The £113m cost savings are on track. Tough decisions have been made at RHM, including the closure of several factories and the sale of frozen. Campbell's sales returned to growth. The wet summer had boosted sales of cakes and biscuits and offset the effects of the hot April weather. Strong NPD plans for the second half of 2007 were announced. And still the share price tanked this week, down to a new year low of 266p.

CEO Robert Schofield can thank two factors for the share price jitters following the release of this week's trading statement.

The first is "cost pressures, particularly wheat, [which is] an issue", and in particular, the continuing woes of Hovis, which had struggled to put through price increases against intense competition from Warburtons and ABF's Kingsmill, even before the former RHM subsidiary was sold to Premier earlier this year. With wheat prices continuing ever upwards, Schofield is now trying to get through a second increase, but a senior City source said: "People have lost a little bit of confidence. The market is a little tougher than previously thought."

The second scare is the rise in interest rates. Although Premier has derivate instruments in place, which fix the interest on £700m of its £1.8bn debt and cap the interest rate on a further £700m, "Premier is still exposed," adds the source.

But though like-for-like sales declined slightly following the exit from low-margin own-label contracts, Schofield is nevertheless confident. "The first half of 2007 will be seen as a step change for Premier Foods," he said, with the integration of Campbell's in eight months and "significant strides" made on the integration of RHM. The six factory closures announced last week are estimated to save £27m-£32m in total, with additional savings from procurement, head office closures and admin and sales restructuring.

The closures went slightly further than many predicted, but it was no surprise that RHM factories got the chop and Premier sites get investment. "There will be less of a fight at RHM sites as closures are expected when a company is taken over," says Simon Peacock, analyst at Catalyst Corporate Finance.

Selling the RHM frozen food business was more unexpected, but makes sense, says Peacock. Representing little more than 2% of total sales, it was a drag on profits and will provide much-needed cash, though a City source said estimates of £25m were overstated.

Schofield may find other ways to money. Premier is understood to be in talks with ABF and Warburtons about sharing distribution. "Premier's distribution costs are about £170m and would be cut to a third," said a source. "Centralising makes sense for bakers because distribution costs are higher than manufacturing costs."

But with a streamlined structure in place, attention is at last turning to NPD in the second half of the year. Batchelors will move into wet soup, a liquid Oxo stock is planned, new seeded varieties of Hovis are expected and there will be extensions to the Loyd Grossman range. And watch out for fresh Campbell's soup. n



Speciality: preserves

Status: increase in production of jam, spreads and preserves, suet and mincemeat, creating 87 new jobs

?Bury St Edmunds

Speciality: chutney

Status: gets more pastes (Sun-Pat), cooking sauces (Crosse & Blackwell) and chutneys. 16 new jobs


Speciality: desserts

Status: gets custard, Mr Kipling cakes and becomes main dessert producer. 23 new jobs


Speciality: dry foods

Status: more dry food production, such as Sharwood's, Bisto, Saxa. 92 new jobs


Speciality: dry foods

Status: gets stuffing, pepper and Bisto. 95 new jobs



Speciality: sauces, chutneys, stuffing

Status: closing; 109 jobs go. Production moves to Bury St Edmunds


Speciality: marmalade

Status: closing; loss of 253 jobs


Speciality: marmalade, jam, suet, mincemeat

Status: closing; loss of 177 jobs.


Speciality: catering services and custard

Status: closing; loss of 48 jobs


Speciality: own-label foodservice

Status: closing; loss of 113 jobs


Speciality: condiments

Status: closing; loss of 193 jobs