TIDMPFD
RNS Number : 5469Y
Premier Foods plc
27 January 2014
27 January 2014
Premier Foods plc
("Premier Foods" or "the Company")
PREMIER FOODS REACHES AGREEMENT ON JOINT VENTURE TO GROW HOVIS,
ENABLING DEDICATED FOCUS ON GROCERY AND CONFIRMS 2013 RESULTS IN
LINE WITH MARKET EXPECTATIONS
-- Bread business to become a stand-alone joint venture between
The Gores Group and Premier Foods
-- Bread business valued at enterprise value of GBP87.5m.
Premier Foods retains a 49% stake ensuring significant
participation in future value generation
-- Transaction provides short-term cash inflow to Premier Foods
of approximately GBP28m to be invested in Grocery business
-- Combined GBP45m cash injection by the shareholders into the
joint venture unlocks a GBP200m five year investment programme for
Hovis
-- Premier Foods Trading profit for the year ended 31 December
2013 in line with market expectations
Premier Foods today announces it has reached a conditional
agreement with The Gores Group to operate its Bread business(1) as
a stand-alone joint venture which will trade under the name of
Hovis Limited. The new arrangement will facilitate a significant
increase in investment in the business both to improve the
efficiency of its operational infrastructure and to reinvigorate
the Hovis brand, building on its strong heritage. Premier Foods
considers a joint venture to be the best way to maximise value in
the Bread business through securing new investment and retaining
the opportunity to share in the expected future gains from this
investment as the business continues its return to profitable
growth. The transaction will additionally enable the Company to
strengthen its position in the ambient Grocery market through
focusing its full attention and resources on continuing to grow its
category leading Grocery brands.
Under the terms of the agreement, The Gores Group will pay
GBP30m for a 51% controlling stake in the joint venture, of which
GBP15m is deferred and contingent on future business performance.
As a result, the transaction values the Bread business at an
enterprise value of GBP87.5m, including GBP28.7m of working capital
that will be retained by Premier Foods. Premier Foods and The Gores
Group have further agreed to invest a combined GBP45m in the
business in proportion to their respective holding in the form of
loan notes, of which GBP32m will be provided on completion of the
transaction. This investment, together with external financing and
cash flow from the business, will be used to fund the joint
venture's plan to invest approximately GBP200m in the business over
the next five years to improve its operational infrastructure and
reinvigorate the Hovis brand. It is expected that the joint venture
will also be supported by a stand-alone credit facility for its
ongoing working capital requirements with effect from the
completion of the transaction. Under certain circumstances, Premier
Foods can be called upon to provide up to GBP10m of this line. The
third party finance will be non-recourse to the Company.
The Company therefore expects the short-term cash benefits from
this transaction, excluding fees, to be approximately GBP28m, which
it intends to invest in its core Grocery business. Specifically, it
is intended that capital expenditure in 2014 will be predominantly
focused on improving capacity in the cake business including the
investment of approximately GBP20m in a new Snack Pack cake slice
line at the Company's manufacturing site in Carlton, Barnsley.
The transaction is subject to approval by Premier Foods'
shareholders and obtaining relevant consent/waivers from Premier
Foods' lenders and pension scheme trustees, as well as competition
approval from the European Commission. The transaction is expected
to complete during the second quarter of 2014.
For the year ended 31 December 2013, unaudited results of the
business which will comprise the joint venture were as follows:
sales of GBP654.6m, Divisional Contribution of GBP27.8m, Trading
Profit of GBP6.3m and EBITDA of GBP21.9m. The gross assets of the
business entering the joint venture were GBP240.6m as at 31
December 2013. Following the completion of the transaction, the
Company will reflect the joint venture as a minority interest in
its financial statements.
Commenting on the transaction, Gavin Darby, Chief Executive
Officer of Premier Foods, said:
"This is exciting news for the Bread business and a great deal
for Premier Foods. We can now focus our attention and resources on
developing our category leading Grocery brands.
"I'm delighted that we've found a strong partner in The Gores
Group who will help provide the investment necessary to develop the
Bread business. This will be good for our customers, our employees
and all those connected with the business. A joint venture
arrangement also means we will share in the future gains from this
investment as the business continues its return to profitable
growth, helping us maximise value creation. Both parties are
excited by the opportunities this transaction brings. "
Fernando Goni, Managing Director at The Gores Group, said:
"We are excited to partner with Premier Foods to revive the
Hovis brand and spearhead re-investment across the Bread business.
We believe there is significant untapped potential in such a
well-loved, household name and are confident in the abilities of
the talented management team to drive value for all stakeholders.
The Gores Group has a rich history of working alongside corporate
partners to unlock latent value in divisions that require
operational and commercial improvement and, as such, we are
convinced that Hovis offers a perfect fit for our unique
capabilities."
The joint venture will be led by Bob Spooner, who will become
Chief Executive Officer upon completion. Bob is currently Managing
Director Bread and Group Supply Chain Director for Premier Foods
and was responsible for leading the first stages of the
restructuring of the Bread business over the past 18 months. Bob
will be a member of the Board of Directors for the joint venture
which will include five additional directors: two nominated by
Premier Foods, two nominated by The Gores Group and an independent
Chairman to be appointed by the joint venture partners. Gavin Darby
and Alastair Murray (respectively CEO and CFO of Premier Foods)
will be the first Directors appointed by Premier Foods to the joint
venture Board.
