Premier Foods Plc · LSE:PFD
Premier Foods — H1 FY2015/16 Earnings Presentation
45 slides from Premier Foods's earnings presentation, Nov 10, 2015
Slide 1: Half Year results for 26 weeks ended 3 October 2015
Half Year results for 26 weeks ended 3 October 2015 10 November 2015
Slide 2: Return to branded sales growth in H1
RETURN TO BRANDED SALES GROWTH IN H1 Brand investment is core to our category strategy +1.6% +22%1 +8.4% +22% Announcing the Q2 Branded H1 International H1 Trading H1 Adjusted Paul Hollywood sales growth sales growth profit growth eps growth brand Clear demonstration of strategy delivery 1 – Constan
Slide 3: Alastair Murray, Chief Financial Officer
Alastair Murray Chief Financial Officer 3
Slide 4: Trading profit increased 8.4%
TRADING PROFIT INCREASED 8.4% Up 2.4% excluding timing of consumer marketing £m FY16 H1 FY15 H1 Change (%) Q2 Change (%) Branded sales 307 307 +0.1% +1.6% Non-branded sales 34 33 +3.7% +10.6% Total sales 341 340 +0.4% +2.4% Divisional contribution 68 65 5.1% Group & corporate costs (17) (18) +3.3% T
Slide 5: Return to branded sales growth in Q2
RETURN TO BRANDED SALES GROWTH IN Q2 Demonstrates the strategy is working FY15 FY16 Q1 Q2 Q3 Q4 Q5 Q1 Q2 +1.6% (0.0%) (1.4%) (4.3%) (4.4%) (5.8%) (7.9%) - Trend adjusted for effect of early Easter in 2015 FY15 Q1-Q4 trends re-stated to reflect commercial costs re-alignment 5
Slide 6: Grocery
GROCERY £m FY16 H1 FY15 H1 H1 Change (%) Q2 Change (%) Branded sales 226 225 +0.6% +3.1% Non-branded sales 21 22 (2.4%) +5.6% Total sales 247 247 +0.3% +3.3% Divisional contribution 61 60 +1.2% Divisional contribution % 24.6% 24.4% +0.2ppt Branded sales momentum built during the period; Q2 branded
Slide 7: Sweet Treats
SWEET TREATS £m FY16 H1 FY15 H1 H1 Change (%) Q2 Change (%) Branded sales 80 81 (1.3%) (2.6%) Non-branded sales 14 12 +15.2% +18.7% Total sales 94 93 +0.8% +0.2% Divisional contribution 7 5 54.2% Divisional contribution % 7.8% 5.2% +2.6ppt Branded sales in Q2 lower due to promotional phasing and c
Slide 8: Operating profit
OPERATING PROFIT £m FY16 H1 FY15 H1 Underlying business Trading profit 51 47 Less: previous disposals (1) (1) Continuing operations Trading profit 50 46 Amortisation of intangible assets (19) (19) Foreign exchange fair value movements 1 (0) Restructuring costs relating to disposal activity (2) (4) N
Slide 9: Adjusted earnings per share
ADJUSTED EARNINGS PER SHARE Significantly ahead of prior year £m FY16 H1 FY15 H1 Change (%) Trading profit1 51 47 8.4% Net regular interest (23) (24) 4.7% Adjusted PBT 28 23 21.6% Notional tax @ 20.0%/ 21.0% (6) (5) (15.9%) Adjusted earnings 22 18 23.2% Weighted average shares in issue (million) 825
Slide 10: Net debt in line with expectations
NET DEBT IN LINE WITH EXPECTATIONS Stronger cash flows expected in H2 reflecting seasonality £m 600 585 3 1 585 51 14 580 21 560 14 540 8 6 520 500 Net debt Trading profit Depreciation Pensions Capex Interest Working Restructuring Other Net debt 4 April 2015 capital 3 Oct 2015 Net debt in line wit
Slide 11: Improved pension deficit
IMPROVED PENSION DEFICIT Combined schemes includes RHM surplus offset by Premier Foods deficit; lower deficit due to increased discount rate IAS19 Accounting valuation (£m) 3 October 2015 4 April 2015 Assets 4,118 4,248 Liabilities (4,151) (4,460) Deficit (33) (212) Deficit net of deferred tax (Tax
