Premier Foods' Power Brands vital for bank confidence

By Dan Colombini

- Last updated on GMT

Premier's Power Brands will be vital for restoring banking confidence in the firm
Premier's Power Brands will be vital for restoring banking confidence in the firm
Premier Foods’ Power Brand plan is vital to reduce debt and restore banking confidence, according to city analysts, as talks with the firm’s lenders continue ahead of its scheduled covenants test next month.

Experts have said that restoring lenders’ faith in the business will be a key factor in the successful renegotiation of its banking agreements, as md Michael Clarke continues his plan to restore success to the business.

One analyst, who asked not to be named, told “In terms of refinancing, the banks have to believe that the firm can grow and reduce its debt pile. So focusing on the Power Brands, instead of spreading the business very thinly, is a good plan.

Cash through the door

“There has definitely been a step up in the amount of faith put in the core brands, with increased advertisements and promotions. It is definitely a sensible plan to focus your resources on where you can get the most bang for your buck. But we will see​.”

Graham Jones, an analyst at Panmure Gordon, told that Premier was on the right track but needed to get “cash through the door as soon as possible".

He said: “The firm is backing the Power Brand plan up with action. Clearly it has had problems getting the balance right in these areas in the past.

“What was required was a bit more noise around the core brands and more media attention, which is what they are doing. The bottom line though, is Premier needs to get cash through the door as soon as possible​.”

Earlier this week, experts said that the firm’s future rested on the refinancing agreements​, which will include a covenants test originally scheduled for December last year.

This was delayed following a profit warning at Premier, amid fears that it would fail the all-important test.

Test will be failed

Jones told that, despite the recent surge in Power Brand activity, Premier was still likely to fail next month’s test.

He said: “The covenants test will be failed, as it was in December. I think the deferral was a case of buying time to allow discussions with the banks and to come to an agreement where new covenants will be set. The likelihood is if you fail a test on December 31, you’ll probably fail it in March.

“I fully expect there to be an agreement which will allow the firm to continue though.​”

A key issue for the firm in the event of a successful deal with the banks, however, will be how it juggles the Power Brand plan, and its disposals programme, alongside its huge pension liabilities.

Jones added: “If you continue with disposals and continue to have pensions debt, which is what Premier has, then you end up with an ever decreasing cash generative business​.”

Premier's Power Brand's include household names such as Ambrosia, Oxo, Hovis and Mr Kipling.

Related topics: Chilled foods

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