Premier Foods plc

Thank you very much and good morning, everyone. Thanks for joining this, our quarter three trading update call. That, of course, covers 13 weeks to the 31st of December 2022. I'm also joined on the call this morning by Duncan Leggett, our Chief Finance Officer. So I'll just give an overview of the third quarter trading before handing over to Duncan to provide an update on our manufacturing footprint. And then we'll open the call, as usual, for questions. So the headline today is that we've had a really strong quarter three in what is, of course, our most important trading quarter. And so that's building on the trading momentum that we've delivered already so far this year. And the promise is particularly evident in our grocery business and with all of our major brands delivering excellent sales growth compared to last year. And so with this strong quarter now behind us, we're well on track to deliver on expectations for the full year. If we now move on to look at some of the key figures that make up this morning's statement, So Q3 group sales increased by 12% compared to last year, and so year-to-date now group sales are ahead by 8.6%. So Q3 was therefore obviously stronger than the performance that we reported on in the first half of the year. Now, just to note that these figures exclude the impact of the Spice Taylor, and I will come back to Spice Taylor shortly, but if you include the Spice Taylor, then group sales growth was 13.3%. And then, of course, building and growing brands is core to our business model. And so, importantly, our brand grew by 8.8% in the quarter compared to last year, which means that we're now up 5.9% year-to-date. And I think this demonstrates the strength and continued relevance of our brands to consumers in the current economic environment. And, of course, that great brand performance continues to be underpinned by our brand's growth strategy, the leveraging of our great market-leading brands, and bringing highly relevant new product innovation to market that's based on our in-depth understanding of consumer needs and consumer trends. And then, of course, we also support our major brands in engaging in meaningful advertising and marketing campaigns, and that keeps the brands relevant and top of mind for our consumers. And then we deliver excellent in-store execution for our strong retail partner system. Whilst that's always important, it's especially the case in quarter three, which, as I said, is our key quarter in terms of sales. And if you were out and about and got a chance to look in any stores on the run-up to Christmas, you'll have seen that many of our products are being displayed around the store. Yet again, we've invested behind many of our brands in the quarter with Bisto, OXO, Mr. Kipling, Bachelors and Ambrosia, all benefiting from TV advertising in the run-up to Christmas. During the quarter we brought to market several new products, a number of which were geared towards people enjoying Christmas lunch and this included ranges such as Bisto pigs in blankets flake of gravy, OXO turkey stock cubes, Paxo turkey and bacon stuffing and Bisto roast potato seasoning and we also introduced a new local version of Paxo stuffing. Additionally, we've recently launched further new products focused on healthier and also plant-based eating, and that includes Plantastic Millionaire Flatjacks, Plantastic Protein Boost Popsmacks, Atula's Meat Free Pops, and I should point out that this marks a change in our approach to Plantastic and that's based on all our learnings from consumers so far with the brand and this new generation of Plantastic products are designed to be delicious first and foremost, and then they happen to be plant-based. There is no taste compromise for the consumer by eating a plant-based product. In fact, personally, I think the New Millionaire flatjags are one of the best tastes we make, full stop, plant-based or not. In terms of market share, our grocery brand continued to take a healthy amount of incremental share at an overall level, so up 66 basis points over the 12 weeks of the 31st of December. As I've said before, we see this as a significant outperformance that reflects the strength of our brand, our proven brand growth model, and the strength and depth of our customer relationships. But in this top environment, where consumers are continually seeking value, this share performance is a strong indicator of our brand's resilience and how well they're positioned for future growth. If we now look into the details of some of the brands that have driven what was such a good quarter for us, The first thing to mention is that, and this is particularly the case in the grocery business, that the grocery scene is broad-based across the brand. So obviously pricing has played a significant role in that race. One thing that we did see this year was a particularly strong run-up in the week before Christmas as we sensed that many shoppers left their food shopping for that week before. All of our major grocery