Fox’s sale key to 2 Sisters’ turnaround plans

By Dan Colombini

- Last updated on GMT

Could Towerbrook win a bidding war for Fox's?
Could Towerbrook win a bidding war for Fox's?

Related tags Finance Meat & Seafood

2 Sisters Food Group’s disposal of the Fox’s Biscuits business will be key to a major turnaround at the firm after it posted an upturn in performance for the fourth quarter of this year, experts have claimed.

The poultry giant has reported continued improvement for the fourth quarter of the year. But the troubled sale proposals for Fox’s Biscuits could be vital to securing the necessary cash to build on this.

The firm posted like-for-like profit before tax, depreciation and amortisation (EBITDA) of £25.4m for the fourth quarter of 2018-19, up from £19.6m the previous year. This represents a year-on-year change of 29.6%.

Revenue growth was also broadly reported across the firm’s protein, chilled and branded divisions, with group like-for-like sales up 0.2%, which would have risen to 2.6% without the closure of its Five Star Fish business.

These positive results show further growth in like-for-like earnings for the group,” ​said CEO Ronald Kers. “This is more evidence that our plans are coming to fruition and are driving improved performance​.”

Our UK poultry operation is seeing further evidence of a turnaround and all divisions have seen EBITDA benefits as a result of commercial initiatives and efficiency improvements.

“Our unrelenting focus on cost reduction, control and cash generation has yielded positive results in the quarter, which gives the group a strong platform heading into next financial year.”

Poultry margins

However, one unnamed analyst expressed concerns that improvement in poultry margins had actually decreased since the third quarter of the year, going against originally-held market expectations.

Overall, the results compared with last year are positive​,” he told Food Manufacture​. “The company’s debt maturities are coming up in 2021, so for them to turn the business around, it will be vital to refinance the debt. But given the way they are currently operating, we don’t think they can do that.

“We are at that make-or-break moment for the company when they need to show margin improvement. The company’s liquidity is already pretty tight, so you have to wonder how they can get to the stage of being able to refinance under these existing conditions.​”

He added that rumours surrounding the sale of the Fox’s brand were likely to continue as the firm sought to raise cash.

They reported today that they have drawn down £78m from their revolving credit facility, which is the first time they have used that,” ​he explained. “So if, for example, they have £100m on the balance sheet, you have to question whether that will be enough. Our view is that they may use that up over the next year or so.

The last asset

“Therefore, Fox’s is the last asset they can really sell, unless you consider some of their European poultry businesses, but I can’t see them getting rid of those unless it’s an emergency.​”

As part of the firm’s turnaround plans, founder Ranjit Singh Boparan is returning as managing director​, although the firm refused to verify speculation that Fox’s would be auctioned off early next year.

Clive Black, head of research at Shore Capital, warned that the firm would struggle to offload the business in the coming months, however.

It isn’t a secret that 2 Sisters has been looking to offload the business for some time​,” he told Food Manufacture​. “There has been quite a lot of mystery and intrigue surrounding this one for a while.

“There was a lot of chatter about Fox’s and Burton’s ​[Biscuit Company] merging some time ago. And there have been various ebbs and flows in deals that have been done, nearly done or not done.


“The bigger picture is that 2 Sisters has been overleveraged for quite a while and Boparan has grabbed the bull by the horns in this respect. He recently sold the Matthew Walker’s Christmas Pudding business and we now anticipate that Fox’s is a priority too, not just to reduce debt but to increase management focus and prioritise broader resources​.”

However, Black stressed that with the biscuit category undergoing “considerable structural challenge and change​”, it was not clear who would be willing to step up to the plate at this stage, leaving the firm facing an uphill challenge to deliver its goals.

As previously noted in September, private equity firm Towerbrook had reportedly set its sights on acquiring the business​ as part of a mega-merger to create a new European biscuit business.

The firm has also made moves to acquire Biscuit International as it seeks to consolidate the two under one business.

However, the unnamed analyst told Food Manufacture​ that this might not be as straightforward as it seemed, with other players also expressing interest in Biscuit International.

For Towerbrook to consider a merger with Fox’s, they would have to win the Biscuit International option first​,” he said. “I understand that they are in the final rounds of negotiations for that, but we understand that other private equity players are in a position to outbid them.”


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