Premier Foods plc

Good morning, everyone, and welcome to Premier Foods Quarter One Analyst Conference Call. My name is Kiki, and I will be coordinating the call today. During the presentation, your line will be muted. After that, after the presentation, if you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star followed by two. I will now hand you over to your host, CEO Ellis Whitehouse, to begin. Thank you.

Thank you very much and good morning, everyone. Thanks for joining this, our quarter one trading update call, and it covers the 13 weeks up to the 29th of June this year. I'm joined on the call this morning, as usual, by Duncan Leggett, our CFO, and I'll start by giving a few headlines of our trading in the quarter and then dive into a few key areas to provide a bit more detail before, as usual, passing to you the questions. And also, just as a reminder, we are today holding our AGM. That's at 11 o'clock this morning, and we'll be hosting that at our offices here in St. Albans, and also with an option of attending virtually, just like we've done last year. So if there are any shareholders who would like to attend and don't yet have the details, then please do contact Richard Cobham in Investor Relations for details of how to attend. So on then to the quarter one results, and I'm pleased to report that once again, we've had a very good start to the year. As you know, our business model is all about building and growing brands, and the shape of the numbers we reported this morning certainly reflect that. So sales growth for the quarter was 5.3%, with branded sales growing 7.3%. And this was, of course, again, some very strong year-ago comps of plus 21% and plus 17.5%, respectively. So overall, as I say, a very good start to the year. Now, as we said back in May, that when we exited last year, we were back in branded volume growth and that we expect this to continue into this year. And that's exactly what's played out in this first quarter. I'm pleased to say that we've delivered some very healthy volume growth in both our grocery and fruit trees businesses. And this is testament to both the strength of our brands and with our leading category positions and the effectiveness of our well-proven branded growth model. We've also continued with the slightly sharper promotional pricing that we introduced towards the end of last year, which has been very successful in bringing more consumers into our brands. And we've also increased market shares across the board on both a volume and value basis. And you may also recall that back in May, we said that we've grown grocery market share by 200 basis points over the previous three years. So we're very pleased to have delivered further share growth on top of these already tough comparatives. And as we said before, not only is this due to the strength of our brands, but also, very importantly, down to us continuing to drive our brand growth model and delivering against our five-pillar growth strategy. But I'll come back to that shortly. In terms of strategic progress against the five-pillar growth strategy, we all remember that one of those pillars is expanding our brands into new categories in the UK. And I'm pleased to say that we've continued the strong momentum in those new categories with sales up 68%. And similarly, if we look at the strategic pillar of expanding overseas, we've also delivered a strong quarter with sales in our overseas market of 24% of constant currency. And so good progress on those strategic pillars, as well, of course, driving the core UK business. So this very positive start, and with strong plans for the rest of the year, I'd say that we're on track at this early stage in the year, and so our expectations for the full year are unchanged. So let's take a look at some of the progress in this first quarter. But before I do, I'd just like to remind us of our brand and growth model, which is at the core of what we do and is the reason why we've been able to deliver such consistent and strong performance over the last five years or so. So we start with a portfolio of brands which are leaders in their categories and have got very high household penetration. And we listen very carefully to our consumers. to bring to market insightful new products which are based on current consumer needs and trends. We then support many of our brands with emotionally engaging advertising and impactful marketing campaigns. And then finally, and importantly, we work closely with our key retail partners, delivering excellent in-store execution for our brands. So turning to our grocery business then, and as I highlighted at the start, the groceries delivered this quarter was driven by our brands, and very much a volume-led, so a really good quality shape to the trading. And as I mentioned, we also grew both volume and value market share within this. There was a very broad base and strong performance all round, and a similar pattern to that which we reported in quarter four. Total grocery sales grew by 7.1%, with brands that are 8.6% in the quarter. Lots of very good performances across the brands, but I'd particularly call out Missing, and the Spice Tailor has been particularly well. The Spice Tailor, in fact, continues to deliver some very strong rates, well into double-digit percentages. And towards the end of the quarter, we expanded the core Indian range with