Premier Foods plc · LSE:PFD
Premier Foods — H1 2010 Earnings Presentation
55 slides from Premier Foods's earnings presentation, Aug 4, 2010
Slide 1: Results for the Half Year to 26 June 2010
Premier Foods Results for the Half Year to 26 June 2010 Wednesday 4 August 2010 1
Slide 2: Forward looking statements
Certain statements in this presentation are forward looking statements. By their nature, forward looking statements involve a number of risks, uncertainties or assumptions that could cause actual results or events to differ materially from those expressed or implied by those statements. Forward look
Slide 3: Robert Schofield, Chief Executive Officer
Robert Schofield Chief Executive Officer 3
Slide 4: Agenda
Agenda • Robert Schofield – Highlights • Jim Smart – Financial performance • Robert Schofield – Trading review – Outlook 4
Slide 5: 2010 H1 Highlights
2010 H1 Highlights • Brands are trading well in tough conditions – Sales1 up 0.5% in value and 3.5% in volume – Drive brand sales1 up 3.2% in value and 5.2% in volume • Q2 improved branded performance – Q2 branded sales growth of 1.3% v Q1 decline of 0.3% • Gaining branded market share2 - up 0.5% to
Slide 6: 2010 H1 Highlights
2010 H1 Highlights • Gross profit margin up 60bp reflecting delivery of strategy: – Improved product mix – Procurement savings – Manufacturing efficiencies • Trading profit1 down £7m to £110m – Additional £5m pension costs – £2m more restructuring costs than H1 2009 – Additional £4m consumer marketi
Slide 7: Jim Smart, Chief Financial Officer
Jim Smart Chief Financial Officer 7
Slide 8: Summary Group Profit and Loss
Summary Group Profit and Loss £m 2010 H1 2009 H1 % Branded sales 790 786 0.5 Non-branded sales 421 482 (12.7) Total pro forma sales for 6 months to 30 June 1,211 1,268 (4.5) Reported sales (1 Jan to 26 June 2010/27 June 2009) 1,183 1,248 (5.2) Gross profit 353 364 (3.0) Gross margin % 29.8% 29.2% +6
Slide 9: Summary Group Profit and Loss
Summary Group Profit and Loss £m 2010 H1 2009 H1 Operating profit 67 27 Net regular interest (77) (78) Other interest (44) 21 Loss before tax (54) (30) Tax credit 14 7 Loss after tax (40) (23) Basic loss per share from continuing operations (1.7) (1.3) (pence) Adjusted profit before tax (£m) 33 39 A
Slide 10: Group Gross Margin
Group Gross Margin 33% 32% 2.1% (1.5%) 31% 29.8% 30% 29.2% 29% 28% 2009 H1 Gross margin Branded growth / mix / Price / commodity inflation / 2010 H1 Gross margin efficiency promos • Branded growth / mix / efficiency: Improved product mix and increased efficiency in procurement and manufacturing. • P
Slide 11: Operating Expenses
Operating Expenses 260 £m 4 (7) 247 243 250 (1) 240 230 2009 H1 Consumer & In-store Distribution Administration 2010 H1 Marketing • Increased in-store marketing spend has supported market share gains • Distribution costs down 6.2% • Admin costs reductions have offset additional pension and restructu
Slide 12: Group Trading Profit
Group Trading Profit 120 117 (5) £m 116 (2) 112 110 (4) 4 110 108 104 100 2009 H1 Pension Restructuring 2009 H1 Additional Other profit 2010 H1 Trading profit charges phasing adjusted for marketing development Trading profit pensions and costs phasing of R&I costs • As guided – 2009 benefited from l
Slide 13: Grocery Trading Profit
