Premier Foods plc

Good morning, everybody. Thanks for joining this, which is our quarter one training update call, and that covers the 13 weeks to the 2nd of July this year. I'm also joined on the call this morning, as usual, by Duncan Leggett, our CFO. I'll start by giving a few headlines of our training in the quarter, and then we'll dive into a few of the key details, which will provide a bit more colour, as usual, before we pass on to questions. Also, while everybody's on, as a reminder, we've got today our ADM, which is at 11 o'clock this morning, which we're hosting at our office here in St Albans, and also with an option of attending virtually. So if any shareholders would like to attend that and don't have the details, then by all means, please contact Richard Gordon in IR for details of how to attend that. Come on with the quarter one results then. So overall, I'm very pleased to say that we've had a strong start And that strong start means that we are firmly on track to deliver on our full year expectations. Looking at some of the other headlines, we've also continued to gain market share. That's building on the share gains that we made last year. And our international business has grown a double digit for another quarter. So if we go for a brief review of progress in the quarter then, importantly our brand of growth model continues to deliver really well for us and you can see this playing out by the fact that our brand of sales grew by 4.2% in the quarter and with the grocery brands up by 4.5% and sweet treats up by 3.3%. So again, a very good result. And as a reminder of our brand of growth strategy, I make no apology for reiterating this for those of you who heard it many times before because it is a the last few years. And that is we start with a portfolio of brands which are obviously leaders in their categories. They've got very high household penetration and obviously very well-known brands to our consumers. And then we listen very carefully. We listen very carefully to our consumers to make sure we've got an in-depth understanding of how they're cooking and how they're eating and how that's changing so that we can bring to market insightful new products which are based on those columns and changing consumer needs and trends. And then we support the brands with emotionally engaging and meaningful marketing and TV campaigns. And then finally, and really importantly actually, we work closely with our key retail partners to make sure that we're delivering excellent internal execution for the brands. So if we look at some great examples of this branded growth model and the activity in the quarter, so in April, we launched the category first, and that was the Mr. Kippering Deliciously Good Cake. And this healthier range, which was a good three years in the making, actually, and it's quite a technical breakthrough, is an entirely designated as non-HFFS, so that's not high fat, molten sugar. It's got 30% less sugar. that our core range is considerably less fat. It's got 10 times the amount of fiber and it's made with real fruit. The product tastes really great and so far they've been received well by our consumers and we've always delivered over a million pounds of sales since we launched it. On the next slide, East Asian cooking sauces and they include flavours such as Thai red curry, Japanese teriyaki and Thai jungle curry and these really help consumers to enjoy an authentic delicious dish at home with the convenience of having the sauce ready-baked for them and obviously at a fraction of the cost of eating out. You might also remember we recently introduced Ambrosia Porridge Puffs It's a convenient, ready-to-eat range of breakfast porridge in three flavours. And neither of us say they're ready-to-eat. They're not a dry product. They're made with creamy West Country milk, which is what you'd expect from a gravy, of course. And this is because when we were working with consumers recently on this development, we discovered that a ready-to-eat product of this nature delivered a much better tasting product that consumers much preferred to the dried options that were already available in the market. And of course, it's performing really well. It's now available to a number of leading retailers. And I think, to me, this is a really good example of us leveraging those strong brand equities to generate incremental revenues by expanding into wide space categories. And of course, breakfast for us is a new meal occasion as well. If you look at all the rest of our brands, they're really targeted on other times of the day. Another important element of the brandless growth model is investing behind our brands, including in advertising. And in the first quarter, we advertised Mr. Kipling, and that's our largest brand, of course, on TV with a new advert, which we called Piano. And this captures a nostalgic moment between a father and daughter that's been moving out. For me, this is a really good example of what I mean by emotionally engaged, emotionally engaged approach that we employ to build this emotional connection between our brands and our consumers. And again, this year we plan to advertise six of our major brands on TV and also supported digitally to increase our overall brand assessment compared to last year. A key benchmark for us is how we're performing against others in our markets of course. I'm pleased to say that we've, as we've done in recent years, we've continued to increase our market share and this is the case both in stores and also online. And then of course the topic of much debate has been the widespread inflationary environment and as we indicated back in May we're seeing another wave of input cost inflation coming through the system Now, as always, we've looked to offset this inflation by using a range of measures, and that includes our hedging strategy, includes our efficiency programmes, and then it also includes pricing. I'm really pleased to say that we've made good progress here, and we've recovered, at this point, all the inflation that we've seen to date, so this course has been a good provision in terms of thinking about the rest of the year. We will, of course, continue to monitor the situation very closely, and if we need to take further action, of course, we'll do so. So the recovery of these increased costs through pricing is largely only taking effect now. So these impacts to our top line are likely to come through in subsequent quarters. But to be clear though, we do have price benefit in the numbers reported today, but that's the effect of the price increases we put through in the latter part of 2021. So in summary, there's some pricing at the end of the quarter. Now, shipping out price and volume this quarter