Premier Foods plc

Hello, everyone, and thank you for joining the Premier Foods Q3 Trading Update Analyst Call. My name is Marie, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand over to your host, Alex Whitehouse, CEO, to begin. Please go ahead.

Thank you and good morning everyone. Thank you for joining this, our quarter three trading update call. That covers the 13 weeks through the 28th of December last year. I'm also joined on the call this morning by Duncan Leggett, our Chief Finance Officer. So I'll give an overview of our third quarter trading before we open the call up to your questions as usual. As you all know, quarter three is our most important quarter of the year. And so I'm pleased to say that we continue to deliver and that takes our year-to-date position to plus 5.9%. This branded revenue growth has been very much volume-led across our brand portfolio, and so, as you might remember, continues the trend we saw in the first half of the year. With this volume-led branded growth in our key third quarter behind us, we're now very pleased to be able to raise our expectations for trading profit for this financial year. Looking at a couple of other headlines, Group sales increased by 3.1% on a constant currency basis, which means that after the first three quarters, group sales are now ahead by 4%. You may recall that that's against a fairly strong comparative. At this point last year, our Q3 year-to-date sales were up 17.1%. So we relaxed this strong comparative. This further strong growth demonstrates the strength and continued relevance of our portfolio of brands. Of course, that strong brand performance continues to be underpinned by our branded growth strategy, leveraging our great market-leading brands and driving growth by bringing highly relevant new products innovation to market. And that's based on our in-depth understanding of consumer needs and trends. And 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 consumers. And then we deliver excellent input execution for our strong retail partnerships. And whilst this is always important, it's especially so in quarter three, which as we know is our key quarter in terms of sales. Now, as I've said before, our brand building model is actually very similar to some large-cap multinational branded food businesses. In fact, we see ourselves as just a much smaller version of one of these multinationals. The main difference, of course, is that we're still in the early stages of our international expansions. And I'd argue that our size and culture make us more agile and so quicker to respond to consumer needs. As I've said many times, brand investment is really important to our brand growth model. And we invest strongly behind our brands in our first quarter. And this year was no exception. So, Ambravia, Bisto, Bachelors, Oxay, Charlotte and Mr. Kisling, they all benefited from advertising support in the run-up to Christmas, demonstrating continued commitment to building strong brands for the long term. In terms of product innovation, we again introduced a number of new products, and that's based on our in-depth consumer understanding. And again, these have helped deliver incremental sales, and they include things like the Spice Bailer, expanding into a broader range of East Asian cooking sauce kits, and Fuel 10K, expanding into the broader cereal market with multigrain flakes, and Louis Graceman with both toaster and mascarpone sauce, and expanding into Pepto, to name just a few of the things we do. Now, one of the key trends we've been seeing during this third quarter is consumers trading up and treating themselves over Christmas, and therefore our premium ranges, including Ambrosia Deluxe Desserts, Bisto Best Gravy, and Mr Kittle's signature Brownie Bites, have grown strongly in quarter three. In fact, this continues the trend that we've seen from the first half of the year, and has been an important driver of our growth in the quarter. At the start of this year, we said that we expected to see a return to volume growth this year, and that's following the price-less sales growth last year, when, of course, we were recovering import cost inflation. Well, you'll remember that we delivered significant volume growth in half-month of this year, and this has continued into quarter three, with branded volumes of 7% in the quarter. Once again, we also grew our overall market share, and our volume share gains have been ahead of value share gains which again is a continuation of the shape that we delivered in half one. So if we now turn to look at our grocery business, our sales increased by 2.2%, very much led by our brands, which were up 3.5%. Now I've already mentioned that Ambrosia Deluxe and Bistro Best Gravy had a good quarter, and we also had a number of very good performances across the rest of the grocery portfolio. Low grossman sales grew very well, supported by those new products, so tomato and mascarpone sauce and pesto, both of which we launched in the first half of the year. This in soba and cup noodles again grew strongly, double digits, and in fact in the first three quarters of the year it's now surpassed OXO in terms of revenue as a result of its phenomenal consistent growth in recent years. And this can continue to play both volume and value share, demonstrating its very strong appeal to the UK consumer. It's also been bolstered this year by the addition of the authentic Demi Ramen noodle range, As you know, one of our strategic pillars is to extend our brand into new categories. And sales in those new categories took another step up, increasing 38% and against a very strong quarter this time last year. Now, yet again, Ambrosia porridge pots led the way, and we're very pleased to achieve more distribution this quarter. And we again advertise them on TV. And such has been the success of these porridge pots. We're now just launching to market our fifth flavour, which is sweet cinnamon, which has just gone into stores. Again, all the variants are ready to eat, deliciously creamy and yet low in fat. Also driving the new category's performance was cake, herb and spice, which is going from trend to trend, with sales more than tripling versus last year. The brand now has got very wide distribution, it's available in all the major multiple retailers, and the best-selling stew is Texan Steakhouse, but also the new fruit, lemon and herb, which is actually the third bestseller in the course. Now moving to the brands that we've acquired over the last couple of years, we're really