FDBusiness.com

UK convenience foods group Premier Foods has announced a £1.128 billion capital refinancing plan, comprising a share placing and rights issue, issuing new bonds and implementing a new revolving credit facility. The capital refinancing plan entails raising approximately £353 million gross proceeds by way of a fully underwritten placing of 76,923,077 shares at 130p each raising approximately £100 million, and a fully underwritten 8 for 5 rights issue of 506,824,531 shares at 50p each raising approximately £253 million. In addition to the placing and rights issue, Premier Foods is  raising of approximately £475 million gross proceeds by way of an issue of new bonds maturing in 2020/21. The third element of the capital refinancing plan involves a £300 million new revolving credit facility, maturing in 2019.

The capital refinancing plan is designed to increase the financial flexibility and stability of Premier Foods by accelerating the deleveraging of the group’s balance sheet; extending the maturity profile of the group’s financing arrangements; and strengthening the group’s capital structure.

The board believes that the capital refinancing plan, together with the proposed joint venture announced on 27 January 2014 with The Gores Group in relation to Premier’s Bread business (Hovis), and the revised funding arrangements with the Pension Trustees, will enable the group to pursue more effectively its category-based strategy and enhance long-term shareholder value.

The capital refinancing plan is subject to the approval by Premier Foods’ shareholders at a general meeting to be held on 20 March 2014.

Gavin Darby, chief executive of Premier Foods.

Gavin Darby, chief executive of Premier Foods, comments: “I’m delighted we have concluded our capital structure review and are announcing a transformational new deal which includes an underwritten equity issue of approximately £353 million, a landmark pension schemes agreement, a high yield bond of £475 million and a new lending agreement with a smaller banking group. This new capital structure will liberate Premier Foods from its past and provides a great platform on which to execute our category based strategy.”

He adds: “Following the announcement to simplify the group through the Hovis joint venture, we are now focused on growing a high quality branded Grocery business, with its strong underlying cash flows. While consumer spending trends are currently subdued, we are confident in our expectations for 2014.”

Financial Results

For the year ended 31 December 2013, Premier Foods reported a 1.1% decrease in underlying business sales to £1.282 billion, compared to the prior year, and a 17.7% increase in underlying business trading profit to £145.2 million.

Total sales in Grocery business were down 2.0% to £837.4 million. Divisional contribution increased by £1.2 million to £196.7 million as the Grocery business was impacted by the hot summer of 2013 which offset by significant reductions in SG&A at the group level. Premier estimates that for the ongoing underlying Grocery business, trading profit increased from £131 million to £139 million between 2012 and 2013. Grocery Power Brands sales increased by 2.0% in the year to £543.5 million, while Branded sales were up marginally to £739.7 million. The Grocery proportion of branded sales increased by 1.8ppts to 88.3% in the year, as Premier maintained a disciplined approached to non-branded business, which declined by 14.9%.

Sales for the Bread division (excluding Milling) increased 0.4% to £445.1 million in the year while total sales for the division increased by 5.1% to £667.0 million. Divisional contribution rose by 16.7% to £31.4 million due to improved manufacturing efficiencies in the supply chain while the business also benefitted from an improved second half performance, particularly reflecting stronger customer partnerships.

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.

Power Brands sales for 2013 increased by 2.1% to £326.7 million, with the Hovis brand continuing to deliver strong market share performances in most major retailers, reflecting strengthening customer partnerships, product quality and brand heritage.

Gavin Darby says: “I am very pleased to report a strong 18% growth in trading profit and significant underlying earnings progression in 2013. Through our category based strategy, we have delivered Grocery Power Brands sales growth of 2.0%, some good market share performances and progressively stronger customer partnerships. We continue to reduce business complexity through our disciplined approach to our cost base and have successfully reduced our net debt by £120 million during the year.”