Grocery Trading Profit 120 £m 11 (10) 5 (6) 100 (3) 100 (4) 4 92 (5) 80 Other admin Procurement Marketing Restructuring Volume/mix Manufacturing Pension Trading profit Pricing net of & investment Trading profit expenses charges cost inflation promotions, 2009 H1 2010 H1 costs costs • Volume/mix – lo
Slide 14: Hovis Trading Profit
Hovis Trading Profit 20 £m 11 15 15 10 (14) 10 8 5 0 -5 2009 H1 Trading Volume / mix Cost & pricing Investment, 2010 H1 Trading profit distribution & profit administration • Reduced non-branded bakery and milling volumes, partly offset by mix benefits, reduced gross profit by £14m • Lower input cost
Slide 15: Cash Flow
Cash Flow £m 2010 H1 2009 H1 Last 12 Months Trading profit 110 117 302 Depreciation 25 26 51 Other non-cash recurring items 3 2 4 Interest (49) (72) (129) Taxation (1) 1 (1) Additional pension cash flows (28) (34) (46) Regular capital expenditure (35) (54) (64) Working capital (23) (69) 11 Recurring
Slide 16: Financial Obligations
Financial Obligations £m 2010 H1 2009 H1 Gross borrowings 1,380 1,495 Deferred issuance costs (15) (20) Net debt 1,365 1,475 12 month rolling EBITDA 354 Net debt / EBITDA 3.86x Average bank borrowings 1,517 Debtors securitisation 90 Average debt 1,607 Average debt / EBITDA 4.54x 2010 H1 Dec 2009 Pen
Slide 17: Refinancing Provided Stability; Next Stage - Financial Strategy
Refinancing Provided Stability • Equity issue reduced absolute debt level • Amendments to bank facility gave significant covenant headroom and extended duration to 2013 • Pension deficit contributions agreed until 2014 • Although debt is still high, we can service our financial obligations • ... but
Slide 18: Financial Strategy: Cut Indebtedness
Financial Strategy Cut Indebtedness • Reduce Average debt / EBITDA from current 4.54 times • Target Average debt / EBITDA less than 3.25 times in medium term • Achieved by – Growing EBITDA – Paying down debt by at least £100m p.a. • Open minded to disposals if they deliver value and accelerate lever
Slide 19: Financial Strategy: Reduce Financial Risks - Swaps
Financial Strategy Reduce Financial Risks - Swaps • Total mark to market £242m (gross) • Non-economic hedge element £151m • Consists of: – Long dated swaps – Digital swaps – Other financial instrument • Current additional interest £22m p.a. • Risk of interest rate movements • Reduce risk to make cos
Slide 20: Financial Strategy: Reduce Financial Risks - Pensions
Financial Strategy Reduce Financial Risks - Pensions • Proposal to close to new starters and move to career average for current employees – Competitive employment package – Similar P&L cost – Significantly reduce the rate at which pension liability grows • Reduce risk and volatility to deficit throu
Slide 21: Financial Strategy: Diversify Sources & Maturity of Funding
Financial Strategy Diversify Sources & Maturity of Funding • Financing agreed to 2013 • Diversify sources – risk of non-availability reduced • Diversify maturity dates – avoids need to have all financing replaced at same time • Underlying strength of cash flows makes this aim achievable 21
Slide 22: Conclusion
Conclusion • Comprehensive disclosure of financial position • Cash flow is strong and can service financial obligations • Financial position is secure • Addressing swap and pension risks • Achievable medium term target debt level • Disposals will be considered to accelerate achievement Prospect of m
Slide 23: Robert Schofield: 2010 H1 Performance
Robert Schofield Chief Executive Officer 2010 H1 Performance 23
Slide 24: What Is Happening In Our Markets?