pleased with the progress that these have made with both the Spice Tailor and Fuel 10K growing sales in double digits in the quarter. The Spice Tailor continues to perform very well both at home and overseas and we continue to leverage our innovation capabilities applying them to a lot of the potential of this great authentic brand. This course has benefited from the extension into Chinese and into East Asian source kits with flavours like Spicy Kung Pao and Japanese Teriyaki, both of which helped deliver that double-digit growth. Moving to Fuel 10K. The more time we spend in this ground, the more we're encouraged about its potential, both in the UK and stretching the brand beyond its breakfast heartland, but also the potential opportunity for expansion into overseas markets. This quarter, Fuel 10K's core granola range again grew very strongly. and while the recently launched 25 gram ultimate protein drink also continues for the growth. We've also recently moved into the mainstream big box breakfast cereal part of the category, where we launched multigrain flakes in the course, and we've just introduced multigrain hoops as well. And they've got 50% less sugar than others in the market, and they're high in protein and fibre, so perfect for those looking for a healthy breakfast option. Turning to Street 3, sales increased by 5.5% in the quarter, and within this, the brandless side of the business delivered very strong volume-led growth, with revenue up 8.9% and volumes up 10%, which we're obviously very pleased with. Both Mr Kipling and Cadbury Cake were fairly equal contributors to the shape of the growth in the quarter, and they basically were ahead of the market. Non-branded sales were in line with last year. Mr Kipling had a strong Christmas. We sold 20% more Mr Kipling branded mince pies. And within this, we more than doubled sales of our premium signature mince pies. As I mentioned earlier, we've definitely seen consumers trading up over the last couple of quarters. And this includes into our signature brownie bites. We've had another strong quarter following the excellent roast delivered in half one. Cadbury Cake also had a very good period of growth and you may have seen in our statement this morning that we've recently extended the licence we hold with Mongole for manufacture, sell and distribute Cadbury Cake through to 2028. A brief word on the non-branded side of the business then. I mentioned that three three non-branded sales were in line with last year and over the medium term that would be our expectations, although the nature of this part of the business is such that it might be a bit lumpy from year to year, but over the medium to long term it should be broadly flat. In grocery, non-branded sales were 9.3% lower, largely due to some contract exits, but we're also seeing some evidence of consumers continuing to trade up into our brands from private labels. Now looking at our international businesses, these made and some further very good progress in the quarter, with overall sales up 29% and double-digit growth in all our target regions. And as a reminder, our three key brands, which are a strategic focus for us overseas, are Mr Kipling, Charlotte, and the Spice Tailor. And as I alluded to at the interim, we're also now seeing an increased opportunity for True 10K to expand overseas as well. So in Australia, Mr. Kipling was again a key provider of growth. This was down to the strength of our core case slices range and some new flavors of bakewell sauce. We also expanded our brand investment in Mr. Kipling to a third region in Australia with a five-month campaign using our little fee factors. But additionally, as we start to expand in Australia beyond cake and Indian cooking sources, we've now got an early presence in the gravy category where we've launched a number of Paxo brands which is also an encouraging start and performed pretty well in the quarter. As we've said before, sometimes the quarterly sales profiles are taking up very little fluctuate a little. As far as Q3 is concerned, some of the kipping gauges chipped a little earlier than we expected. They've landed in quarter three rather than quarter four. So quarter four sales growth in Australia may turn out to be a bit lighter than we saw in Q3. But the key thing is that we perform well in market and that absolutely continues to be the case. In North America, the Spice Tailor grew strongly due to increased distribution in Vestro and Sobeys in Canada, firmly establishing the brand in market and also supported this quarter by Duvalier seasonal activity. And in the US, we're now in market with our first customer with the Spice Tailor, where we're seeing some promising early results. And then finally in EMEA, Sharwoods was a standout performer as we delivered increased distribution in Germany, Belgium, Spain and in Portugal. So that's a run for some of the key highlights in Q3. As we look ahead to Q4, as you'd expect, we've got strong plans in place, including further new product launches, advertising support for our brands, and impactful execution lined up for in-store. And as we referred to in the statement this morning, we're expecting the level of volume growth to moderate during the fourth quarter as we lap more of those promotional price changes that we made last year. And certainly as we go into next year, we expect sales growth to be much more balanced between the blend of volume growth and the price. So to wrap up then, we've had a very good Christmas, characterised by strong volume-less branded sales growth in both grocery and three trees, with a clear trend of consumers trading up to premium ranges. And we've also paid some further market share, and we've continued to live on all the pillars of our five-colour growth strategy, with sales from new categories up 38%, our international business up 29%, and double-digit growth in all our target regions. And then Spice, Taylor & Fields NK continue to grow very strongly as we apply our growth model to those acquired brands. And as I mentioned right at the start, given that strong brand of performance in our key quarter, we're now diving to the upper end of expectations for this financial year. I can also tell you that quarter four started well, and I think we're in good shape for the rest of this financial year and, in fact, beyond. And so with that, I'd like to thank everyone for your time this morning. I'll stop there and pass it back to the operator, and Duncan and I will be more than happy to take your questions. Thank you.