brands increase their sales either high single digit or in double digits for the quarter. Many of our product ranges are very popular as part of preparing Christopher lunches, so Bisto gravy, Oxford stock, Paxos stuffing and Ambrosia custard. And this year with no exception, as all of these delivered strong grocers. And not only did the established seasonal flavors do well, but we also launched new products to accompany Christmas dinner, such as a Bisto King in Blanket Flavor Gravy Banner, which I mentioned earlier, and which proved popular with consumers. So not only did those brands and product ranges perform well for us, but Sherwood, which grows some cooking sources and accompaniments, also had an excellent quarter, supported by our Best Restaurant in Town media campaign, which provides tasty and affordable meal ideas for consumers. And this campaign has proven to be very successful, and so much so we'll be extending the reach of this campaign in quarter four by moving it from a digital-only campaign along to mainstream TV. Yet again, Nissin, Sober and Cup Noodles continue their remarkable growth trend. As we've said before, these products deliver incredibly well on authentic product quality, and this, which drives a strong repeat purchase rate, has translated into exceptional sales growth. Their sales grew by almost 50% in the quarter, and the brand continues to increase its market share in the category and extend its leadership in the authentic noodles market. And despite the failure, it's performing well, so exactly as we expected, in fact. Sales grew double digits compared to last year, and also the integration is well on track. Now, turning to our street food business, which I remember has grown consistently well over recent years. Sales are actually 0.9% lower on this in the quarter, with non-branded up 22.7% and branded down 10.8%. And there's a very specific one-off reason for that, which I'll come back to in a moment. Mr. Kipling, in fact, increased its sales in the quarter, as the established core slicers range, both in its flat-pack format and also in the smack-pack format, both delivered good growth. and the launch of our non-HFF version of mince pies, which we call the illicitly recessive pies, helped deliver market share gains in the mince pie category of the quarter. Cabbage sales, however, were heavily impacted by some unscheduled maintenance on one of our mini rolls manufacturing lines, which resulted in a few weeks of lost production. Now, I'm glad to say that work's now been completed. Production did restart just before Christmas, and normal service to customers has now resumed. So, as I say, a specific one-off issue. In non-branded, some trends that we've seen in the first two quarters of the year continued into quarter three. The grossly non-branded sales increased by 29.3%, whilst retreats non-branded grew by 22.7%. Revenue in grossly non-branded has continued to see the benefit of a recovery and out-of-home hospitality volume in the third quarter compared to prior years, and also pricing benefit from retailer and label contracts. And a combination of new contracts in pies and tarts and price benefits delivered strong revenue growth in non-branded fruit treats as well. So therefore our year-to-date basis grocery and fruit treats non-branded have grown by 23% and 24% respectively. Now if we move on to talk a little bit about our overseas business, I'm pleased to say that we continue to make good progress on what is, as a reminder, one of our five strategic road pillars. So sales in quarter three increased by 10% of constant currency. And on a year-to-date basis, we're also at the same level. So consistent and strong progress this year and great to see from our international team. And we said that we've got three key brands now, which are the strategic focus for those of these, and they're Mr Kipling, Starwood, and now, of course, the Spice Taylor. And our future international expansion will continue to be focused on these three brands. Charlotte's delivered very strong growth in Canada, thanks to increased distribution of cooking sources in Walmart, and in Europe, growth was led by Germany, Cyprus, and Malta. In Australia, Mr. Chisholm continues to deliver great progress with further strong increases in sales, growing market share, which incidentally came at the expense of own label, and household penetration gains. And Leavens Bakewells, which we launched a few months ago, are doing particularly well, and they contribute to a fairly significant amount to that growth. Now, in the USA, as you know, we've been testing our cake proposition. It's performing very well with all the flavors that we've launched performing in the top two core sales when you rank all the cake sales that are sold in Target. And now we're looking to expand our distribution to additional new customers. I'd like to hand you over to our CFO, Duncan. He's going to provide a brief summary on the proposed closure of our night and manufacturing site and also briefly on pensions.

