Premier Foods plc

Good morning everybody and welcome to Premier Foods half-year results. That's for the 26 weeks that ended on the 2nd of October this year. I'm joined as always by our CFO Duncan Leggett. Duncan will come along and talk us through the numbers but before that I'll just give us a few highlights and then I'll come back later and give us an update on strategic progress. And so I'm very pleased to say that we had a very strong quarter two. Now remember, we're measuring ourselves as well as against one year ago, against two years ago. And against that two-year measure, we said we expected quarter two to be roughly between 5% and 6% growth. And as you can see, we've actually delivered 8.5% growth. But what I think is particularly interesting is the 13.3% branded growth on a two-year basis. Overall, we're also up even against the one-year measure, so 0.4% in total and 2.1% on a branded basis, remembering, of course, that Eat Out to Help Out was in the same quarter a year ago. And then that comes, of course, on top of that strong quarter one that we'd already reported, and it brings half one revenue growth, therefore, to 7.5% up, versus two years ago. And again, that very strong branded growth, 11.4% up versus two years ago. Now, of course, both those measures are negative versus one year ago. And that's because we're up against that very strong quarter one in the year ago base as people started to stock up their cupboards and we went into the first very hard lockdown. Moving on to trading profit, trading profit up 13.1% versus two years ago, and adjusted PBT up 46.3% versus two years ago. And that's obviously driven by two things. You've got the flow-through of the strong trading performance, but what you've also got is a significant reduction in interest payments. And that comes from, of course, the fact that we've got a lot less debt than we had two years ago, but also that we've refinanced that debt at a much lower coupon. And as well as that strong financial progress, we're also making good progress on our key strategic priorities. Obviously, having a strong, growing UK brand of business is the foundations on which we build everything else. And as you can see, financially, really strong progress there. We've also continued to invest in infrastructure and we've expanded both in terms of UK categories and also in terms of our overseas expansion as well. And I'll come back to all those in a bit more detail later. And then, of course, in the half, we completed our refinancing exercise, which I'm sure Duncan will talk to us about in a few minutes. And all this, of course, now guided by our new purpose, enriching life through food. And with that, I'll hand over to Duncan to take us through the numbers. Thank you.

Thank you very much, Alex. And good morning, everyone. I'm delighted to be here presenting these results. I wanted to start by talking about the refinancing, which of course completed during the first half. And the key component of that was refinancing our existing 6.25% bonds with the new 3.5% bonds. I think this really shows and demonstrates the progress the company's made in the last couple of years. And this together with a new RCF with a refreshed banking group that we think will help support us in the next phase of our strategy have enabled us to reduce interest costs by more than half on a pro forma basis versus two years ago. Looking at the headline results, so we've got total revenue up 7.5% versus two years ago. And as Alex has just mentioned, we will be comparing progress against two years ago, with the exception being sweet treats, which had a more normal last year. So we'll be comparing versus prior year. And you can see branded revenue growing ahead of total revenue at 11.4%. Good progress, really, across the grocery, sweet treats and the international business, really showing the benefits of the branded growth model flowing through. Non-branded revenue is 14% down versus two years ago. This is a combination of lower business-to-business volumes, but also lower out-of-home volumes, not yet returned to pre-pandemic levels, although they are on an improving trend. Looking down to trading profit, 58 million, that is 13% higher than two years ago. And again, seeing the benefits of the branded performance flow through to profit. And again, versus prior year, I mean, Alex touched on it earlier. As expected, both revenue and profits are down versus last year due to the exceptional volumes that we were seeing this time last year. But there was an improving trend throughout the half and quarter two was actually in growth at sales versus last year. So the grocery business, pretty similar picture, actually. Total revenue up 7.6% versus two years ago. And this is a combination. Obviously, this includes the international business as well, which grew 7% versus two years ago as well. And Alex will touch on it later. But I think particularly good success in Ireland, where we rolled out the UK growth strategy into Ireland. At Branded Revenue, we got pretty good growth across a number of brands, actually. I think one worthy of mention is our Nishin portfolio, which I think was in triple-digit growth versus two years ago, and strong double-digit growth versus last year. And Alex will talk about that later. Non-branded revenue, we've talked about, that is down due to business-to-business and out-of-home volumes. And you can see the benefits of the sales growth versus two years ago flowing down to profit, which is up 8.3% versus two years ago. So moving to sweet treats. So as I mentioned earlier, we'll be comparing against prior year. And again, revenue is growing at 5% and branded revenue growing ahead. It's a combination of strong continued performance from Mr Kipling, particularly good performance of the signature range of MPD and also good contribution from Cadbury's driven by some new variants of the cake bar format. We are seeing an improving trend through the half, so branded sales for the second quarter was up 9%. And non-branded revenue, although down in the half because we have exited some low-margin contracts, was in growth for the second quarter. Moving down to profit, some strong profit progression year on year. And that's because of two things. One is the benefits of the increased branded sales and the branded mix flowing through. But also we are seeing lower levels of COVID costs in our manufacturing sites versus last year. As a reminder, we saw these disproportionately in the sweet treat sites last year because they are more manual nature. Adjusted earnings per share is up 45% versus two years ago. And this really demonstrates the nice combination of strengthened trading performance and also the much lower levels of interest versus two years ago. So that leaves adjusted profit before tax up 46% and adjusted EPS up 45%. And actually, if you look against prior year, adjusted PBT is just less than 3% lower than last year. Again, the significant interest savings as a result of the refinancing offsetting the lower trading profit performance. Looking further down the P&L, you can see on the left-hand side both operating profit and basic EPS up strongly versus two years ago. Against prior year, operating profit is down 14 million. That's primarily because we are lapping a one-off gain relating to the sale of the Hovis business of 16 million in the prior year numbers. And net debt, I think continuing the strong deleveraging progress that we've made over the last few years, 58 million lower at 345 million. So just touching on net debt a bit further, typically we'd see net debt at half year about level with the previous year end. This is when we're at our peak working capital and particularly elevated levels of stock as we enter our key Christmas period. Net debt's slightly higher this half year versus year end, and that's because of two reasons. One is the payment of the dividends. I mean, clearly a great moment for the company paying the first dividend in 13 years. And the other is the costs associated with the refinancing. And of course, the benefit of those we've seen partially during the half, but we'll see more as we move into the second half and further into next year. I wanted to share some good progress that's been made on pensions since the merger that we announced about 18 months ago. Administration costs we've talked about before. They are coming through as planned, the £4 million savings. I think what's really pleasing to see is that the new trustee has reviewed the investment strategy of the Premier Food Scheme, made some changes and are targeting higher returns for the Premier Food Sections as a result. And the trustees also took the opportunity to perform a winding up lump sums exercise when we transferred members from the legacy pension schemes into the new trust. And that had the effect of reducing member numbers of the premier food sections by 15%. And that just greatly simplifies the running of the scheme. just looking at the pensions on an accounting basis, and the combined surplus is up 68 million versus year-end. The liabilities are broadly flat. That's because we've got a pretty much unchanged discount rate. I think what we are seeing is strong asset performance, both in the RHM scheme and the Premier Food Scheme, driving the increase in surplus at 608 million. That's all from me. Thank you very much for listening, and I'll pass you back to Alex.

