Analysis

Premier to sell other assets after Ambrosia deal fails?

By Rod Addy contact

- Last updated on GMT

Since the New Year, Premier Foods has been in detailed discussions about the sale of its Ambrosia brand
Since the New Year, Premier Foods has been in detailed discussions about the sale of its Ambrosia brand
Premier Foods may look to sell off other assets as an alternative way to reduce debt after pulling the plug on the sale of its Ambrosia brand, according to one market commentator.

"Clearly they didn’t get the price that they had hoped, which is a disappointment in terms of debt reduction for the group," ​he told Food Manufacture. "The lack of a sale suggests that they may look at other assets as a way of reducing debt."

He said the obvious other divestment option was Premier's Batchelors Super Noodles brand, which according to market rumours the company was considering selling to major shareholder Nissin Foods at the beginning of 2018. Against that, alongside Mr Kipling, Batchelors has delivered strong growth for Premier over the past eight financial quarters​, so divesting it could dent revenues. 

The source dismissed suggestions that a toxic climate in the run-up to Brexit had played a big part in deterring potential buyers. "In terms of the market – possibly it reflects some concerns as we approach Brexit. However, I doubt it.

"I can’t see that with their ingredients imported just-in-time delivery would have been a risk and exports would have been a big bit of the business and therefore probably any export problem would not be an issue.

Currency fears

"Possibly there were currency fears re imported rice but again I doubt that as we haven’t see any volatility in sterling. It just seems that a low-growth English food stable brand doesn’t get the premium the owners wanted."

However, Clive Black, head of research at Shore Capital, said: "The current macro-political environment is clearly particularly unhelpful to transaction activity and the announcement from Premier is clearly some confirmation of that fact. Whilst so, it is particularly concerning and disappointing for Premier that a step down in net debt cannot be expedited at this time, noting that leverage remains a millstone around the company’s equity value.

"Maybe more settled times will permit a more satisfactory outcome, something a new chief executive officer (CEO) will no doubt reflect upon. Maybe too though Premier has an inflated expectation of Ambrosia’s real value, which would be a major concern on an ongoing basis for the carrying value of wider elements of its portfolio. As such, this is a poor update for chairman Keith Hamill."

New CEO

Industry expert Paul Wilkinson, former chairman of Rank Hovis McDougall and Thorntons, told Food Manufacture​: "My guess is that they could not get the price to make the numbers work and if they are about to appoint a new CEO, best to let him have a say.​ [It's a] UK​ brand, so no Brexit effect." ​Previous CEO Gavin Darby stepped down from the role at the end of January​.

Trade union Unite, which represents 300 workers at Ambrosia’s factory in Lifton south Devon, welcomed the news that Premier had pulled out of selling Ambrosia. 

Unite regional officer Mark Richards said: “Premier Food’s announcement is good news for the workforce, who have experienced three months of uncertainty about their future. Unite will now be seeking urgent meetings with Premier Foods to seek strict assurances that the company is now fully committed to the long-term future of the factory and its workforce.
 
“The Ambrosia factory is a major employer in this part of Devon and its long-term future is vital to the existing workforce and the local communit​y.”

On 13 November 2018, Premier Foods announced that it was engaged in discussions with third parties regarding the potential disposal of its Ambrosia custard and rice pudding brand.

However, the company has posted a statement explaining: "A number of parties expressed interest in the business, and since the New Year the company has been engaged in detailed discussions with a small group of potential buyers.

'Business climate'

"The board has concluded that in the present business climate the process will not result in a satisfactory financial outcome. As a result, these discussions have now concluded."

US activist investor Paulson & Co announced it had upped its investment in Premier Foods to 11.9% earlier this month​.

Premier Foods saw sales drop despite continued growth of its key brands in its third-quarter (Q3) trading statement for the 13 weeks to 29 December 2018​.

Group sales were down 2.2% to £255.6m for the reported period, representing a loss of £5.8m compared with the same time last year. The manufacturer attributed this loss to decreased sales of lower margin non-branded sweet treats, down 20.7%.

The Ambrosia brand encompasses Ambrosia Frozen Custard, Ambrosia Devon Custard, Ambrosia Devon Creamed Rice, Ambrosia Custard Pots and Ambrosia Rice Pots. The Ambrosia brand was founded by Alfred Morris in 1917.

Related topics: Business News, Ambient foods, Supply Chain

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