Mr. Kipling cakes
The company behind Mr. Kipling and Bisto said the suspension of future pension contributions is taking place earlier than originally expected / Image source: Premier Foods
  • Pension cash contributions halted
  • Major boost to free cash flow
  • Firepower for growth enhanced

Shares in Premier Foods (PFD) were the FTSE 250’s biggest risers on Wednesday morning, surging 14% to a five-year high of 158.2p after the cakes, custards and cooking sauces maker struck an agreement with the RHM Pension Scheme Trustee to suspend pension deficit payments from 1 April 2024.

One of Shares’ 2023 Tips of the Year, the company behind iconic brands including Mr. Kipling, Bisto and Ambrosia said the suspension of future contributions is taking place earlier than expected due to ‘the strong performance of the pension scheme, following the segregated merger in June 2020’.

ALL GRAVY FROM HERE?

Representing the latest step in the Bisto gravy-to-Loyd Grossman sauces maker’s decade-long balance sheet rehabilitation, the suspension will save Premier Foods £33 million per annum in cash contributions in the year ending 29 March 2025 and deliver a healthy boost to its already robust cash flows.

This extra financial firepower which will support the Hertfordshire-headquartered food group’s organic and acquisitive growth ambitions and fund further debt reduction and a progressive dividend, Premier Foods having returned to the dividend list in 2021 after a 13-year absence.

WHAT DID DUNCAN LEGGETT SAY?

Premier Foods’ chief financial officer Duncan Leggett said: ‘The further significant progress in the funding position of the pension scheme has enabled us to take another important step to expected full resolution of the scheme by the end of 2026.’

He added: ‘This suspension of pension payments substantially increases the free cash flow available to us and presents us with enhanced capital allocation options to deliver on our growth ambitions. The scheme has reached this position following strong stewardship by the trustee over many years and we will continue to work collaboratively with them to further de-risk the scheme.’

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THE SHORE CAPITAL VIEW

Following the update, Shore Capital left its profit forecasts, which call for an increase in pre-tax profits from £152.3 million to £160.3 million in the year to March 2025 rising to £168.3 million in fiscal 2026, unchanged.

However, the house broker lowered its full year 2025 and full year 2026 net debt estimates to reflect Premier Foods’ enhanced cash generation and stressed the announcement marks ‘another very important and welcome staging post for the full resolution of the RHM Pension Scheme, which CFO Duncan Leggett says remains on track for completion by the end of 2026.’

Shore Capital insisted progress at Premier Foods has ‘undoubtedly accelerated in recent years as the financial shackles have been removed and management has been allowed to increasingly invest behind its branded growth model and its five strategic growth pillars. Today sees the cash constraint fully removed which we warmly welcome.’

LEARN ABOUT PREMIER FOODS

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Issue Date: 06 Mar 2024