Britain’s Premier Foods announced a £1.13 billion refinancing plan yesterday as part of an ongoing restructuring aimed at reducing its debts and reviving the business.
The maker of Mr Kipling cakes and Bisto gravy has spent the past few years selling assets, reshaping its business and cutting costs to help reduce debt built up during an acquisition spree, switching its focus to growing its top grocery brands.
In an expected move, the firm said it would raise a total of £353 million via a placing of new shares and a rights issue, and a further £475 million through a bond issue.
This new capital structure will liberate the company from its past and provide a great platform on which to execute our category-based strategy
It said it had also secured a new £300 million banking facility, reducing its lending syndicate from 28 to seven parties, and had struck a new pensions agreement.
In January, Premier Foods said it would hand control of its struggling Hovis bread business to US investment firm The Gores Group, in a deal it believes will allow for greater investment in the division, and free up its focus on groceries.
“What we’ve been working on is a strategy to take away in one fell swoop the three big issues that have overburdened our company: uncertainty over bread; the scale of our debt; and the scale of our commitment to the pension scheme,” chief executive Gavin Darby said.
“This new capital structure will liberate Premier Foods from its past and provide a great platform on which to execute our category-based strategy,” he said.
Premier Foods, whose eight bestselling brands also include Batchelors and Ambrosia, said it would raise £100 million by placing 77 million shares at 130 pence apiece, while an 8-for-5 rights issue of 507 million shares at 50 pence would raise £253 million.
The capital refinancing plan is subject to approval by shareholders at a meeting on March 20.
Darby said the new six-year pensions agreement would see the firm reduce cash payments by £156 million over the next three years, when compared with its previous deal.
Group net debt at December 31, 2013, stood at £830.8 million, the firm said, and when adjusted for the refinancing fell to £513 million, taking group net debt to core earnings (EBITDA) down from around five times to 3.3 times. Premier Foods said it had agreed with lenders to pay a dividend to shareholders when the ratio falls below three times.
Its shares were down five per cent to 133 pence at 0944 GMT.
The company also posted a 12.3 per cent fall in 2013 trading profit to £139.5 million. Stripping out the contribution of disposed businesses during the year, trading profit rose 17.7 per cent to £145.2 million.
The group said it was confident of its prospects for 2014.