr Kipling and Hovis firm RHM last year, 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 to £41.5m in 2006.

The group’s bakeries division, which now contributes more than a third of the group’s £2.2 bn sales, was the worst-hit section of the business as the cost of wheat reached record highs.

Sales volumes of Hovis also declined as the group raised prices towards the end of last year before its major competitors such as North-based Warburton’s.

Price pressure has continued this year, with wheat prices breaking the 12 US dollars 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.

Sales from Premier’s convenience foods, pickles, sauces and meat free arm - which makes Branston Pickle and Beans and Quorn - dipped £12.2m to £442.3m.

This was mainly due to lower sales of branded baked beans and retailer’s own brand convenience foods.