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Bread maker's shares rise after banking reorganisation

Written by Sam Fountain

Tuesday, 04 March 2008

Premier acquired the Hovis brand with RHM in 2006 After a difficult year amid widespread negative market speculation, food manufacturer, Premier has given itself more 'financial headroom' by reorganising its banking facilities and halving dividends, adding over 12 per cent to its value. The UK's biggest food manufacturer has had a turbulent year so far in 2008, with its shares falling by over half as market analysts predicted financial trouble for the company amid growing wheat prices and low margins. But the market has expressed confidence in the food giant after releasing its preliminary results for the year to December 2007 and announcing considerable reorganisation to its banking covenants, pushing its share price back up over the 100p mark. The St Albans-based group, whose brands include Hovis and Mr Kipling, posted adjusted pre-tax profits of £170.8m for the year, compared with the £84.8m it managed last year, reflecting the full contribution from its 2006 acquisitions of RHM and Campbell's. The company has experienced difficulties from its bread division due to the soaring price of wheat, which has quadrupled last year, leading to doubts from analysts over Premier's ability to avoid buying the grain at inflated prices on the expensive spot market and its ability to pass the extra costs onto its customers. In response to this issue, the company announced a revision to its banking covenants and agreed additional banking facilities, accompanied by a reduction of its total dividend to 6.5p, from the 12p it shelled out last year. "Given the high level of input cost inflation in 2007 and the potential for further inflationary pressures in 2008, we consider that it is prudent to increase the financial headroom available to us to ensure that our investment programmes can proceed to plan," said CEO, Robert Schofield. The firm and its banks have agreed an amendment to its facilities, resetting its financial covenants and converting a £100m acquisition line into an additional working capital facility, along with the provision of an additional £125m short term facility from a small group of its lead banks. The enlarged group turned over a whopping £2.2bn in 2007, compared with £840m in 2006, delivering £17m of the £113m annual cost synergies it has confirmed for the group, but has been hit hard by growing wheat prices. "The downside to 2007 has been the exceptional level of cost inflation that we and other food companies have faced," said Schofield. "Whilst we have moved quickly to raise prices, the inevitable time lag between cost increases and raising prices reduced second half profitability and has caused temporary market imbalances as seen by our bread division." He said that the company had recovered around £190m of the £225m of annualised cost inflation that the company saw in 2007, and that it planned to recoup the remainder during the first quarter of 2008. He added that the time lag on recovering the the cost inflation from 2007 will reduce the division's profits by some £10m. "We believe the action we have taken on our financing provides us with the headroom we require to be able to continue our transformation to plan despite the current economic uncertainty and inflationary climate," concluded Schofield. Shares in the bread maker have risen over 12 per cent on the news, growing 11.5p to 103.5p Set as favorite Bookmark Email This Hits: 456 Trackback(0) TrackBack URI for this entry Comments (0) Subscribe to this comment's feed Write comment This content has been locked. You can no longer post any comment.

 

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