is a rather complicated picture with quite a few moving parts. Yes, overall pricing is playing a big role as the overall sales growth is 6%, which we supported this morning. And, of course, we always expected to see some softer volumes in the course, didn't we, as we're lacking a cross-comparative from last year's Q1, when, if you remember, eating out of home was still restricted, and so we were benefiting around the Then going in the opposite direction, we've got the branded growth model, which drives holding growth. But then the third key factor here is that we inevitably have got an element of holding elasticity impacting the numbers in there as well. So it's a complicated picture with lots of moving parts, and one which we're tracking very closely. In terms of emerging trends, our consumers are telling us that they're increasingly looking to cook affordable meals at home in order to save money rather than getting a takeaway or eating out. And as you know, we've got a broad portfolio of leading brands which resonates strongly with consumers. And many of our follow-up names are wealth additions to help consumers create those tasty, affordable meals in a convenient way. In terms of what we've actually observed in the quarter, you know, both backers and missing noons have both seen particularly strong growth and we believe that this is an indication of what consumers are telling us, which is them looking to make both tasty, affordable, convenient meals at home. And as we look forward over the next six months, in the research is suggesting that well over half of consumers in the UK are now planning to save money by reducing the number of takeaways that they're going to buy and how frequently they eat out. And, of course, look, you know, we all need to eat, don't we? And, you know, cooking at home is always going to be the cheapest option. And depending on how you choose to prepare your meals could also well be healthier as well. So therefore, with a greater proportion of meals likely to be eaten at home, we expect to be a beneficiary of that trend, obviously. Now, yes, there may well be a trend with some consumers purchasing more of label products, but we expect that with more meals being eaten at home, that that will be a significant offsetting effect. Moving on to our non-branded sales, so you can notice in the middle our non-branded sales were up 19% in the quarter, and this is driven by three very specific effects. So firstly, remember that our non-branded sales include sales through out-of-home average, and obviously those sales are now recovering strongly from the pandemic restrictions, along with the wider recovery of the out-of-home sector. And secondly, we've won some new private label contracts in Switzerland, And then, of course, as you would expect, there's some pricing benefit in here as well. And to be clear, what we're not seeing is any widespread effects of consumers trading down to our branded product bases into private label. And I think, anyway, you can see the evidence of that in our continued increase within market share. And then, sweetly, both Happy and Mr Kipling grew their sales in the quarter with a combination And as I mentioned earlier, there's the gifting benefits from the new piano TBS advertising and also the new deliciously good non-ACFS range, which has been well received by consumers. And the Capricorn age actually continues to perform very well as well. And you'll also be aware that one of our key strategic road pillars is to deliver great overseas. And as I've said before, this will be in the key target markets of Ireland, Australia, North America and Europe. And within these target markets were focused, of course, on Mr Kipling and Charlotte, other than Ireland, which is a more established business and carries a broader portfolio of brands. So our international business performed very well for us again over the first quarter. Sales were up by 12% on a constant currency basis. And the key driver of that was actually in Australia, obviously one of our key target markets. where we delivered particularly good performance from Mr Kipling in Cadbury. And in fact, Mr Kipling achieved its highest ever market share of over 11% and extended its position as the number one brand of the category in Australia. Now, together with an increase in Cadbury case market share as well to over 6%, we've now got a 17% share of the case market in Australia. We've got the number one and the number two brands, and as we continue to build towards the strong position that we occupy in the category of the UK. And this performance is really to continue strong performance of our core range and getting that core range execution into In Ireland, Nick and Noodle continue to perform very well as they've done in the UK as well and in Canada and Spain we've had success in expanding the distribution of charwood which we expect to deliver benefits as we go through the year. Another of our strategic growth pillars is taking the brand-building capabilities that we've demonstrated in our core brands and expanding them into new categories in the UK. And as I mentioned, we've got a number of live initiatives in market here that take us out of our traditional categories into logical adjacent categories. And we're in the early stages of this, as I remember, but the porridge that I mentioned earlier is an example of that. And so with that, as a brief review of the first quarter's trading, our pathway has begun to provide a brief update on credit ratings. Thank you, Alex. Good morning, everyone. So, I just wanted to, I guess, update on credit voting. So, following the strong strategic and financial progress we've made in the last couple of years, it really seems we've got two further upgrades recently from S&P and Moody. They're really recognising the progress we've made and we obviously appreciate the constructive dialogue we've had with them over the years. So, when that move up to S&P now rates us as double B, and that's an upgrade from double B minus, and Moody's are now B83, up from B1, from both of the stable outputs. So this brings us to at least five upgrades across S&P and Moody over the last two years. Thanks, Duncan. And as we look forward to the rest of the year, we will, of course, bring further new products to market. We'll continue to increase our investment behind the brand and also to build our own new businesses and expand that presence in new categories. So I think we've got a strong quarter one behind us, and with common input cost pressures mitigated, we're firmly on track now to deliver on our full-year profit expectations. Thank you very much for your time. I'll now pass back to the operator and we'd be very happy to take your questions.

Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your phone is unmuted locally. As a reminder, that is star followed by 1 to ask a question. Our third question comes from Charles Hall from Peel Hunt. Charles, please go ahead.

Morning, Alice. Morning, Dalton.

Morning, Sean. What have you got?

A couple of questions, Steve. Firstly, could you just expand on the consumer's behaviour you're seeing? And you mentioned that you're not seeing consumers down trading from your brand to private label. But overall, are you seeing private label growing in your categories? And is there any difference between the different categories that you're represented in?

Yeah, thanks, Sol. So, yeah, I mean, the overall picture... As I say, it's really not losing shares to private label, but if you dig into the detail in some of the categories, there's lots of moving parts. Some brands have done better than others. In some cases, private labels have done better or worse, but it's a fairly mixed picture across the categories. But I think the thing that's keeping us strong is, and I think this is quite an important point, is when we're navigating the short-term challenge strategies. I think it's really important that we continue to drive the strategy and the things that have made the business successful over the last few years, you know, while dealing with the short-term challenges and not just get too wrapped up in the short-term.

That's great, thanks. And then, especially on the international side, could you just state a bit more on what you're seeing in North America in terms of the Mr. Kipping launches and obviously, sure, we're counting on it going well in North America. Maybe just give a feel for the scope of this potential for Sharwoods in international markets?

Yeah, of course. So, you know, Sharwoods in North America, we picked up quite a bit of new distribution and that will filter through more as we go through the year because obviously you get agreements with customers and then you wait until they get to the date when their shelving gets changed around. So as we go through the year, we'll see more of that flow through. When we, you might remember a couple of years ago when we did a big rethink of our international strategy and moved to a much more focused approach with a great emphasis on getting the in-market execution right. So essentially it moved from an export model to a brand building business building model. You'll remember that. All the research we did across multiple markets said that Mr Kipling and Sharwoods would be the first two brands to focus on. So rather than trying to build five brands overseas to focus on those two, and there's good reason for each of those, which we could go through. So, yeah, so Charlotte we feel pretty excited about. It's a developing cuisine in many markets. It's obviously very well developed in the UK, but it's a developing cuisine in many markets, and we're sort of in there at the beginning as it's growing quickly. So that's a nice position for us to be in. On Mr. Kirkland, in Canada... We've obviously made the changes post the test, and we're expanding into more stores, so that's going nicely. And in the U.S., we're live in market in the test stores with Target. We've got some early data on that, and it's bang in line with what we would expect off the back of the Canadian test. But I'd caution that that's one data point right at the beginning, and it's very early days. But if we get more information, we'll see how that goes.

That's right. Thanks very much.

Our next question comes from Martin Deboe from Jefferies. Martin, please go ahead.