Thanks, Alex, and good morning, everyone.

So, those of you who follow us closely will know that we're focused on growing the leading brands we have in our portfolio. As a reminder, over 85% of our annual sales come from our branded portfolio. And it's really growing our brands through our established and proven branded growth model, which is how we deliver progress and generate value. So, our life on the site manufactures predominantly non-branded products, which attract much lower margins than the rest of the business. The site's underutilised and is marginally unprofitable at trading profit, so you can see this really doesn't have a strong fit with our great strategy. After careful consideration and subject to colleague and employee consultation, we're proposing to close the Knysen site. We know this will of course result in much uncertainty for colleagues at Knysen, and we'll support them as much as we can through this process. In terms of strategic rationale, we're increasingly focused on driving our branded business and investing behind and growing these brands. That's why, for example, we bought the Spice Day last year. This is a perfect example of a growing brand with further great potential that aligns very strongly with our five-pillar growth strategy. In terms of the existing business that is manufactured at Langdon, the branded products will be transferred to other sites in the group and most of the non-branded products will be carefully managed for exits Changes aren't expected to stay safe until the middle of this calendar year. What does this mean from a financial perspective? Well, subject to the outcome of the consultation, there'll be some restructuring and redundancy cash costs of approximately 10 million, which will be incurred next year in FY23-24. Ongoing, there'll be a small benefit to trading profit. Now, this is really from FY25 because of the phasing of the closure next year. But this is margin accretive to the group, although we, of course, will use this where we think appropriate to continue to invest back into business to grow our brand. In terms of the quantum of the sales we expect to exit, this is about £27 million. And because of the exit of the non-branded sales, this will have a positive benefit on our branded mix. just under 89% and just for clarity all the sales we're talking about are currently reported on our grossly non-branded in our sales segment disclosures. Then finally for me just to confirm that the 2022 pensions valuation remains the same and we'll update in due course. So that brief overview of nines and pensions I'll hand you back to Alex. Thank you Duncan. So I just want to recap on our five pillar growth strategy, which is what we're focusing on to build the business over the medium term. So firstly, continue to drive growth in the core UK business using our branded growth model, which we know works so well for us. So as you'd expect, we've got a full pipeline of new products for next year, which we're already working through the plans for launch over the coming months. Secondly, investing in our supply chain infrastructure to increase productivity and efficiency. And as you might recall, we've got plenty of capital projects in the pipeline which have attracted payback periods. The third pillar is then expanding into new categories in the UK and again deploying our proven brand of growth model but over a broader range of categories. And there's several examples of initiatives we're experimenting with here and they include things like the cake, curds and spice range, ice cream under Ambrosia and Mr Kipling brands and Ambrosia made sweet porridge pots which by the way have now reached a million pounds of sales so far this year. So lots of activity going on in that area. And then the fourth pillar is building our international business, of course, towards critical mass. And as you've seen today, the overseas business continues to progress well, and we're very happy with that progress. And then the fifth pillar in the strategy is looking for further modest bolt-on acquisitions to broaden our portfolio, and that's following on from last year's acquisition of the Spice Taylor, which was the first for 15 years. So this is a wrap-up from me then. So look, we've had a strong quarter three, and that has called out in particular our grocery brands, which performed particularly well. And we've grown faster than our grocery categories, so that's increasing our market share by 66 basis points. Our brands are demonstrating strength and resilience against the backdrop of a tough consumer environment, and that's underpinned, of course, by our brandless growth model. We're still seeing input cost inflation, and as previously commented, we'll continue to deploy a range of measures to deal with that. But in summary, we're well on track to deliver on expectations for this financial year. So all in all, I think we're in good shape for the rest of this year, but also now as we look forward into next year as well. And with that, I'd like to thank everybody for your time, and I'll stop there. We'll pass back to the operator, and we'll be very happy to take any questions. Thank you.

Thank you. If you would like to ask a question, please press star then 1 on your telephone keypad. We have the first question on the phone line from Andrew Ford of Peel Hunt. Please go ahead when you're ready.

Morning, Alex. Morning, Duncan. Well done. Really good performance. Just on the growth this year, so you've banded up really strongly into a bit more interesting retaking market share. What do you think the main driver for your performance at the competition was this year? Was it better promotions? Was the holding price better? Or was it outperformances of those new products you mentioned? And then just one more. In the US, you mentioned a successful test in Target. Yes. How successful are we talking and what can we expect from that relationship going forward? That's really interesting. Thanks.