new Indian kits in Balti, Jalfrezi, Madras, and Mango Curry variants. This is a significant expansion of that core Spice Tailor Indian range. But in addition, after some significant work by our shop, Behind the scenes, since we acquired the brand, we're now starting to expand the brand into different cuisines, with the first step being into Chinese, with a new range of Chinese kits, which started to hit the shelves at the back of the quarter. Over the previous five years, sales of the Nissin brand have grown exponentially strongly, in fact by 54% on average every year, and the brand is now as big as our Lloyd Grossman's horses business in revenue terms. And this form has extended into quarter one, with Nissin's sober noodle pots continuing to grow very well, with the larger pot format a strong contributor for the quarter's sales. As we look to quarter two, we'll also start distributing the Nissin Demi Ramen noodle range, which now gives us some presence in the world food aisle of the store. Healthware and Grocery launched Roy's Grocery Mart and Mascarpone sauce, which has started very well, and we're also about to launch Roy's Grocery Pesto sauce, in quarter two. Fuel Tancada has a very strong increased sales in its flagship chocolate granola in the quarter due to continued good performance across the multiple retailers. And as we look for the rest of the year, we've recently launched products including a new 25 gram protein breakfast shake range and also a range of nutritionally complete meal collisions. The latter coming in both rice and shake formats. Non-branded grocery sales were 5.1% lower in the quarter, and this is due to a couple of things. Firstly, we saw a decline in own-labeled desserts, partially due to some switching from own-labeled into our Ambrosia brand as we sharpened those promotional prices on our core customers and nice pudding. Secondly, we made a conscious decision to exit a non-branded Loodles contract with a customer, so these are the main drivers of the movements in the quarter. Moving then on to sweet treats, growth was also volume and brand driven. So, branded sales grew by 3.5% with overall sales up 0.4%. Our Mr. Kipping Indulgence signature brownie bites, which we originally launched just over a year ago, more than doubled sales compared to the same time last year. In the quarter, we also partnered with the Despicable Me 4 movie. to deliver impactful install activities together with on-pack promotions for Mr Kipling's Snack Pack Slices and this is across all the Mr Kipling's Snack Pack Slices flavour variants and also included the launch of Banana Slices and this contributed to growth against the strong year ago comparative where we benefited from products and promotional activity associated with the King's Coronation and then Cadbury Sales We're in fact in line with last year, which is a good performance given the slightly earlier timing of Easter in 2024, meaning that some sales fell into our previous financial year this time around. Non-branded sales in sweet trees declined by 16%, and this was down from switching from own label into our brands, held by the more competitive promotional price points that we introduced last year on Mr Kipling and Fabry. There are also some conscious contract exits that we've made in Battenberg and Clancy's in some customers. So moving into our other strategic growth pillars, I'm sure you recall that one of these pillars is to deliver growth in our overseas markets. And as I've said before, our focus markets are Australia, North America, and EMEA. And within these target markets, we're currently focused on Mr. Kipling, Charlotte, and the Spice Taylor brands. As I mentioned earlier, overseas sales of Confluent Columns grew by 24% in quarter one. In North America, sales grew by 21% as we rolled out Mr. Kipling cake slices to another 800 stores in Canada, while in the U.S. we launched the first Spice Taylor product, which went into Food Lion stores. And sales of Mr. Kipling in Canada are now building in Walmart and in 7-Eleven. Additionally, we continue to work on driving the rate of sale of Mr. Kipling products in the U.S. We made further good progress in EMEA as we continued to gain distribution of Charlotte and the Spice Tailor. We've now achieved listings of the Spice Tailor in 11 countries, having added Germany to the list in the quarter. So in Europe, the Spice Tailor is therefore now listed in retailers in France, Belgium, Switzerland and Germany. In Australia, sales were up quite substantially with strong sales in both cake and cooking sources. Charlotte's sales increased following the introduction of new family-sized Charlotte Indian cooking sources as we cement our leading position in the Indian cooking sources category. Cake continues to perform really well in market, helped by recent new product launches and a broader advertising campaign. And also as a reminder, as we've mentioned before, a year ago, comps on cake are actually very soft, as this time last year, retailers were reducing stock levels of cake due to reduced shipping room times. And given we've now got leadership positions in Australia in both cake and Indian sauces, we're starting to expand our footprint into further categories. So in the quarter, we launched our Bisto Best Grody jars from the UK, although as we don't own the Bisto name down there, they're branded as