Thank you, Duncan. Now, what I'm going to do is I'm going to kick off by taking us through our new ESG strategy, which we launched a few weeks ago. So we'd made really good progress against our previous ESG strategy, but we felt that given we'd delivered a lot of the goals that were set out in that, now was the time to reset and also to set ourselves some stronger, more ambitious targets for the future. So our new plan, our enriching life plan, has three pillars to it, product, planet and people. And the products pillar is all about generating great tasting, nutritious, sustainable food for our consumers, focusing on healthier nutrition, increasing our plant-based eating offering, and then sustainable packaging. And some of the goals we've set ourselves there are to more than double our sales of high nutritional standard foods by 2030, and to get to £250 million of sales from plant-based products by 2030 as well. On the planet pillar, this is all about us contributing to a healthier planet and doing our bit to take action on climate change and keep global warming to 1.5 degrees. It's also about protecting our natural resources and then reducing waste across our entire value chain. And some of the commitments we're making there are to reduce our scope one and scope two emissions by a further 42% by 2030 and ultimately achieve net zero for direct emissions by 2040. We will be introducing science-based targets and we're aligning ourselves to the business ambition for 1.5 degrees. And then we're also going to halve our food waste by the time we get to 2030. Moving on to the people pillar. We're going to be focusing on developing a diverse, healthy and inclusive culture, building on the progress we've already made in that area. We want to become a leading developer of people within the food industry. And we want to be a caring partner in the communities in which we operate. And some of the commitments there are to achieve gender balance within our broader senior management population by the time we get to 2030, and also to help alleviate food poverty by donating a million meals a year by the time we get to 2030. Now, I said we made some good progress against our previous strategy. So you've seen a lot of these numbers before. But just by way of a reminder and also putting those under the three new pillars, I'll just focus us for a moment on a couple of things. One is the progress on healthy options and healthy eating, where we've now got 84% of our core ranges now have a better for you option. And that's on our journey to our commitment of 100%. And as a reminder, only 12% of our packaging is plastic, and we've now got that plastic, 70% of it is now recyclable, which is up from 63% the year before. And again, that's on a journey to get to 100%. And then the other one I'd pull out on here is actually on those CO2 emissions. So you can see there that since 2008, we've reduced our CO2 emissions by 43%. So the 42 that we're now committing to by 2030 comes on top of the progress already made and essentially means that we'll have made a reduction of two-thirds by the time we get to 2030, leaving a third of it left to do between 2030 and 2040. I think that sort of linear approach is really important, that it's not all left to a big hockey stick at the end. Now, of course, that ESG strategy runs through our core business strategy. And this is our core business strategy laid out slightly differently from what we've done before, but summarising the five key pillars. And the first pillar on the left I mentioned earlier, and that's continuing to grow our core UK business. It's important that we have a solid and a growing UK business, and that provides the foundation for broader expansion. And the second pillar is to invest back into our supply chain. And we're investing there into operational infrastructure for two reasons. One, we're a business that generates a lot of new products and therefore having the manufacturing facilities to manufacture those new products is important. But secondly, it's for fueling efficiencies. So investing behind improving efficiencies and productivity that helps fuel the investment that goes behind the brands and keeps the brand growth model going. And the third pillar is expanding into new categories. So taking that proven brand growth model that's worked so well for us on our five core categories and extending that application of that model into some new white space categories that can generate incremental revenue streams for the business. And similarly, looking at our international businesses and moving those to a point where they reach critical mass is again about applying that branded growth model but tailoring it and adapting it to local market conditions. And then the fifth pillar is the inorganic opportunities. So modest bolt-on acquisitions can play a role in either expanding our category breadth in the UK or by helping us reach critical mass sooner in one or more of our focus markets overseas. And so we'll just walk through some of those one by one. So that first pillar is all driven, of course, by our branded growth model. I'm sure most of you are familiar with this, but just by way of a quick reminder. So what we're doing is taking our leading brand positions and our strong brands, and we're developing new products for our consumers from those brands based on our insight into how their lives are changing in the way they shop, the way they cook, and the way they eat. And, of course, there's a big focus there on healthy eating and on nutrition. And then we sustain our marketing investments behind the brands, keeping them contemporary, keeping them relevant and building emotional connections with our consumers. And then finally, our partnerships with our key retailers, which is really important. So focusing on driving mutual growth for both ourselves and our retail partners and ultimately securing outstanding execution in store. And as you can see, the application of that model has been delivering great results for us in the UK since 2017. And there's a pretty consistent growth profile there. And you can see, particularly in 1920, of course, the year before COVID came along, But you can also then see, of course, that the base was elevated during 2021, particularly that big peak in quarter one. And of course, that's when people started to stock up their store cupboards at home. And then, of course, we went