Half-year shareholder payout axed by Premier

Nov 19 2008 by Peter McCusker, The Journal

HOVIS bread firm Premier Foods has axed a shareholder payout after securing breathing space in its battle to tackle £1.7bn debt.

The group, which also makes Mr Kipling cakes and Branston pickle, will not pay a previously announced half-year dividend of 2.2p a share, estimated to be worth around £50m.

The move emerged as Premier said lending banks had agreed to postpone a test of its banking covenants from the end of December to the end of March. The deferral, in return for a fee of £4.9m, will allow talks with lenders to continue into the first quarter of next year.

Premier’s shares dropped sharply following the dividend blow, although the stock later recovered to show a 4% decline.

Investors were given some encouragement on the trading front after the group said operating profits for the 17 weeks to October 25 were in line with expectations.

Cost savings from the recent acquisition of RHM and Campbell’s have been completed, while Premier also reported a positive consumer response to the relaunch of Hovis bread.

Analysts at Panmure Gordon described the trading picture as encouraging, but said Premier’s funding arrangements remained a concern and warned the full-year dividend could be under threat if debt levels were not reduced.

Speculation at the weekend suggested that Premier had rejected a £250m approach from McVitie’s owner United Biscuits for the company’s Mr Kipling business.