Paxo, so it's Paxo Best Grody. It's early days, but we've been pleasantly surprised by how well it's selling, and we're already looking to expand the range of flavours available. Now I mentioned that our sales in new categories increased by 68% so you may recall this is very similar to the trend we delivered last year when revenues grew by 72% although of course this is now of a larger base. In the quarter we actually tripled sales of Angel Delight and Mr Kipton Ice Cream as we further expanded the distribution and the ice cream tubs have performed really well and if you were to rank all the brands of ice cream tubs in the category by how fast they sell then we are generally in the top half. So still early days but really encouraging. We also saw the benefit of the recently launched Angel Delight handheld format, and this is in classic Angel Delight flavours, including butterscotch and banana, and then coated in chocolate. Also in our new categories, we've talked a lot about Ambrosia Porridge Pops, which have become an established presence in the breakfast category. They continue to grow very strongly, up 66% so far this year, again with a higher market share than the same quarter last year, around the 10% share mark. Additionally, both OctoRubs and K-Person Spice grew double digits in the period as well. And then just as a reminder, our final strategic growth pillar is to look for inorganic opportunities which we can bring into Premier Foods and deliver further growth by leveraging the strength of our branded growth model. And that was a key principle we applied when we assessed the fit of both the Spice Tailor and Fuel 10K. As we've said before, we'll continue to explore further inorganic opportunities where we believe we can add value by applying our branded growth model. And of course, we've now got greater flexibility in terms of size of opportunities that we can consider given the strength of our balance sheet. However, and also as we've said before, we are quite picky in this area and we'll update you when we've got anything more we can share. So with that summary of some of the main elements of trading in the quarter, I'm now going to hand over to Duncan. He's going to talk briefly about a change to our international reporting and also a favourable update to our financing arrangements. Many thanks, Alex, and good morning, everyone. So that does just a couple of things for me. You may have seen from the R&S this morning that we've amended how we talk about our international business. So previously Ireland was managed by the international team, but during Q1 we changed it, so Ireland now reports we're our UK business. So the international team is now focused on growing in our current target markets of Australia, North America and India, as Alex outlined a few moments ago. And we'll talk about performance on this basis going forward. And as a result of this change, really good news, Ireland will benefit from the loss of some of our marketing programs from the UK, as well as a faster rolling off of new products. Now, just to be clear, just a reminder, this doesn't change our reported segments of grocery and sweet treats. Internationals was and still will be reported as part of the grocery business. It's just in fact, when we talk about international related to its performance, the measure that we use. Secondly, I'm really pleased to announce we've agreed a new revolving credit facility with our banking group that's actually a more favourable term than the previous facility. You may have seen this this morning, but this new agreement is a five-year agreement that gives us a nice platform of certainty. It attracts an initial margin of 2% of our money. It was 2.25 previously, and it's larger, so the fertility increases from £175 million to £227.5 million. So, we really appreciate the support of our banking group in coming to this agreement. I think this really reflects the strong progress we've made in the business over the last few years. And, of course, gives us more committed funds over a longer period as we continue to execute our strategy. We also know we've got our fixed rate bonds. They mature in October 2026. And you'll see this morning that our cash guidance for the year is unchanged. So, that's it for me. And I'll now hand back to Alex to sum up. Thank you, Duncan, for that really good news on the RCS. So, look, in summary, we've had a really good start to the year with a strong quarter one that sets up nicely for the rest of the year. It's particularly intriguing to see the strong growth from our brands and that turnover growth is being driven by some very strong volume growth, which is just as we'd expected. As we look forward to the rest of the year, we expect to see further volume-led growth. And, of course, we'll be continuing to support our brands, bringing a number of new products to market, as well as building further distribution of our brands overseas. And some of the strong first quarters behind us, particularly for our brand and portfolio, we're on track, and our expectations for the year are unchanged. So thank you very much for your time. I will now pass back to the operator, and we will be very happy to take your questions. Thank you.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Next question is from James Edward Jones from RBC. James, your line is now open. Please go ahead.