into that first hard lockdown. and so this financial year essentially represented by the last two blue bars in the left-hand chart so you can see the decline in quarter one that minus 14% of course is batting up against that plus 22.9 and then the 1.5% growth in Q2 is sitting on top of the 7.8% in quarter two of 2021. But to try and unravel that a little bit, one of the things we find useful is to look at it on a two-year CAGR basis. And if you do that, you see that in quarter one, our UK business grew by 2.8%, and in quarter two, by over four. And then if you look at it, though, from a branded point of view, and remember, this is all about our branded growth model and driving growth for our brands, you can see that on a two-year CAGR basis, Q1 was up by 4.3%, and a very strong 7.1% in Q2. Unsurprisingly, with those strong brand growths, we're of course taking market share. So if you measure that again versus two years ago, you can see that both our grocery brands and our sweet treat brands both taking market share in volume terms and in value terms. I can also tell you that online, we continue to take market share as well. We increased our online market share by 120 basis points over the same period as well. And moving over to the right hand side, just talking for a moment about household penetration. You may remember that I'd said that during the COVID period, when out of home eating was restricted, we saw some pretty big increases in household penetration. And that came from people experimenting with new dishes and trying to add a bit of excitement to their normal sort of repertoire of meals that they cook. And in doing so, using some of our brands. And it's early days, I think still, but Certainly what we're seeing so far is that we're holding on to some of that penetration gain. So if I take Sharwoods, for example, they're at plus 288 basis points. I think what that's telling us is that there are people who bought Sharwoods during the lockdown periods and started to create Indian meals at home that are continuing to cook those meals and continuing to buy the brand. So essentially that's over 800,000 new households that are buying Sharwoods now that weren't buying Sharwoods two years ago. So it feels as though there may be some long-term structural benefit in that. Now, of course, I can't talk about our first half results without talking about the industry-wide challenges that we're all facing. Now, I'm pleased to say that we're navigating these very well, and I think our teams are doing a really super job. If I focus first on HGV drivers, our customer service levels remain and have remained very strong. So much so that what's happening is that we are picking up incremental activity in store from our retailers because we've been able to keep supplying product and some other manufacturers have not. And we're pretty high up the list in terms of customer service performance in our key customers. And I think our supply chain there are doing a really great job of navigating us through that. In terms of the key peak winter season, I'm pleased to say that we've secured the logistic resources that we need for that. But just to give you some context there, from a grocery brands point of view, this week is the key period. So it's likely based on historic precedent that this will be our biggest week of the year. And then next week will be pretty large as well. And so obviously we've got very clear sight of what our resourcing looks like that close in. And sweet treats is not so dissimilar. It tends to be a couple of weeks behind, so starts to increase really next week and is very big over the next three or four weeks. So again, we've got good visibility of what that looks like and I'm pretty sure we're in a good place there. The overall tight labour market, now those of you that know our sites will know that they're pretty highly automated, particularly on the grocery side, and they're quite skilled roles running these highly automated lines. We have a lot of long service colleagues, so this is somewhat less of an issue for us as it might be for some more manual operations. And then input cost inflation. So I'll go back to what I said at the end of quarter one. So we planned for inflation this year and we put in place some activity in order to offset that. So a combination of hedging, of cost savings and price increases, which all got implemented at the end of the last financial year. And as you can see from the results today, there's no margin dilution there. So clearly evidence in the numbers that we're managing our way through that. Now, Of course, looking ahead, the next cycle comes round, we can see further inflation, and obviously we're putting in place plans now to cover that, and you'll see similar techniques being used, and they'll become effective later this year. So certainly overall a challenging environment, but one in which I think we're navigating very well, and I think you can see that, as I say, in the numbers that we're announcing today, where we've got growth ahead of where we expect it to be, and no overall profit dilution. Now, of course, also in the first half, as you would expect from us, there was a lot of new products brought to market. I've put a handful of examples here, but it includes things like an expansion of our reduced sugar Mr Kipling range there with Viennese Whirls, an expansion of our more indulgent Mr Kipling Signature range, which goes from strength to strength. And then also launching Cadbury cake bars under the Crunchy and Fudge brands, which have done very well actually since they've been launched. I'd also draw your attention to the Lloyd Grossman Pizza range. So one of the key trends during lockdown last year was making pizzas at home. And I have to say our family was very much part of that trend. I think this is just a great example of how our business looks at consumer trends and adapts very quickly to them. So we've now brought to market a range of pizza products from Lloyd Grossman, which includes pizza bases, pizza sauce and grated cheese. So you've got everything you need, you just need to choose your toppings. So capitalising on that emerging consumer trend. And then over on the right there, those were the three brands that we supported with above the line advertising in the first half of the year. Now I just want to focus for a moment on the Nissin brand, which we don't talk about