Premier Foods is banking on its relaunch of Hovis bread to bring it healthy profits in the second half of the year.

The branded food company, which counts amongst its famous brands Hovis, Branston pickle and Mr Kipling cakes, reported an operating profit 10.1 per cent higher at £47.8 million in the first half of the year. However, after paying interest and amortisation of debt costs pre-tax profits fell by almost a third from £5.1 million to £3.6 million.

Premier, which acquired RHM (Rank Hovis McDougall) and Campbell's, the soup maker, in 2006 and 2007, has been rationalising its manufacturing facilities and integrating the administrative functions of the three businesses it has combined. It has now closed six out of the nine factories it intends to close but said today it would also close two mills in Rotherham.

Robert Schofield, chief executive, said that the company had successfully passed on price increases to its customers and was confident that it could continue to pass on costs, while food price inflation remains a factor.

"Despite the challenging consumer environment that we find ourselves in, we have delivered our profit target. At the same time, we have continued to lay down the foundation for Premier's transformation into a modern, integrated and very competitive UK food group."

Premier will pay an interim dividend of 2.2p, down on the 4.3p it paid out last year.

The company attempted to ease fears about its £1.8 billion net debt by explaining that it had met its financial covenant tests at 28 June and expected to continue to operate within them.

Premier said it expected net debt to fall over the second half, as the manufacturing rationalisation programme is completed and cash flows strengthen. It added that the company was focussed on reducing its net debt and was taking several steps to achieve that.

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