UK: Northern Foods disposals support rejuvenation plan
Shares in Northern Foods gained in value in morning trade today (22 November) following the company's announcement that it has agreed to sell its speciality bread, pastry, cakes and four milling businesses to Vision Capital for GBP160m (US$305.41m).
In a Regulatory News Service statement, the company said the transaction is subject to approval from Northern Foods shareholders and is expected to close in January. Northern Foods said it expects to pay part of the proceeds into its principal UK pension scheme.
The sale includes Fletchers Bakeries, which supplies baked goods to retailers and food service customers, cake and dessert manufacturer Park Cake Bakeries, Chilled Pastry which produces brands such as Pork Farms and Bowyers, and Smiths Flour Mills. In the six months to 30 September, the businesses posted combined sales of GBP217.3m but generated profits of only GBP0.3m.
The disposals are in line with Northern Foods' restructuring plan, which was revealed in May after the company released a string of profit warnings. The company said it intends to sell off businesses constituting about 40% of its total sales in order to raise an estimated GBP200m. The sale of the units today coupled with the earlier sale of Northern Foods distribution business, NFT, will result in on-target proceeds of more than GBP200m after fees and expenses, the company confirmed.
"The early conclusion of this process, as a single transaction to Vision Capital, is very positive," chief executive officer Pat O'Driscoll. "We can now focus all our attention on our core categories to build a competitive and resilient Northern Foods."
Northern Foods plans to focus on core categories such as pizza, biscuits, ready meals, sandwiches and Christmas puddings, moving away from businesses producing own label goods for supermarkets to concentrate on its higher margin branded businesses.
Julian Mash, chief executive of Vision Capital said: "We are very pleased to have reached agreement with Northern Foods on the acquisition of this portfolio of businesses.
"We look forward to working with the management teams, investing in the businesses to enhance customer relationships and supporting them in realising their potential," Marsh added.
Following the announcement, UBS upgraded Northern Foods to 'buy' from 'neutral'. The brokerage said that the upgrade reflected signs of operational improvements seen in last week's interim results along with the progress the company has made in its recovery plan. UBS raised Northern Foods' price target to 120 pence from 90 pence.
While the bank noted shares in Northern Foods were up 15% last week, UBS analysts wrote: "we see further upside on our analysis of an improvement in the operational performance in Chilled and disposal proceeds funding Northern as a 'consolidator' in key categories including sandwiches, salads and pizza."
Shares in Northern Foods were up 6.34% in morning trade today, rising to 109 pence at time of press.
Companies: Northern Foods
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