Slide 12: Focused on organic de-leveraging
FOCUSED ON ORGANIC DE-LEVERAGING FY16 guidance £m Working capital Neutral to slightly negative Depreciation c.£16m Capital expenditure c.£25m Interest – cash £40-£43m Interest – P&L c.£45m Tax – cash Nil Tax – notional P&L rate 20.0% Pension deficit contributions £6m Pension administrative & PPF lev
Slide 13: Gavin Darby, Chief Executive Officer
Gavin Darby Chief Executive Officer 13
Slide 14: Industry backdrop is well documented
INDUSTRY BACKDROP IS WELL DOCUMENTED Grocery volume growth momentum while deflation persists Inflation/(Deflation) Volume 3.0 3.0 % % +1.9% 0.0 (1.7%) (3.0) 0.0 Jul 2014 Sep 2015 Jul 2014 Sep 2015 Market volume growth now prevalent for c. twelve months Deflationary environment evident across bro
Slide 15: Return to branded sales growth in Q2
RETURN TO BRANDED SALES GROWTH IN Q2 Demonstrates the strategy is working FY15 FY16 Q1 Q2 Q3 Q4 Q5 Q1 Q2 +1.6% (0.0%) (1.4%) (4.3%) (4.4%) (5.8%) (7.9%) - Trend adjusted for effect of early Easter in 2015 FY15 Q1-Q4 trends re-stated to reflect commercial costs re-alignment 15
Slide 16: We continue to deliver category growth
WE CONTINUE TO DELIVER CATEGORY GROWTH Category Volume Sales Share +8% +5% +0.9ppt Flavourings & Seasonings +1.6% +1% +3% +0.2ppt +15% +9% +1.2ppt Cake +2.0% +14% +11% +0.6ppt Total Categories +1.2% +5% +2% +0.2ppt Source: Kantar Worldpanel, 52 w/e 13 September 2015 16
Slide 17: Demonstrable return on marketing & innovation
DEMONSTRABLE RETURN ON MARKETING & INNOVATION FY16 H1 Household Marketing & Innovation Programme Volume & Sales growth penetration1 Bisto +1.7ppts Oxo +0.5ppts Mr. Kipling +4.1ppts Cadbury +4.7ppts Volume Sales 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 1 - Kantar Worldpanel, 52 w/e 13 September 2015 17
Slide 18: Innovation and brand investment
INNOVATION AND BRAND INVESTMENT Doubling of innovation rate since FY14; marketing H2 focused Sales from innovation FY16 Consumer marketing £36-38m 36-38 33 25 H2 H1 2013/14 2014/15 2015/16 Source: IRI, 52 w/e 3 October 2015 18
Slide 19: Utilising a broad suite of marketing tools
UTILISING A BROAD SUITE OF MARKETING TOOLS Increased media efficiency and targeted marketing Increased TV efficiency Sampling Partnership Sponsorship • Improved cost per TVR • 1 million Bisto ‘Made • 13 million reach • Loyd Grossman 4 • Testing day-time Simple’ across print & digital month Food Netw
Slide 20: The latest Bisto Together project
THE LATEST BISTO TOGETHER PROJECT Spare Chair Sunday: Campaign to unite communities 20
Slide 21: Premiumisation building across portfolio
PREMIUMISATION BUILDING ACROSS PORTFOLIO Superior products based on consumer needs allows premium pricing Ambrosia Batchelors Mr Kipling Premium /serving +28% +25% +107% % 21
Slide 22: Accelerated Grocery innovation
ACCELERATED GROCERY INNOVATION Rooted in deep consumer insights Convenience Foodieness Indulgence Health • Busy lives • Wet vs dry formats • Quality • Reduced salt/sugar • Cooking times reduced • Scratch cooking • Permissible treats variants • Home-made, made • Real ingredients • Delicious ingredien
Slide 23: Paul Hollywood - first new brand in 20 years
