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Premier Foods plans to cut dividend in half
FoodBev Media

FoodBev Media

4 March 2008

Premier Foods plans to cut dividend in half

The Financial Times reported earlier today that Premier Foods, the UK baker of Hovis bread, plans to cut its dividend in half as it tries to repair some of the damage from losses, which analysts estimate as close to £20m.

Premier paid total dividends of 12p per share in 2006, and last year paid an interim dividend of 4.3p.

When Premier Foods bought RHM for £1.2bn more than a year ago, chief executive Robert Schofield said the deal was about "big brands". He added: "The prospects of what we can do with that brand are enormous."

Yet, last year, sales of the brown bread fell 11% as it lost market share to Warburtons (Britain's biggest bread brand) and Kingsmill.

The decline was blamed on having to increase bread prices more quickly than rivals because of rising UK wheat prices. Wheat accounts for nearly a third of Hovis's raw material costs, which analysts at Credit Suisse estimate at nearly £1bn.

Rising price of wheat

Premier, like other food producers, has been hit hard by dramatic jumps in wheat prices, creating concerns that margins will be squeezed, making it more difficult for the company to service its debts.

The price was fairly stable until last summer, but then it doubled from £100 a tonne to £200 within a few months. This has meant that the retail price of a loaf of bread has increased by about 15p.

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