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Premier Food’s Irish brands sale raises cash fears

By Mike Stones , 16-Dec-2011
Last updated on 23-Dec-2011 at 15:51 GMT

The £34.7M sale of Premier Foods’ four Irish brands, Chivers, Gateaux, McDonnells and the Erin licence, to the Boyne Valley Group underline worries about the food giant’s ability to generate cash, one leading analyst has warned.

Graham Jones, Panmure Gordon’s executive director of Equity Research, said: “We remain concerned that Premier’s cash generating base continues to shrink at a faster rate that its liabilities and reiterate our sell recommendation and 2p price target.”

The sale follows Premier’s £30M disposal last week of its chilled foods division Brookes Avana to Ranjit Boparan’s 2 Sisters group.

Total liabilities

The two disposals will bring in £62M of cash early next year, which is about the annual ongoing cash contribution to reduce pension deficit, said Gordon. “More significant disposals will be required to make a more meaningful reduction to the total liabilities of over £1.6bn - including pension deficit, agreed swaps settlements, mark to market swaps and debtor securitisation,” he added.

The four Irish brands were sold for net proceeds of £33.55M (€40M) which equates to four times the firm’s 2010 EBITA (earnings before interest, taxes, depreciation and amortisation) and operating profit.

The deal, which should be completed early next year, does not include the transfer of manufacturing assets. Premier is to contract manufacture the brands for Boyne for the next three years.

“Excluding the disposal proceeds, we forecast no cash generation at the group over the 2012 and 2013 period combined after pension contributions, swaps settlements and payment of debt arrangement fees,” said Jones.

Michael Clarke, Premier’s ceo, said: “The sale of these Irish Brands will enable us to focus on supporting our Power Brands in line with our overall strategy. Coming hard on the heels of the announcement of the Brookes Avana sale agreement, this underlines our determination to streamline the business to help restore profitable growth quickly.”

Additional investment

John Harkin, the Boyne Valley Group’s ceo, said: “We are pleased to be acquiring these strong and well established Irish Brands with a loyal customer base. With additional investment, we believe we can grow these brands further. They fit well within our existing food portfolio which includes olive oil, relishes, home-baking and honey.”

The privately-owned, Drogheda-based Boyne Valley Group is best known as the producer of Boyne Valley Honey. Its range also includes Don Carlos olive oils Panda peanut butter and the Lakeshore mustard brand.

The firm also has the licences to distribute Pepsi, Walkers Crisps and the Tropicana juice brands in Ireland.

The Irish brands reported a turnover for the year ended December 31 2010, of €29.5M and an EBITDA of €10M before selling, general, administrative and fixed logistics costs.

For the 12 months to October 312011, the brands had turnover of €26.2M and EBITDA of €9.4M before selling, general, administrative and fixed logistics costs.

At the end of last year, the Irish brands had net and gross assets of €39.2M.

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