2010 What Is Happening In Our Markets? 24
Slide 25: Total Grocery Market
Total Grocery Market Grocery Market Movement – 2010 H1 vs 2009 H1 Total annual value of market £66.4bn Value Growth Volume Growth 2.4% 2.1% 1.9% 1.7% 1.6% 1.1% Brands Retailer Total Retailer Total brands market Brands brands market Total Grocery Market In Broad Low Level Growth Source: TNS Worldpane
Slide 26: Performance In Our Categories
Performance In Our Categories Total annual value of our categories £7.6bn Market Volume (1.0%) +0.9pp Volume +0.5pp (1.5pp) Market Share H1 2010 vs H1 2009 % Movement Premier Brands All Other Brands Retailer Brand Market Value (0.9%) Value Market Share (0.3pp) (0.3pp) H1 2010 vs H1 2009 % Movement +
Slide 27: Promotional Activity Across The Market
Promotional Activity Across The Market Has Increased During The Recession… 34 33 2010 LTM Proportion of total market sales on promotion (%) 32 average: 31.8% 31 30 2009 average: 30.4% 29 28 2008 average: 27 28.1% 26 25 24 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 200
Slide 28: Branded Pro Forma Sales Performance
Branded Pro Forma Sales Performance Q1 2010 v Q1 2009 Q2 2010 v Q2 2009 H1 v H1 2009 £m % £m % £m % Grocery 265 (0.4) 266 2.7 531 1.1 Hovis 94 1.6 99 (1.5) 193 0.0 Chilled 33 (4.7) 33 (1.1) 66 (2.9) Total Branded 392 (0.3) 398 1.3 790 0.5 • Sales growth improving in Grocery and Meat-free • Branded b
Slide 29: Non-branded Pro Forma Sales Performance
Non-branded Pro Forma Sales Performance Q1 v Q1 2009 Q2 v Q2 2009 H1 v H1 2009 £m % £m % £m % Grocery 95 (7.3) 93 (4.6) 188 (6.0) Hovis 73 (20.7) 71 (24.5) 144 (22.6) Chilled 46 (9.8) 43 (4.4) 89 (7.3) Total non-branded 214 (12.9) 207 (12.4) 421 (12.7) • Sales decline improving in Grocery and Chille
Slide 30: Pro Forma Group Sales
Pro Forma Group Sales Branded growth of £4m Non-branded down £61m 1300 1,268 £m 6 (2) (12) (42) 1280 0 1260 1240 (7) 1,211 1220 1200 2009 H1 Grocery Hovis Chilled Grocery Hovis Chilled 2010 H1 Sales Sales • Group sales decline of 4.5% due to non-branded down 12.7% – Grocery non-branded – Total £12m
Slide 31: Branded Sales Growth
Branded Sales Growth Sales H1 Growth y-o-y H1 Growth y-o-y Brand % Volume • Drive brands grew 3.2% in £m % Value value and 5.2% in volume, Loyd Grossman 21 0.0 Sharwood’s 32 6.7 compared to market volume Mr. Kipling 62 3.3 decline of 1.7% Ambrosia 39 5.4 Hartley’s 29 16.0 • Core brands grew 1.7% in
Slide 32: Strategic Development
Strategic Development • Targets set out at prelim results in February H1 2010 Premier Market Drive brands growing volumes 1-2% ahead of market 5.2% (1.7%) 9 Core brands growing volumes in line with market 4.0% (1.0%) 9 Defend brands growing volumes in line with market 0.1% 0.2% 9 Retailer brand grow
Slide 33: Grocery
Grocery £m 2010 H1 2009 H1 YoY % Pro forma sales Branded UK 481 470 2.3 Ireland 50 55 (9.1) Non-branded 188 200 (6.0) Total 719 725 (0.8) Trading profit 92 100 (8.0) Branded sales % 74% 72% • Sales – Good branded growth in UK: Drive brands up 5.7% and Core brands up 1.7% – Sales growth of 0.7% in Q2
Slide 34: Brand Developments
Brand Developments Ambrosia – Sales up 5.4% Branston – Sales up 6.1% • New flavour Crumble Puds • New Chakalaka Relish • New flavour Jelly Puds • New Pesto and Peri Peri Mayo Sharwoods – Sales up 6.7% • New Udon noodles • New Chow Mein Sauce New Loyd For One sauces Hartley’s – Sales up 16.0% • New s
