Premier Foods: ‘Open-minded’ about disposals
Premier, which posted a 6% drop in trading profit to £110m on sales down 4.5% to £1.211bn in the six months to June 30, said it would consider selling parts of its empire provided that this did not diminish the capacity of the remaining business to repay debts and service the pension deficit.
It added: "The objective is to reduce the average debt / EBITDA ratio from the current 4.54 to below 3.25 over the medium term.We are open minded about disposals of assets if by doing so we can achieve our financial objective more quickly.”
As to which businesses Premier might sell, however, meat-free was probably the only one likely to interest multinationals such as Nestlé, although others such as Rank Hovis, RF Brookes, Avana Bakeries and Charnwood (pizza bases) might be of interest to more UK-focused firms or private equity players, analysts have predicted.
Panmure Gordon analyst Graham Jones said: “Premier has a mountain to climb to put its balance sheet in order, and we just don’t believe its target of £100m cash generation per annum is aggressive enough given the circumstances. It now seems to be admitting that disposals could be a solution, although this is not an easy one either.”
Grocery and meat-free
Premier’s brands were “trading well in tough conditions” with sales up 0.5% in value and up 3.5% in volume, said the firm. The top performer was Hartley's with sales up by 16%, followed by Sharwood's at +6.7%, Ambrosia at +5.4%, Mr Kipling at +3.3% and Hovis at +2.4%.
However, sales of Loyd Grossman sauces were flat, Quorn was down 1.6% and non-branded sales plummeted 12.7%.
Total meat-free sales were down 2.9%, which the company blamed on a lower level of promotional and marketing spend, although a return to growth was predicted in the second half.
The grocery market overall remained “competitive with a high level of promotional activity” with brands continuing to benefit at the expense of own-label, said the firm, which also warned of rising cost inflation in the second half.
“Input costs are starting to show inflation year on year, especially in some key category areas such as wheat, dairy, cocoa, paper and plastic based packaging.”
Bread – troubled outlook?
With the competitive marketplace and rising wheat costs, it was “unlikely that the [bread] division's second half profit will match its 2009 profit level”, warned the firm.
However, results in the Hovis milling and baking division were better than Investec analyst Martin Deboo had predicted.
"Trading profit [in this division] was £9m ahead of our expectations at £15m. Sales performance in bread was also much better than our Nielsen data was suggesting and Premier is saying that high volumes in the hard discount channel [which is not tracked by Nielsen] were a factor here."
But rising wheat prices were a real worry, he said: "The major risk is from exploding wheat costs, which are inflating at 40% year on year.
"Were the current price spike in wheat to persist after the summer harvest, we think Premier would have a c. £120m gross cost recovery challenge on a full year run rate basis. A similar challenge in 2008 proved their undoing."
