Premier Foods plc

Ladies and gentlemen, thank you for standing by and welcome to the Premier Foods Quarter 3 Trading Update Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star and 1 on your telephone keypad. I must advise you that this conference is being recorded today on the 19th of January 2021. I would now like to hand the conference over to your first speaker today, Alex Whitehouse. Please go ahead, sir.

Thank you very much and good morning everyone. Thank you for joining us for our quarter three trading update call which covers the 13 weeks to the 26th of December 2020. I'm joined this morning on the call by Duncan Leggett, our Chief Finance Officer, so I'll give a brief overview now of our third quarter trading before handing over to Duncan who'll take you through a few of the more financial topics before we open the call to your questions. So firstly, here are some of the headlines from our statement this morning. We've had another exceptional quarter of growth, in particular for our brands, and a key factor has obviously been the external environment. So obviously with more meals being eaten at home, given the restrictions on out-of-home eating. But at the same time, we've continued to strongly support our brands and to drive our branded growth model. And it's that focus on the branded growth model that's therefore delivered further market share gains, gaining both value and volume share in the quarter. Online growth was again exceptional, up 90% in the quarter and internationally we also again formed very strongly and we've also made good progress there actually with executing our new strategy for our overseas markets. So overall we now expect trading profit for the year to be in the range of 145 to 150 million and as a reminder that compares to last year's trading profit of 132.6 and I think reflects the strong growth and progress we've made this year. And then following further cash generation in the quarter we will also now be making another 40 million pounds part payment of the floating rate note. And then we also expect our net debt to EVIC data fall below two times by the time we get to our year end. If we look at some of the key figures that make up this morning's statement, Our Q3 group sales increased by 9% compared to last year. So this continues to be a quite exceptional year. And this quarter is ahead of what we reported in Q2, which might recall was plus 8.1%. And on a year-to-date basis, that means group sales are up 12.5%. Our branded portfolio and in particular grocery is really driving the growth so in the quarter our branded sales increased by 12.1% compared to the same period a year ago and this translates to a growth of 16% on a year-to-date basis. Grocery branded was actually up 14.6% in the quarter and so therefore is over 20% up year-to-date. Now, clearly, like everyone, we at Premier Foods have continued to feel the effects of the pandemic across our business. And throughout 2020, our supply chain colleagues have performed what I think is a truly magnificent job, keeping each other safe, keeping our sites running and ensuring that we continue to supply our customers with this elevated level of demand and ultimately to keep the shelves stocks for people and of course they've now been doing this over a prolonged period of time so a really remarkable effort and I think shows an incredible amount of adjustment in our supply organisation. As we've said before we've put in place a strict regime of additional safety measures back in February last year to ensure the safety of our colleagues and all those protocols remain firmly in place and they are working well for us and we will keep to them for as long as is necessary. Alongside the outstanding performance from our supply chain, as I said, we've continued to drive our branded growth model strategy and leveraging our great market leading brands, so specifically bringing exciting new products to market based on our understanding of consumer needs and current trends. and supporting our major brands with engaging and meaningful advertising and delivering excellent in-store execution which of course is always important but is particularly so in quarter three which is our key and largest sales quarter. We've demonstrated our strong commitment to investing behind our brands again this year. And in the third quarter, we actually had five of our major brands benefiting from TV advertising. So that was Bisto and OXO and Bachelors, Mr. Kipling and also now some new advertising for Ambrosia. Ambrosia is our fourth largest brand and we've not supported that with advertising for a number of years. So back on air in Q3 and we'll run through Q4 and it brings Ambrosia back to its Devon roots and with the well-known line of Devon knows how they make it so creamy which we know is well known and recognised by our consumers. During the quarter we also brought a number of new products to market, all based on key consumer trends and in particular, as you already know, we focus on providing healthier options for our consumers and a good example during the quarter was we launched Sharwood's 30% less sugar surfide sources and this gives consumers the ability to make a healthy surfide with less sugar than the other sources that you will generally find commonly available in the market. And as I've already mentioned, some excellent install execution in retailers, so important