TIDMPFD TIDMIRSH
RNS Number : 1145K
Premier Foods plc
20 April 2020
20 April 2020
Premier Foods plc (the "Company" or the "Group")
Strategic review concluded with landmark pensions agreement
Update on Quarter 4 and Full year Trading
Premier Foods plc today confirms it has concluded its strategic
review announced on 27 February 2019 and announces a
transformational agreement with its pensions schemes. The Group
also provides an update on current Trading and on the impact on the
Group of the COVID-19 outbreak.
Overview
=========
-- Landmark pensions agreement between Company and pension Trustees
-- NPV of pensions deficit contributions to reduce from
GBP300-320m by up to approximately 45% to GBP175-185m
-- Trading profit for FY19/20 at top end of market expectations
-- Net debt/EBITDA at March 2020 comfortably lower than 3.0x, beating previous target
Introduction
=============
Following an extensive strategic review which has explored all
options available to the Group, the Board today announces a
landmark agreement with its pension schemes which is
transformational for both the Group and its pension scheme members
by significantly improving its long standing pension funding
situation. In particular, the Board expects this will provide
greater funding certainty for Premier Foods pension schemes members
by leveraging the strength of the successful RHM pension scheme
investment strategy. Alongside the strong progress the Group has
delivered through its branded growth model strategy, this new
pensions agreement provides the platform for further value creation
for all stakeholders.
This transformational agreement is a segregated merger of all
the Group's pension schemes, which will place all the UK defined
benefit schemes under one Trust and is the result of extensive
discussions with a number of key stakeholders. The key benefit of
this agreement is that once the RHM pension scheme executes a
buyout, a surplus would then be able to be passed to the remaining
schemes in deficit, and so would result in a vastly improved
funding position of these schemes. As such, this agreement
represents a much more secure future for the Group's pension scheme
members and has the potential to significantly reduce future
funding requirements for the Group.
Pensions agreement highlights
==============================
-- Segregated merger of RHM, Premier Foods and Premier Grocery Products pension schemes
-- RHM pension scheme moving progressively closer to a scheme
buyout by a specialist insurance provider
-- On buyout, a prospective RHM surplus would be expected to
transfer to remaining deficit pension schemes
-- Potential for significant reduction in future pension deficit
contributions from current GBP38m p.a.
-- From FY23/24, indicative annual cash deficit contribution
reduction, subject to future valuation discussions and other
assumptions(1-5) projected as follows:
- Low case: GBP8m lower p.a. at GBP30m
- Medium case: GBP16m lower p.a. at GBP22m
- High case: GBP21m lower p.a. at GBP17m
-- NPV of pension deficit contributions could reduce from
current GBP300-320m by up to approximately 45% to
GBP175-185m(1,2)
-- Scheme expenses saving to the Company of GBP4m annually from FY20/21
-- Substantial improvement to the position of the Premier Foods schemes
Colin Day, Chairman, said:
"The segregated merger of the Company's pensions schemes we are
announcing today represents a ground-breaking agreement which is
set to unlock benefits and value for all stakeholders in the
Company, leveraging the strength of the RHM scheme and
substantially improving the position of the Premier Foods schemes.
With a buyout of the RHM scheme getting progressively closer, any
resulting surplus would be transferred to the remaining schemes and
therefore result in significantly reduced pension deficit cash
contributions by the Company in future years. The agreement we have
reached follows extensive and highly collaborative discussions with
all connected stakeholders, and marks a positive conclusion to the
Company's strategic review. The Group will continue to pursue its
successful branded growth model strategy, opening up further
opportunities to deliver value in due course."