Thank you, Alex. 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 that your device is unmuted locally. We will allow for a momentary pause for you to register your questions. Our first question is from Charles Hall of Fuel Hunt. Please go ahead.

Morning, Alice. Morning, Duncan. Well done. Another good quarter. Good morning. Good morning. A couple of questions for you. So firstly, could you just talk a little bit about the inflationary environment that you're currently seeing and how your pricing strategy will run through this year, as in the current year rather than just the financial year? And secondly, great to have extended the modular contract. Are there any changes in that contract or is it business as usual?

Yes, thank you. So inflationary environment, I mean, we are obviously, like everybody's seeing, some inflation creeping back into the system again, but it's relatively benign. We see this as almost a return to that sort of low single-digit year-on-year inflation, and that's therefore what's likely to feed through into our pricing as we go into next year. So, essentially, getting back to the rhythm that the industry was in prior to COVID and prior to the very high levels of inflation we saw. So, I think that's pretty straightforward. And the whole of those contracts is born of the payments that the previous one really made significant changes to it that are really made.

Perfect. That's helpful. Thanks.

Our next question is from Karina Lyas of Barclays. Please go ahead.

Hi. Thank you for the presentation and congratulations on the strong results. I just have a quick question with regards to your outstanding bonds. Obviously, the call to us steps down in June 25. Any particular plans to potentially take those out earlier? Thank you.

Hi, morning, Graeme. Thanks very much for the question. I mean, we've got bonds. We've got bonds going out for October 26. So, yeah, call premiums that's done and doing, as you rightly say, will be keeping an eye on. Obviously, we'll be needing to re-pilot some of the bonds for the October 26 deadline, so keep an eye on markets.

And we'll see how things go from there. Perfect.

Thank you. We have a question from Patrick Folden of Barclays. Please go ahead.

Morning. Thanks for the questions. Just looking at the UK branded volume growth, which you guys outlined it in H1 was 12% for grocery and I think 19% for sweet treats. How has that evolved since then by segment? And my second question is just on any product launches or geographical expansion we should be mindful of in Q4. I think there's still the fuel, 10K high-protein, little plots to come. Is that all we should be thinking about for Q4?