very often, but is actually performing extremely well. So when we picked up the distribution of the Nissin brand in the UK from our partners at Nissin Foods, we generated about 3 million pounds of turnover. That was in 2017-18. I'm very pleased to say that this year we now expect to deliver around 16 million pounds of turnover. So that's essentially more than five times the size it was originally. And if you look at the graph in the middle, that'll show what's happened in terms of market share. So the green line on that chart, where we've moved from an 11% market share in 2017, all the way up to the top right hand corner there with a 45% market share and clear leadership now of the authentic pot snack market. I put this down fundamentally to two things. One, it's just a really great product, a high-quality product with authentic Japanese flavours. And then our execution engine, so our great commercial capabilities in terms of executing with our retailers, expanding distribution, getting into more stores, and then expanding the flavour range. And I think there's still plenty more to play for here as well. And of course healthy eating is a core part of our overall MPD strategy. It's an important consumer trend and it's also part of an important responsibility that we have as a business. And you can see there that our healthier ranges grew by 25% over two years and that's significantly ahead of our overall growth and therefore very much our healthier options leading the charge in terms of branded growth. We also brought a number of plant-based options to market in the first half of the year that included vegan versions of our two best-selling Sharwood sauces. We relaunched our Plantastic Flapjacks based on the learnings we had over the last year or so. And then we've got Paxo which obviously traditionally associated with roast dinners and now Paxo offering a range of veggie fillers so actually allowing you to fill things like peppers and mushrooms you know clearly if you're not wanting to eat meat. And then bottom right hand corner there we've got a meat-free version of our chicken OXOcube which is building on the launch of the beef meat-free OXOcube which we launched a year ago and has gone down very well with consumers. Now, the second pillar is investing in our infrastructure. And I've talked about that virtuous cycle on the left-hand side there. So using cash generation to invest in our manufacturing infrastructure, improving efficiencies and therefore gross margins, and using that to invest back in the brands and accelerate branded growth. Two great examples of that, which are almost near completion now, one is in Ashford in Kent, where we've put in a new manufacturing line for our pot snacks. So it will make things like Batchelor's pasta and sauce and Charwood's rice pots, curry rice pots. This is a much faster line than we had before, so therefore much more efficient. It's also more flexible, so we can make more types of products. It allows us to bring in-house some products that we were previously manufacturing co-packers and also it's future proof in the sense that there are a number of products in our MPD pipeline that we will now be able to manufacture in Ashford. And then not dissimilarly in Lifton we've got a new high speed line that's going to manufacture our mini parts. This is much more efficient, much faster than the previous line that we had. And then the third pillar of course is expanding into new categories and again remember it's about taking our branded growth model and applying it in white space categories where we didn't have any presence before. I've talked before about Cape Herbs and Spice, that has gone from strength to strength and we continue to roll that out now across more retailers and we'll bring more SKUs to the range as well. So it's a really great example of that working well. And then we've got OXO rubs and marinades. That takes OXO more into the summer season. OXO is a winter biased brand, but getting into the barbecue season with our rubs and marinade range. We launched it with one retailer last year. That's performed very well. We're working with that retailer now on expanding the range of flavours and we'll be looking to roll that out to more retailers in time for next summer season. And then we'll also continue to build our baking mixers, so our Cadbury and our Keep Clean cake mixers and icing. And when we look at all those together, along with a couple more that I'm going to talk to you about that are in half too, whilst it's all still early days for us in new categories, we're getting to a point where collectively it all starts to add up to something interesting. So we're looking at delivering towards £10 million of revenue from those new category extensions over the full year this year. So moving on to pillar four, our international business performed very well in the first half of the year, so up 7% versus two years ago, and that was despite some delays in September where we were struggling to get hold of enough containers. I'm very pleased to say, by the way, that we then managed to catch that up in October, but of course you can't see that in these numbers because these numbers only run until the end of September. Down a little bit versus two years ago, but that again is the pandemic impact of the elevated base year. Touching briefly on Ireland for a moment. So what we've been doing in Ireland has been focusing on bringing that UK branded growth model into Ireland, adapted for local conditions, of course. So a big catch-up in terms of bringing the MPD pipeline from the UK into Ireland and then starting to support some of the brands with advertising. And that's working really, really very well indeed, and we're very pleased with it. And branded growth for the first half of the year was 39% versus two years ago, although I have to be clear that some of that is due to the unwind of a Brexit stock build two years ago, if you can remember that far back. And there'll be further brand investment in the second half as we support some of the brands with TV advertising as we go through the winter season. Moving on to North America on the left-hand side there, so you might remember in Canada, we did a test launch of our Mr Kipling slicers. It was pretty successful, but we also learnt, and we made some tweaks to our model, which was very much the intent of having a trial. I'm pleased to say