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(Alliance News) - Premier Foods PLC on Monday said it has agreed the merger of its UK defined benefit schemes pension schemes, paving the way for a sharp reduction in future pension deficit contributions.
Shares in Premier Foods jumped 17% on Monday morning to 38.12 pence.
The branded foods maker, which makes Mr Kipling cakes, said it had agreed pension trustees the segregated merger of its RHM, Premier Foods, and Premier Grocery Products pension schemes. This as its RHM pension scheme moves nearer to its buyout by a specialist insurance provider.
Once the buyout has completes, the expected RHM surplus is expects to transfer to remaining deficit pension schemes, allowing for the possible significant drop in future pension deficit contributions from the current level of GBP38 million per annum to as low as GBP17 million per annum.
Starting in its 2024 financial year, which ends in March, the maximum estimated annual cash deficit contribution reduction - though this is subject to valuation discussions in the future and to "other assumptions" - is GBP21 million a year. This would put pension deficit contributions per annum at GBP17 million.
The medium case reduction would be GBP16 million per annum to GBP22 million a year, while the low case estimated saving is GBP8 million a year at GBP30 million per annum.
The net present value of pension deficit contributions could shrink by as much as 45% to between GBP175 million and GBP185 million from the current amount of between GBP300 million and GBP320 million.
Premier Foods would also make an approximately GBP4 million saving annually on scheme expenses and see a "substantial improvement to the position of the Premier Foods schemes".
Chair Colin Day said: "The segregated merger of the company's pensions schemes we are announcing today represents a ground-breaking agreement which is set to unlock benefits and value for all stakeholders in the company, leveraging the strength of the RHM scheme and substantially improving the position of the Premier Foods schemes.
"With a buyout of the RHM scheme getting progressively closer, any resulting surplus would be transferred to the remaining schemes and therefore result in significantly reduced pension deficit cash contributions by the company in future years. The agreement we have reached follows extensive and highly collaborative discussions with all connected stakeholders, and marks a positive conclusion to the company's strategic review. The group will continue to pursue its successful branded growth model strategy, opening up further opportunities to deliver value in due course."
Definitive legal documentation with scheme trustees must still be agreed and implementation of the merger is set to take place by June end.
Premier Foods also provided a trading update, stating that its trading profit for its 2020 financial year, ended March 28, was "at the top end of market expectations". The firm noted that its fourth quarter continued to see the positive momentum from prior quarters and march volumes "rose sharply to fulfil increased consumer demand during the outbreak of Covid-19".
Consequently, fourth quarter sales were up by around 3.6% year-on-year and 11% in March alone. UK sales in particular were 7.3% higher in the fourth quarter and 15% higher in March.
"As outlined above, the group experienced a dramatic short-term peak in volumes across many of its categories during March. Volumes have started to reduce from the exceptional levels seen in March, although are still expected to continue to be higher than average patterns of demand. This reflects more meals being eaten at home than usual due to recent measures set out by HM Government and hence increased demand for the group's product ranges," Premier Foods added.
At the end of March, Premier Foods had more than GBP90 million of cash from operating activities on its balance sheet and its net debt to earnings before interest, tax, depreciation, and amortisation ratio was comfortably below its prior target of 3 times.
Further, Premier Foods has opted to draw down GBP85 million of its GBP176.6 million revolving credit facility. Thus its year-end cash should be more than GBP175 million with another GBP91.6 million available.
Premier Foods will post its preliminary annual results on May 14, though it has noted recent comments by regulators concerning annual reporting.
By Anna Farley; annafarley@alliancenews.com
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