Premier Foods plc

Well good morning everybody and welcome to Premier Foods half year results and that's for the 26 weeks that ended on the 1st of October this year. As always I'm joined by our CFO Duncan Leggett and in a moment Duncan will take us through the numbers. And then I'll walk us through the progress against our five pillar growth strategy. But before that, I'll just walk through a few of the highlights of the first half of the year. So I'm pleased to say that quarter two continued the momentum that we had from quarter one. In fact, if anything, quarter two was slightly stronger than quarter one. And we finished the half with top line growth of 6.2%. The brands grew strongly at 3.9%. And I think what we're seeing here is that our consumer proposition and our strong brands are particularly relevant in the current environment. Trading profit was up 6.2%, so you can see that's in line with revenue growth, and obviously, therefore, we've managed to recover input cost pressures through a combination of cost savings and also through price increases. Adjusted PBT at plus 11.9% is obviously the flow through of trading profit into adjusted PBT plus, of course, a lot lower interest payments since we refinanced the business about a year or so ago. Now, net debt to EBITDA fell by 0.1 times, but bear in mind that is after paying for the Spicetailer. So another way to think about that is that we've essentially paid for the Spicetailer with one year's cash generation. And with that strong quarter and good momentum going into the second half, we're saying today that we remain on track for delivering full year expectations. Now, as well as that strong financial performance, we've also made good progress against all five of the pillars of our strategic growth plan. So on that first pillar of growing the UK core business, we've now got an average three-year branded growth of 5%. We've continued to invest in infrastructure, and that's with the intent of improving automation and efficiency, and there's a couple of examples of that I'll go through a little later. And we've continued to expand our brands outside of their core categories into adjacent categories. And they're admittedly from a small base, but we've more than doubled our revenue generated from new categories compared to a year ago. And then our international business has continued to perform very well with, again, double-digit growth, 11% growth in the first half of the year, and continuing to build those international overseas businesses to critical mass. And then the fifth growth pillar, so inorganic opportunities, where we've talked about this theoretically before. For the first time now, we've got a real example having acquired the Spice Taylor in the last six months. And we've also continued to make good progress delivering on our ESG strategy, and I'll come back to that in more detail in a little while. But before I do that, I'm just going to hand over to Duncan, who will take us through the numbers.

