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14 Feb 2011
London, 14 February 2011 -- Moody's Investors Service has today assigned a Ba2 corporate family rating
(CFR) to Premier Foods plc ("Premier" or "the company").
The outlook is stable.
RATINGS RATIONALE
"The Ba2 CFR reflects Premier's investment grade business
risk profile as the largest food manufacturer in the UK, with a
large portfolio of well-known brands," says Douglas
Crawford, Moody's lead analyst for Premier. "The
company's business profile is further supported by the number one
or two positions its products hold in the UK market, with market
shares often in double digits."
Moody's expects that Premier's leading market position in
the UK will continue to benefit from the historical heritage of most of
the group brands, which are strongly associated with British food,
thanks to its ability to launch brand extensions and innovate within its
product lines.
However, Moody's notes Premier's degree of customer
concentration, with the top 5 UK retailers representing almost 60%
of company revenues. Despite Premier's solid relationships
with its large, key retailers and its leading branded products,
Moody's believes that, for its non branded and a few of its
branded products, the company has limited negotiating power and
is impacted by input price rises and its customers' promotional
activity.
Moody's views Premier's historic financial risk profile as
weak for the rating, reflected by high leverage of 5x (Moody's
adjusted, as of 26 June 2010). However, Moody's
expects material improvement in key credit metrics by 30 June 2011,
due to the completion of the disposals of the meat-free and East
Anglian canned grocery operations for net proceeds of around GBP374 million;
and the rating agency believes that the company will achieve low double
digit free cash flow to debt (FCF/debt).
In terms of financial policy, Moody's understands that the
company is now focusing on organic growth with the primary aim to reduce
indebtedness and has simplified its balance sheet. Although clear
evidence of deleveraging is not yet visible, the rating is supported
by the company's target to reduce Reported Average Gross Debt to
EBITDA to below 3.25x over the short term. Furthermore,
the rating agency recognises the benefit that the recent disposals will
have when they complete. Moody's ratings have also not incorporated
the prospect of dividends until the company's metrics have shown
material recovery.
In Moody's view, Premier's current liquidity profile
is satisfactory, due to limited debt maturities over the short term
and supported, at 30 September 2010, by GBP342 million availability
under a committed GBP500 million revolving credit facility (RCF) that
matures in 2013. The rating agency assumes that cash received from
disposal proceeds will be used to repay the term debt facility.
Moody's notes that the business is subject to a degree of seasonality,
with the company needing almost GBP200 million of cash to finance its
working capital needs, mainly to ramp up inventories for the Christmas
period. Covenant headroom was 17% as at 26 June 2010 and
Moody's expects the completion of the disposals and recent interest
rate swap restructuring to substantially boost liquidity and reduce potential
cash flow volatility going forward. However, the Ba2 rating
also incorporates an assumption that the company will address the 2013
debt maturities in a timely fashion.
The stable outlook reflects Moody's expectation that Premier Foods
will pursue a conservative financial policy going forward, maintaining
positive, albeit modest organic growth, and reducing its leverage
over time, preserving at all times an adequate liquidity profile.
Positive pressure could evolve if Premier Foods leverage approaches 3x
and RCF to Net Debt approaches 16%. On the contrary,
negative pressure could develop on the rating if leverage approaches 4.5x
from 30 June 2011 onwards and RCF to Net Debt approaches 12% or
if free cash flow is negative or the criteria set for the stable outlook
are not met.
The principal methodology used in this rating was Global Packaged Goods
Industry published in July 2009.
Premier Foods, based in St Albans, is the largest manufacturer
and distributor of food in the UK, with a focus on ambient grocery,
bread and chilled products. The company has around 16,000
employees producing foods from around 60 facilities based in the UK and
Ireland. For the last-twelve-months (LTM) period
ended 26 June 2010, Premier reported revenues and adjusted EBITDA
of GBP2.6 billion and GBP354 million. As at March 2010,
the largest shareholder was Warburg Pincus with 16% of the company,
while other shareholders include Franklin Templeton with 13% and
Paulson Europe with 12%.
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London
Douglas Crawford
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
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Moody's assigns Ba2 rating to Premier Foods
No Related Data.
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