Premier Foods could be forced to sell power brands: City

By Mike Stones

- Last updated on GMT

Not for sale: Premier’s new ceo Gavin Darby pledged not to sell the power brands
Not for sale: Premier’s new ceo Gavin Darby pledged not to sell the power brands

Related tags Power brands Premier foods

Britain’s biggest food manufacturer Premier Foods could be forced to compromise its recovery plan by selling key power brands to boost its troubled balanced sheet, according to a leading City analyst.

Graham Jones, executive director of Panmure Gordon, warned: “It might take the sale of Power Brands to significantly improve the balance sheet.”

The firm’s former ceo Michael Clarke staked his reputation and the debt-laden manufacturing giant’s recovery around a strategy built on eight power brands. Those were: Hovis, Mr Kipling, Bisto, Oxo, Ambrosia, Batchelors, Sharwood’s and Loyd Grossman.

But selling one of the key brands could compromise the firm’s recovery, said Jones. Selling a power brand would “come at the cost of reducing the cash generating base and increasing the mismatch between the size of the company and its pension liabilities”.

Possible sale of Hovis

Last year industry speculation focused on a possible sale of the Hovis, as the firm’s bread division came under increasing pressure from soaring wheat prices and keen industry competition.

But Clarke’s replacement Gavin Darby pledged to revive Premier Foods’ fortunes while keeping its power brands.

“I’m very happy with the strategy and there’s evidence of it working,” ​Darby told the Daily Telegraph. “The eight power brands have grown for four consecutive quarters. Since we’ve begun to execute that strategy, the power brands are growing faster than our other brands and the faster than the marketplace.”

Darby said none of the power brands were for sale.

‘Potential internal succession’

Commenting on the departure of Eaton​, Darby described his role of chief operating officer as only temporary and one “which provided a platform for potential internal succession​”.

But he added: “Given that the succession became external, it was difficult to see why that role would fit in the organisation. The role was not relevant. It was just another layer.”

Meanwhile, Jones predicted an “interesting”​ meeting on Thursday February 21 when the firm reported its full-year results, following the shock departures of ceo Michael Clarke and chief operating officer Geoff Eaton. Eaton left the firm on the day Darby started work.

“After the usual volatile ride in the shares over the past year from a low around 60p to a high of over 170p, the shares are now back close to our 90p target,”​ said Jones.

He predicted that the firm would report a 2% growth in power brands and grocery power brands ahead by 4%.

Overall, sales were expected to fall by 2.4% to £1,767M reflecting disposals.

Earnings before interest, tax and amortisation were predicted to rise by 8% to £159.6M.

But pre-tax profits were likely to be 60% up to £92.6M on lower financing costs.

Premier Foods confirmed last month that its trading results would be in line with expectations.

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