Thanks. Hi, Patrick. So, the key driver here is you only apply things. So you might remember at the beginning of the year, we said that what we've done is we've reduced our promotional pricing on some of our most price-sensitive ranges, and that's because we have a little bit of flexibility in our input costs. And that works really well for us. So we've seen very strong volume-led growth, particularly in the first part of the year. What's happening now, and it started to happen during Q3, is that we're lapping when we made those changes to those promotional prices. So what you're starting to see is you're starting to see a narrowing of the gap between volume growth and value growth. So that's why you're seeing that difference in volume growth between part one and now into Q3. And that will continue through Q4. And so eventually we get to a point where we back into the course of where we're increasing our prices year on year and you'll see that flip then where we've got more value growth than volume growth. So that's really the journey we're on with that and it's all really driven by year on year pricing. So the category expansion in Q4, well there's two different things here. So there's the ongoing promotional, sorry not promotional, ongoing innovation programme. So on all our categories, We've tasked our marketing team with developing new products that are suited to consumer changing needs and trends. And we have a three-year rolling program of new products that we're bringing to market. So you would reasonably expect that in the fourth quarter, there'll be the quarter's fair share of those new products coming to market. And the dates, by the way, are more driven by when the retailers have their reviews of their ranges and when we can then swap them in. That's slightly different from what we talk about with the new category expansion and that's when we're taking products into categories where we've not played before. So that's things like cake, herbs and spices we've not played in herbs and spices before. It's the polished pots because prior to buying tools and cake we had no presence in breakfast so that was our first step into breakfast. and it's things like the experiments we've got going on with the brand of ice cream so there's two different things so in the course you'll see more innovation across the brands I don't believe we've got any entries into new categories coming in before the course off the top of my head so does that answer the question Patrick?

Yes, yeah, and just on the first one, is there any kind of quantifiable number you can give on UK brand of volume growth by segment or no?

Yeah, we don't really discuss all that by segment, but, you know, there was more volume growth in 3T, which is what drove that very, very strong branded value growth. But there was, you know, a very overall random grade was, random volume grade was plus 7% overall.

Yeah, okay. Thank you, Alex. Thanks.

We have a question from Damian McNeill of Dutch News. Please go ahead.

Hey, morning, Duncan. Morning, Alex. I hope you're well. A comment from me. Thank you. First question is, can you talk about some of the factors that are driving consumers from private label into branded because it may sound counterintuitive given the sort of the pressure the consumer remains under and then just secondly kind of a follow up on the inflation question can you sort of remind us of your exposure to Coco and your position on Hedging there and then just finally perhaps just a few lines on the opportunity within Gravy in Australia and how big that category is, please?

Sure. So, perhaps it's driving consumers from private labels to private. I don't have an answer for that on a macro total market basis, but I can tell you that, you know, certainly within our portfolio, there's a couple of things that are driving that. You know, more recently, we've got what I talked about before, which is that... that shift in promotional pricing which has made us more competitive versus private label this year than the prior year so that's helped some consumers sort of trade up into the brands it doesn't explain the trade up into premium segments of the brands though which I think is more led by what we've been doing with the brands to be honest and there certainly seems to be an appetite to the problem with consumers But if you offer a genuinely superior product, people are prepared to pay a bit more for it. And I think that's a large part of what we're seeing. And so therefore, our innovation program, as we bring better quality products and products that are very on trend for consumers, then we see people being prepared to pay for them and step out of private labels. So I think that's the key driver, certainly from our side, I don't know for other businesses. Inflation, as I said, yeah, overall pretty benign and very single digit. Cocos are standout, you're absolutely right. We don't use a huge amount of it apart from in the category products where clearly there's exposure there and the extent to which we're hedged or not, you know, hedges them out. And so ultimately I think, you know, that ultimately flows through and has to be dealt with. And then opportunity and gravy in Australia, I don't recall the size of the gravy market in Australia off the top of my head, but it's a pretty decent sized market. But probably the broader point here is that we've got ourselves into a position where we're the market leader in both of the key categories we step off to build in Australia. So we're the clear market leader in cake and continue to grow strongly there. And we're the key, clear, clearly the biggest player in Indian cooking sources. So now it's really about pushing our elbows out a little bit and saying, well, you know, we're not just going to stop at two categories. Obviously, we're going to explore further categories, you know, similar to what we've got in the UK. And gravy is an obvious thing to look at, as are some of the other categories as well.

That's great. Thanks very much, Alex. Can I just ask a quick follow-up on that sort of Mondelez chocolate exposure? Does the new contract, or does the contract allow you to pass on cocoa costs? Or do you have to deal with them yourself?

Well, yes, we've got complete control over pricing, which we have to have legally anyway. So, yes, we buy Cadbury chocolate from Cadbury, but we can price for the market at whatever price you want.

Right. Okay. Thank you.

We have a question from Matthew Webb of Investec. Please go ahead.