that those new products have now been manufactured, they've been shipped, they've arrived in Canada, and as we speak, they're on their way to the supermarket shelves. So we'll get those into distribution, and then off the back of that, We'll look to expand out into more stores and into more retailers and essentially we go now into a full rollout mode of Mr Kipling's slices in Canada. And then in the US, we're going to be following the same process that we followed in Canada. So we're going into an initial launch with a couple of customers in the US while we were working with those customers to just make sure that we've gone again, got the model right, just like we did in Canada. But of course, we're starting with the learnings that we already made in Canada for the test in the US. And I expect that that will be on shelf either back end of December or early January. And then let's not forget about Sharwoods in the US. So the cooking source market for Indian food in the US is at an early stage. It's small, but it's growing really quickly. And we're in there right at the beginning. And everywhere we put Sharwoods, it seems to sell very well. So this is really now all about distribution expansion and getting into more stores. So in the first half of the year, we made some good progress. We've increased sales. distribution by 2,400 distribution points and a distribution point is one product in one store so that's a pretty significant distribution expansion and that's in Publix which is our lead retailer for Sharwoods. Moving down to Australia, two key things we've been doing in the first half of the year. The first is focusing on range optimisation, so making sure we've got the right products, the best-selling products in every store. And that's part of the overall strategic approach, of course, that we're taking to our overseas markets, which is this obsession with executional detail in markets. So getting the range right in every store means every store is performing at its optimum level for us. And the graph down the bottom illustrates expansion into the independent grocers in Australia. So they make up about 8% of the grocery market. It's an area where we weren't present. And as you can see there, we've moved over the last few months, rolled out into 1,000 stores. That 1,000 stores is about an 80% or so weighted distribution within the independent grocers. So overall, that is a not insignificant increase in distribution for our cake brands in Australia that's just happened. And then Europe for us is all about Sharwoods and the market situation is not dissimilar from the United States in the sense that it's still quite small, it's still in its infancy but it's growing really quickly. We're in there at the beginning and again the brand's working very well everywhere we put it, so we're focusing on distribution expansion. So more stores in the countries that we're already in and then expanding into new countries. So if you look at the first half of the year, Sharwood sales in Europe up 32% versus two years ago, admittedly from a fairly small base at this point, and the new country that we just opened up for Sharwoods in the first half was Sweden. So that was the first half. If we pause now and just reflect forward, cast forward into the second half of the year, as you would expect, there are a series of new products. I've put a few of them on here. So remember I said that the crunchy and fudge cake bars were working really well. And so off the back of that, we're now launching Oreo cake bars. Another important launch on there is meat-free snack pots, meat-free pots from Bachelors. And the other one I would highlight bottom left is Angel Delight. So Angel Delight ready to eat food on the go pot. So these are not in the normal part of the store where you would find the brand. These are going to be in the chiller at the front of the store as part of the food to go proposition. And as a first step again into white space for the business where we think we can bring our brands into the food to go space and generate incremental revenues. Over on the right hand side, six key brands going to be advertised over the winter season, just like last year, and there is a new campaign for Bisto that's just started. And then I touched before on strategic brand extensions, so the ones on the left we've already talked about, and of course we will continue to drive those hard during the second part of the year. But the two new ones I wanted to draw your attention to were biscuits and ice cream. So the research tells us that consumers would be very happy to see biscuits from Mr Kipling, so we've been working really closely with one key retailer. to develop a range of Mr Kipling's signature range, so premium biscuits. Those have gone into store a couple of weeks ago and it's very, very early stages, but we're very pleased with the sales that that's generating already. And then the other extension is ice cream. We've been working really closely with Iceland to develop a range of branded ice creams using our Kipling, Ambrosia and Angel Delight brands. And they're just going into store now. So we'll see how those go. So overall, I think we've had a very good start to the year. Really strong growth from our brands on a two year basis, driven by that branded growth model working really well for us. We're navigating our way through the difficult industry wide challenges and we're making good progress on both expansion into new categories and also in building our overseas businesses. And as Duncan said, our interest costs are now almost half what they were two years ago. So where does that leave us in terms of outlook? Well, we obviously enter the second half of the year with really strong momentum from half one. We're navigating those industry-wide challenges and we're continuing to make progress on those strategic priorities. And of course, we've got that significant reduction in interest costs versus two years ago. So overall, we would say we're firmly on track to deliver full-year profit expectations. And then just as a reminder, that medium-term target of net debt to EBITDA of 1.5 times remains. And then having also paid our first full-year dividend for the first time in 13 years in the first half of this year, obviously, as we've said before, it's our intention to continue in that vein going forward. So I think that brings us nicely now to Q&A. Thank you.

