Premier combats commodity costs with dividend cut

By Charlotte Eyre

- Last updated on GMT

Related tags: Cost, Premier

UK-based Premier Foods today confirmed it will cut its annual
shareholder payout in half, as the rising price of wheat and other
commodities continue to dog the bakery firm.

Cost recovery ​ The company has now decided to pay a dividend for the quarter ending 31 December 2007 of 2.2 pence per share, bringing the total for the year to 6.5 per cent, compared to 12 per cent in 2006. The announcement will serve as a warning to other food manufacturers, as Premier admitted that merely raising consumer prices was not sufficient enough action to recover rising costs. The company also confirmed it had secured further bank loans, making a £125m (€163.4m) short term loan deal with a "small group"​ of its lead banks. Wheat prices rose to £150m (€196m), while overall cost of sales increased by a massive 163 per cent to total £1.6bn (€2.1bn), the company estimated. "Given the high level of input cost inflation in 2007 and the potential for further inflationary pressures in 2008, we consider that it is prudent to increase the financial headroom available to us to ensure that our investment programmes can proceed to plan,"​ said chief executive Robert Schofield. "We….have delivered the​ £17m of cost synergies targeted for 2007 and, with an annual run rate at the end of 2007of £47m (€61.4m); we remain on track to deliver the total £113m (€147.7m) of annual cost synergies,"​ he added. Schofield also said the company is now implementing a new bread strategy - involving investment in capital equipment and new recipes - to boost Premier's falling market share. Financial Results ​ For the year ending 31 December 2007, Premier posted total sales of £2.2bn (€2.9bn), a 59.8 per cent increase compared to one year earlier. However, high input costs led to a 24.3 per cent decline in operating profit to £76.1m (€99.4m), the company said. Trading profit on a pro forma basis also declined by 7.3 per cent. The company said that the primary driver for this loss was the performance of bread and bakery products throughout the year, which was particularly impacted by wheat prices doubling over the summer months. Premier also claimed it put its prices up two months before other firms, which led to a steep drop in sales as consumers turned to other brands during their daily shop.

Related topics: Premier Foods, Commodities

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