Morning, everyone. So I've got a couple of questions on the international side and then one broader question, please. On the international, obviously you've placed a very, very strong plus 29% revenue growth number, but you said there was maybe a bit of shipment phasing there. I just wondered what. what you would guess the underlying growth number was. And then second on international, you obviously had a very, very rapid rollout of Mr Kipling in the US, and I just wondered whether you could give us a bit of an update on that, whether that caused what the sort of rate of sale, rate of repeat purchase is looking like there.

So those going international. And then just a broader question.

I think previously you've

indicated that you know after a few years of pretty wild swings in terms of you know COVID boosting volumes and then you know freshers meaning you have very strong pricing you sort of indicated that the pre-COVID rate of revenue growth would be a reasonable guide going forward.

But I just wondered in the light of today's, you know, further strong growth on the branded side, you know, despite the fact that you're now lapping, you know, some of the more normal promotional activity, whether you think that guidance is still fair or whether you think that actually, you know, you're a better business now than you were then and should therefore potentially be growing noticeably faster.

That's all from me. Thanks.

Sure. So, let's start with international. I'll do them and you will be wrapped up. So, obviously, really strong growth from the international business again. As I say, it was made a little faster by that shift in shipments because what happens is that, particularly with cake, the retailers take title to the product on the dock side and then they're responsible for shipping it. So, it's as if as they as they get it on the ship, is sort of almost like the point of sale. So we don't have exact control over whether it falls into last week or next week, you know, and so it can move around a little bit. But the underlying sales growth, if I look at EPOS pill sales in Australia, they continue to grow really nicely. I would say that, you know, I don't know the math off the top of my head, but we would certainly be in good double digits. In terms of the US, I think it's quite interesting. I think if you look at North America, you might remember we launched into Canada a couple of years before the US. We're quite encouraged by that because that's really taken off over the last few months. It's almost as though it's gone through an incubation period. It's hit a point of inflection and we've recently gained a lot of incremental distribution in Canada. And so a Canadian case is therefore a key driver of our North American case sales at the moment. And what we've done a couple of years behind that in the States, we've got a good level of distribution, a few thousand stores. And what we've been doing is working on fine-tuning then how that performs in stores. So we've taken quite a few learnings from that. We're making some changes. making some changes to the packaging, and we're introducing some new product formats as well that will come to market probably in the beginning of the next financial year. So, you know, sort of still working to build that, but quite encouraged by how quickly things are now starting to sort of grow in Canada. The only other thing I'd say as well is you don't see this as all international fraud. It's not about just US tech. We've got many ions in different fires and different regions across the world and we'll continue to sort of build them all sequentially. We're not overly focused on any one particular element and we're also particularly interested in what we think we can do with Fuel 10K, where I think we'll probably see the first overseas launches starting to come into the first part of the next financial year as well, which is quite exciting. In terms of outlook, so actually I think what we said in terms of outlook, and I stand by this, is if you look at the kind of growth levels the business delivered pre-COVID, to your point, I think it was 3% or so, I think from memory, and that was broadly driven by half value, half volume, wasn't it? And where that value growth was a combination of a bit of price and a bit of premiumisation. So what you've got now, I think you're right, this is a better business. And over the medium term, we would expect to perform better than that because you've got a core business still, which continues to perform well, driven by the innovation efforts. But then you've also now got a stronger international business, which is going consistently well. You've got new categories, entries, which we didn't have before. And we've also got acquisitions, which are, you know, the two that we bought so far are called growth amplifiers and that they will are expected to consistently grow faster than the core business. So when you add all these two things together, you know, you'd expect that the businesses are leading to grow sort of mid-single business somewhere and consequently ahead of where we were pre-COVID, if that makes sense, yeah?

Yes, it does. Absolutely. Thanks very much indeed.

Very interesting answers. We have a question from George Edward Jones of RBC.

Please go ahead.

Hi, Duncan. Two very related questions, but are we to assume now that you're happy with your relative price position versus our label in aggregate? And related to that, have you been tempted to go again on the more aggressive promotional pricing given how successful it's been over the last year?