Transaction details
-- The proposed transaction includes the transfer to the joint
venture of the production, distribution, sales and marketing of
Hovis, Mothers Pride, Ormo, Granary and Nimble brands, private
label business, business-to- business sales and the flour milling
business. Premier Foods will retain the McDougall's brand for use
in retail and certain food-service sales of flour and bread mixes
and will enter into a licensing arrangement with the joint venture
for the use of the Hovis brand for similar retail and
business-to-business sales of flour and bread mixes.
-- With the exception of the Charnwood Foods facility in
Leicester and a flour mill in Andover, the Company's entire
operational bakery and milling estate, associated distribution
network and assets will be transferred to the joint venture as part
of the deal, including the current head office site of the Bread
business in High Wycombe. All baking, milling and associated head
office employees are consequently expected to transfer to the new
venture following an appropriate consultation process.
-- To provide a degree of certainty for the new venture, Premier
Foods and The Gores Group have committed not to sell their
respective shares in the joint venture for at least three years
from completion of the transaction. Following this three year
period, the parties have agreed customary exit provisions for a
joint venture of this nature (including tag-along and drag-along
provisions).
-- In the unlikely event the transaction does not close due to a
failure by Premier Foods to satisfy the conditions, the Company has
agreed to pay The Gores Group its reasonable out of pocket costs
subject to a cap in accordance with the listing rules.
-- Premier Foods will enter into a long-term mutual supply
agreement with the joint venture for flour.
-- Premier Foods will enter into transitional services
arrangements with the joint venture to provide necessary central
support services for the new venture.
-- Premier Foods will retain responsibility for the RHM Pension Scheme as sponsoring employer.
-- Gross benefits from the transaction are subject to final
working capital adjustments on completion and fees associated with
the transaction.
Premier Foods intends to send a circular to shareholders during
the first quarter of 2014 giving details of the proposed
transaction and notice of a general meeting at which a resolution
to approve the new joint venture will be proposed.
Premier Foods is being advised by Ondra Partners on this
transaction.
Full Year Performance in Line with Market Expectations
Separately, the Company is pleased to confirmthat Trading Profit
for the year ended 31 December 2013 is expected to be in line with
current market expectations, despite some challenging trading
conditions during the year. Adjusted profit before tax(4) is
expected to be ahead of expectations for the year, reflecting a
slightly lower net regular interest charge.
Grocery Power Brands sales increased by 2.0% in the full year,
although they declined by 1.0% in the fourth quarter as a result of
the tough consumer environment and high promotional activity.
Together with the impact of hotter weather in July and early
August, this resulted in Grocery Power Brands sales growth slowing
to 0.3% in the second half of the year. Importantly, market share
performances improved in Ambient Desserts, Stocks & Gravies and
Cooking sauces and Accompaniments in both the final quarter and
second half. Support brands sales grew by 1.0% in the fourth
quarter, driven by Angel Delight, Bird's, and McDougalls,
reflecting early benefits from the Company's category-focused
growth strategy. The Bread business demonstrated improved momentum,
finishing the year strongly with underlying Hovis sales up 5.3% in
the final quarter.
Net debt is expected to be in line with expectations and
represents a reduction of approximately 10% during the year. The
Company is in constructive discussions with its pension trustees in
relation to the 2013 actuarial valuation of the pension schemes and
the associated recovery plan. As previously stated, the Board
continues to review the full range of options available to the
Company regarding its future capital structure.
<ends>
For further information, please contact:
+44 (0)1727 815
Premier Foods plc 850
Richard Johnson, Group Corporate Affairs Director
Richard Godden, Head of Investor Relations
+44 (0) 20 7379
Maitland 5151
Liz Morley
Tom Eckersley
The Gores Group +1 (310) 209 3010
Frank Stefanik
Sitrick And Company
Terry Fahn +1 (310) 788-2850
Conference Call
A conference call for investors and analysts will take place on
27 January 2014 at 8.15am, details of which are outlined below.
Telephone number: +44 (0) 20 3003 2666
Telephone number (UK Toll free) 0808 109 0700
Password: Premier Foods
Notes to editors:
1. The Bread business excludes the Charnwood Foods facility in
Leicester and a flour mill in Andover
2. The Gores Group LLC is a global investment firm focused on
acquiring controlling interests in mature and growing businesses
which can benefit from the firm's operating experience and flexible
capital base. The firm combines the operational expertise and
detailed due diligence capabilities of a strategic buyer with the
seasoned M&A team of a traditional buyer. The Gores Group,
which was founded in 1987 by Alec Gores, has become a leading
investor having demonstrated over time a reliable track record of
creating value in its portfolio companies alongside management.
Headquartered in Los Angeles, The Gores Group maintains offices in
Boulder, CO, and London. For more information, please visit
www.gores.com.
3. Premier Foods acquired RHM Plc in March 2007. In addition to
the Hovis and other bread and milling businesses and brands, this
acquisition included the Mr. Kipling and Cadbury cake brands, Bisto
gravy, Sharwood's cooking sauces and accompaniments, Paxo stuffing,
Saxa salt and McDougall's retail flour and cake mixes which remain
part of the Company's core Grocery business.
4. Adjusted profit before tax is stated after deducting net regular interest from Trading profit
5. Divisional Contribution is Trading profit before selling, general and administrative costs.
6. Trading profit is defined as Operating profit before
restructuring costs, amortisation and impairment of intangible
assets, pension credits or charges in relation to the difference
between expected return on pension assets and administration costs
and interest costs on pension liabilities.
7. EBITDA is Trading profit excluding depreciation.
8. The business transferring to the joint venture will be
accounted for as held for sale in the financial statement for the
year ended 31 December 2013. The associated impairment charge will
be reflected in the accounts for the year ended 31 December 2013 as
an exceptional item.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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