NEWS

Dividends axed by in-a-pickle Premier

Premier Foods yesterday axed its interim dividends for shareholders after securing breathing space in its battle to tackle a £1.7bn debt mountain.

The food producer has been lumbered with its huge debts following the major acquisitions of RHM and Campbell's over the past couple of years.

The group, which owns brands such as Hovis, Mr Kipling cakes and Branston pickle, said it would not pay a previously announced half-year dividend of 2.2p a share. The move will save the company about £18m.

Premier - which employs nearly 1,800 people at its factories in Bury St Edmunds, King's Lynn, Long Sutton, Methwold and Wisbech - said its lending banks had agreed to postpone a test of its banking covenants from the end of next month to the end of March.

The deferral, in return for a fee of £4.9m, will allow talks with Premier's lenders to continue into the first quarter of next year.

Operating profits for the 17 weeks to October 25 were in line with expectations. Meanwhile, the company said cost savings from its recent acquisitions had been completed.

"We are delighted by the continued progress we have made on the integration of RHM and Campbell's and we have now closed eight of the factories scheduled for closure," Premier said in a statement.

"The last factory, in Wythenshawe, is due to close at the end of this week. We remain on track to deliver the £113m of annual cost savings that we identified when we acquired the businesses."

The factories closed by Premier include the former Campbell's factory in King's Lynn.

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 also 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.

Premier, which has seen its shares tumble nearly 90pc over the past year, said last month that it had been approached by "several parties" over ways in which it could speed up efforts to reduce its borrowings, but it did not provide any further details yesterday.

Collins Stewart analyst Rob Mann said: "There is no quick-fix solution: asset sales are undesirable and equity issuance at current levels still more so.

"Passing the dividend, convincing lenders of the robust trading outlook and the flow through of synergies in 2009 and negotiating more relaxed near-term covenants - this is the only way out."