BRITAIN’S biggest food manufacturer Premier Foods warned its full-year profits will be below market expectations and said it was in talks with its banks to relax the terms of key tests of its financial health.
Shares in the company plunged XXX per cent yesterday.
“Our immediate priority is to conclude discussions with the banks to revise our banking covenants and put in place refinancing facilities,” said new chief executive Michael Clarke, who joined the company in September from Kraft.
Mr Clarke said talks with its banks were focussed on ensuring appropriate banking covenant headroom is maintained and extending its current banking facilities past their current maturity date of December 2013.
“We’re pretty optimistic at the moment about concluding an appropriate deal,” said finance director Jim Smart.
Investec Securities analyst Martin Deboo said he expected the consensus forecast for Premier Food’s 2011 operating profit to fall by over 10 per cent to below £200m.
“Now the question is whether this company can survive. To say that all this adds up to a baptism of fire for new CEO Mike Clarke feels like the understatement of the year,” he said.
Premier Food’s next covenant test is due at the end of the year and Mr Smart said trading during the remainder of the year would hold the key as to whether the company would pass the test based on its current criteria.
“We’re a little bit close to our interest covenant,” he said. “That’s artificially tight because as we did disposals and as we locked in our swaps we lost a little bit more income than the interest rate that comes off the bank debt.”
Premier Foods has been selling businesses to bring down its debt, which ballooned following the acquisitions of RHM and Campbell Soups’ UK and Irish business.
Earlier this year it sold its two vegetarian businesses Quorn and Cauldron for £205m to private equity.
Despite this and other disposals, Premier Foods said net debt at the year end would be higher than the £850m currently expected by the market.
Mr Clarke set out plans to rejuvenate the business and said he had identified eight key brands which the business would focus on going forward – Ambrosia, Batchelor’s, Bisto, Hovis, Loyd Grossman, Mr Kipling, Oxo and Sharwood’s.
Premier Foods said it would actively seek to dispose of other businesses and the downsizing of the business would help it significantly exceed its £20m cost saving target by 2013.
The company said total sales fell by 3.6 per cent to £477m in the third quarter with sales volumes dropping eight per cent.
Its market share dropped by 1.9 per cent in value terms and 2.1 per cent in overall sales volu- mes.