Thank you. If you'd like to ask a question on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. A question has been submitted. The first question comes from the line of Charles Falls. Please go ahead.

Morning, Alex. Morning, Duncan. Could I ask a couple of questions? Firstly, on marketing spend, are you able to give a number for how much it increased in the first half and what the thoughts are for the full year. And with the brand expansion or stretch, do you want to just comment how you see the marketing efforts moving forwards, either in terms of how you're going about marketing or in terms of the increased costs? And then secondly, on margins, obviously you had a very good margin improvement compared to two years ago. In the light of rising inflationary challenge, do you want to just give a feel for how you see margins progressing further out?

Morning Charles, thank you for that. So I'll take the middle part of that in terms of how we tend to support the brands going forward and I'll let Duncan pick up on the numbers. So I think the way to think about it, if you look at how we advertise our brands, What we do is we advertise the overall brand, so we're not advertising specific individual products within the within the brand range. So what that means is we extend the brands into new categories. It means we can continue to support the brand participates in, where we might see specific activity around individual products or individual segments is more likely to be in store or in fact digitally. So it really doesn't have a big impact actually in the overall support plans. And in fact, if anything, there's an intrinsic benefit here of having big powerful brands because you can extend them and the equity kind of goes with you. Yeah, sure.

Morning, Charles. I mean, as you know, marketing is not something that we tend to disclose explicitly in terms of value. I mean, we do weight our marketing spend towards the second half of the year. Clearly support behind our key Christmas quarter that we're in at the moment is really important. And as we get into next year, and we approach Easter. So I think going back to the strategy, as Alex said, we are continuing to wanting to increase levels of marketing spend. As we go forward, clearly we're able to invest more last year because of the year that we had that was great. So in terms of overall levels, we're probably looking broadly similar levels of marketing compared with the last year, but a step up compared with two years ago. And in terms of margin, yes, I mean, clearly, you know, again, through the branded mix and our cost saving initiatives, our aim is to grow margins so that we can invest back behind the brands in the consumer marketing. And that's very much what we've been able to achieve over the last over the last couple of years. And I think looking forward, you know, we will still we will still target applying the branded growth model and doing just that. So again, targeting our cost out and efficiency programs, particularly in the sites, which are working well for us to enable to free up a bit of space to continue to invest behind the brands.

That's very clear. Thanks very much.

The next question comes from the line of Clive Black from Shaw Capital Markets. Please go ahead.

Well, thank you. Thank you, Alex and Duncan. Two from me, if I may. I'm interested in your comments around labour, Alex, and the fact you've got a high skilled employee base. I just wondered, first of all, where you see labour inflation in the business over the next perhaps six to 12 months? and also where you see overall group headcount on that basis. And then secondly, please, you said that you've trialled and learnt in Canada for Mr Kipling. I mean, I guess this trial and learn is going to be an ongoing feature. Just wonder what the learnings were in that case. Thank you.

Sure morning Clive, so on the labour point I mean yes you're absolutely right a lot of our lines are highly automated and these are pretty skilled roles in terms of overall impact you know labour inflation we've got to bear in mind that with our sites we generally are in a multi-year negotiated deals with the union so there's no immediate short-term volatility in those numbers and frankly I don't really see any significant change in headcount really going forward, and certainly not as a result of the environment. It's more likely to be linked to volume and new production lines, to be honest with you. And then if we move on to the So the learnings were really interesting without going into too much detail. I mean, the first thing is the good news is that they sold very well. We had a very high level of repeat purchase. So that's consumers who tried them, liked them and came back and bought them again. From the retailer's perspective, a lot of the sales were incremental sales to the retailer, which means it's working. not just cannibalizing existing sales from within the store. And in terms of changes that we're making to the model, I mean, the big change we're making is that we originally tested this as an eight pack. And we know that it's probably going to work better as a six pack with a slightly lower pickup price. So that's the main change. And that's what we've that's essentially what we've been doing is manufacturing now a new six pack for the Canadian market and there's also a slight tweak to the flavour profile of chocolate to make it a more North American chocolate flavour rather than an English chocolate flavour because the palates are slightly different. So those amendments have been made and they're rolled out now into Canada literally this week and next week and from a US perspective what we're doing in the US obviously our start point is essentially the learnings to validate that that model sort of works for the US and if we need to tweak it we'll tweak it of course and then once we've got that model right we'll roll out in the States as well.

