4th Mar 2014 12:32
LONDON (Alliance News) - Premier Foods PLC Tuesday said it had raised over GBP1.1 billion in new funds and credit facilities at lower interest rates and improved terms to transform its financial position, as it also reported strong growth in trading profits in its remaining businesses due to cost cutting and higher sales for its key brands.
The owner of brands including Ambrosia custard, Bisto gravy granules, Sharwood's sauces and Mr Kipling cakes, is going through a transformation after being saddled in recent years by a massive debt pile, rising interest costs and as some of its diverse range of food businesses underperformed. In the past two years, it has restructured its milling unit and sold other non-performing business like sweet pickles, table sauces, jellies and sweet spreads. This year, it has already spun its Hovis bread business out into a joint venture and has now revamped its capital structure.
That capital restructuring included raising GBP353 million in a placing and rights issue, funds it will use to reduce its debt. It has also agreed a far less-onerous schedule of payments to reduce the deficit on the company's pension scheme and raised a new credit facility and securitisation facility with a smaller group of banks at better terms and interest rates than its previous facility. Finally, it said it will raise GBP475 million through issuing senior secured notes.
"This new capital structure will liberate Premier Foods from its past and provides a great platform on which to execute our category based strategy," said Chief Executive Officer Gavin Darby in a statement.
The group had already reduced its net debt by GBP120 million during 2013, using some of the money it got from disposals.
Those asset sales meant sales declined 1.1% to GBP1.28 billion in 2013, from GBP1.30 billion in 2012. Revenues from continuing operations, which exclude the bread operations, dropped to GBP856.2 million, from GBP1.07 billion.
Sales of its so-called grocery power brands - those it expects to be its key growth drivers going forward - rose 2% to GBP543.5 million, from GBP533.1 million. However, total sales from its grocery division were down 2% to GBP837.4 million, as growth in the power brands was offset by a 4.9% sales decline in its support brand portfolio, hit by increased promotional activity, especially for cooking sauces like Homepride.
Profit figures were also heavily skewed by the company's massive restructuring.
Premier Foods reported a trading profit for the year of GBP145.2 million excluding the businesses it has sold, up 18% from GBP123.4 million in 2012, buoyed by a double-digit profit increase at its bread division, and as it further cut costs. Its gross margin rose to 35.1%, from 32.6%, driven by increased sales of higher-margin power brands.
The company has cut selling, general and administrative costs by by 44% to GBP82.9 million over the past three years and has cut its manufacturing costs base by about 5% a year.
However, excluding the bread business, trading profit at continuing operations declined by 12% to GBP139.5 million, from GBP159.1 million in 2012.
The group said restructuring costs and losses associated with disposal activity were GBP7.3 million in the year, significantly down on the GBP31.3 million reported in the prior year, and reflecting the completion of the disposal activity programme.
"In discontinued operations an impairment of GBP234.4 million is recognised in the year to 31 December 2013 and reflects the write down of the Bread business to its fair value following the announcement of the Bread business joint venture," the company said.
In January, Premier Foods said it will spin its bread business off into a stand-alone joint venture with The Gores Group, a move it hopes will significantly increase investment in the bread business and reinvigorate the Hovis brand.
"This year, the bread business has focused on a major restructuring programme, involving the closure of three bakeries, two mills and a significantly reconfigured logistics network," the company said in a statement.
Shares in Premier Foods were trading 4.9% lower at 133.11 pence per share Tuesday morning.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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