Slide 35: Great Little Ideas
Great Little Ideas • What are Great Little Ideas? – A series of hints and tips for our favourite brands in a range of simple recipes to help consumers break out of standard meal repertoire boredom – Communicated on TV, on-pack, in-store and through a GLI website – New brand and logo, cutting across
Slide 36: Hovis
Hovis £m 2010 H1 2009 H1 YoY % Pro forma sales Branded bakery 183 181 1.1 Non-branded bakery 74 100 (26.0) Milling 80 98 (18.4) 337 379 (11.1) Trading profit 15 10 50.0 Branded sales % 57% 51% • Hovis brand market share solid at 24.8%1 • Hovis branded bread volumes up 5.1% on H1 2009 • Non-branded b
Slide 37: The Hovis Story – Improving the Branded Mix In Bread
The Hovis Story – Improving the Branded Mix In Bread Hovis Branded Hovis Branded 60% 75% • Q1 2008 • H1 2010 • Total volume 58k sacks per week • Total volume 59k sacks per week • Hovis branded 35k • Hovis branded 44k • Own label 19k • Own label 12k • Other brands 4k • Other brands 3k • We have moved
Slide 38: Value Share Of Pre-packaged Bread, Total Grocery Outlets
Value Share Of Pre-packaged Bread, Total Grocery Outlets Value Market Share % - Grocery Outlets 35% 32.8% 30% Hovis relaunch Value Brand Share % 25% 24.9% 20% 19.0% 15% 11.9% 10% 4 w/e 17 Jun, 4 w/e 9 Sep, 06 4 w/e 2 Dec, 06 4 w/e 24 Feb, 4 w/e 19 May, 4 w/e 11 Aug, 4 w/e 3 Nov, 07 4 w/e 26 Jan, 08
Slide 39: Hovis 2010 – Continuing to Build Brand Equity
Hovis 2010 – Continuing to Build Brand Equity • 100% British Wheat • 3 year partnership with • Hearty Oats Loaf – £5m marketing campaign Olympic Gold Medallist – 50% Oats Victoria Pendleton – Can help maintain – Our biggest ever TV burst from 12th February – Wholemeal Challenge cholesterol levels –
Slide 40: Chilled
Chilled £m 2010 H1 2009 H1 YoY % Sales Brookes Avana 89 96 (7.3) Meat-free 66 68 (2.9) Total 155 164 (5.5) Trading profit 3 7 Branded sales % 43% 41% • Brookes Avana: – Lower sales due to reduced promotional activity – Market remains very competitive • Meat-free: – Lower sales due to reduced consume
Slide 41: 2010 Outlook
2010 Outlook • Continuation of tough consumer and competitive environment • Input cost inflation rising again • Despite these developments, and absent any further adverse change, we continue to expect to make further progress 41
Slide 42: Summary
Summary • Branded development continues • Total sales decrease due to decline of low value non-branded sales • Cost and efficiency savings in line with strategic objectives • Cash generation and debt reduction on target • Financial strategy: – Reduce financial risks from swaps and pensions – Diversi
Slide 43: The Best in British Food with Brands You Really Love
The Best in British Food with Brands You Really Love 43
Slide 44: Appendices
Appendices 44
Slide 45: Definitions
Definitions Trading profit is defined as operating profit from continuing operations before exceptional items, amortisation of intangible assets, the revaluation of foreign exchange and other derivative contracts under IAS39 and pension credits or charges in relation to the difference between the ex
Slide 46: Value Share Of Pre-packaged Bread, Major Multiples Outlets