Thank you. Morning, Kim. I've got three questions actually all around the promotional spending. What's happened to your price gap, particularly with private label, as a result of the promotional spending increases that you've put through? Secondly, have any categories or brands shown particular pricing activity or responsiveness to this promotional activity? And third, have you noticed any response from competitors? either own label or branded any increased promotional activity from others in response to your actions?

Morning James and thank you for that. Price gap with private labels. So, yeah, I mean, obviously that has decreased and that was very much the intent. So, we've got a pretty good understanding and a little probably actually dovetailing to your second question. And one of the things that we see as a key trend is that we're quite analytical about all this stuff. It's very mass-based. We're not making judgment calls on commercial activity. We're making very sort of mass-based decisions. And we've got a really good understanding of where our price elasticities are across our grants. I suppose what's changed over the last couple of years is the extent of inflation in total over that two-year period meant that a lot of our models, our 50 models were broken. We had to rebuild them in the new environment. But what we're seeing really is that as we've sharpened those promotional price points, we've done it where we know we're going to see the greatest price elasticity and therefore get the greatest gains and also consequently the greatest volume leverage back through our factories. So yes, that does manifest itself in a tightening of pricing gap versus private label and we are Seeing exactly what we saw when we increased our prices is that pink is a more price elastic category. And that's one of the reasons why we're seeing, I think, quite a significant swing of volume back from private label into the brands since we sharpened those promotional price points. In terms of competitor response, there's not a great deal to note, I think, at this point. We've got to bear in mind we don't necessarily have direct competitors in most of the categories we operate in. A private label officer will always be as competitive as it possibly can be. There aren't that many categories where we've got a head-to-head branded competitor. But what we also know, and I've talked about this before, is that a number of the areas where we have got competitors were still trying to recover pricing and they could rebuild their margins behind us. They were lagging behind, so we've still seen some slight increases coming through in a number of categories. Hopefully that answers that, James.

Yes, very much. Thank you very much.

Thank you.

Thank you. The next question is from Andrew Hott from Peahunt. Andrew, your line is now open. Please go ahead.

