(updates with further detail throughout)
LONDON (Thomson Financial) - Premier Foods PLC, Britain's biggest food manufacturer, confirmed its 2007 dividend will be nearly halved and said it has negotiated a revision to its banking covenants and agreed additional banking facilities.
The group, whose brands include Hovis and Mr Kipling, reported an adjusted pretax profit for the year to end Dec of 170.8 mln stg, compared with 84.8 mln stg the previous year, reflecting full contributions from RHM and Campbell's which were both acquired during 2006. Market expectations had ranged between 165-176 mln stg.
It is paying a final dividend of 2.2 pence, giving a total dividend for 2007 of 6.5 pence, compared with 12 pence the year before.
Premier said that, given the high level of input cost inflation in 2007 and the potential for further inflationary pressures in 2008, it considers it 'prudent to increase the financial headroom available' to it to ensure that its investment programmes can proceed to plan.
As a result, it has agreed with its banks an amendment to its banking facilities which resets its financial covenants and converts a 100 mln stg acquisition line into an additional working capital facility.
It has also agreed an additional 125 mln stg short term facility with a 'small group' of its lead banks.
Total sales increased to 2.25 bln stg from 840.7 mln stg the previous year.
Premier said it had delivered the 17 mln stg cost synergies targeted for 2007 and remains on track to deliver the total 113 mln stg of annual cost synergies targeted following the RHM and Campbell's purchases.
However, chief executive Robert Schofield said the downside to 2007 had been the 'exceptional level' of cost inflation faced by itself and other food companies.
'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.
At Dec 2007, Premier said it had recovered some 190 mln stg of the 225 mln stg annualised cost inflation that it saw in 2007. It intends to recover the remaining costs during the first quarter of 2008.
The company anticipates that, during this period, the time lag on recovering 2007 cost inflation will reduce trading profit in its core Premier division by about 10 mln stg, partly offsetting the integration benefits.
In the bread division, Premier said, while it anticipates trading profit will develop positively over the full year, trading profit will be lower during the first half, with volumes running at lower levels than the same period in 2007.
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