Okay very interesting and just as a follow-up to that Canadian example in having to or in deciding to change a key flavour like chocolate does that materially increase the operating cost for you?

It doesn't really have much of an impact at all, actually, Clive. You're doing a separate production run for those overseas products anyway, because it's got different packaging. So it's just a very, very minor tweak to the chocolate, really.

Cool. Thank you very much, Brickley.

Before we move on to the next question, As a reminder, if you'd like to ask a question on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. The next question comes to the line of Doriana Russell from HSBC. Please go ahead.

First question is on the international strategy, just following up on what you were just discussing with Clive. Would you, I mean, I've got impression that obviously Mr Kipling is like the key brand that you're bringing outside of the UK. So my, going into more the medium term, it's intention to stay with Mr Kipling and perhaps Sherwood as a brand and to work with those first or do you have intention to perhaps opening your distribution base and over time in sort of launch also some of the other items in your portfolio? So that's just for me to have an idea what's your sort of medium term strategy outside of the UK. Following up from that, in terms of your extension into other categories, Do you plan to do that organically or there could be some bolt-on M&A to help you perhaps make the jump across different category? So that's my second question. And my third question is specifically on Sweet Treat. I can see that the branded model there worked really well. And I was wondering if within your sweet treats, there was any highlight in terms of category or brand that you might sort of, you know, of relevance. Is it all down to Mr. Kipling's or is it any other brand that might have performed particularly well or maybe not so well? And really final questions on your corporate costs. I noticed that there's some saving year and year. I was wondering if you can give us a little bit more color on what is the difference accounted for. Thank you.

OK, thanks. I've got four questions. I'll pick up the first three and then the corporate cost question. I'm sure Duncan will pick up. So starting with the international strategy. I mean, you're absolutely right. We were working first and foremost with Mr. Kipling and with Sharwoods. And the reason for that is that all the research we've got across a number of markets suggests these are the two brands that are most likely to be successful, if you like. overseas that's not to suggest the others can't be it's just these are the most obvious ones so you know cake is a is a perfect example the way that the way that mr kipling has evolved in the uk when you go and research that in other countries it seems to have a a fairly unique proposition for the consumer that the consumer rather likes because it's neither it's neither the in-store bakery and which has a very short shelf life but it's pretty high quality Or the very, very long shelf life cakes that you sometimes get on the main fixture. It sits somewhere nicely in between, but it's a good quality product that will last a couple of weeks. So everything suggests that's our lead horse. We've actually then, I suppose, validated that, if you like, with the fact that we've got the leading brand of cake in Australia. after only a few years present in market. So that's obviously our way in, if you like, into markets. And then Sharwoods is performing well everywhere that we've taken it overseas. So as I've said today, growing really quickly in Europe and working well for us in the United States as well. So that's essentially the second brand. And what I don't want to do at this stage is to fragment our efforts across multiple brands overseas So hopefully that answers your question on international. In terms of expanding into new categories, I mean, what we've said there is that we will look at that as both organic and inorganic expansion. So we have clearly shown today that there are several expansions of our existing grant portfolio into new categories. working quite well um but we're also interested in um in modest size bolt-on acquisition so a modest bolt-on acquisition for us could either give us presence in in a new category um where we commonly don't generate any revenues or um it could also be helpful in an overseas market that allows us to accelerate um our journey to critical mass so um i think you know that category is your sweet treats question. Yes, I think you're right. The model is working very well. And certainly it's the innovation program that is really driving strong performance in our sweet treats business. And we have two key brands in sweet treats, as you'll be aware. We've got Mr. Kipling and also the Cadbury Cakes. And I think they both respond very well to innovation and are both grown as a function of that.

And Duncan, do you want to pick up on the corporate cost question? Yeah, sure. Morning, Doriana. Thanks for your question. So in terms of group and corporate costs, yes, you're right, they're lower year on year. I think, again, trying to anchor back to two years ago, I think you will see they are broadly flat. In terms of the year on year movements that you've referenced, there's a couple of bits in there i mean obviously last year because of the level of performance we were seeing um then there were higher costs of our management intensive schemes um across our broad management population uh relating to the performance so they are those costs are taken within group and corporate costs and that was increasing the costs in the prior year um and you'll also see we've referenced um a provision throughout again there are There always are ups and downs in any period and in any one year. So there's a slight benefit there. But again, nothing that we're particularly calling out and nothing that I've really, really focused on in terms of looking forward.

Thank you. And can I ask you if the sort of the budget for the year, is it going to be also below the previous year for corporate costs?

