Premier Foods plc

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the premier first quarter one training update conference call. At this time, all participants will be in a listen-only mode. After the speaker presentation, there will be a question and answer session. At which time, if you wish to ask a question, you will need to press star and one in your telephone keypad. I'm not surprised that this conference is being recorded today. And I would now like to hand the conference over to first speaker, Mr. Alex Whitehouse. Thank you. Please go ahead.

Thank you and good morning everybody.

Thank you for joining the call for our quarter one trading update which covers the 13 weeks to the 27th of June 2020. I apologise for the slightly delayed start. It seems to have taken quite a long time to process everybody and get them on the call so we thought it was wise to wait until we got everybody but now we can press ahead. So I'll give a brief introduction to the first quarter trading and then we'll open the call to questions. I'm also joined on the call this morning by Duncan Leggett, our Chief Finance Officer who will also be around for answering questions. So overall our headline group sales for the 13 weeks to the 27th of June are in line with what we highlighted at our preliminary results five weeks ago. with sales increasing by 22.5% compared to the same quarter a year ago. Now, of course, we all know a large part of that sales growth is due to people cooking and eating the vast majority of their meals at home. Obviously, there have been very few opportunities for eating out of home over the last few months. However, I think aside from that effect, I think it's important to note that we were, in any case, expecting to continue to deliver good progress to our branded growth model strategy and maintaining the positive momentum from last year. But I'll come back to that shortly. is take a look at that 22.5% growth in the quarter and draw out a few of the key trends as to how different parts of the business have performed during what has obviously been a rather unusual quarter's trading. If we start with the branded grocery business, sales increased by 39.2% in the quarter and this of course is where we've seen the main impact from consumers eating most of their meals at home and that's resulted in much greater demand for our grocery brands. So some of the major brands actually delivered particularly high sales growth, so above that 39.2% average and I'd probably pull out OXO, Ambrosia and Sharwoods in that. And also our Mission Noodles which have seen very strong demand continuing and with sales more than doubling as consumers continue to enjoy the authentic missing sober and missing cup noodles. It's also interesting that the growth isn't just due to the same households consuming more of the same stuff, it's also a result of additional households buying into our brands and if you look at household penetration for our grocery brands over the quarter increased pretty sharply by 620 basis points back over the 12 weeks of the middle of June. So what that's saying is that over 6% more UK households bought into our brands than in the same quarter a year ago. So that's up from just under 69% to now 75% of all households, which for a quarter is a really high number. So again, a significant increase and it serves to indicate that we're seeing new consumers coming in and buying our brands and encouragingly this appears to be quite broadly based across the demographic spectrum. A really good example of that is our Sharwoods brand where we saw an additional 2 million new shoppers buying at least one of our Sharwoods products over the last 12 weeks. And Charles isn't alone. We saw similar trends across many of the brands with around 1.7 million new shoppers buying each of Ambrosia, Bisto, OXO and McDougall's flour. So it's very much across the board. So all these data points I think provide further evidence that as I said before in the prelim results a few weeks ago that Britain has got cooking again and consumers are expanding their repertoire of meals that they are preparing and eating at home and then including our brands in these new recipes and that's important because if these consumers continue to cook and enjoy those new recipes we might expect them to continue to use our brands in those recipes into the future. We also see this trend for trying new recipes in the sales of our new recently launched products. So you'll be aware we have a very aggressive NTD agenda and our new products actually accelerated faster than the core range, again reinforcing the fact that consumers have been looking to experiment and try new things during lockdown. You may recall actually last year we reached an innovation rate of 6.5%, so that's 6.5% of our branded sales being derived from new products and this year in quarter one that rate has risen quickly above 7% and that's again indicating the acceleration of the new products as people try different recipes. One of the product ranges that's actually particularly popular is the Cadbury Baking Mixers and that's obviously due to the recent trend for home baking and we have actually just launched a range of Cadbury Baking Mixers and also Mr Kitchen Baking Mixers at the back end of last year, so in the right place at the right time of day. But also our Sharwoods 30% lower fat cooking sauce range has also performed very well. And these low fat versions are actually part of a wider commitment. We've got to offer at least one healthy option within each of our core ranges. So it's really good to see those products performing well. Now while our categories have seen some very strong growth, in the first quarter for all the reasons that I've just highlighted. I'd also just like to point out that, again, just as we did last year, we've grown faster in all the categories that we play in. So consequently, we've gained market share in all those categories. In fact, actually around 200 basic points of market share gain in several of our key categories. And that's typically come at the expense of own label in those categories. And we believe this is due to, primarily due to two key factors. I mean, firstly, we have strong market leading brands and we've got great new products. And we've already discussed that those new products can be faster than the core business. But what's also been key over the last quarter is simply keeping our products in stock and on the shelf and available for shoppers to buy. And I think we've done a particular job on that front actually. You may remember I said at the beginning of the COVID crisis We said we believe we've got an important responsibility to do our bit to keep the food supply going and keep the shelves stocked. Throughout, we've put a huge focus on maximising our output from our supply chain. And delivering a consistent high level of availability of our product ranges, of course, working really closely with our key retailers. And I think this is testament to the excellent, sustained and dedicated work of all our colleagues across the supply chain. And as I've also mentioned in previous updates, we took decisive action back early in March to put in place a raft of additional hygiene and safety measures across the supply chain to safeguard our employees. through these very difficult times and so far this has worked well for us and all our sites have remained fully operational so I would like to say a big thank you actually to all our teams which have consistently maintained these high standards and helped us to continue to do our bit towards