Premier Foods plc

Hello, everyone, and thank you for joining the Premier Foods Q1 Trading Update Analyst Conference Call. My name is Harry, and I will be your operator. All lines are currently in listen-only mode, and there will be an opportunity for Q&A after management's prepared remarks. If you would like to enter the queue for questions, release our star followed by one on your telephone keypad. And I would now like to hand the call over to Premier Foods CEO Alex Whitehouse to begin. Please go ahead.

Thank you very much and good morning everyone. Thanks for joining us for our quarter one trading update call and that covers the 13 weeks up to the 28th 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 on our trading in the quarter and then we'll dive into a few key areas to provide a bit more detail before as usual passing to you for your questions. As a reminder, by the way, we're holding our AGM at midday today, which we'll be hosting at our offices here in St. Alden. So if any shareholders would like to attend and you don't have the details, please do contact Richard Godden in our investing relations for details of how you can attend. So on to the quarter one results then. And firstly, I'm pleased to say that we've grown our brand of sales again in quarter one. And we've also increased our market share. So branded sales were up 1.2%, and that was led by a particularly strong performance in branded sweet treats, which was partially offset by some of our grocery brands, which were held back by the unusual hot weather that we've been having. So overall, our group sales were 0.3% higher than last year. And you may recall, we're also lapping some very strong comps. One of the reminder, grocery branded sales were up 8.6%, and total branded up 7.3% last year. So our market share continued to grow, both volume and value market share. You might also recall that last year we delivered some particularly strong volume share gains as we sharpened some of our promotional price points. So taking further volume share this quarter against that strong comparative was very encouraging. I'm also pleased to say that we're on track at this early stage of the year with our trading profit expectations for the full year 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 you of our branded growth model, which is at the core of what we do and is the reason why we've been able to deliver such consistent, strong performance over the last six years or so. So firstly, we've got a portfolio of strong brands, which are leaders in their categories, and have got very high household penetration. But we then listen very carefully to our consumers so that we can create solutions and bring to market insightful new products which are based on current consumer needs and trends. And then we support many of our brands with emotionally engaging advertising and impactful marketing campaigns, which, in fact, we're currently evolving to incorporate more digital media and leveraging influencers on some of our brands. And then finally, but very importantly, we work closely with our key retail partners to make sure that we're delivering excellent in-store execution for our brands And it's this brand of growth model that underpins our five pillar growth strategy, where we continue to make strong progress in all the pillars, but I'll come back to that shortly. So let's start with our sweet treats business first, where we've had a really great quarter here with branded sales increasing by 11.4%. And a significant part of that growth has been driven by the quality of the innovation program that we've got in place, which is obviously a key part of our strategy. However, I should point out that the underlying core business also continued to perform very strongly. In terms of some of the examples of new products, I've spoken about our Mr. Kipling signature brownie bites before, and they've been performing very well over the last year or so, tapping into the indulgence consumer trend. And they continue to deliver further growth for this quarter as well. And we've also launched Mr. Kipling lunchbox licensing quarter one, which have been specifically designed to be less than 100 calories so that they can be included in school lunch boxes. And they're also, of course, non-HSS, so not high in fat, salt, sugar. But one of the big highlights of Sweet Treat this quarter has been the success of birthday cake tarts and also strawberry and cream tarts. So these birthday cake tarts have been inspired by a trend that we've seen in the United States of birthday cake, as a flavour, not just as a cake. And we've replicated this with some small tarts, which have done incredibly well since we launched them a few months ago. And we've also introduced a caramel version of our leading Cadbury Mini Rolls, and that's also performed very well, and that helped our Cadbury sales, as well as Mr Kipling sales, increase by double digits this last quarter. Looking forward to the next quarter and beyond, we just launched Mr Kipling Breakfast Bakes, which contain fibre, And I've got 30% less sugar than similar cakes. And that's the perfect on-the-go solution as we further expand our breakfast offering. And so moving on to the grocery business. So this quarter, our grocery branded sales were 2% lower than the same period a year ago as they lacked some strong comparisons. And also some of our grocery categories were impacted by that warmer, sunnier weather we've been having here in the UK compared to what was actually quite the cool down spring last year. From our experience, there are a few specific categories which can be impacted by warmer or indeed colder weather, and that's things like gravy, stocks and soup, and also dessert, so custard to an extent too. And we tend to see more of an impact in the shoulder seasons, so a warmer spring or autumn can be more impactful, and likewise, a cold spring or autumn has the opposite effect. However, this is very much a short-term factor. We don't see any read across on a medium to long-term basis. And so that everyone's aware, by the way, we're on a journey to de-seasonise the business and reduce the impact of weather. So, for example, we take this into consideration in our M&A strategy. And you can see that both the Spice Taylor and Fuel 10K, which have got little or no weather sensitivity. And also, as we grow our business overseas, this will reduce the impact of short-term UK weather effects. Now, as we look to the second half of the year for our grocery brands, we've got some particularly strong innovation to come, such as Bisto Peri Peri Gravy, which aims to bring more younger consumers into the category, and also the continued rollout of Batchelor's new microwavable ranges, which includes pasta and sauce, and also what we're calling Meals and Minutes. Moving to the non-branded parts of the business, non-branded grocery sales were 9.3% lower in the quarters. We continue to right-size this part of the business and we exited a couple of contracts in custard and salt. However, we also saw consumers switching from our own label desserts into Ambrosia, which is obviously exactly what we want to see. Non-branded sales