Source: IRI Major Multiples, 4 week value Share of pre-packaged bread in major multiple retailers 46 29.0% 27.7% 18.7% 14.4% 4 w/e 15 May, 10 4 w/e 20 Mar, 10 4 w/e 23 Jan, 10 4 w/e 28 Nov, 09 Value Share Of Pre-packaged Bread, 4 w/e 3 Oct, 09 Own Label 4 w/e 8 Aug, 09 4 w/e 13 Jun, 09 4 w/e 18 Apr,
Slide 47: Volume Share of Pre-packaged Bread, Total Grocery Outlets
Source: IRI Total Grocery Outlets, 4 week volume share of pre-packaged bread in Total Grocery Outlets 47 28.0% 25.3% 19.4% 16.4% 4 w/e 12 Jun, 10 4 w/e 17 Apr, 10 4 w/e 20 Feb, 10 Volume Share of Pre-packaged Bread, 4 w/e 26 Dec, 09 Own Label 4 w/e 31 Oct, 09 4 w/e 5 Sep, 09 Total Grocery Outlets 4
Slide 48: Interest Charges
Interest Charges £m 2010 H1 2009 H1 Net debt interest 31 48 Securitisation interest 1 1 Swap contract interest – matching 27 20 Amortisation and deferred fees 7 5 Normal interest charge 66 74 Swap contract – additional interest 11 4 Regular net interest charge 77 78 Unwind of provision discount 1 -
Slide 49: Taxation
Taxation • P&L credit for half year of £14.1m on loss on continuing activities; a rate of 25.9% impacted by: – Adjustments for share based payments that are not allowable for tax – Differing rates of taxation applied to overseas results. • Cash tax rates expected to be minimal: – Reduced by: – Capit
Slide 50: Earnings Per Share
Earnings Per Share £m 2010 H1 2009 H1 % Trading profit 110 117 (6.0) Regular interest (77) (78) 1.3 Adjusted profit before tax 33 39 (15.4) Tax at 28% (9) (11) (18.2) Adjusted profit after tax 24 28 (14.3) Adjusted eps 1.0 1.6 (37.5) Average shares in issue (millions) 2,398.0 1,743.9 Pro forma adjus
Slide 51: Pension Valuation And Assumptions
Pension Valuation And Assumptions Pension Deficit (£m) Jun 2010 Dec 2009 Assets 2,644 2,530 Liabilities (3,075) (2,959) Gross deficit (431) (429) Deferred tax 119 119 Net deficit (312) (310) Assumptions Jun 2010 Dec 2009 Discount rate 5.5% 5.8% Inflation (derived) 3.3% 3.5% Expected salary increases
Slide 52: Swap Instruments
Swap Instruments Instrument Type Nominal Interest H1 2010 Maturity MTM Value £m £m £m Matching Additional Matching Additional Total Conventional swap 50 3 - May 2013 (3) - (3) Cap & collar swaps 350 9 - Jun 2012 (32) - (32) Long dated swaps 150 3 - 2023 (13) (20) (33) Long dated swaps 250 6 - 2037 (
Slide 53: Covenants
Covenants £m 2010 H1 Covenant Net debt 1,366 Covenant EBITDA 364 Covenant Interest 138 Net debt / EBITDA actual 3.75 Net debt / EBITDA maximum 4.50 Net debt / EBITDA headroom % 17% EBITDA / Interest actual 2.64 EBITDA / Interest minimum 2.25 EBITDA / Interest headroom % 17% 53
Slide 54: Balance Sheet
Balance Sheet £m Jun 2010 Dec 2009 Fixed assets Property, plant & equipment 621 635 Intangibles / goodwill 2,450 2,480 Total fixed assets 3,071 3,115 Working capital Stock 217 214 Debtors 320 347 Creditors (425) (485) Total working capital 112 76 Net debt Gross borrowings (1,380) (1,383) Debt issuan
Slide 55: Cash Flow
Cash Flow £m 2010 H1 2009 H1 Cash flow pre non-recurring items 2 (83) Operating exceptional cash costs (4) (20) Integration capital expenditure - (2) Operating cash flow (2) (105) Disposal proceeds 4 54 Net equity proceeds - 380 Financing fees, discontinued operations & other (2) (37) non-cash Movem