in this key quarter three. And I think we did a really good job on that again this year, despite some additional challenges. And all this together means that we have again outperformed both the grocery and the sweet treats markets in the UK, both in volume terms and in value terms. If we look at how this Christmas period was different from the norm, we saw significant increases in household penetration, notably on seasonally important brands like Disco which was household penetration up 160 basis points, OXO up 181 and Paxo which was up 112. What this is telling us is new households buying into these products that don't normally do so and I think this supports what we know from talking to our consumers that this Christmas was one where more households were cooking Christmas dinner for themselves with less people around the dining table. Sharwoods cooking sources and accompaniments also delivered an excellent quarter. Sales there were up 40%, market share growth and also half of penetration gains of a quite incredible 550 basis points in the quarter. An awful lot of new houses buying into Sharwoods. We've brought a number of new Sharwoods products to market in the year and we've also strengthened our commercial model however we also believe Sharwoods is benefiting from ongoing home cooking fatigue and a craft for some excitement amongst home cooks and likely I suspect cooking an Indian meal at home because the local Indian restaurant is unfortunately not going to be open. Sales are nipping. Sober and Cup Noodles also continue to perform extremely well. Sales up nearly 60% compared to same quarter a year ago and actually 63% on a year-to-date basis with Sober extending its leadership in the premium noodles segment. In our sweet fruits business, Mr Kipperings enjoyed another strong quarter. All metrics ahead whether you look at sales, volume, share or household penetration. This is our biggest brand of course and it benefited from a prolonged period of TV advertising through the last couple of years and continues to launch new product offerings into the market. The premium signature range and also the smaller cakes such as the mini tarts and the mini pies were also key drivers of performance in the quarter. And by contrast, our sales of non-branded products were actually lower, 2.7% down in the quarter. We did see growth in non-branded grocery sales. They were actually up 2.4% compared to a year ago. And there was growth there from the unlabeled products that we sell to the major UK retailers. But these were partially offset by a decline at Trumbull Foods, which supplies out the pro-meeting sector, so not a surprise there. In non-branded street treats, sales were 7.5% lower, and that is largely due to the exit from a low-margin seasonal mince pie contract. Moving to online growth, as I've said before, we've been working hard on our online presence over the last couple of years or so, investing in our online capabilities and ensuring that our brands are presented and marketed effectively using the tools that are available in this channel. And this has helped the business benefit from the significant move of consumers to online shopping this year. And our Q3 sales are actually up 90% online and, again, a little ahead of the channel growth there. Moving on to our international business, you'll remember that a few months ago we set out a revised strategy and a new approach to our overseas businesses, focused on ensuring we've got the right execution in market. And by this I mean making sure we've got the right products, that they're in the right stores, on the right shelves and in the right place in those stores. and price it correctly and the right promotional strategy. And the intention there is to build sustainable brand-focused businesses just as we've done in the UK. It's very much really about applying the successful and proven growth models we've got in the UK but adapting them to the local market conditions. And I'm pleased to say that we're making good progress and we can start to see this in the Q3 sales were up by 43%, although clearly there's some benefit there from restrictions in out-of-home meetings and that number. overseas sales, Sharwood nearly doubled in the quarter compared to last year. And in the US, for example, this is driven by that increased focus on in-market execution. And in this case, by significantly expanding the distribution of our Sharwood products in the US. So more stores selling more of our Sharwood range In Ireland we've seen excellent results Mr Kipling and that's coming from the adoption of the UK growth model including the UK TV advertising and given that success we'll now be continuing to support Mr Kipling on TV in Q4 in Ireland and also going to bring Bisco to TV in Ireland in Q4 as well. I think that's a great example of applying the UK branded growth models to another market with appropriate local adaptation to build sustainable long-term growth. In Australia, we've seen a return for substantial growth for the three main brands we currently distribute there, so Sharwoods, Mr Kipping and Cadbury, which collectively grew by an average of 45% in Q3. And then moving to Canada, the in-market test that we're running on Mr Kipping, which I've mentioned before, and that's running in approximately 300 stores, and that's delivering some encouraging early results. I've also mentioned before our plans to