Premier plunges into red and slims the divi

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It also announced a major refinancing deal with its bankers after issuing an emergency statement saying it had not breached its loan rules last month. The shares, which have fallen 60% since the start of the year, today rose 10p to 102p.

"What we have in place now is plenty," said chief executive Robert Schofield. "We are very comfortable and believe that we have addressed all the issues."

Premier has chopped its final dividend, and its payout for the year drops 46% from 12p to 6.5p. That should save it £50 million in the coming year. It has also renegotiated the covenants on its £1.6 billion of borrowings with £2.1 billion of facilities available. Its banks have released an extra £225 million in working capital but interest is likely to rise by £3 million a year, with an upfront fee of just over £10 million.

Cash-saving measures will include lower spending on advertising and discount offers on many of its brands, which include Sharwood's, Mr Kipling, Branston and Bisto. Premier said it only recovered £190 million of the £225 million of raw-material price rises it suffered on wheat, milk and fruit in 2007. It plans to pass the rest through in price rises this quarter but still expects that to knock trading profits by £10 million.

Food-ingredient inflation ran at almost 19%, and Schofield predicts a slowdown in 2008 with only wheat threatening to continue soaring. In the bread division, Hovis is to undergo a shake-up including changing its recipe to remove all artificial ingredients and include more grain.

Premier posted a pre-tax loss of £73.5 million in 2007 against a £59 million profit the year before. But 2007 underlying profits doubled to £171 million, almost entirely because of the acquisitions.