Premier Foods eases debt pile with £200m disposal

The UK’s biggest food manufacturer is focusing on its main ‘power brands’ and shedding non-core businesses as it tries to lighten a debt burden that stood at £1.3bn at the end of June.

The sale includes brands such as Hartley’s jams and jelly, Sun-Pat peanut butter, Gales honey and Robertson’s marmalade.

“This divestment is a major step forward in our strategy to simplify the business and focus on our power brands,” said chief executive Michael Clarke.

“Following completion of this sale, we will have raised around £275m of the £330m disposal proceeds that we committed to achieving by June 2014. This will represent a 22 per cent reduction in our net debt since the half year.”

The deal helps Hain Celestial, a US organic products company known for its Earth’s Best and Celestial Seasonings Brands, build on its existing operations in the UK.

Premier Foods, which owns brands such as Hovis bread, Batchelors quick meals, Mr Kipling cakes and Loyd Grossman cooking sauces, has been selling businesses to focus on eight key brands to try to turn around its business.

“This was a deal they needed to do because this is probably their most valuable asset of those they can credibly dispose off,” said Investec Bank analyst Martin Deboo.

The transaction follows the sales of flour brand Elephant Atta and Sarson’s vinegar earlier this year.

Early last year it sold meat substitute business Quorn, which has a base in Stokesley, North Yorkshire. Late last year Northern Foods’ owner Ranjit Boparan bought chilled foods and bakery business Brookes Avana from Premier Foods for £30m.

Selling the jams business, which is based in Cambridgeshire, needs shareholder approval.

The deal, expected to close by October, would help Hain Celestial supply packaged groceries that do not require cold storage to major retailers in the UK such as Sainsbury’s, Tesco and Marks & Spencer.

The transaction will consist of £170m in cash and £30m in Hain Celestial shares.

The business had revenues of £165m and underlying earnings of £38.3m in 2011. Premier Foods said it plans more cost cuts in 2013 to offset any initial earnings dilution from the sale.