The merger is subject to agreeing definitive legal documentation
with the scheme Trustees, with implementation expected by the end
of June 2020. The triennial actuarial valuation review continues
and will be concluded by the end of June 2020. Further details on
the pensions agreement are available on a brief presentation on the
Company's website by following the link below:
https://www.premierfoods.co.uk/Investors/Investor-Centre.aspx
Trading update(6) and COVID-19 impact
======================================
With the strategic review now concluded, the Group will continue
to actively pursue its successful branded growth model strategy,
building market leading brands through consumer focused innovation
and highly engaging advertising. Following the progress made with
this strategy, the Board now expects to report Trading profit for
the 52 weeks ended 28 March 2020 at the top end of market
expectations. The trading performance in the fourth quarter
continued the positive momentum seen in previous quarters and
volumes in March rose sharply to fulfil increased consumer demand
during the outbreak of COVID-19. As a result, Group sales in the
fourth quarter are expected to have grown approximately 3.6%
compared to the prior year and approximately 10.5% in March. In the
UK, sales are expected to have increased around 7.3% in the fourth
quarter and 15.1% in March.
During the outbreak of COVID-19, the Group's first priority is
the health and wellbeing of its colleagues, customers and other
stakeholders. The Group also takes its responsibility as a major UK
food manufacturer very seriously and is working closely with its
customers to ensure maximum availability of its product ranges for
consumers. During this challenging time, the Company's
manufacturing and distribution operations are working at maximum
capacity and coping well with this recent elevated level of demand,
and customer service levels continue to be high.
As outlined above, the Group experienced a dramatic short-term
peak in volumes across many of its categories during March. Volumes
have started to reduce from the exceptional levels seen in March,
although are still expected to continue to be higher than average
patterns of demand. This reflects more meals being eaten at home
than usual due to recent measures set out by HM Government and
hence increased demand for the Group's product ranges.
Cash and liquidity(6)
======================
The Group continued to build cash during the second half of its
financial year to 28 March 2020. As at the end of March, the Group
expects to report in excess of GBP90m of cash generated from
operating activities on its balance sheet and a Net debt/EBITDA
ratio comfortably lower than the previous 3.0x target. In addition
to this, the Group has taken the prudent measure of drawing down
GBP85m of its GBP176.6m committed revolving credit facility.
Therefore, the Group expects to report cash on deposit at the year
end in excess of GBP175m, with a further GBP91.6m of committed
facilities available. No other long dated maturities are due before
June 2022.
Preliminary results
====================
The Group's Preliminary results for the 52 weeks ended 28 March
2020 are expected to be released on 14 May 2020, although the Group
notes the recent comments published by the FCA and FRC regarding
full year reporting. Further details on this will follow in due
course.
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
Ends
For further information, please contact:
Institutional investors and analysts:
Duncan Leggett, Chief Financial Officer
+44 (0) 1727 815 850
Richard Godden, Director of Investor Relations & Treasury
+44 (0) 1727 815 850
Media enquiries:
Headland
Ed Young +44 (0) 7884 666830
Francesca Tuckett
+44 (0) 7884 667661
Assumptions & Notes to Editors
===============================
1. Assumptions on future deficit contributions subject to: (i)
Investment returns of RHM scheme; (ii) no change to deficit
recovery period length. Also subject to future actuarial valuations
and associated negotiations.
2. Assumes RHM scheme reaches a surplus on buyout within 2-3 years.
3. Assumes an average high-case for the RHM scheme investment
performance of Gilts +3.25%. This is lower than the recent
medium-term performance of the RHM scheme.
4. RHM scheme investment performance assumptions: Low case = +2.0%; Medium case = +2.8%
5. The merged scheme will manage its own investment strategy and
performance, albeit in consultation with the Company.
6. Financial disclosures for the 52 weeks ended 28 March 2020 subject to audit
7. The Trading profit upside sharing arrangement which the
Premier Foods pension schemes currently benefit from will
lapse.
8. The dividend match arrangement which the RHM scheme currently benefit from will lapse.
9. The Premier Foods pension schemes continue to benefit from a
dividend matching arrangement. The structure of this arrangement is
revised and is follows:
(i) Up to GBP5m of cash dividend - f or every GBP1 paid as
dividend, 50 pence is payable to the Premier Foods Schemes
(ii) Between GBP5m and GBP10m of cash dividend - 100% to shareholders
(iii) Above GBP10m cash dividend - for every GBP1 paid as
dividend, 50 pence is payable to the Premier Foods Schemes
This replaces the previous scheme whereby every GBP1 paid as a
dividend, GBP1 was payable to the RHM and Premier Foods
schemes.
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END
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