Well, I'm doing thanks for that. So, yeah, drivers are great. I mean, there's nothing particularly new or different here. I think what we've done is executed our model very well. So it's a combination of the fact that we've been moving products through the year. We supported our brand very strongly with media campaigns during the course on the run up to Christmas. We did have a new range of products that were specifically targeted at the kind of meals that people cook at Christmas as well and that helped. As I said, if you were out in store, the number of displays and the execution we had in store this year, I think, was particularly strong. So, you know, there's no magic here other than just, I think, really great execution of our branded clothes model, which we've talked about a lot. In terms of targets, so how successful are we talking about? Well, I think, you know, probably the way to think about this is what we do is we look very closely at how well the product sell in an average store. So we look at something we call units per store per week, which is the average number of units sold by an average store in a week. And we rank that compared to all the other cakes that Target are selling in those same stores. And what we're looking for is to be in the top half of that ranking and where we got to is a point where all four of the flavours we were selling were in the top 50% of Target's cake ranking and that's a fact. In the more recent weeks, two of the flavors have actually stepped into the top quarter. So we're pretty pleased with that. That's pretty successful. And I think whilst there's some learnings and some tweaks that we will make to the proposition, we're certainly at the point now where we can start to look at rolling that out across other customers. I think the thing to bear in mind with Target is those 200 stores are their stores with a decent-sized grocery unit within it. The 2,000-ish stores that Target have got are largely general merch, of course. So I don't necessarily think it means that we'll extend to 2,000 Target stores. But what it does mean is that we'll start talking to other customers now with a view to a rollout. I think the speed of that rollout will be quite different from what you see in the UK. Obviously, in the UK, we've got quite a concentrated trade. And you're talking about a handful of customers make up a large proportion of the distribution in the U.S. for those that are familiar with it, is much more fragmented with many, many, many chains of thought. So it will be a process, let's say, to get around and talk to all those and convince them to listen. We'll embark on that journey in the next week. Great.

Well done. Thank you.

Thank you. We now have the next question from Martin Debo of Jefferies. Your line is now open. You may proceed.

Yeah, morning, everybody. Can you hear me? I'm on a headset. Just want to make sure you can hear me. Yeah, we can hear you fine, Martin. Yeah, good. OK, good morning. Just want to sort of build on Andrew's question. I want to sort of try and reconcile in my mind the sort of strong Q3 with... the guidance statement, which, while clearly more confident, isn't actually an upgrade to expectations, and just sort of understand what's creating the relative caution there. To come at it from the way I'm looking at it, James, you know, branded grocery in Q3 15.5 is a very strong number, and it compares to, you know, read across them around from Tesco and Sane Free Updates and Kantar, you know, the suggestion seems to be that UK grocery is a whole group five to six in calendar Q4. You're taking 66 pips of share, which sort of feels to me like you're outperforming the market by one to two percent. So I can sort of get to sort of seven to eight percent growth in Q3, but not to 15. So I think Questions on my mind, has there been any bring forward of sales out of Q4 into Q3? Is that something you need to think about? Are you worried about, you know, putting new pricing into the market in your Q4 calendar, Q1, and potential some under-recovery that you want to build a sort of safety margin into? Or are you thinking that, you know, rather than return the sort of bumper Q3 into trading profit, you want to reinvest that in marketing, which I would completely understand. So you can sense what's in my head. How do I bridge the very strong Q3 with the sort of maintained on paper guidance for the full year?

Yeah, sure. Thanks, Martin. sales here into Q4 that we're aware of. We focus retail or stock levels and we monitor that pretty closely and our exit stock levels at the end of the quarter were pretty much where we'd expect them to be so not being an issue there. We're certainly very pleased with what was obviously a very strong quarter. I think, you know, does that increase our confidence for the full year? Yes, it absolutely does. Why are we not giving an upgrade today? Well, I think there's still, you know, there's still a few months left to run. But also you'll remember that quarter four is when we do our annual price increase. So that's in progress now. And I think, you know, once we've got that behind us, things will be a bit clearer.

Okay, that's very useful to hear. Thank you.

Thank you very much. Our next question comes from Clive Black of Shaw Capital Markets. Your line is now open, Clive.