Thank you very much, Alex, and good morning, everyone. I'm going to spend the next few minutes talking through the financial highlights of the first half. And I'll start with the group headline results. Just as a reminder, these exclude Spice Taylor results. Obviously, we've only owned it for one month. And at total revenue perspective, Alex has just mentioned strong growth up at 6.2%. And really good to see good contribution from our branded business growing just under 4% at 3.9%. This is really the benefits of the branded growth model flowing through. Non-branded business has performed strongly, that's up 22.8%. There's a number of factors actually contributing to this, and I'll come on to these shortly. Moving further down the P&L, you can see our strategy of dealing with input cost inflation, so that being cost saving and efficiency programs to offset what we can, and then using pricing where we need to. You can see that playing through pretty well. Gross margins are flat to prior year and divisional contribution is up 8.4% to 83 million. Group and corporate costs are a bit higher this year. We've obviously got inflation in there. We continue to invest behind strategic roles and there's a prior year credit in the base. So where does that leave trading profit? So at 57 million, that's 6.2% higher year on year and trading profit margins flat. So how does this look at a divisional basis? Well, I'll start with grocery. So as a reminder, this includes our international business, which has grown 11% in the half. So that continues yet another period of double digit growth. Total revenue is up 6.7%. And again, particularly pleasing branded growth of 4.6%. So as well as pricing, we've got strong growth from a number of our brands, including cooking sources, Looking at non-branded, so that's up nearly 20%. And again, as a reminder, in our grocery business particularly, a lot of our non-branded business is out of home and business to business. And what we're seeing here really are volumes recovering back to more pre-pandemic levels. So a lot of that is driving the growth, plus an additional bit of pricing on our existing contracts. Further down the P&L, divisional contribution is up 9.2%. That's after investing a bit more marketing, half year on half year, and what's been a particularly good half in terms of our cost saving and efficiency programmes, particularly in our grocery supply chain. A similar overall picture with Sweet Treats. Total revenue is up 5.1%, and again, the brands are in growth, up just over 2%. So as well as pricing in there, we have seen lower promotional volumes during the half, but really pleased to have launched a range of deliciously good cakes, which is our first full range of non-HFSS cakes. And Alex will talk about those shortly. Non-branded again has performed well. That's up 35.8%. Now there is a bit of pricing on existing contracts there, but the vast majority of this growth is coming from new contract wins into the group. Once again, at profit level, margins holding pretty flat and divisional contribution is up 4.7% to 13 million. Moving further down the P&L, interest is again down half year on half year. This continues to see the benefit of our refinancing that we did last year. As a reminder, we did the refinancing in June, so we had three months of last year at the higher rate of interest, and that's really driving the reduction half year on half year. So that leaves adjusted PBT up 11.9% at £47 million and adjusted earnings per share up 11.4% to 4.4p. So looking at net debt, as a reminder, our half year is the peak of our working capital cycle as we build stock for our all-important Christmas period. You can see that in the working capital outflow there. CapEx of 6 million, that very much continues to be H2 weighted. And we've paid our second consecutive dividend in the half. That was a 20% increase year on year. It was paid as a final dividend, and we intend to continue on a final dividend basis for the time being. So that leaves, on a like-for-like basis, net debt just a touch higher than year end, and net debt to EBITDA are in line. And as Alex will talk about later, we're delighted to report the Spice Taylor in the period, and even after the acquisition of Spice Taylor, net debt is only two times, and importantly, lower than this time last year. I wanted to spend a couple of minutes on our financial resilience. We've been talking about a medium term leverage target of one and a half times for some time now, and actually at year end, we're at 1.7 times, so making good progress towards that target. We continue to be cash generative, operating cash flow conversion remains strong. And if you look at our capital structure following our refinancing last year, not only do we have a substantially fixed rate of interest with our bonds at 3.5%, we've got a good runway before we need to refinance. So our bonds have got another four years to run before they mature and our RCF about another three years with another one year extension. Now with currency movements quite topical over the last few months, just wanted to remind that we've got no direct exposure to the US dollar. We have a modest net euro purchases of about 50 million, and we continue to manage those in the way we always have, particularly utilising forward contracts. And we have no other material currency exposure. So pensions, you might remember that we're due a natural area valuation dated March 22. We hope to have that and be able to share that with you early next year. In terms of the progress that we have made, just a reminder that last year's Premier Foods actuarial valuation showed a significant reduction in the deficit of £125 million, and that's about £60 million on a net present value basis. And the RHM scheme continues to perform really well, actually. We think it's probably about buyout level. We expect it to push through the buyout valuation level and continue to build a surplus. And then we've got the Premier Food Scheme, which is making good progress by itself, and we'd expect that deficit to reduce. So quite a few things working in the right direction at the moment. I'm pleased to also be able to share there's been no adverse impact from the recent volatility and any LDI collateral calls. That's all been managed really well by the scheme. And of course, where we end up now is in a position where gilts are higher now than they were a few months ago. And all else being equal, that tends to be positive for our pension schemes. So final slide for me, just on guidance, guiding to a working capital outflow. That's very much relates to the impact of inflation, particularly on the value of our stock held. Capital expenditure continues to be a very key area of our strategy. Alex will touch on this a bit more later. We're guiding to a capex of about 30 million. As I said before, expect it to be very much H2 weighted and it continues to be important that we invest in more year on year behind what are still remain to be very good payback projects. So on that note, I will pass over to Alex.