Yeah, morning, everybody. Two questions from me. One is just a very short one for clarification, one is a bit deeper. Alex, you're talking about tough volume comps in the prior year. Can I just double-check that statement? Because my read of the prior Q1 was actually very soft. It wasn't the real problem that it was Q1... 21 that was the tough comp and that you're essentially still lapping that and obviously underlying three year growth is still positive I just want to make sure I've understood that comment about tough prime year comp volume comp correctly second question is moving to the commodities area because it's going to be so important through this year can I just sort of get the best understanding I can of how you're managing it you know how much of your commodity basket is sort of hedgeable in the broadest sense of the word and how does that evolve into actual technical hedging where you're actually buying hedging instruments how much of it is just forward cover and how much of it is just for the holding inventory and can you give any indication of what your total covered position is either for the first half or for the year so those are the questions

Yeah, sure. Let me take the second question first, if I may. So we don't give the split, if I'm honest, Martin, but you're right that we use all of those methods. So historically, we would anyway use a combination of forward contracts and also hedging instruments. in order to stabilize pricing. And some of those are forward contracts which at the moment have become really important in terms of securing volume as well. So that's one thing that's been there for a while. The other point you mentioned is also true. So we are holding more inventory. of some raw materials in order to make sure that we've got really consumative supplies, although of course it does have a stabilising effect on pricing as well. And sometimes that's where we're holding that inventory and sometimes where the manufacturer of the ingredient is holding it forward. So there's a basket of things happening there, but we consider it commercially sensitive as to what the mix of those are. If I move on to the volumes point. I think the point here is that a year ago, so two years ago, of course, there was an enormous pandemic effect and that clearly had a big positive impact on the business. If we then go to a year ago, whilst it's a a negative effect versus that prior year, it's still elevated versus today because there were still some restrictions that we were just coming out of in quarter one a year ago. So the year-on-year comparison to a year ago is still pandemic-related in the base, which takes you to looking at things over three years, but we've made a conscious decision to stop trying to compare to pre-pandemic and to just now move on.

No, that's very clear on that one. Thanks for that. And just on the hedging one, I've forgotten the question, Alex. I'll come back at the end if I remember it. Sorry, carry on.

Our next question comes from Doriana Russo from HSBC. Doriana, please go ahead. Sorry, your line is now open. You can proceed with your question.

Yes, sorry, I was on mute. My first question is on the retailer's attitude towards pricing. Are you seeing that the prices that you've taken across your categories are being passed on on the consumer, or are you seeing retailers' reluctances to pass it on and perhaps played in a different way. That would be my first question. Then I have a question on the UK growth versus international. Can you give us a number for how much the UK sales have increased in this quarter and what would be your expectation for the year? And finally, on inflation, can you give us a sense of what are the areas of major inflation? I mean, obviously, Everybody is talking about energy, but what other areas are you feeling a pinch on? And coming back to what was just discussed, do you see good availability and good access to all the raw material that you need to basically keep your supply chain secure?

Okay, so I've got four questions in the curriculum, but let's sort of see them in order. So, retailer finding. Well, you know, the first thing to say here is that, you know, that is entirely to the discretion of the retailer. We don't have any control over that. We'll pass on what we need to pass on to them. And it's really up to them as to when and to what extent they pass that through. And I can't give you a blanket answer because it's very dependent on on five rounds by retailer. But I would say, by and large, we are seeing our prices increasing in market. That's probably the way to think about that. The second one in terms of UK growth, I'd say probably down there in the high five percent, if that's helpful to you from what this would be. And then in terms of inflation, You know, my answer to this is going to be pretty similar to what I've said in the past, is it's pretty broad across everything. I mean, energy obviously grabs a lot of the headlines, and that's very true, but then you've also got to bear in mind that energy is a component of input cost inflation, too. as increases across other ingredients. Clearly, the war in the Ukraine has had an impact on, and we don't buy anything from the Ukraine or Russia, I should clarify, but obviously that's had an impact on global commodity markets, on the number of ingredients. So it's pretty widespread. And given the number of ingredients we buy across all our different brands, it tends In terms of availability of ingredients and raw materials and packaging, it's certainly better than it was. It's also still challenging. So far, we've managed all through, frankly, since the beginning of the pandemic, all the way through to now, we've managed to keep up and we've managed to continue manufacturing everything we need. I'd say our procurement team does a particularly good job in securing the volume for us and that includes, as I said in answer to Martin's question, that includes securing forward contracts because that gives us more security of volume and it also includes us buying forward ingredients that we need just to make sure we've got our arms around them. Did that answer the question, Doriana?