Thank you. Morning, gentlemen. Yeah, to replicate yours, well done. Thanks for the call. A couple from me, please. Could you give a feel for the level or quantity of marketing activity year on year, Alex, and its contribution maybe that you think to this very strong share gain, really. And I just wonder whether we should be anticipating, again, given the very strong performance of non-branded, whether that should be a little bit more in FY24 than we would ordinarily expect. anticipate, noting that you've underscored that a lot of non-valid activities are annual contracts. That would be helpful. Thank you.

Yeah, thanks for that warning. So, marketing year-on-year is off. And, you know, that's part of what we've talked about before, which is our sort of long-term commitment to continue to increase investment behind the brands, which, you know, will narrowly come through much expansion as well as top-line growth. So we're continuing on that journey. a slight departure from our normal average life, you know, based on the current environment. But I'd say that's worked very well for us. So we're going to be putting more investment behind that in Q4. And that, as I say, will move on to mainstream TV. So, you know, we continue to increase and we'll, you know, almost certainly do the same again next year as well. In terms of non-branded, you've got a number of factors in there, haven't you? So we've got some new contracts that we won on the case side of the business. Now, obviously, they will then anniversary themselves as we get into next year. So if you can pass that in. We've got that return to out-of-home eating on some of the non-branded It's not literally fair that some of that comes out of 9. And again, I expect that to phase out, but then of course, you know, eventually we'll get to a point where it phases out altogether. But what we've got also in there as a key driver is price. And I think as we go through next year, you know, the pricing that we... will still flow through next year but putting avoidance of doubt, our strategic focus is absolutely on our branded business and there's no change in that despite the high level of growth we are incidentally getting from non-branded and that will continue to be the case.

And just by way of follow-up to Martin's observations, Given the supermarkets also talked about a material increase in private label participation across the aisles, it suggests that your share gains have been particularly noticeable. That's an understatement, maybe. I just wonder what you felt about that, given the very clear narrative from a wide range of mainstream supermarkets that private label has gained material share.

Yes, I'd be lying if I didn't say that we're delighted by the market share gains. We see that as one of the strongest numbers in this sort of result today because in the current environment, I think it tells us a couple of things. It tells us how resilient our brands are in the current environment and also how well our branded growth model is still working. So we're really, really pleased with that. What we do see in some of our categories is you see private label increasing its share and our brands increasing their share and then consequently there are other brands in the mix there that are clearly losing quite a lot.

Do you want to give any comment on which categories they would be? One or two maybe?

To be fair, the chair game was pretty broad across the road. If I'm honest, it's not particularly helpful to pull it out. A particularly strong game I would probably suggest in diverse. But, you know, other than that, it's pretty strong across the board.

Thank you. Appreciate that. Well done. Thank you.

Thank you. As a reminder, to ask any more questions, it is star followed by one. We now have another question on the line from Brian Randall of Tiviot Partners. Please go ahead. The line is now open.

Thanks. Just a quick question, really, Alex, on input inflation. I think at the beginning of the year, you were talking sort of 8% to 10%. You saw this was probably going back to March last year. I just wonder where that is currently sitting and whether, you obviously talked about the price rises which you're in discussion with, but are we seeing any signs of that input inflation easing or are we still talking similar sort of levels? Any sort of guidance on where it currently sits as a stock basis, but also where you're pursuing it into next year would be quite helpful.

Sure. Morning, Bonnie. So, We're still seeing some pretty significant price inflation coming through. A lot of that is still driven by energy, but also or milk or whatever it is. And it's pretty broad across the piece. So, you know, the input cost inflation we're looking at at the moment, casting forward, is still double digit and, you know, less what we've been able to offset through procurement strategy, less what we've been able to offset through efficiencies and savings is what essentially manifests itself in our quarter four price increase that we're currently talking through with customers now. So no immediate let off. I mean, you know, optimistically one might hope that things sort of calm down as we go through next year, but, you know, I'll probably believe that when I see it.

Okay.

Thanks.

Thank you. We have no current questions on the line, but as a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. I can confirm you have no more questions, so I'd like to hand it back to the management team to close.

Well, thank you, everybody, for dialing in. I hope you can see we've had a really strong quarter in, as I say, our team's quarter for the year. And that market share gain, as I said, is particularly encouraging. And with that, you know, we're well on track and I think in good shape for the year. And also it's been pretty good about next year as we start to look forward to that as well. So thank you very much.