Hovis maker sees debt level rise

Premier foods has been hit by rising prices

Premier Foods, the maker of Hovis bread and Mr Kipling cakes, saw its debt rise and profits fall in the first half of the year, on higher raw material costs.

Pre-tax profit fell 29% year-on-year to £3.6m in the six months to 30 June. Debt hit £1.8bn at the end of June from £1.7bn, following restructuring costs.

In March, the group renegotiated its finances in view of rising commodity costs and the credit squeeze.

The firm's debts have risen in recent years after buying several businesses.

In the past two years the food firm has acquired RHM, makers of Hovis, and the UK arm of Campbell's Soup - which makes Oxo and Homepride.

Panmure analyst Graham Jones said the debt levels "in excess of" £1.8bn would add to market "nervousness" about the firm.

Bakery profits slid 23% to £14.6m, primarily as a result of lower volumes but higher price rises partly offset this with turnover rising 16.1% to £462.7m.

Shares in the firm dropped around 7% after the figures were released.

The group embarked on a restructuring plan after buying RHM and Campbell's in 2007, leading to the closure of nine factories.

That plan is coming to and end and the firm expects to see the financial benefits in the second half of 2008.