conduct a robust in-market test of Mr Kipling in the United States with the intention of replicating the success we've had with the brand in Australia, but obviously in a much, much bigger market. And so to that end, we're delighted to have just signed a distribution agreement with North American-based Western Foods to distribute Mr Kipling cakes for us. And Western, obviously, a large, major scale player very impressive capabilities and reach across the US and we strongly believe are the perfect partner to help us build our largest brand in what is clearly an absolutely enormous game market and first shipments there are expecting to take place in the first quarter of our next financial year. I'm now going to pause for a moment and hand you over to our CFO Duncan. He's going to take you through a few of the finance related pieces from our statement this morning. Thanks Alex. Good morning everyone. So as we recall, we've already made two part repayments to our floating rate notes so far this year. So £80 million back in June and a further £40 million at the beginning of September. As a reminder, we pay interest at 5% above LIBOR on these, and they're currently callable at par, so there's no financial penalty for repaying them early. And please note that our continued good progress this quarter. We're now in a position to repay a further £40 million. We can't make this payment on the 16th of February, and then this leaves 50 million of our pension rate note outstanding, down from 210 million. This will take up another 2 million per annum in interest costs, so good progress continuing to achieve our financing costs and our leverage, and that brings the interest benefit from the paydown today of 8 million on the annualised basis, the full effect of which, of course, we'll see next year. You may also have seen that we held an EGM last Monday for shareholders to approve a capital reduction. Specifically, this involves giving the company authority to transfer balance from the PLC company's premium account to its profit and loss reserve. I think it's better to view this as sensible financial help to enable greater susceptibility to report going forward. This would include sub-disability to pay limit ends should the board determine it's appropriate to do so. But I would just remind and underline the fact that no decision has been made as to the use of any of these realised profits. Anyway, the resolution passed with an overwhelming majority of 99.99% of votes cast. And just a reminder, the next and final step in the process is confirmation by the Court, which is expected in the middle of February. Just a quick word on Brexit. So in advance of the end of the EU exit transition period, we developed a comprehensive set of mitigation plans and preparations to ensure the continuity of supply by product throughout the supply chain. I'd be pleased to see a free trade agreement being signed with you because that's now in place and we're not expecting any material impact from the updated tariff changes. I mean it is clearly early days and I do expect there's a bit of pain we're going through in terms of that bin and printer but nothing in terms of being able to get our products out and overboard as so far new arrangements have not resulted in any major disruptions as far as supply chain. And last May, I just wanted to mention this financial year will be a 53-week financial year. So we'll report a short P&L in our statutory accounts on a 53-week basis and the balance sheet will be struck at 3rd April 2021. But to help with life-to-life comparative, we plan to provide a 52-week basis pro forma for revenue and training profit to help and just for the importance of doubt, the training profit guidance we've given this morning and that that we've provided during the year thus far all relate to a life-to-life 52-week period. So with that, I'll hand you back to Alex. Thank you Duncan. So as we look forward now to Q4 and in fact beyond, we've got further new products planned including Mr Kipling's 30% less sugar Viennese world and that's the result of some excellent work done by our R&D teams as I know that was not at all an easy thing to achieve. And additionally we'll be significantly increasing our TV advertising with many of our major brands on TV again in Q4 as we reinvest for the future both in the UK and also now overseas. And so as we continue to drive our branded growth models and obviously with out of home eating essentially closed for now, we expect to see continued elevated levels of demand for our products in Q4. And after the further increase in investment behind the brands that I just mentioned, We now expect trading profit for the current year to be in that range of 145 to 150 million and for Euro net debt to be below two times EBITDA. And as I said before, as our leverage levels normalize, that opens up more options for us in how we might think about future investment and growth opportunities and in particular how we start to move into the next phase of Premier Free's journey without the constraints of the historic high debt levels and with the ability to invest back into the development and the expansion of the business to create further value for our stakeholders. So thank you for your time and I'll now pass back to the operator and we'll be very happy to take your questions. Thank you.

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