Yes, thank you very much. But can I also ask, if I'm not wrong, you do have some production facilities based in Europe. Now, in case of this gas disruption going on, would you be sort of exposed in any way to potential disruption from a reduction in gas supplies in the continent?

All our manufacturing facilities are in the UK, go ahead.

Thank you.

As a reminder, if you would like to ask any further questions, please press star followed by one on your telephone keypad. Our next question comes from Ella, who closed from Wellington. Ella, please go ahead.

Hello. Thank you for taking the questions, guys. I have three, please. The first one is on the input cost inflation. You had guided for low double digits for this fiscal year. I was wondering if there are any changes to that. The second one is on the price increases. You mentioned you're launching now. I was wondering if it's sort of in line with the sort of high single digits inflation we are seeing in the grocery markets. And the last one is the private label. You mentioned you aren't losing shares to private label. I was wondering if that's generally true for the categories or is it just you? Thank you.

Okay. So, yeah, thanks for that. So, simple cost inflation, as we said, would basically load up a video. I think that's pretty much what we're seeing play out. So, no change in the previous comments we've made there. In terms of how that manifests itself, that's not something that we commercially disclose. What we've always said is that we look to reduce the impact on price through cost saving measures and other efficiencies that we can make within the business and then we'll only pass on what we need to but that's not a number that we disclose. On the private label point, yes, you're absolutely right. We're continuing to increase our market share, so there's no wholesale loss of market share to private label from our brands. But as I said in response to one of the early questions, if you drill into it, categories by categories, there are winners and losers in each category across the different brands and private label, but it's sort of a mixed picture.

Thank you.

As a reminder, if you would like to ask any further questions, please press star followed by one on your telephone keypad. Our next question comes from Pateet Patak from BlackRock. Pateet, please go ahead.

Hi, morning. Thanks for taking my questions. Based on the discussion during the call, I'm just trying to confirm, if we look at the 6% growth in the quarter, is it fair to assume that despite write increases it was partly offset by some volume impact and also the fact that not all information is getting passed on to the to the daters or consumers I'm really sorry we can't we can't hear the question could you could you speak more loudly please closer to the microphone yeah hi is it now any better oh that's that's better yeah that's better I'm just trying to understand the 6% revenue growth in the quarter in the context of... We've locked you all together now.

It appears that critique line is disconnected from the call. We can move to the next question, which is from Clive Black from Shaw Capital. Clive, please go ahead.

Good morning, gentlemen. I also lost the connection to the call, so apologies. Two questions, if they haven't been asked already. Firstly, could you give us some colour on the promotional environment at the moment, reiterating the inflationary backdrop? And secondly, Alex, you mentioned the HFSS content of your Mr. Kittling, or non-HFSS, not to point. How does the adjustment of the rules in the UK influence your thinking about its impact upon your range? Thank you.

Yeah, sure. Morning, Craig. So, the commercial environment is actually not massively different, if I'm honest with you. I mean, you know, promotional prices are changing. You know, so a product that might have promoted at one price now might promote to a slightly higher price. And that's pretty widespread across the market, obviously, because in the UK, a lot of volume is sold at the promotional price, as you know, and sort of being inflated and flowed through to promotional pricing if you want something in the market. But other than that, I wouldn't say it's any more or less intense than it's been in recent years, to be quite honest with you. In terms of HFSS regulations, I mean, to be honest, the majority of our portfolio is not is not classified as HFSS or does not fall within the defined categories that the government's talking about. So the impact on the majority of the range is really pretty negligible. The difference being caved, of course. And I think where we are there really is the only measure that remains is the promotional location, so you won't be able to have a gondola end of cakes and biscuits and things, but obviously with our new non-ACFS range, we will still be able to promote that Mr Kipling range in the way that we used to on the same gondola end.

Cool. No, that's much appreciated, Morty. Sorry for losing your line. That's all right.

As a final reminder, to ask any further questions, please press star followed by one or the telephone keypad. Okay, we currently have no further questions registered, so I'll now hand you back over to Alex Whitehouse for closing remarks.

Thanks, everyone, for joining the call this morning. You know, as you can see, And, you know, for that part, we've had a really good start to the year. We've recovered the cost inflation that we're seeing so far this year. And, you know, on that basis, we're, you know, looking towards the rest of the year pretty optimistically and saying that we're, you know, we're probably on track. Thank you very much.