Are we happy? Yes, I think we are. But it's a very dynamic exercise for us. I think one of the things that we pride ourselves on as a business is we're very analytical on these things. Our pricing decisions, our promotional decisions are not judgmental. They are quite mathematical in a sense. And so we run econometric modelling in order to understand just exactly what what any small change in price or indeed position in store from promotional activity would give us. And we constantly fine-tune accordingly. I think we're pretty happy with where we've landed at the moment. The big shift was, prior to the significant inflation of the last few years, we knew this stuff inside out. You know, minor changes in price and promotion, we would have a very, very keen understanding of how that would impact performance and that was played into our promotional planning. You go through this huge inflationary cycle and obviously all those price points and things have changed and so what we've been doing over the last year is recalibrating the model so that we were again back to that very keen understanding and what we're always trying to do of course is manage ultimately to optimise cash profit generation through optimising volume, value and margins and getting that sweet spot right, bearing in mind that there's always the element that the more volume you put to the factory, the more efficient it becomes and there's a more healthy margin. So we always kind of balance that triangle to get to the ultimate long-term profit delivery. So really that's what we've been doing and long answer to a question, but we're pretty happy with where we've landed next.

Thank you.

We have a question from Andrew Wade of Jeff Leith. Please go ahead.

Morning, team. A couple of quick ones from me. The first one, you sort of talked to strong execution being sort of broad, strong execution being supportive to branded volume growth. Obviously, there's a lot of elements to that in terms of marketing, leveraging the retailer relationship, in-store execution. new product just wondered if we could get a bit more colour on that broadly and where you thought you'd been particularly strong within that so that was the first one and then the second one around acquisitions Spice Taylor and Fuel 10k really encouraging to see them in double digit growth and just are they continuing to are they performing ahead of your expectations there or is this sort of broadly where you'd expect them to be at this stage

I think it's quite difficult to deconstruct the elements of the model because they all complement each other. So you've got strong ground that people know, you give people good quality products and then you also innovate and give them new stuff that's on trend and fits with what they want whilst continually advertising and then you put big displays up in stores. It's But the thing is, they all work together. And so I can't particularly deconstruct it. I think execution over Christmas was particularly good this year, particularly so in sweet treats. We know we've got more distribution across the board than we had a year ago. So I talked about that in terms we've got, you know, simple terms, more products in more stores than we had a year ago, which always is helpful, of course. And, you know, we're increasing over the medium term. We've always said we'll continue to increase the investment that we make in the brands in order to keep them relevant for consumers. So all those things really pulling together, and it all came together really nicely over Christmas when it mattered most, really. As far as the acquired brands are concerned, yeah, great to see double-digit growth from both of them, but they're doing what we expect them to. I hope you may remember on both of them when you acquired them. I said these are brands which we expect to make several times the size they are on the day we bought them and that's the trajectory that we're on and that's what we expect to continue.

Great stuff. Very clear. Thank you.

We have a question from Darren Shirley of Shore Capital. Please go ahead.

Yep. Morning, Sharon. Hello, Darren. Hello. A couple for me if you don't mind. Just going back to sort of the M&A question which Andrew touched on there. I mean, how are you seeing the marketplace sort of post the budget and the revised expectations around sort of interest rates and what's coming down the line in costs? Are you seeing any changes in vendor behaviour at all from that? Or do you anticipate any going forward?

Not really. I mean, I think, you know, we've said before we're really fussy. And when we, you know, we're constantly, constantly looking, you know, for what we're going to bolt on to the business next. Obviously, we're delighted with how the first two acquisitions have gone. So doing more with that would be great. There is a lot of poor quality stuff out there, I'd probably say. so there's a lot of things that we've looked at and we don't we're not interested in because there's no there's no point in buying we've bought quality ground so we continue to look until we find things that we you know the fundamental thing is can we apply our branded growth model to it in order to deliver some really good performance and it can it be and it can it be maximum possible and that's really ultimately what we're looking for yeah I think I think we've seen a bit of a, you know, previous bit of a disconnect between, I guess, buyer and seller expectations. I think that has narrowed a bit over the last sort of 12, 18 months. We'll see where it goes. I think, you know, in the environment you're describing, I think it's, you know, as important as ever as we maintain our populousness, as Alex said, and that will extend to the financial and the return hurdles as well.

Okay. No, that's helpful. And Could you just ask another one on Sweet Treats, which was obviously nice to see the branded performance there. It seems a fair proportion of that has been driven by seasonal lines and premium lines, which may be sort of distinctive to the Q3 period. Can you just give us a bit more colour in terms of how the core performed in that? And do you think you're in a position now where you can replicate in Sweet Treats branded what you've done in grocery, i.e. deliver growth on a consistent basis? Have you got confidence in that?

