Premier should focus on disposals: spreads on sale
FoodManufacture.co.uk first reported that the firm’s spreads business, which would include brands such as Hartley’s jam, was likely to be a strong candidate for sale on December 9 last year, with analysts describing it as “a logical disposal”.
Julian Wild, food group director at law firm Rollits, told FoodManufacture.co.uk: “The spreads business is definitely going through a sales process and I would imagine there would be a high level of interest for that as it involves some decent brands.
“Selling off the businesses is helpful to tackling the debt mountain but it is not so good for profitability as disposals are earnings dilutive.”
Private equity firms
Interest in the spreads business is likely to come from private equity firms, according to Wild. He also said he expected md Michael Clarke to “significantly slim down” the business in the new year.
“The question is, will the market give them enough time to deliver it,” he added?
Jeff Stent, analyst at Exane BMP Paribas, told FoodManufacture.co.uk that ensuring value in the firm’s equity would be a good start when planning ahead for 2012.
He said: “I think they need to resolve to keep value in the equity which means the shares must be worth more than zero.
“Premier also needs a miraculously good agreement with the banks, combined with some crazy disposals.”
His thoughts were echoed by Panmure Gordon analyst Graham Jones, who remained concerned that Premier may still have a mountain to climb.
He told FoodManufacture.co.uk: “Obviously the current market focus is on the disposal process but it has not really got any nominal amounts for the sales it has made so far.
“The real danger for Premier is its very large pension liability but going into the new year, the number one thing to do is to fix the trading performance of the business.”
‘Annus horribilis’
Analysts had described 2011 as Premier’s “annus horribilis” after a tough year that included soaring debts, changes to management and a botulism scare that resulted in three children being hospitalised.
In November, Clive Black and Darren Shirley, analysts at Shore Capital, said: “Annus horribilis is an understatement for Premier Foods in 2011. With two quite earth-shattering profit warnings that contributed to the need to defer financial covenant tests at the year-end, alongside the sustenance of £900M of debts, a £3.1bn pension liability and £500M actuarial deficit.”
Premier’s misery continued later that month when it was revealed that the firm was forced to recall a batch of its Loyd Grossman Korma sauces after it was revealed two children from the same family in northern Scotland contracted botulism from the product.
Wild praised Premier boss Michael Clarke for overseeing successful disposals at the end of last year, which he described as “quite an achievement.”
He said: “I do think the chief executive has managed to get a lot right and deserves a lot of credit.
Sales of the Brookes Avana and the Irish brands is quite an achievement and he has done some significant tidying up.”
Meanwhile, after publication, a reader and Premier shareholder, contacted us to claim that the infomation about pension liabilities in this report was misleading. Pension liabilites are shown as £3.1bn in the latest interim accounts but from that figure needs to be deducted the pension assets or equities, bonds, property, cash and swaps of £2.8bn.
So the actual deficit is less than £300m, he claimed.
To read the latest interim report, click here.