PAUL HOLLYWOOD - FIRST NEW BRAND IN 20 YEARS Exciting new partnership to revitalise Homebaking category Homebaking category worth £387m1 per annum 5th category for Grocery business - an historically under-invested category Unique range of 12 bread, savoury and sweet baking mixes for Q4 launch
Slide 24: Major Sweet Treats innovation programme
MAJOR SWEET TREATS INNOVATION PROGRAMME Rooted in deep consumer insights Togetherness Reward Snacking Nutrition • Care and share • End of day reward • Quick top up • Sustained energy • Shared indulgence • Lunchtime treat • Resourceful snack • Good start to the day • Mood lift • Sweet finish • Simple
Slide 25: Sweet Treats development
SWEET TREATS DEVELOPMENT Move to a higher margin, multi-channel business progressing well Margin development Retailer brand Cake on the go Capex H1 sales Double-digit +15.2% DC margin % accelerated 1. DC margin 7.8% in 1. Positive benefits 1. Recent capex 1. Major £7m H1 from improved provides pack
Slide 26: Sweet Treats - health & nutrition
SWEET TREATS - HEALTH & NUTRITION Cake in Context • Consumers view cake as a treat 106 140 230 calories calories calories • Sugar has important structural function as well as sweetness • Sugar replacement technologies at early stage of development Positive Approach • Reformulating to reduce calories
Slide 27: International sales up 22% in H1
INTERNATIONAL SALES UP 22%1 IN H1 Australia strong growth; USA exciting cake trial; people investment Australasia USA People +74% x 9 → 27 H1 Sales Increased growth listings 1. Exciting new cake trial with major retailer in USA • Significant increase in 2. Apple, Fruit and team since 2014 Mississipp
Slide 28: Ireland sales up 7.5% in H1
IRELAND SALES UP 7.5%1 IN H1 Ireland growing strongly and ahead of a flat market 2.7% +7.5%1 Cake Cooking Gravy & Desserts Total Sauces Stock Ireland market Premier Foods Q2 Sales Q3 TV Growing ahead of the market2 growth advertising 1 – Constant currency, 2 – 52 w/e September 2015 AC Nielsen and Ka
Slide 29: Delivering growth in all channels
DELIVERING GROWTH IN ALL CHANNELS 16.4% 13.0% Outgrew market in H1 11.4% Market 8.0% Premier Foods 3.7% 2.5% 0.9% 1.4% (0.3%) (1.7%) Supermarkets Online Convenience Bargain stores Discounters Growth ahead of market Market size 2,214 208 314 176 233 (£m) Source – Kantar Worldpanel, 52 w/e 1
Slide 30: Category review dynamics
CATEGORY REVIEW DYNAMICS Our category strategy fosters strong customer partnerships 43% 2012 2014 Market leading positions SKU reduction programme Well placed to work in close partnership with major customers Category captaincy Innovation programme 30
Slide 31: People strategy progressing well
PEOPLE STRATEGY PROGRESSING WELL Attracting high calibre senior talent; employee survey results Recent senior management recruits Employee survey Grocery Grocery Sweet Treats International Finance Operations Marketing Sales Director Director Director Director 84% High participation Brand Brand Brand
Slide 32: Exciting innovation programme for H2
EXCITING INNOVATION PROGRAMME FOR H2 Rooted in deep consumer insights Grocery Sweet Treats 32
Slide 33: Summary and outlook
SUMMARY Branded sales growth +1.6% in Q2 Trading profit increase +8.4% in H1 International results encouraging Our investment strategy is delivering OUTLOOK Expect Group Branded sales to be positive in Q3, with Sweet Treats anticipated to perform more strongly than Grocery FY16/17 sales
