Premier Foods trusts in Power Brands and partnerships
Speaking at the firm’s annual supplier conference, ceo Michael Clarke, said: “Everyone here recognises that trading conditions across the industry are tough. We’re focussed on building a business that is sustainable in the long term. It is in our interest to build strong supplier partnerships to bring about that transformation.”
Clarke reaffirmed his commitment to eight Power Brands which he hoped would revitalise the firm’s profits. The eight brands are: Ambrosia, Batchelor’s, Bisto, Hovis, Loyd Grossman, Mr Kipling , Sharwood’s and Oxo.
Building strategic supply partnerships was “fundamental” to Premier’s success, said Mark Hughes, group procurement director. Hughes added: “… we have been very encouraged by the positive response from our key supplier partners”.
Debt agreements
Meanwhile, PricewaterhouseCoopers will be working with Premier over the coming months to renegotiate its debt agreements with lenders as the firm battles to preserve its status as the country’s biggest food manufacturer.
A spokesman for Premier told Food Manufacture.co.uk: “PWC has been a retained advisor to Premier Foods for a number of years. As we previously announced we are currently engaged in a constructive dialogue with our lending banks to reset certain covenants and, potentially, extend the maturity profile of our debt. As is normal in situations such as this, we have engaged an accountant to help with this process and PWC was the obvious choice given our retained relationship with them.”
The firm currently has a covenant agreement with its banks to achieve earnings before interest, taxes, depreciation and amortisation that is 2.7 times greater than its interest charges.
Renegotiating these terms is a key factor in restoring the firm to stability, said analysts. They predicted Premier was unlikely to meet the current arrangements at the end of this financial year.
Premier’s clean debt currently lies at over £1bn, with a pension deficit of £535M, meaning the firm’s enterprise value is accounted for by debt which, analysts say, will “leave nothing” for shareholders.
Restoring value
Options available to the firm include a rights issue or debt-for-equity swap. But analysts are concerned these may be ineffective in solving balance sheet problems and restoring value for shareholders.
Share prices at the firm have tumbled recently with the price dropping to 4p a share compared with about 30p six months ago.
A spokesperson for Premier said much depended on the final quarter of the financial year which included “the important Christmas trading period”.
Jeff Stent, analyst at Exane BNP Paribas, told Food Manufacture .co.uk earlier this week that the most likely scenario is that banks would agree to reset covenants in December. “All involved hope for the best,” he said, also warning that equity would still “continue to limp along for some time”.
The firm’s own-label division Brookes Avana is being touted as the prime candidate in a potential sell-off.