Morning, Alex and Duncan. Well done on a great first quarter. A couple from me, if I can. The potential branded growth number, you said it was broad-based across the brands, but I wondered just on the customer side, is there any particular ones that you're outperforming in? And can you give us a quick update on Fuel 10K? Sure. Still early days there, but I'm just wondering if there was any early things to tell us about what you're seeing. And lastly, in international, some impressive distribution gains in North America. I think you're up to 4,000 stores now from 1,400. How do you think about that over the next 12 months? Is the focus now on throughput in those stores? And maybe at what point does your ability to supply become an issue there and maybe limit your growth? Yes, basically from me, thank you. Well, Adrian, thank you very much for that. So, yeah, so broad-based growth across the brand is absolutely right. We don't specifically comment on individual customer performance, but probably the way to think about it is, I would say, broadly in line with what you're seeing in terms of customer performance in the market, if that helps. And then, fielding K, what do we think? Well, actually, a lot of excitement is in the commercial team. It's probably the main thing, I think. So, obviously, we've got... a great ambition when we bought the brand. But I think what's playing out in real life is actually that there's more opportunity here than we even originally thought. So a lot of opportunity that's currently being pursued in terms of closing distribution gaps. So products are performing really well but haven't got the distribution they deserve for that level of performance. And so the sales team are all over that at the moment. There are some new products. that are actually coming to market now or going to come to market later in the year. And those were things which the Fields Bank A team were already working on and we will continue to pursue. And then a little bit further down the line, there's a lot more new product development going on, but that will not make it to market this year. Of course, that will be more the year after and probably the year after that. So plenty, plenty to go at. In addition, we're now starting to evaluate the possibility that Fuel Tank K could be launched into some of our overseas markets. That was not something that we assumed in our acquisition model because we didn't have enough data to validate it. So anything that we can do with the brand overseas will obviously therefore be incremental to our, admittedly, internal assumptions for when we bought the ram. So, yes, lots of exciting stuff happening. International, we have 4,000 test scores in the U.S. now. I think this year Will we see more stores? Probably. But actually, there's more focus now on making sure that we're getting all the nuts and bolts right on a daily basis. So have we got the right products in the right stores at the right price with the right promotional frequency and following that up, making sure that all the execution is spot on because we know that in FMCG, install execution is incredibly important even if you've got a great product. So what I'd much rather do is have the team focus on that now and making it work and then more stores will come afterwards if that makes sense. Great. And just on your limit on the supply side, is there, yeah, I assume there's no sort of concerns around that if you're maintaining the 4,000 stores, but yeah. Yeah, sorry, I forgot to answer that part. There's something we did quite a bit of work on before we decided to take the brand into the States and we've got sufficient capacity that we can turn on in the UK should we need it and that would last us quite a long time. I think in some of our absolute best case scenarios, and I really mean best case scenarios, we could theoretically get to a point where we would need to put some extra capacity in somewhere and then we have to have an interesting discussion about whether that's in the UK or whether it's somewhere in North America but we are I would say best case scenarios and several years down the line anyway so not something we need to think about right now. That's really clear, thank you.

Thank you. The next question is from Damian McNeill from Deutsche Bank. Damian, your line is now open. Please go ahead.

Hi. Good morning, everybody. Thanks for taking the questions. Just a few from me, please. Firstly, on the Q1 performance, I was wondering whether you could indicate to what extent the poor weather trends aided the performance, or whether you believe it is all just down to the branded growth model and the promotional campaign that you've been conducting. And then, allied to that, whether you could give us a sense of the shape of price and volumes for the remainder of the year. Should we expect a sustained level of promotional activity for the remainder of the year? And then finally on the international business, clearly we've got some very good growth boosted by distribution, but I was wondering whether you could give us a sense of underlying rate of sale for the U.S. business, please.

Thanks for that. So quarter one performance, was it affected by weather? Probably a bit. We know that we've got some weather sensitivity in our portfolio. We've always been very clear on that. you know, when it's cold it alters and, you know, when it's warm it has the opposite effect. The quarter was interesting though because, you know, May, for example, was the hottest May on record. So, you know, in that sense that didn't help at all. But then June was obviously, you know, pretty wet, although warm and wet. So it's kind of interesting, you know, when you take it all into account, Did it help us? Probably a bit, but I wouldn't call it out as being a major driver of performance in the quarter, if that was what was behind the question. Shape of price and volume for the rest of the year. So, yes, we expect that the strong volume growth will continue. as we continue with those sharper operational price points because they've worked very well for us. What you've got to bear in mind, though, as we go into the second half of the year, that's when we start to implement some of those sharper price points on cake first and then following on from that in quarter four on gravy. So I'd expect to see some tapering off of the volume growth in the second half of the year, but at the same time, that reduction in price per unit will also fall away as well. So, you know, we've probably got, you know, first half driven by volume and then that's starting to taper off in half too, if that makes sense. Yes, please. I'm sorry, the final question on the international business. Underline rate of sale in the States. I cannot give you an easy answer on that because it's very much a function of the individual stores, the individual stores like the U.S., retail market you probably realise is incredibly fragmented and complicated and it's actually quite difficult even to get data out of a lot of the stores to be honest with you but what we do have is some data in some stores where we are able to track rates of sale compared to other cake products and that's what the local team are using as a benchmark to measure themselves against but other than that there's not a lot more I can give you I'm afraid.