I mean, it's not something we're specifically guiding to, Doriana, but I think in terms of last year, as we referenced, they were higher group and corporate costs than we typically see, again, largely because of the incentive schemes that are just referenced. So there'll be increased costs in the prior year that we won't be seeing this year.

Okay, thank you.

The next question comes from the line of Nicola Mollard from Investec. Please go ahead.

Morning. A couple from me, if I may. One, I suppose, focusing on the non-branded. I mean, clearly your branded performance has been very, very strong. But I mean, how should we think about the non-branded elements of the group? Because it's sort of, it's not an insignificant number, but what's the direction of travel there really, I suppose, on the medium to longer term view? And Secondly, you said you took some pricing actions in the first half of the year. Did you or were you able to track if there was any volume hit on those? I mean, obviously, your volumes are down year on year, probably because of COVID. But I'm just wondering if there's anything specific around the pricing action as well. Thank you.

Thanks, Nicola. So just picking up on non-branded first then. I think the first thing we'd say is that we see ourselves very much these days as a builder of brands. And you can see very clearly that, as you mentioned, in the strong branded growth we've got versus two years ago. And private label or non-branded very much plays a secondary role. We still do it where it makes sense. So if we've got spare components, when it doesn't replicate a unique feature of the brand and where we can still make a decent margin on it. So what that means in the short term, what you're seeing is that I suppose there's two factors there. One is some of that volume decline in private label is really fully recovered yet. But then also there are some decisions we made last year on our private label business where we took decisions to walk away from contracts one to free up capacity for the brands, so particularly when there was a huge surge in demand last year, we freed up capacity by walking away from some private label contracts. And then also, you know, we're no longer chasing after very, if you like, margin thin private label contracts because, you know, obviously the focus of the business is on continuing to build the brands, which obviously is working really well for us. And then moving on to pricing and price inflation. Well, I think probably the one thing I can tell you is if you look at the growth that we've delivered versus two years ago, that strong branded growth is more driven by volume than it is by price and mix. That's probably the clearest indication I can give you that.

Great, thank you.

Before we move on to the next question, as a final reminder, if you'd like to ask a question on today's call, please press star one on your telephone keypad. The next question comes from the line of Martin Debu from Jefferies. Please go ahead.

Good morning, everybody. It's Martin Debu with Jefferies. I'm just trying to get a bit more forensic, if I may, on the divisional contribution movement. The benefit from the lower corporate cost has been well explained, but just to look at the divisional contribution in grocery, your sales were down about 30 odd million in the first half, for reasons we all understand, and divisional contribution was down about 14 million. So you had quite a high rate of drop through, sort of close to 50% on grocery, which is sort of higher than I would have expected. But on the other way round, on sweet treats, you had about six million incremental five or six million incremental sales in the first half on which you got sort of um you know three or four million incremental profits so the rate of drop through was was very high in in sweet treats and i'd just like to understand a bit better what the moving parts were you know what's in my mind is uh duncan you took a question on amp i wasn't quite sure what you said but what did amp do in the first half secondly i think you had six million of COVID on costs you incurred last year. Did any of that roll off in H1 or not? And would you expect any of that to roll off in H2? And then was there anything else going on, either positive or negative, that would sort of explain the marginal economics of the divisions in the first half?

Sure. Thanks for the question, Martin. Why don't I take that? Yeah, I mean, there are a few moving parts, as you'd expect, and I think um rightly with with the prior year numbers um and quite a lot going on there are there are probably more moving parts than than normal um you know i mean taking taking grocery there's probably probably a few bits to call out i mean as you said um you know we are seeing higher profit um flow through because of the increase in the in the branded sales um and that is flowing down but again if you're looking against two years ago as you like we we do have we do have marketing costs and marketing related costs that we slightly higher in this half versus two years ago. And sweet treats, I think that's probably slightly different position. I mean, yes, we are seeing the benefits of the branded sales come through. But as you say, we are getting a sort of better drop through. And that is, you know, that is a lot to do with some of the COVID costs. So you might remember us talking last year around the sweet treats, sort of more manual nature of the sites and more normal volumes going through last year. That meant that we were seeing disproportionately COVID costs in our sweet treats factories. within grocery, we are seeing lower COVID costs as well versus last year, but also because the volumes dropped off, then there's probably a bit of a less pronounced impact year on year. But on sweet treats, we are contributing to the profit and I think it's worth remembering that it is you know it is a a strong profit increase year on year on sweet treats and it is you know less pronounced but still you know pushing the margin forward versus two years ago without getting into the weeds and going too far back Martin if you look three years ago I think our contribution is broadly in line with where we were three years ago and that was when we started to really invest behind the brands in particular in particular Mr Kipling so the margin did take a bit of a dip as we invested I guess I guess disproportionately behind Mr Kipling but I think we're starting to see the benefits of that flow through into this house numbers okay thanks for that Duncan thank you no further questions have been submitted so I will hand back to your host

thank you everybody for listening and thank you very much for the questions by way of wrap up as I say we feel as though we've had a really strong first half of the year and we've taken a lot of momentum now into the second half with lots of