in sweet treats declined by 5.5%, which was also largely due to some contract exits. And while the nature of these non-branded contracts can mean the business can be quite lumpy on a quarter-to-quarter basis, As we look forward to the second half of the year, we expect non-branded sales for both grocery and sweet treats to start to flatten out. Now, to look more broadly at the progress we've made on our other strategic pillars, it remains very encouraging. So you'll 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 38% this quarter. This further momentum was again led by Ambrosia Pommage Pots, as it leveraged further distribution gains in both the major multiple retail and large stores, but also now into convenience stores as well. And it now also has five flavour variants in the market too. And perhaps not surprisingly, Pommage Pots has again continued to deliver significant market share gains. As a reminder, and reflecting the success of porridge pots, we're also in the process of laying down some additional capacity for porridge pots at our manufacturing site in Devon. Another key driver of the new category's growth in the quarter was Cape Herbs and Spice, which is really becoming an established presence in the market, as it benefits from increased distribution from the range of what is now 4P retail SKUs. And we've also got a few in fruit service as well. The cake range is extremely versatile. It's great at bringing great flavour to liven up a wide variety of dishes, including poultry, fish, salad and ribs, and also across many midweek evening meals. And also, of course, the barbecue season, which we'll have benefited from over the last few weeks. So growth from new categories also included the expansion of Fuel 10K into mainstream big box cereals with products such as multigrain flakes and multigrain hoops. And these are all protein enriched in line with the rest of the Fuel 10K range. It's early days for this range, but we can already see that they're bringing younger consumers back into the traditional cereals category. And as we look forward to quarter two and beyond, we've got a strong set of plans for new products in new categories. And this includes the launch into the chilled aisle with Fuel 10K yogurt and granola pots. So adding to the breadth of our breakfast offerings. And we're also expanding our Angel Delight ice cream range with what we call handheld twists. And they're in strawberry and vanilla and in butterscotch and chocolate flavors. If we now move on to international, as I've said before, our focus markets are Australasia, North America, and EMEA. And within these target markets, we're currently focused on Mr. Kipling, Sharwoods, and the Spice Taylor Browns. So in the quarter, overseas sales of constant currency grew by 5%. So again, going ahead of our UK core. In Australia, we grew sales double digits with further good progress in cake and cooking sources. And both our cake and cooking source brands continued to perform really well in market, driven by the continued execution of our brand of gross model as we further build on our market leadership positions. You may recall that we've advertised both Mr. Kipling and the Spice Tailor on TV in Australia recently, and we continue to introduce new products to market, as well as maintaining strong relationships with the retailers there. Sales also grew very strongly in Canada as the sales of Mr. Kipling continued to build, partly due to the increased distribution that we gained last year. And in the U.S., we're updating the Mr. Kipling range accentuating the Britishness of the product range with pack designs that include iconic British images such as Big Ben. I've mentioned before, but our research suggests that U.S. consumers believe that British cakes will be of higher quality. And then just as a reminder, our final strategic growth pillar is to look for inorganic opportunities where we can deliver further growth by leveraging the strength of our branded growth model. that was a key principle and we applied when we assessed the fit of both the spice tailor and fuel 10k and both of them increased uk sales in double digits this quarter compared to a year ago the spice tailor has benefited from increased sales from the east asian cooking sauce kits and that we've launched and chinese um cooking sauce kits which we launched going last year so These are authentic product flavors such as Japanese teriyaki, Vietnamese curry, and classic sweet and sour sauce. And now to build on the cuisine extensions, we've just launched into Mexican with our new Mexican kit with flavors such as smoky barbecue fajita and chipotle and lime fajitas. Until 10K had an exceptionally strong quarter, and that was helped by a series of new products we've launched recently. extending the brand into a number of different categories. And all of these are, of course, high in protein, which is a central part of the brand's proposition. These new products include instant noodles, a range of instant soups, and protein bowl pouches. And this very latest product is yogurt and granola pots, which have gone into market just a couple of weeks ago into the chilled aisle. And this is a pot with protein and mixed yogurts. with a lid containing some of our market-leading Fuel 10K granola to sprinkle on top or indeed to mix in. And as we said before, we'll continue to explore further inorganic opportunities where we believe that we can add value by applying our branded growth model. Of course, we've now got greater flexibility in terms of the size of opportunities we can consider, given the strength of our balance sheet. However, and also as we've said before, we are quite picky and we'll update you when we've got anything more that we can share. So in summary, we're on track and our trading profit expectations for this financial year are unchanged. It's particularly pleasing to see the really strong growth in Sweet Treats, which is a strong testament to the value that we're delivering from our branded growth model, albeit partly offset in Q1 by the hot weather impact on some of our grocery categories. And as we look forward to the rest of the year, we expect to see the strong comparative ease and revenue build as we leverage the strength of our branded growth model. And as, of course, we'll be continuing to support our brands and bringing a number of new products to market as well as building further distribution of our brands overseas. And over the medium term, we expect to continue to make strong progress against all five of our strategic growth pillars. So thank you very much for your time. I'll now pass back to the operator and we will be very happy to take your questions.

Thank you. If you would like to ask a question, please dial star followed by one on your telephone keypad now. If you change your mind and would like to exit the queue, please dial star followed by two. And finally, when preparing to ask your question, please ensure that your device is unmuted locally. As a reminder, that is star one to enter the queue for questions. Our first question today will be from the line of Matthew Abraham with Berenberg. Please go ahead. Your line is now open.