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Premier Foods slashes debt to below £1bn as profits rise

A slimmer Premier Foods revealed its debt mountain now stood below £1bn as the maker of Mr Kipling cakes posted better-than-expected profits.

The UK's biggest food manufacturer has recently sold its Quorn meat-free business and its canned grocery operation, including the Crosse & Blackwell brand, for a combined £387m in order to cut its debt burden. Premier's shares rose by 8% as it said its net debt, which stood at £1.4bn in June after a takeover binge in recent years, has been reduced to less than £900m following the sell-off and through its own performance.

The St Albans-based company revealed a slight increase in trading profits to £311m in 2010, whereas the City expected a drop of 3%. Sales fell 3.5% to £2.6bn as supermarket own-label revenues declined.

Shares in Premier, whose other brands include Bisto, Ambrosia and Sharwood's sauces, nearly halved in value in 2010 as investors were put off by debts built up in a buying spree that saw it snap up the likes of Hovis owner RHM. Premier's own-label bakery business Brookes Avana saw its profits collapse from £15m to nothing in the year.

The group is in talks with Brookes' biggest customer Marks & Spencer about changing its pricing and bringing in new ranges.

Premier has been forced to put up prices throughout its business in the past year as it battled commodity price inflation.

Julian Hardwick, an analyst at Royal Bank of Scotland, said Premier had made excellent progress in paying down its debt and its repayments to date had been higher than it forecast. He said the reduced debt gives the group a comfortable balance sheet, enabling it to find cheaper interest rates.

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