UK: Debt worries weigh on Premier

Concerns over Premier Foods' level of debt have caused the group's share price to drop 7.74% in morning trade after the UK food manufacturer posted first-half profits in line with expectations.

Premier's adjusted profit before tax totalled GBP60m (US$110.21m), up from GBP57.8m for the comparable period of last year.

Turnover was boosted by the company's acquisitions of RHM and Campbell's UK and Irish business, rising 43.5% to GBP1.29bn.

CEO Robert Schofield said that "the integration of RHM and Campbell's is now ahead of plan" with six out of the nine factories scheduled for closure shutdown.

However, after exceptional charges, pre-tax profits dropped to GBP3.6m, down from GBP5.1m posted in the first half of fiscal 2007.

Turnover at Premier's grocery division rose 2.3% on a pro forma basis to GBP630.5m as higher pricing offset a 3.3% drop in volumes. Trading profits in the unit rose 5.8% to GBP89m.

Higher input costs and a declining market share for its Hovis bread brand hit the company's baking business, where pro forma trading profit dropped 23.2% to GBP14.6m. However, Schofield said that he anticipated stronger Hovis sales in the second half.

"Now we have commenced the rejuvenation of Hovis, our largest brand, with significant quality improvements and an exciting marketing campaign that starts next month, which we believe will return it to growth," Schofield said.

At the group's chilled unit trading profit increased 4.1% to GBP17.9m pro forma, boosted by double-digit sales growth of the Quorn and Cauldron meat-free brands. However, sales of supermarket own-label ready meals dropped during the half.

Premier said that it is on-track to meet full-year expectations.

"Despite the challenging consumer environment that we find ourselves in, we have delivered our profit target. At the same time we have continued to lay down the foundations for Premier's transformation into a modern, integrated and very competitive UK food group. Our vision remains on track," Schofield emphasised.

However, the market remained unconvinced with concern over the company's high levels of debt depressing the group's share price.

Premier revealed that its debt reached GBP1.82bn at the end of June, a level just within its banking covenants. Shares in Premier had dropped 7.53 pence at time of press, falling to 89.72 pence.