Thank you very much, Duncan. So what I'd like to do now is just remind us of that five-pillar growth strategy, and then what we'll do is we'll go through each one in turn and look at progress. So over on the left-hand side, the first pillar of the growth strategy is continuing to build the UK core business, and that's obviously where our centre of gravity is right now, and therefore it's important that we continue to build that business, and that essentially provides the foundations for the rest of the growth pillars. The second growth pillar is investing back into our supply chain. We've obviously got a little bit more room for manoeuvre in terms of cash now in this respect and that allows us to do two things really. Invest behind the capability to manufacture the new products that we bring to market and you'll be aware from our growth model that we rely quite heavily on new products to generate growth. And then the other thing is to invest behind new pieces of equipment that improve our efficiency, improve automation and therefore that flows through into margins which we can then invest back into generating growth behind the brands. The third growth pillar is about expanding into new categories. We're lucky to have these really well known market leading brands and they clearly have got potential to participate in categories outside of where they've historically been. And we've got a number of experiments currently underway that I'll give you some updates on in a few moments time. And then the fourth pillar is building our international businesses to critical mass, and you'll remember we've got five focus geographies, and we now have three focus brands, the third brand now being the Spice Tailor, and we've continued to make good progress there as well in the first half of the year. And then that fifth pillar is in organic opportunities, and obviously we've now bought the Spice Tailor, so from my mind that's a a perfect example of what we meant by bolt-on brand in organic opportunities and we will continue to look for additional ideas that are similar to the spice tailor as we go forward. Now, when we look across these five pillars, we see significant growth and significant growth opportunities for the business over the forthcoming years that goes way beyond what we can deliver from our existing brands in their existing categories in the UK. So lots of future opportunity there. And this is all guided by our purpose, enriching life through food, together with our ESG strategy. So what I'll do now is I'll go through the progress we've made against our ESG strategy, and then we'll come back and we'll walk through those growth pillars and the progress we've made in the first half of the year. So starting then with ESG, you might remember we relaunched our ESG strategy just over a year ago and now has three pillars to it, products, planet, and people. And there's lots of progress that we've made over the year, but I've just pulled out a few examples to share here. Starting with products on the left-hand side, We're particularly pleased with the deliciously good range from Mr. Kipling. This is a new range of cakes that are not classified as HFSS under the government's nutritional profiling model. That's high fat, salt, and sugar. So these cakes are lower in sugar, lower in fat, higher in fiber, and with more real fruit in them. And these are performing really strongly since we brought them to market. And they're part of an overall target, of course, to double the sales that we generate from products that meet high nutritional standards. The graph on the bottom left shows our progress on the percentage of plastics in our packaging that are recyclable. It was at 48% in 2019 and we're now over 80% and we've got a clear roadmap that gets us to 100% by our target date of 2025. Looking at the planet pillar, for the first time in our annual report, we calculated and published our full greenhouse gas emissions, and we've now submitted our targets for their reduction to the science-based targets initiative pending, therefore, validation. And then moving down, another thing we're very proud of actually is to be promoted to the top tier with the business benchmark on farm animal welfare. There are only three other companies in that top tier. So obviously we feel really pleased of what that says about our standards in that respect. And then over on the right in the people pillar, there's a lot of internal focus in the business now on mental health awareness, and we've completed training for almost all of the management population. And then the other thing we announced very recently was our new five-year partnership with our new corporate charity partner, which is FairShare. There's a very strong overlap between what FairShare wants to achieve and what we want to achieve through our ESG strategy in terms of fighting hunger and tackling food waste. And one of the things that we've committed to do there, you might remember, is to donate a million meals a year to those in food poverty by the time we get to 2030. And then in terms of external ratings, we're really pleased with the progress from Sustainalytics, who've just awarded us a four-point improvement versus our prior year standing. So overall, I think really good progress there and just a few examples of all the things that are happening in the business at the moment. And then with that, I'll move on to talk us through progress against each of the five growth pillars. So the first growth pillar, which remember, is about building and growing our UK business. And you might remember that the heart of that is our branded growth model. And there's four key elements to this. The first is the fact that we are lucky, as I say, to start with such strong brands. They're leaders in their categories. They've got high household penetration. And we also know that consumers have a really strong level of affection for the brands, which is really important. But that on its own won't give us growth. And so the way we drive growth is by really understanding what our consumers are doing in terms of how they're cooking, how they're eating at home, and therefore what we can do to help them with that. And that gives rise to our new product development pipeline. And there's a key pillar of the way in which we drive growth within the business is that new products based on consumer understanding. And then the third element is supporting the brands through sustained marketing investment. And yet again, we'll be increasing the level of marketing that we put behind the brands this year. That's continuing to advertise them, continuing to put marketing campaigns behind them, which builds the brands, maintains awareness, and keeps them contemporary and relevant to the consumer. And then the fourth but very important pillar of working closely with our retail partners. And so what we've realized over time here is that given that our brands have got such strong positions in their categories, By working closely in partnership with the retailers in order to help them build their categories, we tend to benefit disproportionately and get great in-store execution. So that remains an important pillar. And when you put all four of those together, we've been able to deliver consistent, strong performance from the brands in the UK. And in fact, if we look at that by looking at revenue generated in the first half of each of the last five years, you can see there's consistent progress there from bottom left to top right of that left hand chart with that very obvious peak in the middle, of course, during the pandemic when we were all cooking and eating everything at home. In fact, if you look at the growth over the last three years, we actually have generated on average 5% growth from our brands in the UK. Or another way to look at