The sale includes the UK’s leading brand of ethnic flour Elephant Atta plus Elephant Chakki Gold and Fassal manufactured and packed mainly at the group's mill in Southampton.
City analyst Panmure Gordon, which predicted the sale in May, described it as “a small but perfectly formed acquisition” for ABF. “It is acquiring the UK’s leading brand of ethnic flour, an ideal fit with its Westmill Foods business, which is a leading supplier of ethnic foods to ethnic retailers and wholesalers.”
The business generated sales of £17.8M last year with earnings before interest, tax, depreciation and amortisation (EBITDA) of £6.4M.
Very attractive price
The price of £34M cash equates to 1.9 x sales and 5.3 x EBITDA, said Jones. “It’s a very attractive price … for a category leading brand with high margins,” he added.
But the sale does little to help Premier reduce its gearing (ratio of owner’s capital to debt) - which, after two recent disposals, remains at 4.9x, said Panmure. “We moved our recommendation from sell to hold after the share price fall … but we do believe these two deals highlight just how difficult it is going to be for Premier to reduce its gearing.”
In June Premier sold its vinegar and sour pickles business to Japan-based Mizkan for £41M. For more on the sale, click here.
The Elephant sale continues Premier’s strategy of divesting non core businesses to cut its debt burden and to focus on its eight power brands.
Power brands
Michael Clarke, ceo, Premier Foods said: “We are continuing to deliver on our growth strategies, growing our Power Brands, divesting selected, non-core businesses and reducing costs on track with our plans.
“The Elephant Atta brands are great brands that I’m sure will benefit from being part of Westmill Foods.”
Premier’s eight power brands are Batchelors, Bisto, Ambrosia, Hovis, Loyd Grossman, Mr Kipling, Oxo and Sharwoods.
George Weston, ABF chief executive, said: “Elephant Atta is the UK’s leading ethnic flour brand and will complement Westmill’s other leading ethnic brands including Tolly Boy rice, Rajah spices, Lucky Boat noodles and Patak’s pastes and sauces.”
The sale requires regulatory approval and until that is received Premier will continue to mill and package flour. After approval, flour manufacturing will be moved to ABF’s Tilbury site, which should generate synergies.
Westmill Foods’ product range includes high quality rice, spices, sauces, oils, flour and noodles. It sells to ethnic wholesalers as well as cash and carry, mainstream foodservice and the grocery multiples.
To read Panmure’s predictions made in May of which Premier businesses would be sold first, click here.