I think actually if you look at the trajectory of our sweet-sweet business prior to the significant price inflation it did deliver consistent strong growth I think Sweet Treats is very sensitive to what I would call good quality inputs. You get the innovation right, you get the promotion activity right, you've got the right advertising behind it. It responds very well. the only thing that slowed it down a little bit was it's also more price sensitive so when we increased prices because we had no points obviously that did slow the growth trajectory down so I've every confidence that the cake business can deliver that consistent strong growth just as we've done in growth and if you look at If you look at seasonal events, seasonal events are a really important part of the calendar. So obviously we've got Christmas, which we've probably just had, and we're already manufacturing and trying to ship Easter. And so we sort of go from one event to another. We've got then the whole period around autumn and Halloween as well later in the year. So you've always got this interplay between your base business and your seasonal business as the seasonal business cycles change. in and out and you shift your promotional emphasis during those periods from the core to the seasonal it's just part of how that category operates and being in line with what the consumer wants to buy so to the best of my knowledge the core was solid underneath but at this time of year you're focusing on your seasonal because that's what everybody wants to buy Is it the success of that seasonal which is the

potential driver for margins? Because there's always been a bit of a disconnect between the sweet treats margin and the grocery margin. As you get more confidence in that seasonal and more successful in that, is that where a margin opportunity comes or is that across the board?

I wouldn't correlate that to seasonal particularly, Davon. I think, you know, from our point of view, margins on retreats are going to come through further automation and investment in equipment, which is obviously our second pillar of our strategy, which is, you know, taking some of this cash that we're generating, investing it back into our operations in order to improve efficiency and confidently that will flow through to markets.

So the opportunity you saw in Carlton a few months ago, basically.

Yeah, exactly. Exactly what you saw in Carlton, yeah.

Yeah, excellent. Okay, thanks for that. Thanks, James. Thanks, Dan.

We have a question from Andrew Ford of Steelhunt. Please go ahead.

Morning, Alex and Duncan. Just a word from me. This might be partially answered already. Given the switch back to kind of volume-led growth, the margin is holding up pretty well. I just wondered how much the mix is helping that, particularly thinking about that increase in premium, but maybe some of the other fast-growing elements also sort of contributing. But, yeah, it could just be a function of the strong branded volumes overall. I just sort of wondered what the, yeah, wondered sort of how much was rich. It's quite a complicated pitch, to be honest. I mean, certainly, you know, as I said before, sticking more volume through a factory makes it more efficient. And that's particularly the case with cake. And so that's definitely played a role. Mix plays a role, not just mix, but premium, but, you know, into category mix as well. But also, I think it's important to see in context of we do have I think I've mentioned this before, we have a very robust program of margin optimization within the business. It's always been a very important part of what we do. And our teams are tasked and measured on that as well. So what we've always looked to do right from the very beginning is to expand our growth margins sufficiently to fund the investment in the growth of the business. And in fact, if you go back to where we were a number of years ago, that was the only way we could actually generate any content investment in the business. So that's what got the business going in the first place. So that culture of being really, really keen on costs and really, really keen on how we optimize margins is just very much part of what we do. Thank you.

We have a question from Matthew Abraham of Bandig. Please go ahead.

Morning all. Thanks for taking my questions. Just wondering if you could provide some color on the cadence of branded sales volume just prior to that Christmas period. Just wondering if you've seen significant ramp up in branded sales volume growth as you approach an event like Christmas and how you expect branded sales volume to play out for the rest of the financial year. And then the second question is just in reference to competitors. Just wondering if you've seen any change in the way that they're engaging in the market as they approach the onset of increases in the national living wage.

Thank you. Sorry, could you just repeat the second question for me? I just didn't catch the beginning of it.

That's okay. The second question is just in reference to real competitors. I'm wondering if you've seen any changes in the way that they're engaging in the market ahead of the increase through the national leading wage.