that would be that the brands are around 15% bigger than they were pre-pandemic. And then the majority of brands have continued to increase their market share as we've gone through the first half of the year, particularly in grocery, where we've seen particularly strong share gains from Ambrosia and Bachelors and Nissin and OXO. Now in sweet treats, we have lost a bit of share and we see that as being temporary, given that that's linked to lower promotional volumes. And then moving over to the chart on the right-hand side, it's also good that yet again we're increasing the average number of products that we've got in distribution. So what this is looking at is the number of products we've got and the number of stores that they're present in on a weighted basis. So a 92 basis points improvement in grocery just tells us we've got more products in more stores than we had a year ago. And that big leap in sweet treats is really a reflection of the rollout of that Mr. Kipling deliciously good range, which is now going out to more and more retailers. So overall, continued good progress in increasing our distribution levels. Now, of course, given the branded growth model that I've just talked you through, we, of course, brought a number of new products to market in the first half of the year. And I've just put a few examples of them here. I'll not go through them all other than to highlight some examples of that deliciously good range. And as you can see from the images, they might be not classified as high-fat salt and sugar, but they certainly look like Mr Kipling cakes, as you would expect them. And I can tell you they taste like Mr Kipling cakes. And the one I'd pull out as an example in grocery is the Bachelors Pasta and Sauce Chef Specials. And this is really targeted on what we're seeing. We're seeing a lot of growth from Bachelors at the moment, which we believe is coming from two things, people hybrid working and having more lunchtime occasions at home, and also people using Bachelors to help put a decent but low-cost meal on the table for the family. And this product is targeted against those occasions. And then this year, we're continuing to support with TV and digital campaigns around those six major brands that we did in the prior year. Now, obviously, all that's been achieved against a background of a very difficult macroeconomic environment. And if we start on the left-hand side, looking at input cost inflation, the input cost inflation that we've seen so far this year, we have covered by cost savings and price increases that have already been implemented. And you can see that in the steady margins that we've got versus a year ago, so holding on to the same margins that we had last year. And we are seeing further inflation in half two, and we will continue to address that using a combination of measures, which includes forward contracts for commodities and energy where they exist, working really hard on cost efficiencies to minimize the overall impact, and then increasing pricing where we need to. And just as a reminder, the group has no sales to or need to be buy anything from either Russia or Ukraine. I also thought it would be useful if we talked about consumer behavior, particularly in the current environment. And the one thing we're really seeing is that consumer budgets are increasingly stretched. But at the same time, we're also looking at what we've got as a broad and affordable range of products in the store. And we're certainly at the lower end of cost of what you'll find in your average store. And what we're also seeing is that consumers are using these products to put an affordable meal on the table for the family and I think the Home Pride pasta bake I've got there is a perfect example where pasta might be more expensive than it was but it's not in absolute terms particularly expensive and with whatever leftovers you've got in your fridge you can transform that into something really tasty and affordable with a Home Pride pasta bake and I think that's one of the reasons why we're seeing such strong sales of Home Pride at the moment. We've actually also created a digital advertising campaign which is designed to help consumers with recipes just like that which you can pull together and make an affordable meal for less than a pound per serving. So we think in that context, we've got a brand portfolio that's well-placed to perform well. And then the other thing we're starting to see now is early evidence of people starting to eat out less. And now earlier in the year, we were seeing a lot of consumers, when we were doing our market research, telling us that that was one of the ways they were intending to save money as pressures on the purse increased. But what we've seen over the last six to eight weeks, we think, is that that trend is actually now starting to become reality. And I think when you take those two key things into account, I think that's one of the key reasons why we're starting to see that our brands are still able to gain share in the current environment. Now, the second pillar is investing in our manufacturing infrastructure to drive growth and efficiency. And on the left-hand side, you can see this little virtuous circle we've got, which is as we invest cash into our manufacturing operations, it makes us more efficient. It generates more margin. We invest that into the brands, which drives more growth and consequently more cash generation. Nice examples here of things that we've installed in the first half of the year. The first one on the left is an automatic case packer at the end of one of the lines in our Stoke cake factory. And what that's doing is that automatically packing the products into the case at the end of the production line. So very quick and very efficient. And then the yellow robotic arm that you can see in the picture on the right-hand side is at the end of the Mr. Kipling Fondant Fancy line in Carlton. And what that's doing is it's stacking cases into a predetermined pattern onto a pallet. Again, very quick, very efficient. And then those pallets will get whisked off to the warehouse and I've used those two examples because I think that's where we see significant opportunity over the next few years in terms of making ourselves more efficient and increasing productivity particularly within those cake factories. Now, the third growth pillar is new category launches, so taking our well-known and well-loved brands into new categories where we historically don't derive any revenue. And there's about five or six experiments happening here at the moment, and I've pulled out three just as examples. On the left-hand side there, you've got OXO. This is OXO going into rubs and marinades. We really like this because it's targeted at the summer season and targeted at barbecues, when if you think about it, the rest of the OXO range tends to be used in products largely that we'll eat when it's cooler. So this helps to de-seasonalise the brand. We launched this in one customer two summers ago and it did very well. We've worked again with that customer to expand the range for the last summer. And as you can see, that's delivered more than double the sales that it delivered in the summer before. And then over time, we'll look at how we then start to roll that out into other customers. In the middle there, you've got ice cream. You might remember we developed this ice cream range with Iceland. And these products are exclusively in Iceland at the moment. Mr. Kipling, Ambrosia and Angel Delight ice cream tubs. I have to say this has gone significantly better than we anticipated. And we now have a 16% market share of ice cream tubs in Iceland. And we're now their second largest branded supplier of ice cream tubs. So we will continue to work closely with Iceland to develop that range and