PREMIER FOODS, whose share price has collapsed amid fears over the company’s stretched finances, will this week announce a drastic cut in dividends to shore up its balance sheet.

Shares in Premier have halved in little more than two months because investors fear it will be unable to finance its debts of almost £2 billion.

The value of Premier has fallen by more than two-thirds since its £1.2 billion takeover of RHM a year ago, cementing the group’s position as Britain’s largest food manufacturer.

On Tuesday, when the company unveils full-year profits of about £170m, it will admit that its balance sheet cannot support the cost of maintaining or increasing its dividend, which totalled 12p a share for 2006.

Premier paid out 4.3p a share as an interim dividend last year. Analysts originally pencilled in a final dividend of 8p; that will now be cut or scrapped.

The company will also for the first time give full details of its loan agreements and borrowing limits.

Premier has already tried to quell fears about its finances by declaring that it did not breach any of its banking covenants in 2007 and that it is on course to keep within its limits this year. Until now, it has not disclosed what those limits are and will use Tuesday’s results announcement to spell them out.

Premier will also give details of the rate at which it has to repay debt over the next three years.

The company has ruled out a rights issue to ease its financial plight. But Premier is expected to announce plans for disposals on Tuesday.

Favourite to go is thought to be a French company that makes part-baked products sold under supermarkets’ own labels. Its sales are just over £100m a year.

The group is also likely to tell investors that it plans to sell properties that are redundant after the integration of Premier, RHM and Campbell’s UK operations, which were bought in 2006.

The bread-baking operation bought by Premier as part of RHM has caused problems because the company – which makes Mother’s Pride and Hovis - saw the cost of flour soar last year as the price of wheat doubled within a few months.

Premier remains confident that it can recoup its higher costs through price rises.

However, RHM has also suffered because its market share fell as it came under attack from the privately owned Warbur-tons, the country’s biggest baker.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive