Premier turns to suppliers in bid to ease cash-flow trouble

Debt-laden Premier Foods has extended payment terms to suppliers in a bid to address cash-flow problems.

One industry source said: "Premier has sent out letters saying it will pay bills in 90 days instead of 60. It's pretty desperate stuff." A rival added: "60 days is pretty standard, so this is not a good sign."

Premier said the suppliers that had recently received letters were simply being brought into line with the rest of the supply base. It added: "We are standardising our payment terms as part of an ongoing integration process."

Whether payment was given in 60 or 90 days depended on when in the month invoices were sent by suppliers, it said. "We pay or procure the payment of all invoices within 60 days of the end of the month of receipt."

Premier last month agreed to pay a £4.9M penalty charge to move a key test of its banking covenants from the end of December to March next year in order to give it breathing space to restructure its finances.

However, there were few palatable options to reduce its £1.8bn debt mountain, said one City analyst: "The fact they have gone to their suppliers doesn't surprise me."

Selling off businesses to reduce debt was one option open to Premier, he said, "but no one wants to be a forced seller"

He added: "[Chief executive] Robert Schofield is probably kicking himself now for rejecting bids for [subsidiaries] RF Brookes and Avana Bakeries several months ago; if the same offers were on the table today he would bite their hands off."

However, if the price was not right, there would be little benefit to selling off asset, said one industry source.

"Premier has to sell at a multiple that's higher than the current earnings multiple [for the businesses in question]."

Other options were reducing buffer stock, trying to get customers to pay bills faster or issuing new shares, all of which were unlikely, he said.

From a trading point of view, things were not actually that bad he stressed. "Premier is a strong business, it is just too leveraged at the wrong time."