expand the performance further before at some point in the future, looking at taking that out to other retailers. On the right-hand side, Ambrosia porridge, that's something that we've launched more broadly right from the get-go. And this is really interesting because this takes us into a part of the day, into a meal occasion where we really have no other presence. If you think about it, our entire portfolio of products are really all eaten from lunchtime onwards, maybe mid-morning if you have a Mr Kipling cake with your coffee. And this takes us right into breakfast, first thing in the morning. And we've got a really super differentiated product. It's ready to eat. You don't have to add any water or any milk. And the reason we did that is because all the consumer feedback we were getting was telling us that we were able to deliver a much creamier, a much more delicious product. And you can see on the Bottom right-hand side there in that green circle, the high levels of reviews we're getting online, so that's 4.6 stars out of 5. In the first retailer we launched in, we've now achieved already an 11% market share. As I say, that's rolling out across most retailers now. If I move on to the fourth pillar, that's our international business and building our international sales, 11% growth in the first half of the year. Standout performance, I would say, was Australia, which was up 22%, and with a record-breaking market share for our cake business, extending our market leadership position in that category in Australia. And now with the acquisition of the Spice Tailor, we're also now the leading manufacturer in Indian cooking sources in Australia as well. In Ireland, we've continued to grow strongly in the major retailers, and standout performance has been Sober Noodles. You'll remember Sober Noodles we launched into the quick meals and snacks category and is now growing by 80%. If we move across to Europe, the focus there, of course, is about expanding the distribution of Sharwoods. I'm very pleased to say that we've just gained distribution of Sharwoods, of Sharwoods in Jumbo, which is Netherlands' number two retailer, and also in Carrefour Spain. And then in the United States, we've had really good performance from Sharwoods, growing by more than 50% in the first half, and that's really been around improved distribution and also the introduction of the healthier range, as you might remember, A couple of years ago, we launched a low-fat range into the UK, where we've now rolled that out into the US. And then in parallel, we're running our test of Mr Kipling in Target stores, in just over 200 Target stores. And that's performing well in line with our expectations at this stage. And then moving on to Canada, of course, we finished our test of Mr. Kipling in Canada last year. We've made the changes to the proposition that we learned during the test, and we're also rolling out to more stores. And that's delivered 30% growth from Mr. Kipling in Canada in the first half. And then we're also really pleased to have delivered 30 listings of 30 new SKUs of both Sharwoods and Spice Taylor into Walmart Canada, so obviously a major retailer in that market. Which brings me on to the fifth growth pillar, and that's the inorganic growth opportunities. And of course, since we last spoke, we've acquired the Spice Tailor. So why did we do that? Well, it's a great brand. It's got high growth. It's delivered 20% CAGR growth over the last four years. It's closely aligned to consumer trends of foodiness and convenience. And you particularly see this. It's such a high-quality product. What we see is incredibly high levels of repeat purchase. So the number of people who try the brand enjoy it so much that they come back and buy it again and again. And we always see that as a really good indication of a brand's potential. It's got an uncannily strong geographical fit with our business, so Spice Taylor's biggest market is the UK and its second biggest is Australia, so exactly the same as us. And it's got an early presence in Canada and Ireland, which obviously we will now look to develop further. The brand's highly complementary to both Sharwoods and to Lloyd Grossman, being bought by different consumers with different consumer needs. And ultimately, what we see here is an opportunity for significant growth. And when I say significant growth, I'm not talking about making the brand another 20% or 30% bigger, but I'm talking about making it several times the size that it is now. And how are we going to do that? Well, of course, we're going to do it through our branded growth model. So we will significantly accelerate the innovation rate using our MPD and R&D resources. And we'll increase investment, so marketing investment behind the brand, building awareness, household penetration, and trial. And then we'll work closely with our retail partners on distribution, because if you look at in the UK, you look at the rate of sale and how well the brand sells, in principle would warrant deeper distribution than it commonly has. And then, of course, we'll be working overseas to expand the brand within our focus overseas markets as well. So overall, we see potential here to make the brand significantly bigger than it is now. We'll increase some marketing investment behind the brand, but the underlying fixed costs of running the business will not change, or certainly not change significantly. And consequently, as the top line expands so dramatically, you can work out what will happen to overall profit delivery. It's an asset-like model. It's all co-manufactured in India, hence the authenticity of the product. And the commercial team is currently being fully integrated into our established business model. And that integration is progressing well and is fully on track. So moving on to look at half two, of course, given our model, we've got a great basket of new products that we're bringing to market. I won't run through all the examples that I've put on here, but probably just to pull out the Mr. Kipling gooey brownie bites at the top left-hand corner, which by the way, absolutely delicious if you get a chance to try those. And this is really a response to a trend we've seen post-pandemic, which is a trend towards small pieces of cake that people can share and that they can maybe sit and and eat while on the sofa watching a movie or something. So that's Mr. Kipling now gaining a presence in that growing sub-segment of the cake category. And then over on the right, as I say, we'll continue to support with both TV and digital activation those six core brands, and our plan is to increase investment versus what we spent a year ago. So really then to wrap up from me, I think a strong half one performance in a difficult environment, both in terms of revenue and in profit. And I think that again tells us the relevance of our consumer proposition within this current difficult market environment. We've made good progress on all five of our growth strategy levers. And as you can see, we're navigating that difficult inflationary environment. And then, as Duncan said, from a financial resilience point of view, we're working towards that 1.5 times leverage target. We're financed largely by 3.5% fixed notes that are fixed all the way out to October 26th, so giving us some protection from the current interest rate environment. And then I think, look, we've got that strong half one under our belt. We've got good momentum going into half two. And obviously, we're now halfway through our quarter three. And I can tell you that we're having a good quarter three as well. So with all that in mind, that's why we're able today to say that our expectations for the full year remain on track. So thank you very much for listening. And we'd now be very happy to take your questions. Thank you.

