Business Weekly - Cambridge, UK

The UK's largest food manufacturer, Premier Foods has announced that it is to offload the frozen food business it acquired with RHM in December, and anticipates competition and rising wheat prices to affect the margins in its Hovis bread business.

The Herts-based firm said that the frozen food manufacturer, which was acquired with its £1.23bn takeover of RHM last year and makes frozen pies, ready meals and desserts for retailer's own brands, is to be sold off.

It also said that it would need to recover further increases in wheat prices since February with higher prices in the coming weeks.

The firm's CEO, Robert Schofield said: "Underlying business performance has remained steady and whilst cost pressures, particularly wheat, are an issue, we expect to see branded growth across our business in the second half of the year and we remain confident that performance for the full year will meet our expectations for the group as a whole."

Premier said that it is confident that it will meet targets for the year to December, with the recent acquisitions providing "significantly higher" sales for the six months to the end of June, but anticipates like-for-like sales to be slightly behind last year as a result of the group's exit from low margin, own label contracts and a high level of promotional activity behind branded beans in the first half of 2006.

It added that it had completed the integration of Campbell's in April and said that the integration of RHM is proceeding to plan. The firm remains on track to achieve combined £17m synergies from the firms, targeted for 2007.

Shares in the firm have seen almost an five per cent drop, falling 13.5p to 280p.