Hovis maker Premier Foods cuts div, rejigs debt

By Marc Jones

LONDON (Reuters) - Troubled Hovis bread and Mr. Kipling cake maker Premier Foods slashed its dividend and said it had renegotiated its finances, boosting its shares as concerns it might breach agreements with its banks eased.

The firm, Britain's biggest food producer, has seen its shares slump by 50 percent over the last eight weeks on worries it might breach borrowing terms and as spiraling ingredient costs and intense competition from rivals and supermarkets hit margins.

Analysts had expected Premier Foods would pay a 13 pence a share total dividend but the maker of Branston pickle, Oxo stock cubes and Angel Delight cut it to 6.5p to save money.

It also rejigged borrowing arrangements with banks to give it breathing space, taking out an additional 125 million pound loan and swapping a 100 million pound acquisition facility to a working capital facility.

Shares in the firm jumped 14 percent to 105 pence in early trading on relief the firm was unlikely to overstep its banking agreements any time soon. By the close they were up almost 7.5 percent.

The company has currently borrowed 1.6 billion pounds and the new arrangements mean it can now borrow up to 2.1 billion pounds.

Although the jump in ingredient costs and moves by rivals to undercut Hovis have hit Premier hard, the firm's borrowing problems have largely stemmed from overborrowing to fund the purchase of firms like Campbells and RHM.

"Premier Foods prelims testify to a company that remains in crisis, but is in a materially better financing and balance sheet position than both we and the market anticipated," said analysts at Investec.