I'd like to ask a question. Please press star 1 on your telephone keypad. To withdraw your question from the queue, please press star 2. But again, please press star 1 to ask a question. We will take the first question from Charles Hall from Peel Hunt.

Hi, everyone. Could we just start on the threat and obviously there's been a shift from brand to private label. Do you want to just talk more about your and how you're performing against brands compared to the overall market?

I'm really sorry, Charles, but we can't hear you.

Is that better?

Oh, that is dramatically better.

Excellent. Start again. I was just asking about brand against private label and the overall category and then commenting about your performance and so your branded market share. And just if you could comment about how you've seen, whether you've seen any shift in the brand to private label over the period and going into Q3, which obviously you said you started well.

Yeah, thanks, George. Yes, it's a good question. So, yeah, I mean, the good news is through the first half of the year, as I said before, our brands have continued to increase their market share. Obviously, there's been quite a lot written about people moving to private label, but what's quite interesting when we drill down into a number of our categories, we see that we're taking market share but so a private label which inevitably means there are other players in there that are clearly giving up some market share for that to happen. And we think that's due to the strength of our brands, of course, the fact that we're continuing to support them with advertising and marketing, we're continuing to innovate and we're continuing to execute well in stores. I think that's all playing into that. And yes, good start to quarter three. We've continued, if anything, grocery market share has strengthened during Q3. In fact, the latest data we're looking at, the latest four-week data that we've just seen for partway through October is a is about 100 basis points improvement on grocery. So, it's an improving trend if anything.

And the one area that you picked out that you'd seen a decline in market share was sweet treats, and you mentioned that that was down to promotional activity. Is there any risk that private label takes more share in that market, or is the reality is that your increase in distribution points plus more promotional activity will counteract that in H2?

I don't think there's any more risk than any of our other categories, to be honest with you, Charles. You know, there is some shifts in promotional phasing. There's also some bending in of new promotional price points. And I think what's also encouraging, again, looking at the latest data we've got now over the last few weeks, the latest four-week data, Mr Kipling's taking market share again. So, that's all going in the right direction.

That's great. Thanks very much. The next question comes from Nicola Mallard from Investec. Please go ahead.

Morning. Thank you very much. Can I just ask a question on the pension? Duncan, you mentioned about the RHM scheme was approaching a sort of a buyout level, but then you wanted to sort of take it further into surplus. Can you give us a sort of any guide as to where the buy or when the buyout might happen? At what point, you know, are we two years down the road or three years or four years? Thank you.

Thanks very much for the question. Yeah, I think you know, as I mentioned, we are waiting for the actuary evaluation so that we sort of need to see we need to see what comes out of that and hopefully be able to share that. early in the new year. But I think where we think the IHM scheme is, it's probably about buyout level, which is obviously where we want it to get to. And obviously, the benefits of the merger that we announced a couple of years ago were all around increasing the surplus in the IHM scheme to help fund the Premier Food scheme. And clearly, the Premier Food scheme is performing pretty well by itself. So, we've got a bit of a reducing deficit on one side and an increasing surplus on the other side. So, I think we need to see where the valuation ends up. This is our best view at the moment, but we obviously need to let valuation play through. And clearly, the longer we can all feel comfortable running the IHM scheme on, the bigger the surplus is and the bigger the potential for the reduction in the deficit contribution. So, I think that will very much be a sort of balancing act as we move forward.

