Campos family-led food and beverage conglomerate Del Monte Pacific Ltd. (DMPL) has sealed crucial deals to sell four out of its 10 factories in the US and is now evaluating options to refinance about $1.4 billion worth of loans of its American consumer arm.
In a disclosure to the Philippine Stock Exchange on Tuesday, DMPL said this “asset light strategy” should improve the cash flow margin of American unit Del Monte Foods Inc. (DMFI) by $50 million to $60 million, or about 225 to 275 basis points, over the next 24 months.
DMFI completed the sale of its Cambria, Wisconsin, operations and related employees to Seneca Foods Corp.
It also entered into an agreement to sell its production facilities in Sleepy Eye, Minnesota and Mendota, Illinois and expects the closure and sale of these facilities to be completed during the fourth quarter of 2020.
DMFI has also sold equipment at its Crystal City, Texas facility and is considering additional proposals to sell the remaining assets in this facility.
“Production at rationalized facilities is being transitioned to other DMFI production facilities in the US as well as to strategic co-packers. These divestitures will enable DMFI to significantly improve capacity utilization at the remaining plants in its production network,” the company said.
“While DMFI’s asset light strategy has been a complex undertaking, it has been a critical step in repositioning DMFI for the future,” it added.
DMPL said a portion of these improved cost savings would be reinvested in the growth and expansion of DMFI’s brands. In particular, DMFI is heeding a growing consumer demand for convenient, healthy and tasty plant-based foods. The unit is seen expanding its brands beyond center store grocery into higher-growth categories such as frozen, produce and deli, and expanding its presence within the foodservice, convenience store and club store channels.
The ongoing initiatives are already showing a “positive impact” on full-year 2020 results and DMFI is on track to exceed recurring cash flow targets for this financial year, the disclosure said.
For the six-month period ending October, the first half of 2020 fiscal year, the group said DMFI’s recurring cash flow as measured by earnings before interest, taxes, depreciation and amortization (Ebitda) is expected to increase by 35 to 40 percent year-on-year and is expected to outperform DMFI’s internal plan.
The group said it was now finalizing the amount of one-off expenses to be booked in its results for the second quarter ending October 2019, which are to be released on Dec. 11 this year.
“Most of these one-off costs are non-cash expenses, mainly asset write-downs arising from the sale and closure of DMFI’s plants, and will not impact cash flow. As a result of such non-recurring expenses, the group is expected to report a loss in the second quarter. However, the group’s core earnings, on a recurring basis, are expected to be positive and higher than last year,” the disclosure said.
In 2014, DMPL made the bold move of acquiring the US consumer food business of Del Monte Foods for $1.675 billion, thereby breaking into the US market and reuniting with its US mother brand. This transformed DMPL into a bigger multinational corporation but because it bought a company much bigger than itself, DMPL incurred more debt.
The existing loan facilities which the group intends to refinance are as follow: $442.5 million asset-based loan facility; $670 million first lien term loan; and $260 million second lien term loan, which will mature in November 2020, February 2021, and August 2021, respectively.
The group has continued to support the capital structure requirements and debt-reduction efforts of DMFI, including the purchase, over the last 20 months, of around $231 million of worth of DMFI’s second lien term loan. —DORIS DUMLAO ABADILLA