Thank you, Brian. Okay, that's clear. Yeah. So a brand of sales, let's talk about that briefly then. So I'm kind of going to repeat a bit what I've already said, but the key drivers here are, and I think probably the first thing to say is our model, our brand building model, the brand of growth model, and what we do with innovation and how we support the brands in itself by the volume. So that is what the volume goes that we would expect to get because of the application of that model. But then what we've got overlaid on top of that over the last 12 months has been the fact that we fine-tuned our pricing, our promotional pricing, on some of our more price-sensitive product ranges downwards. And so that's driven this really strong volume growth that we've seen this year. You've got an inherent volume growth from the programme, and then you've got the price sensitivity benefit as well. And that's really what's driven that. I wouldn't necessarily expect to see a massive difference in a roll-up for Christmas. Really, I mean, we would expect to execute well over Christmas and we would expect to perform well over Christmas, but then you'd expect that in the prior year base as well because it's just an important, you know, very important part of our seasonal sales. So really that's kind of what's driven where we are today. If I look, you particularly said about whether we see this for the rest of the financial year. So as we're in quarter four now, we are lacking when we were making those promotional price decreases a year ago. And so, as a consequence, what we're seeing is we're seeing that volume-value gap narrow. So, volume growth and value growth coming more into line. As we go into the next financial year, when we will have increased our prices, we talked about those single-digit input cost inflation a few minutes ago, then I'd expect it to flip the other way. We'll start to see value growth ahead of volume growth because our price per unit will be higher. Does that make sense?

Yeah, it does. That's helpful. Thank you.

Yeah. And then in terms of competition, not really is the simple answer. I think, at least specifically as it applies to the maximum living wage and inflation, I think we saw Over the last year or so, we saw while we were decreasing prices, we still saw some competitors increasing, and that was because they were trying to catch up where they'd lost first margins during the high inflation of the previous two years. As we go into next year, I've got no doubt that we'll see, you know, some low single-digit price inflation across the food industry because everybody's wrestling with the same input costs. So I think what we'll see is we'll see competitors putting their prices up more you know, sort of low single digit, but we'll have to see. Everybody's got their own situation, so we'll have to see how that plays out.

Okay, that's helpful. Thank you.

As a reminder, to ask a question, please press star followed by one on your telephone keypad. We will allow for a momentary pause for you to register your questions for the final time.

Thank you. We currently have a question from Clive Black of Shore Market Capitals. Yeah. Morning, gentlemen. Thank you.

Just two very quick ones from me, just listening to all the answers for which thanks. Firstly, to what extent would you say breakfast is emerging as a new significant opportunity for family foods? And secondly, Post Cadbury's news, which is really good, and the performance of cake, herbs and spices, are licensing agreements part of your growth strategy as well in a more substantial way? Thank you. One more advice. Obviously, in practice, it's a big opportunity. Yes, absolutely. That's the case. If you go all the way back to when we launched the Ambrosia porridge pot, that was simply because we saw this strategic gap in our portfolio. We built a big business in the UK that's really eaten from lunchtime up. And so there was a whole gap in the morning where we didn't really play. And the first step of that was obviously Ambrosia Porridge Pops. There are more things that we will do in breakfast with other brands. But then, of course, the big thing has been buying Fuel 10K, where we've seen really strong growth in breakfast if we look at our breakfast market share it's uh you know it catapults forwards um with some really strong share gains um so yeah definitely definitely will continue to drive that um and then i think um um you know moving on to the cavalry news and the capitals and spikes um i think you know we've obviously had that license for a long time it's kind of cool to our business uh And I'm obviously really happy to be continuing to work with a guy that mumbles on that. And Spice was just something we came across when we were looking around the world for innovation options. And we came across it and thought, well, you know, probably the best thing we do is just, rather than create our own, we'll just sell the product that we found in South Africa or in the UK for them. So that was somewhat opportunistic. So why am I saying that? Because there is no real... strategic intent to bring to market licensed products because we prefer on balance to own the brand. Those are two, one historic with Cadbury and the other one with Opportunistic. And just in terms of that brand ownership, does manufacturer really matter or are you more agnostic about just owning the brand and pushing it as opposed to having the capital behind making it and exclusivity? Case by case basis I'd say it's right. I mean obviously we know that if we've got something that's manufactured outside of the company and we invest in the kit to make it ourselves we see a significant improvement in margin. So obviously we tend to look at those as a return on investment. proposition so in the past we've taken products that have been made for us and we've brought them what we call bringing it in-house so we've moved to making it ourselves and then we were looking at the payback on that capital in the same way we would on any of the other capital investments.

We currently have no further questions so I will hand back to Alex for closing remarks.

Thank you. So, thanks everybody for joining the call this morning. As you can see, we've had a really good Christmas. We're confident about the rest of the year. So, therefore, we're making that change in our profit outlook for the year. I think all the different pillars of the strategy are firing well for us. So, all five pillars of the growth strategy are working well for us and we're feeling confident about our future. So, thank you very much for your time.

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