Great, thank you.

The next question comes from Martin Deboe from Jefferies.

Yeah, morning, guys. I had a similar question to Nicola, actually. Let me just push it a bit further. The answer you've just given on the pension would suggest you still see yourselves on course for the sort of buy out the RHM scheme model and inject the proceeds into the premier deficit. But I just want to push you a bit further. Is there not an alternative option now in a climate of rising gilt yields? to just let the deficit solve itself rather than pay a premium to an insurance company to buy out? Just where is the thinking of yourselves and the trustees on that? And then I have a second completely different question, which is clearly some of the inflation has been covered by cost savings. Are you quantifying the level of year-on-year cost savings the business is realizing? Those are the two questions.

Perfect. Morning, Martin. Thanks very much for the questions. I'll take pension one and start off the cost saving one and then pass over to Alex if there's anything that he wants to add. I mean, look, I think on pensions, the way we're thinking about it is, yes, in the rising guilt environment, that's generally positive for the scheme and in particular the Premier Food Scheme. But I think when we When we talk about buyout, clearly what we're trying to do, the longer we can keep running on the scheme, to your point, Martin, without physically buying out, then the bigger the surplus is. And the idea is that at a point in time in the future, when the surplus is big enough, there will be a buyout and the surplus will move to the Premier Food Scheme. not looking to buy out immediately. That would be what would happen in the absence of the merger. I think the beauty of the merger is that the IHM scheme continue to build the surplus without buying out and without paying that premium. And obviously that will benefit and improving from your food situation as well.

And cost savings?

Yes, the cost savings. I mean, it isn't something that we're quantifying, Martin, but in terms of our overall approach to input cost recovery, as you heard us talk about earlier, the cost savings and efficiency programmes are a really important part of it. And obviously, we then use those to offset as much as we can before using pricing to offset any remainder. I think what we have done and what we have seen is a really good cost saving and efficiency program, particularly in our grocery supply chain in the half. That's definitely contributed to the performance of the grocery segment. And that's really around a number of areas, to be honest, Martin. It's around sort of smart energy, so how can we reduce our energy usage, which is particularly important given the way prices are, and then increasing line efficiencies, increasing labour utilisation, which helps reduce waste as well on the line. So, there's a number of opportunities that we're looking at, but we're not splitting out, we're not splitting out contours.

Okay, thank you.

As a reminder, to ask a question, please press star one, We'll now take the next question from Clive Black from Shore Capital.

Yeah, good morning, guys. Thanks for the presentation. Following on a little bit from Martin's question on your cost base, could you maybe just give us some colour on how you see your labour process at the moment in terms of the availability of labour and maybe turnover? Also, to what extent is automation a strategic investment is out of the business over the next three years in terms of labor participation and then just secondly uh it's nice to hear that spice tailors um although it seems but is that a particularly distinctive acquisition for premier or is it um indicative of the sort of possibilities that are down the line on the on the acquisition front thank you morning clive yeah i'll pick those up so um in terms of in terms of labor i think

If you look at where the majority of our labour sits, of course, in our manufacturing sites, we have tended to have colleagues with quite long tenures in the business and also they're fairly skilled jobs, particularly on the grocery side where we are pretty automated. And so that's given us some protection, if you like, from the current labour market challenges. So the fact that people have been there a long time and they tend to stay there. And also the fact that we're not fishing in that pool of very low skilled labour because these are actually quite technical jobs these days. So certainly it's been more challenging than historically, but it's not been a major problem. I think it's probably the way to think about it. In terms of further automation, I would say yes, and particularly therefore on the cake sites, because the grocery sites are fairly automated already. On the sweet treat sides of things, there are remaining opportunities over the next few years where we can invest in in more modern kit, in automating things which are currently manual, like the examples I gave earlier, putting automatic case packers on the end of lines and things like that. There's definitely opportunity in that area that we're pursuing quite aggressively. If I move on to the spice, Taylor, yeah, I think it's indicative actually. So, when we were talking hypothetically about the sorts of things we might be interested in and we talked about bolt-on acquisitions of brands which could offer high growth and where our branded growth model would work in our view very well. And I think Spicetail is a perfect example of that. It even gives us some geographical expansion as well into our focus market. So, it was almost a perfect fit.

So, I would say on that basis, it's indicative. And thank you, Alex. And just to come back on labor, do you see automation running at a reasonably constant level or recent level as part of your capital expenditure? And what sort of payback do you tend to get on that automation?