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Slide 35: Appendix
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Slide 36: Cautionary statement
CAUTIONARY STATEMENT 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 sta
Slide 37: Definitions
DEFINITIONS The period ‘FY16 H1’ refers to the 26 weeks ended 3 October 2015. The period ‘FY15 H1’ refers to the 26 weeks ending 4 October 2014. Trading profit is defined as operating profit before, amortisation and impairment of intangible assets, fair value movements on foreign exchange and ot
Slide 38: Segmental comparatives
SEGMENTAL COMPARATIVES 52 Weeks to 4 April 2015 Q1 Q2 H1 Q3 Q4 FY £m (13 weeks) (13 weeks) (26 weeks) (13 weeks) (13 weeks) (52 weeks) Grocery Branded sales 112.4 112.6 225.0 160.1 123.4 508.5 Non-branded sales 11.3 10.3 21.6 11.3 10.3 43.2 Total sales 123.7 122.9 246.6 171.4 133.7 551.7 Divisional
Slide 39: Own label remains broadly flat in our categories
OWN LABEL REMAINS BROADLY FLAT IN OUR CATEGORIES +2.7% +0.1% +0.1% (0.1%) (1.9%) (1.7%) Cake Desserts Flavourings Sauces & Easy Total & Seasonings Accomps Eating Source: Kantar Worldpanel, 52 w/e 3 October 2015 39
Slide 40: A longer term and diversified capital structure
A LONGER TERM AND DIVERSIFIED CAPITAL STRUCTURE £m Raised £500m Senior Secured Notes in 350 FY14: – £325m Fixed notes @6.5% 300 – £175m Floating notes @5.0%+LIBOR 250 New £272m Revolving Credit Facility 200 – New and streamlined bank syndicate 150 Issued £340m net equity in FY14 100 Fixed pa
Slide 41: Interest and tax
INTEREST £m FY16 H1 FY15 H1 Senior secured notes interest 15 16 Bank debt interest 4 4 Securitisation interest 1 2 Cash interest 20 22 Amortisation and deferred fees 3 2 Net regular interest 23 24 TAX Deferred tax asset of £33m at 3 October 2015 (4 April 2015: £42m) Capital allowances in excess
Slide 42: Pensions - combined schemes
PENSIONS – COMBINED SCHEMES £m 3 Oct 2015 4 April 2015 Scheme Assets (£m) 3 Oct 2015 4 April 2015 Assets 4,118 4,248 Equities 379 349 Liabilities (4,151) (4,460) Government bonds 503 547 Deficit (33) (212) Corporate bonds 180 330 Deficit net of deferred tax (26) (167) Property 299 260 Absolute/Targe
Slide 43: Pension deficit schedule contributions
PENSION DEFICIT SCHEDULE CONTRIBUTIONS Restated to reflect financial year end change £m 2015/16 2016/17 2017/18 2018/19 2019/20 Deficit contributions 6 48 49 44 44 Administration costs 8-10 8-10 8-10 8-10 8-10 (including PPF levy) Total cash outflow 14-16 56-58 57-59 52-54 52-54 Table above shows
Slide 44: Pension deficit sensitivities
PENSION DEFICIT SENSITIVITIES Increase/ Increase/ Increase/ Pension sensitivities (reduction) in (reduction) in (reduction) in (IAS 19 basis, £m) assets liabilities deficit 25 basis point decrease in government gilts 165 182 17 25 basis point increase in credit spread - (170) (170) 25 basis point in
Slide 45: Balance sheet
BALANCE SHEET £m 3 October 2015 4 April 2015 Property, plant & equipment 187 183 Intangibles / Goodwill 1,159 1,174 Retirement assets 383 242 Investments & loans to associates 29 35 Deferred tax 33 42 Non-current Assets 1,791 1,676 Working Capital - Stock 83 69 - Debtors 125 124 - Creditors (219) (2