Under this new strategy which will focus on the areas that have the “best potential”, Premier is in talks with third parties to discuss a potential disposal of the Ambrosia division.
In the interim results, the business announced that it would be focusing resources on the areas “which have the best potential for growth through accelerated investment in consumer marketing and high return capital projects”.
Chief executive officer Gavin Darby, who announced that he is step down in the New Year, explained the business’ strategy moving forward. “While we are committed to our strategy of improving operating performance and targeting a Net debt to EBITDA ratio below 3.0x by March 2020, we are also working in parallel to identify other strategic opportunities to accelerate the Company’s turnaround,” he said.
“The Board has determined that it should focus resources on areas of the business which have the best potential for growth through accelerated investment in consumer marketing and high return capital projects. Accordingly, we are pursuing options to fund these plans as well as delivering a meaningful reduction in Net debt, through discussions with third parties regarding the potential disposal of our Ambrosia brand. Although there is no certainty that any transaction will complete, we will update shareholders in due course. We have a strong innovation plan in place for the second half of the year, and profit expectations for the full year remain unchanged.”
In its half-year results for the 26 weeks to 29 September 2018, Premier Foods recorded a 1.3% revenue growth while trading profit grew 6.2%. Its adjusted profit before tax was up 14.3% to £30.2m, and its net debt was reduced by £25.8m to £509.5m.
Batchelors at risk?
Ambrosia may been on the hit list for some time, having recorded lower revenues for the first half which Premier Foods attributed to a “pro-active decision to reduce the levels of promotional investment which in turn reduced volumes and resulted in an increase in Divisional contribution but also lower sales of custard products in the second quarter due to a hotter summer in the UK”.
Fiona Cincotta, Senior Market Analyst at City Index, said Ambrosia might not be the only Premier brand up for grabs. “Assets other than Ambrosia could be destined for the chopping block, now that Premier Foods appears to have caved to the demands of activist investors. Among them could be Batchelors, which key investor Oasis has already singled out a possible sale candidate.
“To be sure, letting go of Batchelors would be a painful process for the board, given management's efforts to revitalise the noodle brand are gaining traction. They'd at least want to see a fat offer emerge before letting go of a business that generated revenue growth of 6.8% in the first half.”