Yeah, I mean, it's something we expect to continue to drive over the next few years, if anything possibly increase. Some of the challenges being availability and lead times on the equipment right now, which is a challenge in many things at the moment, isn't it? But yes, and still really good payback periods. So you might remember, you know, when we were more capital constrained, we would have a shopping list for each of the manufacturing sites of things we'd like to do with really quite nice paybacks. And we could only go so far down the list. And I think, you know, our cash position now allows us to go a bit further down the list. And so we're still looking at, you know, many projects with paybacks, you know, around three years. So it's still pretty healthy.

really helpful thank you guys welcome thanks thanks guys we will now take a follow-up question from martin debu from jeffrey please go ahead hello again gents i've got another one i'm following up again this time on clive on m&a um i i just want to try and understand how this going forward using Spice Taylor as the sort of the analogy. What's in my mind is you seem to me be quite sensibly buying in high growth, innovative assets that, you know, would be difficult to create in-house. But the challenge that Unilever and others have struggled with when they do that is the keeping the entrepreneurial spirit alive when it comes into the big corporate. So you mentioned on SpiceTailor, I heard that the outsource manufacturer in India has stayed and you brought the commercial team into the business. So I'd imagine the founders, I don't know, tell me may have gone. Just how, given that there's going to be more of this going forward, how do you find the balance between capturing the synergy but keeping the talent, I think is the question? Sure.

That's a really good question, actually, because it's something we spent a lot of time thinking about before we went ahead with this. So how do you keep the magic that got the brand to where it is?

Yeah, very good phrase, Alex. Yeah.

We see, you know, and we go into this, you know, humbly without arrogance because, you know, we don't want to break. what's something that's working really well. And I think a lot of the magic here is actually in the product. So it goes back to what I said earlier, is that there is a really fantastic repeat purchase rate that comes from the fact that the products are just absolutely amazing. And so for that reason, we still have Anjun, the original developer of the products, as almost like a consultant chef in the development of the MPD pipeline, because we felt that was really important to keep that magic. Now, on the commercial side, we think we can bring a lot to the party because there were lots of opportunities that the Spicetailer had as a brand and has, but which didn't have the scale to unlock. So, I think we can bring faster geographical expansion, we can bring a more intensive MPD programme. We've got obviously a much bigger sales organisation that we can interface with the retailers with. I think we've got higher levels of sophistication in the way in which we analyse promotional activity and use that to plan promotional plans. So, I think there's a lot we can bring to the table commercially. but the magic is in retaining the recipe quality. So yeah, we've given a lot of thought.

Okay, thank you.

We will now take a follow-up question from Charles Hall from Peel Hunt.

Thanks, can I just ask about the international slide where the momentum continues to be really good. And particularly Charlotte seems to be getting critical mass in a number of countries. Is this just a culmination of the strategy coming through? Are you putting more effort into it? Is there now an opportunity for international to be an even bigger contributor to overall growth in the business?

Yeah, thanks, Charles. I think absolutely, yes. So this is the strategy playing out. So you might remember, I mean, if we go back to when Duncan and I both came into our roles, we had a big question as to whether the international business we got was a distraction or not. But you might remember, you know, we did a review of that and decided that actually could be quite an interesting growth driver. And the strategy that we put in place at the time has really played through. I think the international business now is about 40% bigger than when we first started re-looking at it. If you look at what's driven the growth, it is purely the delivery of that strategy, which You might remember at the beginning I said a lot of this is just getting the basics right. Have I got the right products in the right stores, on the right shelf, at the right price, with the right promotional activity, which, you know, not the most exciting stuff in the world, but it's the nuts and bolts that make it work. And if I, for example, look at the great performance that we're getting on... Take in Australia is literally just a case of getting the execution spot on and focusing on a limited number of markets, focusing on a limited number of brands. So, we're very happy this is the strategy playing through. And I think, can it play a bigger role in terms of growth? It depends what you mean bigger than what. I mean, it's certainly bigger than it's playing now, yes, as it gains more critical mass and the growth rates continue. But actually, you know, this is in line with what we always anticipate.

And you've got more views now across a broader range of customers. Are you getting to a stage where you can have much more of a premier conversation with the retailers or is it still product by product?

We're getting there. I mean, if we park Ireland for a minute, because obviously we've got a full range there and have been there for a long time, I think with the acquisition of the Spice Taylor in Australia, it starts to become more of a premier conversation because then we have leadership overall leadership, if you like, of Indian sources, and we've got leadership of CAKE, so that starts to become a more premier conversation. Not yet at that stage in North America, though.

That's great, thanks.

As a final reminder, to ask a question, please press star one.

Well, thank you everybody for listening and thank you very much for all the questions. As you can see, I think we're in pretty good shape. Good quarter, a good half one under the belt and a nice start to Q3. So feeling pretty positive about the full year. Thanks very much. Thanks all.