Yeah, okay, thank you very much Alex.

Thank you. We've got next question from Darren Sherry from Shore Capital. Darren, your line is now open, please go ahead.

Yeah, morning all. First question is on acquisitions. I mean, obviously a key part of your growth strategy going forward. I mean, how would you guys sort of categorise the marketplace you're operating in, in that respect? I mean, in terms of, is there plenty of opportunities out there? How would you look at sort of vendor demands and requirements? Are they being sort of realistic? And how has sort of the flow into you evolved since Spice Tailor and 10K? Are you now a significant port of call for a lot of potential vendors? Any sort of thoughts on that would be good.

Yeah, good morning, Dan. Thanks for that. Yeah, you're absolutely right. It's a cool part of our five-pillar growth strategy. I think it's an interesting question. Are there plenty of opportunities? There's certainly plenty of things out there, but as we've said many times, we are pretty sloppy. And we chose very, very carefully with both of the two acquisitions that we've made so far, and we will continue to be just as sloppy. So whilst there's a lot of stuff out there, There's only a few things that are going to frankly pass muster and make it onto the shortlist. So we continue to sift through an enormous number of possibilities to get down to a few gems. So that continues to be, you know, continues to be the game plan. Are we becoming a go-to place for vendors and advisors? I think so, yes, because we've been very clear what we're trying to do and very clear on what we're looking for. And so as things come up, we definitely hear about them. But also bear in mind that both on the Spice Terror and Fuel 10K, neither of those were openly for sale. They were brands we liked and went and approached the owners and managed to convince them we'd be a good home. So we continue to take that approach as well. We're not just waiting to see what comes up.

Yes, yes, yes. I mean, our model, I think, sort of consensus suggests that, I mean, leverage is going to fall quite nicely and cash starts to build actually over the medium term. I mean, would you be comfortable to see that sort of dynamic play out if the right opportunity comes along? I mean, do you feel under pressure to do deals in any respect?

I think we feel under pressure to do deals but at the end of the day it is a core pillar of the strategy so we continue to work very hard on it but what we won't do is we won't do the wrong deal just for the sake of it. The strength in balance sheet and position in balance sheet just means that the things we look at we can consider things that are a bit bigger than we've been able to so far.

Makes sense. Just within international, I mean, obviously sort of mid-20s growth across the board is great, but I looked at the EMEA number at 6%, and you were talking about sort of extra distributions and that in there. Is there anything we should be aware of within that 6% if that looks a little bit subdued, can I say?

Yeah, you've probably noticed we used to talk about Europe, didn't we? And we've now started to talk about EMEA, and the reason for that is but we see some opportunity in the Middle East. We've got a bit of cabri business down there. We're starting to take a spice tailor into them here as well. But it's really early days. And if you actually took that out and just looked at Europe under the measure we would have used historically, then it would not impact double-digit growth again.

Okay. Okay, that's clear. Okay, thanks, guys.

Thanks, Anthony.

Thank you. As a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. We currently have no further questions, so I shall hand back to CEO Ellis Whitehouse for the closing remarks.

Well, thanks, everybody, for dialing in this morning, and thanks for the helpful questions. So, you know, as I said, in summary, we're off to a nice start. It's always good to be in a good position at the end of quarter one, but it is only quarter one. We've still got quite a few years to go, but as I say, it does set us up quite nicely for the rest of the year. And so, as I said before, on track and therefore no change to outlook. But thanks again to everybody for dialing in.

This concludes today's call. Thank you for joining. You may now disconnect your lines.