feeding the nation. I also want to talk about online, so the online channel and by that I mean the sales that we make via our retail partners online services and websites. And I know we're all aware that this channel has seen very significant growth since lockdown, as many households have chosen or in fact actually have been restricted to shopping for groceries from home. And in fact, sales of our brands online more than doubled over the first quarter, so increasing by 115%. And we're going ahead of the channel and taking 270 basis points of market share. And the background for this is that we've been working hard on our online presence now for the last couple of years actually, investing in our online capabilities, ensuring our brands are presented and marketed effectively online, using the tools that are available in that channel, which are a little different from what you've got in standard bricks and mortar retail. And that's now clearly working really well for us. If I now switch to Sweet Treats, For our Sweet Streets business, we saw a more modest trend in the quarter, sales up 0.7% and branded up to 0.5%. And this is a mix of a soft April with volumes down for the entire category as consumers focus on buying core essentials and then a much stronger performance and with our brands very much back on track through May and June and supported by strong commercial plans and with Mr Kipling back on TV using that successful Little Thief advertising campaign he had. Sales also helped there actually by recently launching new products so I'd include in that the Mr Kipling's mini range and the Signature premium ranges but also actually the core Cadley mini rolls also had a really strong growth quarter And manufacturers took on non-branded sales which overall were down 3.3% with grocery down 4.5% and sweet treats growing by 1.7%. And the two key factors here sitting behind that grocery decline were declines in our business-to-business volumes from our Knighton and Charnwood businesses and they both supply out-of-home food and drink outlets so that's not really surprising. And it was partly upset by stronger demand for non-branded grocery products that we sell into our retail customers. And then moving briefly on to our international business, so sales at constant currency were up 13% compared to the same quarter a year ago and you'll recall that at the prelims a few weeks ago I outlined our new strategy for international. We believe there remains an interesting opportunity for our brands to grow in international markets and we're well into the implementation of that new strategy and I think we're making good progress. But it is early days and I don't want at this point to give you the impression that the course of performance is a result of that strategy already bearing fruit. That's going to take a little more time for the results to start to take effect. and in fact those Q1 numbers are really more down to a spot comparative in the base in Ireland where we have lower volumes last year than the aftermath of Brexit stock bills in the previous quarter. But in terms of how we're getting on in implementing the new international strategy, we've recruited a number of the key roles that are in the new structure and with the recent appointment of a head for Australia and New Zealand, we've now got three of the four market heads in place and we're also on the brink of appointing an American distribution partner for our cakes in the US. We're also now operating our Irish and UK businesses much more closely together. This is leading to a number of the successful UK new product launches being rolled out much more quickly into Ireland. And we're also working to replicate the success in the last couple of years with Mr. Kipling in the UK, which includes getting that UK TV campaign on air now. in Ireland and also making some tweaks to the promotional strategy. So I think early days but good progress in terms of implementing the strategy. And then lastly, just to touch a bit on capital structure, you'll remember that we redeemed £8 million of our £210 million selecting late notes in the quarter, and that was using cash that we generated during the course of last year. Those notes attract a coupon of 5% above LIBOR, so consequently, you can do the math, we expect to reduce the ongoing interest costs by over £4 million a year from now on. So now if we just look forward to the rest of the year, we expect that volumes are likely to return to more normal levels as we progress through quarter two and into quarter three, and that's obviously as the out-of-home sector opens up and we all start to feel more comfortable going out deep. However, as that happens and the current elevated levels of demand subside, we would expect a pick-up the positive momentum that we had last year by continuing to deploy our branded growth model that's now delivered as 12 quarters of back-to-back sales growth in the UK and I've said many times before but I'm going to repeat our branded growth model strategy is all about leveraging our well-known market leading brands and it continues to work well and is at the heart of everything we're doing and specifically bringing insightful new products and innovations to market based on really an in-depth understanding of current consumer needs and trends, supporting our major brands with emotionally engaging and meaningful marketing and advertising, and working closely with our key retail partners to deliver excellent in-store execution to our brands. So we'll be continuing to deploy that model, and we've got a number of exciting new products to come for the balance of the year, and we'll also be increasing the number of our brands supported on TV from four last year to six, this year, funded in part by the previously announced Cost Saving Initiatives Programme, which in particular I'd single out our Operational Excellence Programme, which includes things like the Smart Energy Initiative. As a reminder, by the way, we did double our median investment last year, some of which was new investment and some of which was achieved by switching other marketing spend around to put more into advertising. So with that in mind, I'm looking forward to the rest of the year. Quarter two has started strongly as we expected. However, as I've said, we expect this to steadily fall back to more normal levels as we go through the quarter and as we move into quarter three. And we expect to see progress then being picked up by our innovation plans and our brand support. In terms of the full year, therefore, we expect to continue to make good progress, employing that successful branded growth model strategy, and our recent upgraded expectations are unchanged, which includes further anticipated net debt reduction in the year. So, in summary, I'd say a very strong start to the year, very much helped by all those additional meals that have been eaten at home. But still to come, a strong pipeline of new products and brand support plans in place for the remainder of the year. I'd just like to take the opportunity to say a big thank you again to all our colleagues who've worked tirelessly over the recent months to help keep the food on the shelves. We are outperforming in all the categories in which we play and which themselves have been going incredibly strongly and that's a reflection of both the strength of our portfolio and I think the fantastic sustained efforts of all our teams to keep our product ranges So thank you very much for your time. I'll now pass back to the operator, and we'll be very happy to take any questions.